VICTORY PORTFOLIOS, 497, 1996-03-08

VICTORY PORTFOLIOS
497, 1996-03-08

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Rule 497(c)
Registration No. 33-8982

STATEMENT OF ADDITIONAL INFORMATION

THE VICTORY PORTFOLIOS

FINANCIAL RESERVES FUND

MARCH 1, 1996

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios - Financial
Reserves Fund, dated the same date as the date hereof (the "Prospectus"). This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectus. Copies of the Prospectus may be obtained by writing The
Victory Portfolios at Primary Funds Service Corporation, P.O. Box 9741,
Providence, RI 02940-9741, or by telephoning toll free 800-539-FUND or
800-539-3863.

TABLE OF CONTENTS

INVESTMENT OBJECTIVE AND POLICIES.........2 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS.. 8 KeyCorp Mutual Fund Advisers, Inc.
DETERMINING NET ASSET VALUE..............10
VALUATION OF PORTFOLIO SECURITIES........12 INVESTMENT SUB-ADVISER
PERFORMANCE COMPARISONS..................12 Society Asset Management, Inc.
ADDITIONAL PURCHASE, EXCHANGE AND
REDEMPTION INFORMATION.................14 ADMINISTRATOR
DIVIDENDS AND DISTRIBUTIONS..............15 Concord Holding Corporation
TAXES....................................15
TRUSTEES AND OFFICERS....................16 DISTRIBUTOR
ADVISORY AND OTHER CONTRACTS.............21 Victory Broker-Dealer Services,
ADDITIONAL INFORMATION...................28 Inc.
APPENDIX.................................32
TRANSFER AGENT
INDEPENDENT AUDITOR'S REPORT Primary Funds Service Corporation
FINANCIAL STATEMENTS
CUSTODIAN
Key Trust Company of Ohio, N.A.

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STATEMENT OF ADDITIONAL INFORMATION

The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-eight series of
units of beneficial interest ("shares"), four of which series are currently
inactive. The outstanding shares represent interests in the twenty-four separate
investment portfolios which are currently active. This Statement of Additional
Information relates to the Victory Financial Reserves Fund (the "Fund") only.
Much of the information contained in this Statement of Additional Information
expands on subjects discussed in the Prospectus. Capitalized terms not defined
herein are used as defined in the Prospectus. No investment in shares of the
Fund should be made without first reading the Fund's Prospectus.

INVESTMENT OBJECTIVE AND POLICIES

ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS

The Fund's investment objective is to seek to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity through
investment primarily in high-quality, U.S. dollar-denominated money market
instruments.

The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.

HIGH-QUALITY INVESTMENTS. As noted in the Prospectus for the Fund, the Fund may
invest only in obligations determined by Key Advisers to present minimal credit
risks under guidelines adopted by the Fund's Board of Trustees (the "Board of
Trustees" or the "Trustees").

Investments will be limited to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings from a nationally
recognized statistical rating organization ("NRSRO") or (ii) possess, in the
case of multiple-rated securities, one of the two highest short-term ratings by
at least two NRSROs; or (iii) do not possess a rating (i.e. are unrated) but are
determined by Key Advisers or the Sub- Adviser to be of comparable quality to
the rated instruments eligible for purchase by the Fund under the guidelines
adopted by the Trustees. For purposes of these investment limitations, a
security that has not received a rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by Key Advisers or the Sub-Adviser to be comparable in priority and
security to the obligation selected for purchase by the Fund. (The above
described securities which may be purchased by the Fund are hereinafter referred
to as "Eligible Securities.")

A security subject to a tender or demand feature will be considered an Eligible
Security only if both the demand feature and the underlying security possess a
high quality rating, or, if such do not possess a rating, are determined by Key
Advisers or the Sub-Adviser to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, this obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by Key Advisers or the Sub-Adviser. A security which at the time of issuance had
a maturity exceeding 397 days but, at the time of purchase, has remaining
maturity of 397 days or less, is not considered an Eligible Security if it does
not possess a high quality rating and the long-term rating, if any, is not
within the two highest rating categories.

Pursuant to Rule 2a-7 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund will maintain a dollar-weighted average
portfolio maturity which does not exceed 90 days.

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Under the guidelines adopted by the Board and in accordance with the Rule, Key
Advisers or the Sub-Adviser may be required to dispose promptly of an obligation
held by the Fund in the event of certain developments that indicate a diminution
of the instrument's credit quality, such as where an NRSRO downgrades an
obligation below the second highest rating category, or in the event of a
default relating to the financial condition of the issuer. In this regard, the
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the price per share of the Fund as computed for the purpose
of distribution, redemption and repurchase at $1.00. Such procedures will
include review of the Fund's portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether its net asset
value, calculated by using readily available market quotations, deviates from
$1.00 per share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders (a "Material
Deviation"). In the event the Trustees determine that a Material Deviation
exists, they will take such corrective action as they regard as necessary and
appropriate, including selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends, paying shareholder redemption requests in portfolio
securities at their then-current market value, or establishing a net asset value
per share by using readily available market quotations.

The Appendix of this Statement of Additional Information identifies each NRSRO
which may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Fund and provides a description of relevant
ratings assigned by each such NRSRO. A rating by an NRSRO may be utilized only
where the NRSRO is neither controlling, controlled by, or under common control
with the issuer of, or any issuer, guarantor, or provider of credit support for,
the instrument.

BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.

Bankers' acceptances will be those guaranteed by domestic [and foreign] banks,
if at the time of purchase such banks have capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements). Certificates of deposit and demand and time
deposits invested in by the Fund will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.

[The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.]

COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.

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The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by an NRSRO or, if not rated, found by the
Trustees to present minimal credit risks and to be of comparable quality to
instruments that are rated high quality (i.e., in one of the two top ratings
categories) by an NRSRO that is neither controlling, controlled by, or under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instruments. For a description of the rating symbols of
each NRSRO see the Appendix to this Statement of Additional Information.

VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.

VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the SubAdviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.

Variable or floating rate notes may have maturities of more than one year, as
follows:

1. A note that is issued or guaranteed by the United States government or any
agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.

2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in one year or less, will be deemed by the Fund

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to have a maturity equal to the period remaining until the next readjustment of
the interest rate.

3. A variable rate note that is subject to a demand feature scheduled to be paid
in one year or more will be deemed by the Fund to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.

4. A floating rate note that is subject to a demand feature will be deemed by
the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.

As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding one year and
upon no more than 30 days' notice.

U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.

OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers will waive its investment advisory
fee with respect to assets of the Fund invested in any of the money market funds
of the Victory Portfolios, and, to the extent required by the laws of any state
in which the Fund's shares are sold, Key Advisers will waive its investment
advisory fee as to all assets invested in other investment companies.

REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price, or to the extent that the disposition of
such securities by the Fund is delayed pending court action.

REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets (such as cash or other liquid
high-grade securities) consistent with the Fund's investment restrictions having
a value equal to the repurchase price (including accrued interest); the
collateral will be marked-to-market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the

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O PARTICIPATION INTERESTS. The Fund may purchase interests in securities from
financial institutions such as commercial and investment banks, savings and loan
associations and insurance companies. These interests may take the form of
participation, beneficial interests in a trust, partnership interests or any
other form of indirect ownership. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying securities.

O EXTENDIBLE DEBT SECURITIES. The Fund may purchase extendible debt securities.
Extendible debt securities purchased by the Fund are securities that can be
retired at the option of a Fund at various dates prior to maturity. In
calculating average portfolio maturity, the Fund may treat extendible debt
securities as maturing on the next optional retirement date.

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Fund may decline below the price at which the Fund is obligated to repurchase
the securities.

"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "when issued"
basis, the custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when issued" securities for
speculative purposes, but only in furtherance of its investment objective.

GOVERNMENT "MORTGAGE-BACKED" SECURITIES. The Fund may invest in obligations of
certain agencies and instrumentalities of the U.S. Government. Some such
obligations, such as those issued by the Government National Mortgage
Association ("GNMA") or the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of FNMA, are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or FHLMC, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies and
instrumentalities if it is not obligated to do so by law.

The principal governmental guarantor (i.e., backed by the full faith and credit
of the U.S. Government) of mortgage-related securities is GNMA. GNMA is a wholly
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and pools of FHA-insured or VA-guaranteed
mortgages. Government-related (i.e., not backed by the full faith and credit of
the U.S. Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations owned entirely by private stockholders.
Pass-through securities issued by FNMA and FHLMC are guaranteed as to timely
payment of principal and interest by FNMA and FHLMC, respectively, but are not
backed by the full faith and credit of the U.S. Government.

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pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount. Among the
U.S. Government securities in which the Fund may invest are government
"mortgage-backed" (or government guaranteed mortgage related securities). Such
guarantees do not extend to the value of yield of the mortgage-backed securities
themselves or of the Fund's shares.

GNMA CERTIFICATES. Certificates of GNMA are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that the funds may purchase are the "modified pass-through" type,
which entitle the holder to receive timely payment of all interest and principal
payments due on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the payment.

The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the U.S. Government. GNMA is also empowered to borrow without limitation from
the U.S. Treasury if necessary to make any payments required under its
guarantee.

The estimated average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates above par in the secondary market.

FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"), mortgage participation
certificates ("PCs") and collateralized mortgage obligations ("CMOs"). PCs
resemble GNMA Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal. Recently introduced FHLMC Gold PCs guarantee the timely payment of
both principal and interest.

CMOs are securities backed by a pool of mortgages in which the principal and
interest cash flows of the pool are channeled on a prioritized basis into two or
more classes, or tranches, of bonds. FHLMC CMOs are backed by pools of agency
mortgage-backed securities and the timely payment of principal and interest of
each tranche is guaranteed by the FHLMC. The FHLMC guarantee is not backed by
the full faith and credit of the U.S. Government.

FNMA SECURITIES. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA, but has expanded its activity to the secondary market for conventional
residential mortgages. FNMA primarily issues two types of mortgage-backed
securities, guaranteed mortgage pass-through certificates ("FNMA Certificates")
and CMOs. FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates and CMOs. The FNMA guarantee is not backed by
the full faith and credit of the U.S. Government.

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of owning instruments which do not make current interest payments is that a
fixed yield is earned not only on the original investment but also, in effect,
on accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the Zero Coupon Bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, Zero Coupon Bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest currently, which fluctuation increases
in accordance with the length of the period to maturity.

INVESTMENT LIMITATIONS AND RESTRICTIONS

The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "Additional Information -- Miscellaneous" of this Statement
of Additional Information).

THE FUND MAY NOT:

1. Purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the United States government, its
agencies or instrumentalities) if, as a result thereof: (i) more than 5% of its
total assets would be invested in the securities of such issuer, provided,
however, that in the case of certificates of deposit, time deposits and bankers'
acceptances, up to 25% of the Fund's total assets may be invested without regard
to such 5% limitation, but shall instead be subject to a 10% limitation; (ii)
more than 25% of its total assets would be invested in the securities of one or
more issuers having their principal business activities in the same industry,
provided, however, that it may invest more than 25% of its total assets in the
obligations of domestic banks. Neither finance companies as a group nor utility
companies as a group are considered a single industry for purposes of this
policy (i.e., finance companies will be considered a part of the industry they
finance and utilities will be divided according to the types of services they
provide). (Note: In accordance with Rule 2a-7 under the 1940 Act, the fund may
invest up to 25% of its total assets in securities of a single issuer for a
period of up to three business days.)

2. Borrow money except (i) from a bank for temporary or emergency purposes (not
for leveraging or investment) or (ii) by engaging in reverse repurchase
agreements, provided that (i) and (ii) in combination ("borrowings") do not
exceed an amount equal to one third of the current value of its total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made.

3. Make loans to other persons, except (i) by the purchase of debt obligations
in which the Fund is authorized to invest in accordance with its investment
objective, and (ii) by engaging in repurchase agreements. In addition, the Fund
may lend its portfolio securities to broker-dealers or other institutional
investors, provided that the borrower delivers cash or cash equivalents as
collateral to the Fund and agrees to maintain such collateral so that it equals
at least 100% of the value of the securities loaned. Any such securities loan
may not be made if, as a result thereof, the aggregate value of all securities
loaned exceeds 33 1/3% of the total assets of the Fund.

4. Act as an underwriter (except as it may be deemed such in a sale of
restricted securities).

5. Buy or sell real estate, commodities, or commodity (futures).

6. Issue any senior security (as defined in the 1940 Act), except that (a) the
Fund may engage in transactions which may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) the Fund may acquire
other securities that may be deemed senior securities to the extent permitted

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under applicable regulations or interpretations of the 1940 Act; (c) subject to
certain restrictions, the Fund may borrow money as authorized by the 1940 Act.

Fundamental limitation 2 is construed in conformity with the 1940 Act, and if
any time Fund borrowings exceed an amount equal to one third of the current
value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) at the time the borrowing is made due to a
decline in net assets, such borrowings will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the
331/3% limitation.

The following restrictions are not fundamental and may be changed without
shareholder approval:

THE FUND MAY NOT:

1. Purchase the securities of a company if such purchase, at the time thereof,
would cause more than 5% of the Fund's total assets to be invested in securities
of companies, which, including predecessors, have a record of less than three
years' continuous operation.

2. Pledge assets, except that the Fund may pledge not more than one third of its
total assets (taken at current value) to secure borrowings made in accordance
with limitation 2 above.

3. Invest more than 10% of the value of the Fund's net assets in securities that
are illiquid, including repurchase agreements providing for settlement in more
than seven days after notice or more than 15% of its net assets in securities
which are "restricted as to disposition."

4. Purchase or retain the securities of any issuer, any of whose officers,
directors, or security holders is a trustee, director, or officer of the Fund or
of its investment adviser, if or so long as the Board of Trustees, directors,
and officers of the Fund and of its Investment Adviser together own beneficially
more than 5% of any class of securities of such issuer.

5. Purchase securities on margin (but the Fund may obtain such credits as may be
necessary for the clearance of purchases and sales of securities).

6. Write or purchase any put or call option.

7. Make short sales of securities.

8. Invest in companies for the purpose of exercising control or management and
will not purchase the securities of any issuer if, as to 75% of its total
assets, it would own more than 10% of the voting securities of any such issuer.

9. Invest in the securities of other investment companies, except that the Fund
may invest in shares of money market funds that are not "affiliated persons" of
the Fund (unless permitted by Commission regulations or exemptive relief) and
that limit their investments to securities appropriate for the Fund, provided
investment by the Fund is limited to: (a) ten percent of the Fund's assets; (b)
five percent of the Fund's total assets in the shares of a single money market
fund; and (c) not more than three percent of the net assets of any one acquired
money market fund. The investment adviser will waive the portion of its fee
attributable to the assets of the Fund invested in such money market funds to
the extent required by the laws of any jurisdiction in which shares of the Fund
are registered for sale.

10. Invest more than 5% of its net assets in warrants, valued at lower of cost
or market. In addition the Fund will not invest more than 2% of its net assets
in warrants not listed on the New York or American Stock Exchange.

11. Invest in oil, gas or other mineral exploration or development programs.

- 9 -

<PAGE>

Also, the Fund does not currently intend to:

1. Purchase obligations of savings and loan institutions and savings banks.

2. Purchase commercial paper which is not rated in the single highest category
by Duff & Phelps, Inc., Fitch Investors Service, Inc., Standard & Poor's
Corporation, or Moody's Investors Service, Inc., or if unrated, which is not
deemed to be of equivalent quality pursuant to procedures reviewed by the
Trustees.

3. Purchase securities for investment during periods when the sum of temporary
bank borrowings and reverse repurchase agreements (described in fundamental
limitation 2 entered into to facilitate redemptions exceeds 5% of its total
assets.

4. Lend more than 5% of its portfolio securities. Subject to this restriction,
the Fund may lend its securities if collateral values are continuously
maintained at not less than 100% by "marking-to-market" daily.

5. Invest in oil, gas or other mineral leases or in real estate limited
partnerships.

STATE REGULATIONS. In addition, the Fund, so long as its shares are registered
under the securities laws of the State of Texas and such restrictions are
required as a consequence of such registration, is subject to the following
non-fundamental policies, which may be modified in the future by the Trustees
without a vote of the Fund's shareholders: (1) the Fund has represented to the
Texas State Securities Board, that it will not invest in oil, gas or mineral
leases or purchase or sell real property (including limited partnership
interests, but excluding readily marketable securities of companies which invest
in real estate); and (2) the Fund has represented to the Texas State Securities
Board that it will not invest more than 5% of its net assets in warrants valued
at the lower of cost or market; provided that, included within that amount, but
not to exceed 2% of net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. For purposes of this restriction, warrants
acquired in units or attached to securities are deemed to be without value.

GENERAL. The policies and limitations listed above supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, such standard or percentage limitation will be determined immediately
after and as a result of the Fund's acquisition of such security or other asset
except in the case of borrowing (or other activities that may be deemed to
result in the issuance of a "senior security" under the 1940 Act). Accordingly,
any subsequent change in values, net assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations. If the value of the Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.

The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.

DETERMINING NET ASSET VALUE

USE OF THE AMORTIZED COST METHOD. The Fund's use of the amortized cost method of
valuing Fund instruments depends on its compliance with certain conditions
contained in the Rule. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for

- 10 -

<PAGE>

purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.

The Fund has elected to use the amortized cost method of valuation pursuant to
the Rule. This involves valuing an instrument at its cost initially and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. This method may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the Fund
would receive if it sold the instrument. The value of securities in the Fund can
be expected to vary inversely with changes in prevailing interest rates.

Pursuant to the Rule, the Fund will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net asset value
per share, provided that the Fund will not purchase any security with a
remaining maturity of more than 397 days (securities subject to repurchase
agreements may bear longer maturities) nor maintain a dollar-weighted average
portfolio maturity which exceeds 90 days. Should the disposition of a
portfolio's security result in a dollar weighted average portfolio maturity of
more than 90 days, the Fund will invest its available cash to reduce the average
maturity to 90 days or less as soon as possible.

The Victory Portfolios' Trustees have also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Victory Portfolios' investment objectives, to stabilize the net asset value per
share of the Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of the Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds one-half of one percent,
the Rule requires that the Board promptly consider what action, if any, should
be initiated. If the Trustees believe that the extent of any deviation from the
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, they will take such steps as
they consider appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity, shortening the dollar-weighted average
portfolio maturity, withholding or reducing dividends, reducing the number of
the Fund's outstanding shares without monetary consideration, or utilizing a net
asset value per share determined by using available market quotations.

MONITORING PROCEDURES. The Trustee's procedures include monitoring the
relationship between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average Fund maturity)
to minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.

INVESTMENT RESTRICTIONS. The Rule requires that the Fund limit its investments
to instruments that, in the opinion of the Trustees, present minimal credit
risks and have received the requisite rating from one or more NRSRO. The Fund
will limit the percentage allocation of its investments so as to comply with the
Rule, which generally limits to 5% of total assets the amount which may be
invested in the securities of any one issuer. If the instruments are not rated,
the Trustees must determine that they are of comparable quality.

The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.

In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio

- 11 -

<PAGE>

by the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates.

In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.

VALUATION OF PORTFOLIO SECURITIES

As indicated in the Prospectuses, the net asset value of The Fund is determined
and the shares of each Fund are priced as of the Valuation Time(s) on each
Business Day of the Fund. A "Business Day" is a day on which the New York Stock
Exchange ("NYSE") and the Federal Reserve Bank of Cleveland are open for trading
and any other day (other than a day on which no shares of the Fund are tendered
for redemption and no order to purchase any shares is received) during which
there is sufficient trading in portfolio instruments that a Fund's net assets
value per share might be materially affected. The NYSE will not open in
observance of the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

The Fund has elected to use the amortized cost method of valuation pursuant to
Rule 2a-7 under the 1940 Act. This involves valuing an instrument at its cost
initially and thereafter assuming a constant amortization to maturity of any
discount or premium regardless of the impact of fluctuating interest rates on
the market value of the instrument. This method may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
the Fund would receive if it sold the instrument. The value of securities in the
Fund can be expected to vary inversely with changed in prevailing interest
rates.

Pursuant to Rule 2a-7, the Fund will maintain a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share, provided that the Fund will not purchase any security
with a remaining maturity of more than 397 days (securities subject to
repurchase agreements may bear longer maturities) nor maintain a dollar-weighted
average portfolio maturity which exceeds 90 days. The Victory Portfolios'
Trustees has also undertaken to establish procedures reasonably designed, taking
into account current market conditions and the Victory Portfolios' investment
objectives, to stabilize the net asset value per share of each of the Funds for
purposes of sales and redemption at $1.00. These procedures include review by
the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per share of each Fund calculated
by using available market quotations deviates from $1.00 per share. In the event
such deviation exceeds one-half of one percent, the Rule requires that the Board
promptly consider what action , if any, should be initiated. If the trustees
believe that the extent of any deviation from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, they will take such steps as they consider appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. Theses steps amy include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average portfolio maturity, withholding
or reducing dividends, reducing the number of the Fund's outstanding shares
without monetary consideration, or utilizing a net asset value per share
determined by using available market quotations.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:

o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;

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<PAGE>

o changes in Fund expenses; and
o the relative amount of Fund cash flow.

From time to time the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. (See "Performance" in the Prospectus).

YIELD. The Fund calculates its yield daily, based upon the seven days ending on
the day of the calculation, called the "base period." This yield is computed by:

o determining the net change in the value of a hypothetical
account with a balance of one share at the beginning of the
base period, with the net change excluding capital changes but
including the value of any additional shares purchased with
dividends earned from the original one share and all dividends
declared on the original and any purchased shares;

o dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine
the base period return; and

o multiplying the base period return by (365/7).

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with the Fund, the yield will
be reduced for those shareholders paying those fees. For the seven-day period
ended October 31, 1995, the Fund's yield was 5.26%.

EFFECTIVE YIELD. The Fund's effective yield is computed by compounding the
unannualized base period return by:

o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.

For the seven-day period ended October 31, 1995, the Fund's effective yield was
5.40%.

TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions (if any), and any change in each Fund's net asset
value per share over the period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative total return of 100% over ten years would produce an average annual
total return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on an annually compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not constant
over time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year performance of
the Fund. When using total return and yield to compare the Fund with other
mutual funds, investors should take into consideration permitted portfolio
composition methods used to value portfolio securities and computing offering
price. The Fund's average annual total returns for the one, five and ten year
periods ended October 31, 1995 and the period since inception were 5.50%, 4.32%,
5.76% and 6.37%, respectively.

- 13 -

<PAGE>

gains and changes in share price) in order to illustrate the relationship of
these factors and their contributions to total return. Total returns, yields,
and other performance information may be quoted numerically or in a table,
graph, or similar illustration. The Fund's cumulative total returns for the five
and ten year periods ended October 31, 1995 and the period since inception were
23.54%, 75.14% and 117.63% respectively.

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION

The NYSE and Federal Reserve Bank of Cleveland holiday closing schedule
indicated in the Prospectus under "Share Price" are subject to change.

When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value per share at Valuation Time. The
Fund's net asset value per share may be affected to the extent that its
securities are traded on days that are not Business Days.

If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value per share of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.

PURCHASING SHARES. Shares are sold at their net asset value without a sales
charge on a Business Day that the NYSE and the Federal Reserve Bank of Cleveland
are open for business. The procedure for purchasing shares of the Fund is
explained in the prospectus under "How to Invest, Exchange and Redeem."

EXCHANGING SHARES. Pursuant to Rule 11a-3 under the 1940 Act, the Fund is
required to give shareholders at least 60 days' notice prior to terminating or
modifying the Fund's exchange privilege. Under the Rule, the 60-day notification
requirement may be waived if (1) the only effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee or deferred sales
charge ordinarily payable at the time of exchange or (2) the Fund temporarily
suspends the offering of shares as permitted under the 1940 Act or by the
Commission or because it is unable to invest amounts effectively in accordance
with its investment objective and policies or would otherwise potentially be
adversely affected.

The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
SubAdviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.

CONVERSION TO FEDERAL FUNDS. It is the Fund's policy to be as fully invested as
possible so that maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds. This
conversion must be made before shares are purchased. Converting the funds to
federal funds is normally accomplished within two business days of receipt of
the check.

REDEEMING SHARES. The Fund redeems shares at the net asset value next calculated
after the Transfer Agent has received the redemption request. Redemption
procedures are explained in the prospectus under "How to Invest, Exchange and
Redeem."

REDEMPTION IN KIND. Although the Fund intends to redeem shares in cash, it
reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the Fund. To the extent
available, such securities will be readily marketable.

- 14 -

<PAGE>

Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.

DIVIDENDS AND DISTRIBUTIONS

The Fund ordinarily declares dividends from its net investment income daily and
pays such dividends on or around the second business day of the succeeding
month. The Fund distributes substantially all of its net investment income and
net capital gains, if any, to shareholders within each calendar year as well as
on a fiscal year basis to the extent required for the Fund to qualify for
favorable federal tax treatment.

For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the assets of the Fund, dividend income, if any, income from securities loans,
if any, and realized capital gains and losses on Fund assets, if any, less all
expenses and liabilities of that Fund chargeable against income. Interest income
shall include discount earned, including both original issue and market
discount, on discount paper accrued ratably to the date of maturity. Expenses,
including the compensation payable to Key Advisers, are accrued each day. The
expenses and liabilities of the Fund shall include those appropriately allocable
to the Fund as well as a share of the general expenses and liabilities of the
Victory Portfolios in proportion to the Fund's share of the total net assets of
the Victory Portfolios.

TAXES

It is the policy of the Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code. By following such policy and distributing its income and gains currently
with respect to each taxable year, the Fund expects to eliminate or reduce to a
nominal amount the federal income and excise taxes to which it may otherwise be
subject.

In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the IRS Code.

A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during

- 15 -

<PAGE>

a calendar year are less than the required amount, the Fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.

The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his or her income tax return payments of
interest or dividends. This "backup withholding" is not an additional tax, and
any amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.

Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.

TRUSTEES AND OFFICERS

BOARD OF TRUSTEES. Overall responsibility for management of the Victory
Portfolios rests with the Trustees, who are elected by the shareholders of the
Victory Portfolios. The Victory Portfolios are managed by the Trustees in
accordance with the laws of Delaware governing business trusts. There are
currently seven Trustees, six of whom are not "interested persons" of the
Victory Portfolios within the meaning of that term under the 1940 Act
("Independent Trustees"). The Trustees, in turn, elect the officers of the
Victory Portfolios to actively supervise its day-to-day operations.

The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief Executive
53 Sylvan Road North Officer, Glenleigh
Westport, CT 06880 International Limited; from
1984 to 1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President and
Trustee, The Victory Funds
and the Spears, Benzak,
Salomon and Farrell Funds
(the "SBSF Funds"), dba Key
Mutual Funds (the "Key
Funds"), formerly the SBSF
Funds.

- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory
Portfolios under the 1940 Act solely by reason of his position as
President.

- 16 -

<PAGE>

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

Robert G. Brown, 72 Trustee Retired; from October 1983 to
5460 N. Ocean Drive November 1990, President,
Singer Island Cleveland Advanced
Riviera Beach, FL 33404 Manufacturing Program
(non-profit corporation
engaged in regional economic
development).

Edward P. Campbell, 46 Trustee From March 1994 to present,
Nordson Corporation Executive Vice President and
28601 Clemens Road Chief Operating Officer of
Westlake, OH 44145 Nordson Corporation
(manufacturer of application
equipment); from May 1988 to
March 1994, Vice President of
Nordson Corporation; from 1987
to December 1994, member of
the Supervisory Committee of
Society's Collective
Investment Retirement Fund;
from May 1991 to August 1994,
Trustee, Financial Reserves
Fund and from May 1993 to
August 1994, Trustee, Ohio
Municipal Money Market Fund;
Trustee, The Victory Funds and
the Key Funds.

Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs. Hill
17822 Lake Road and Thomas Corp.; Trustee, The
Lakewood, Ohio 44107 Victory Funds.

Stanley I. Landgraf, 70 Trustee Retired; currently, Trustee,
41 Traditional Lane Rensselaer Polytechnic
Loudonville, NY 12211 Institute; Director, Elenel
Corporation and Mechanical
Technology, Inc.; Member,
Board of Overseers, School of
Management, Rensselaer
Polytechnic Institute; Member,
The Fifty Group (a Capital
Region business organization);
Trustee, The Victory Funds.

- 17 -

<PAGE>

Dr. Thomas F. Morrissey, 62 Trustee 1995 Visiting Scholar, Bond
Weatherhead School of University, Queensland,
Management Australia; Professor,
Case Western Reserve University Weatherhead School of
10900 Euclid Avenue Management, Case Western
Cleveland, OH 44106-7235 Reserve University; from 1989
to 1995, Associate Dean of
Weatherhead School of
Management; from 1987 to
December 1994, Member of the
Supervisory Committee of
Society's Collective
Investment Retirement Fund;
from May 1991 to August 1994,
Trustee, Financial Reserves
Fund and from May 1993 to
August 1994, Trustee, Ohio
Municipal Money Market Fund;
Trustee, The Victory Funds.

Dr. H. Patrick Swygert, 52 Trustee President, Howard University;
Howard University formerly President, State
2400 6th Street, N.W. University of New York at
Suite 320 Albany; formerly, Executive
Washington, D.C. 20059 Vice President, Temple
University; Trustee, the
Victory Funds.

The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until May 1996. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until May 1996. The function of
the Business, Legal and Audit Committee is to recommend independent auditors and
monitor accounting and financial matters; to nominate persons to serve as
Independent Trustees and Trustees to serve on committees of the Board; and to
review compliance and contract matters.

The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS. Effective June 1, 1995,
each Trustee (other than Leigh A. Wilson) receives an annual fee of $27,000 for
serving as Trustee of all the Funds of the Victory Portfolios, and an additional
per meeting fee ($2,400 in person and $1,200 per telephonic meeting).

Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).

The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.

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<PAGE>

Estimated Annual Total Total Compensation
Pension or Retirement Benefits Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" (1)
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee....... -0- -0- $5,729.73 $46,716.97
Robert G. Brown, Trustee -0- -0- 4,834.58 39,815.98
John D. Buckingham, Trustee(2). -0- -0- 2,598.87 18,841.89
Edward P. Campbell, Trustee.... -0- -0- 3,549.91 39,799.68
Harry Gazelle, Trustee......... -0- -0- 5,474.20 35,916.98
John W. Kemper, Trustee(2)..... -0- -0- 2,913.01 22,567.31
Stanley I. Landgraf, Trustee... -0- -0- 5,112.02 34,615.98
Thomas F. Morrissey, Trustee... -0- -0- 4,996.26 40,366.98
H. Patrick Swygert, Trustee.... -0- -0- 4,996.26 37,116.98
John R. Young, Trustee(2)...... -0- -0- 2,709.16 21,963.81

</TABLE>

(1) For certain Trustees, these amounts include compensation received from
The Victory Funds (which were reorganized into the Victory Portfolios
as of June 5, 1995), the Key Funds, formerly the SBSF Funds (the
investment adviser of which was acquired by KeyCorp effective April,
1995) and Society's Collective Investment Retirement Funds, which were
reorganized into the Victory Balanced Fund and Victory Government
Mortgage Fund as of December 19, 1994. There are presently 24 mutual
funds from which the above-named Trustees are compensated in the
Victory "Fund Complex," but not all of the above-named Trustees serve
on the boards of each fund in the "Fund Complex."

(2) Resigned

OFFICERS.

The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee to The
Victory Funds and Key
Funds.

William B. Blundin, 57 Vice President Senior Vice President of
BISYS Fund Services BISYS Fund Services;
125 West 55th Street officer of other
New York, New York 10019 investment companies
administered by BISYS
Fund Services; President
and Chief Executive
Officer of Vista
Broker-Dealer Services,
Inc., Emerald Asset
Management, Inc. and BNY
Hamilton Distributors,
Inc., registered
broker/dealers.

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<PAGE>

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

J. David Huber, 49 Vice President Executive Vice
BISYS Fund Services President, BISYS Fund
3435 Stelzer Road Services.
Columbus, OH 43219-3035

Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS Fund Services,
Columbus, OH 43219-3035 Inc.; from 1985 to
October 1990, Manager of
Banking Center, Fifth
Third Bank.

George O. Martinez, 36 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and Director
Columbus, OH 43219-3035 of Legal and Compliance
Services, BISYS Fund
Services; from June 1989
to March 1995, Vice
President and Associate
General Counsel,
Alliance Capital
Management.

Martin R. Dean, 32 Treasurer From May 1994 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS Fund Services;
Columbus, OH 43219-3035 from January 1987 to
April 1994; Senior
Manager, KPMG Peat
Marwick.

Adrian J. Waters, 33 Assistant Treasurer From May 1993 to
BISYS Fund Services present, employee of
(Ireland) Limited BISYS Fund Services;
Floor 2, Block 2 from 1989 to May 1993,
Harcourt Center, Dublin 2, Manager, Price
Ireland Waterhouse.

The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.

The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. Concord Holding Corporation receives fees from the Victory
Portfolios for acting as Administrator.

As of January 6, 1996, the Trustees and officers as a group owned beneficially
less than 1% of the Fund.

ADVISORY AND OTHER CONTRACTS

INVESTMENT ADVISER AND SUB-ADVISER. Key Advisers was organized as an Ohio
corporation on July 27, 1995 and is registered as an investment adviser under
the 1940 Act. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is a wholly-owned subsidiary of Society National Bank, a
wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $66 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.

- 20 -

<PAGE>

KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of September 30, 1995, KeyCorp had an asset
base of $68 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which Society
National Bank was a wholly-owned subsidiary, and KeyCorp, the former bank
holding company. KeyCorp's major business activities include providing
traditional banking and associated financial services to consumer, business and
commercial markets. Its non-bank subsidiaries include investment advisory,
securities brokerage, insurance, bank credit card processing, and leasing
companies. Society National Bank is the lead affiliate bank of KeyCorp.

The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.

.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund (1)

.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund (1)
Victory U.S. Government Obligations Fund (1)
Victory Tax-Free Money Market Fund (1)

.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund (1)
Victory Limited Term Income Fund (1)
Victory Government Mortgage Fund (1)
Victory Financial Reserves Fund (1)
Victory Fund for Income (2)

.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund (1)
Victory Government Bond Fund (1)
Victory New York Tax-Free Fund (1)

.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund (1)
Victory Stock Index Fund (1)

.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund (1)

.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund (1)
Victory Investment Quality Bond Fund (1)
Victory Ohio Regional Stock Fund (1)

1.00% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund (1)
Victory Value Fund (1)
Victory Growth Fund (1)
Victory Special Value Fund (1)
Victory Special Growth Fund (3)

1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund (1)

- --------------

(1) Society Asset Management, Inc. serves as sub-adviser to each of these
funds. For its services under the Investment Sub-Advisory Agreement,
Key

- 21 -

<PAGE>

Advisers pays the Sub-Adviser sub-advisory fees at rates (based on an
annual percentage of average daily net assets) which vary according to
the table set forth below, following these footnotes.

(2) First Albany Asset Management Corporation serves as sub-adviser to the
Victory Fund for Income, for which it receives .20% of such fund's
average daily net assets.

(3) T. Rowe Price Associates, Inc. serves as sub-adviser to the Victory
Special Growth Fund, for which it receives .25% of such fund's average
daily net assets up to $100 million and .20% of average daily net
assets in excess of $100 million.

The Investment Sub-advisory fees payable by Key Advisers to the
Sub-Adviser are as follows:

For the Victory Balanced Fund, For the Victory International Growth
Diversified Stock Fund, Growth Ohio Regional Stock Fund and Fund,
Fund, Stock Index Fund and Value Value Special Fund:
Fund:

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%

For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund, U.S.
Limited Term Income Fund, Ohio Government Obligations Fund, Financial
Municipal Bond Fund, Government Reserves Fund, Institutional Money
Bond Fund, Government Mortgage Market Fund and Ohio Municipal Money
Fund, National Municipal Bond Fund Market Fund:
and New York Tax-Free Fund:

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%

- --------------------

(1) As a percentage of average daily net assets. Note, however, that the
SubAdviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of
rendering subinvestment advisory services by the Sub-Adviser, and will
be in writing.

THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.

- 22 -

<PAGE>

and for consecutive one-year terms thereafter, provided that such continuance is
approved at least annually by the Victory Portfolios' Trustees or by vote of a
majority of the outstanding shares of the Fund (as defined under "Additional
Information"), and, in either case, by a majority of the Trustees who are not
parties to the Investment Advisory Agreement or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreement, by votes
cast in person at a meeting called for such purpose.

The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.

The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of Key Advisers
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.

Prior to January, 1993, Society National Bank served as investment adviser to
the Fund. From January 1, 1993 until December 31, 1995, Society Asset
Management, Inc. served as investment adviser to the Fund. For the fiscal years
ended October 31, 1994 and 1995 the Adviser earned investment advisory fees of
$2,132,744, and 3,125,072, respectively, after fee reductions of $584,417 and
$420,213, respectively.

Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers.

Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of KeyCorp;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the Sub-Adviser. The sub-advisory arrangement does not result in the payment
of additional fees by the Fund.

- 23 -

<PAGE>

held in Board of Governors of the Federal Reserve System v. Investment Company
Institute that the Board did not exceed its authority under the Holding Company
Act when it adopted its regulation and interpretation authorizing bank holding
companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. In the Board of Governors case, the
Supreme Court also stated that if a national bank complied with the restrictions
imposed by the Board in its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
investment companies, a national bank performing investment advisory services
for an investment company would not violate the Glass-Steagall Act.

From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser including, but not limited to, (1) descriptions of the operations of
Key Trust Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2)
descriptions of certain personnel and their functions; and (3) statistics and
rankings related to the operations of Key Trust Company of Ohio, N.A., Key
Advisers and the Sub-Adviser.

PORTFOLIO TRANSACTIONS. Pursuant to the Investment Advisory Agreement and the
Investment Sub-Advisory Agreement, Key Advisers and the Sub-Adviser determine,
subject to the general supervision of the Trustees of the Victory Portfolios,
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by the Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases from underwriters
and/or broker-dealers of portfolio securities include a commission or concession
paid by the issuer to the underwriter and/or broker-dealer and purchases from
dealers serving as market makers may include the spread between the bid and
asked price. While Key Advisers and the Sub-Adviser generally seek competitive
spreads or commissions, the Fund may not necessarily pay the lowest spread or
commission available on each transaction, for reasons discussed below.

Allocation of transactions to dealers is determined by Key Advisers or the
SubAdviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
SubAdviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions. In such event, the Trustees will adopt procedures
incorporating the standards of Rule 17e-1 of the 1940 Act, which require that
the commission paid to affiliated broker-dealers must be reasonable and fair
compared to the commission, fee or other remuneration received, or to be
received, by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. The Fund purchases
portfolio securities directly from dealers acting as principals, underwriters or
market makers. As these transactions are usually conducted on a net basis, no
brokerage commissions are paid by the Fund.

The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. or their affiliates, or Concord Holding
Corporation, Victory Broker-Dealer Services, Inc. or their affiliates, and will
not give preference to Key Trust Company of Ohio, N.A.'s correspondent banks or
affiliates, or Concord Holding Corporation or Victory Broker-Dealer Services,
Inc. with respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.

- 24 -

<PAGE>

Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result that would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the Sub-Adviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.

In the fiscal years ended October 31, 1994 and October 31, 1995, the Fund did
not pay any brokerage commissions.

ADMINISTRATOR. Currently, Concord Holding Corporation ("CHC") serves as
administrator (the "Administrator") to the Fund. The Administrator assists in
supervising all operations of the Fund (other than those performed by Key
Advisers or the Sub-Adviser under the Investment Advisory Agreement and
Sub-Investment Advisory Agreement). Prior to June 5, 1995, the Winsbury Company
("Winsbury"), now known as BISYS Fund Services, served as the Fund's
administrator.

While CHC and Winsbury are distinct legal entities from BISYS Fund Services, CHC
and Winsbury are considered to be affiliated persons of BISYS Fund Services
under the 1940 Act due to, among other things, the fact that CHC and Winsbury
are owned by substantially the same persons that directly or indirectly own
BISYS Fund Services.

CHC receives a fee from the Fund for its services as Administrator and expenses
assumed pursuant to the Administration Agreements, calculated daily and paid
monthly, at the annual rate of fifteen one hundredths of one percent (.15%) of
the Fund's average daily net assets. CHC may periodically waive all or a portion
of its fee with respect to the Fund.

Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.

The Administration Agreement provides that CHC shall not be liable for any error
of judgment or mistake of law or any loss suffered by the Victory Portfolios in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or negligence in
the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.

- 25 -

<PAGE>

Transfer Agent, participation in the updating of the prospectus, coordinating
the preparation, filing, printing and dissemination of reports to shareholders,
coordinating the preparation of income tax returns, arranging for the
maintenance of books and records and providing the office facilities necessary
to carry out the duties thereunder. Under the Administration Agreement, CHC may
delegate all or any part of its responsibilities thereunder.

In the fiscal years ended October 31, 1994 and October 31, 1995, the
Administrator earned aggregate administration fees of $278,025, and $1,063,114,
after fee reductions of $0 and $472, respectively.

DISTRIBUTOR. Victory Broker-Dealer Services, Inc. serves as distributor (the
"Distributor") for the continuous offering of the shares of the Fund pursuant to
a Distribution Agreement between the Distributor and the Victory Portfolios.
Prior to May 31, 1995, Winsbury served as distributor of the Fund. Unless
otherwise terminated, the Distribution Agreement will remain in effect with
respect to the Fund for two years, and thereafter for consecutive one-year
terms, provided that it is approved at least annually (1) by the Trustees or by
the vote of a majority of the outstanding shares of the Fund, and (2) by the
vote of a majority of the Trustees of the Victory Portfolios who are not parties
to the Distribution Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement will terminate in the event of its assignment, as defined
under the 1940 Act. For the Victory Portfolios' fiscal year ended October 31,
1994 Winsbury earned $212,021, in underwriting commissions, and retained $15;
for the fiscal year ended October 31, 1995, the Distribution earned $721,000 in
underwriting commissions, and retained $107,000.

TRANSFER AGENT. Primary Funds Service Corporation ("PFSC") serves as transfer
agent and dividend disbursing agent for the Fund, pursuant to a Transfer Agency
Agreement. Under its agreement with the Victory Portfolios, PFSC has agreed (1)
to issue and redeem shares of the Victory Portfolios; (2) to address and mail
all communications by the Victory Portfolios to its shareholders, including
reports to shareholders, dividend and distribution notices, and proxy material
for its meetings of shareholders; (3) to respond to correspondence or inquiries
by shareholders and others relating to its duties; (4) to maintain shareholder
accounts and certain sub-accounts; and (5) to make periodic reports to the
Trustees concerning the Victory Portfolios' operations. For the services
provided under the Transfer Agency and Shareholder Servicing Agreement, PFSC
receives a maximum monthly fee of $1,250 from the Fund and a maximum of $3.50
per account of the Fund.

DISTRIBUTION AND SERVICE PLAN. The Victory Portfolios on behalf of the Fund has
adopted a Distribution and Service Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act (the "Rule"). The Rule provides in substance that a mutual
fund may not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of such mutual fund except
pursuant to a plan adopted by the Fund under the Rule. The Board of Trustees has
adopted the Plan to allow Key Advisers, the Sub-Adviser and the Distributor to
incur certain expenses that might be considered to constitute indirect payment
by the Fund of distribution expenses. Under the Plan, if a payment to Key
Advisers or the Sub-Adviser of management fees or to the Distributor of
administrative fees should be deemed to be indirect financing by the Victory
Portfolios of the distribution of their shares, such payment is authorized by
the Plan.

The Plan specifically recognizes that Key Advisers, the Sub-Adviser or the
Distributor, directly or through an affiliate, may use its fee revenue, past
profits, or other resources, without limitation, to pay promotional and
administrative expenses in connection with the offer and sale of shares of the
Fund. In addition, the Plan provides that Key Advisers, the Sub-Adviser and the
Distributor may use their respective resources, including fee revenues, to make
payments to third parties that provide assistance in selling the Fund's shares,
or to third parties, including banks, that render shareholder support services.

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<PAGE>

the Trustees noted that the Plan does not authorize payments by the Fund other
than the advisory and administrative fees authorized under the investment
advisory and administration agreements. To the extent that the Plan gives Key
Advisers, the Sub-Adviser or the Distributor greater flexibility in connection
with the distribution of shares of the Fund, additional sales of the Fund's
shares may result. Additionally, certain shareholder support services may be
provided more effectively under the Plan by local entities with whom
shareholders have other relationships.

FUND ACCOUNTANT. BISYS Fund Services Ohio, Inc. serves as fund accountant for
the Fund pursuant to a fund accounting agreement with the Victory Portfolios
dated May 31, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS Fund Services Ohio, Inc. calculates the Fund's net
asset value, the dividend and capital gain distribution, if any, and the yield.
BISYS Fund Services Ohio, Inc. also provides a current security position report,
a summary report of transactions and pending maturities, a current cash position
report, and maintains the general ledger accounting records for the Fund. Under
the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc. is entitled to
receive annual fees of .03% of the first $100 million of the Fund's daily
average net assets, .02% of the next $100 million of the Fund's daily average
net assets, and .01% of the Fund's remaining daily average net assets. Money
Market Funds will have no incremental asset charge when net assets exceed $500
million. These annual fees are subject to a minimum monthly assets charge of
$2,500 per taxable fund, and does not include out-of-pocket expenses or multiple
class charges of $833 per month assessed for each class of shares after the
first class. In the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, the Fund accountant earned fund accounting fees of $306,082,
$276,849 and $100,934, respectively.

CUSTODIAN. Cash and securities owned by the Fund are held by Key Trust Company
of Ohio, N.A. as custodian. Key Trust Company of Ohio, N.A. serves as custodian
to the Fund pursuant to a Custodian Agreement dated May 24, 1995. Under this
Agreement, Key Trust Company of Ohio, N.A. (1) maintains a separate account or
accounts in the name of the Fund; (2) makes receipts and disbursements of money
on behalf of the Fund; (3) collects and receives all income and other payments
and distributions on account of portfolio securities; (4) responds to
correspondence from security brokers and others relating to its duties; and (5)
makes periodic reports to the Trustees concerning the Victory Portfolios'
operations. Key Trust Company of Ohio, N.A. may, with the approval of the
Victory Portfolios and at the custodian's own expense, open and maintain a
sub-custody account or accounts on behalf of the Fund, provided that Key Trust
Company of Ohio, N.A. shall remain liable for the performance of all of its
duties under the Custodian Agreement.

INDEPENDENT ACCOUNTANTS. The financial highlights appearing in the Prospectus
has been derived from financial statements of the Fund incorporated by reference
in this Statement of Additional Information which, for the fiscal year ended
October 31, 1995, have been audited by Coopers & Lybrand L.L.P. as set forth in
their report incorporated by reference herein, and are included in reliance upon
such report and on the authority of such firm as experts in auditing and
accounting. Information for the fiscal year ended August 31, 1994 have been
audited by KPMG Peat Marwick, L.L.P., independent accountants for the
Predecessor Fund, as set forth in their report incorporated by reference herein,
and are experts in auditing and accounting. Coopers & Lybrand L.L.P. serves as
the Victory Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East
Broad Street, Columbus, Ohio 43215.

LEGAL COUNSEL. Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third
Avenue, New York, New York 10022 is the counsel to the Victory Portfolios.

EXPENSES. The Fund bears the following expenses relating to its operations:
taxes, interest, brokerage fees and commissions, fees of the Trustees,
Commission fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.

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<PAGE>

If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
Sub-Adviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES. The Victory Portfolios (sometimes referred to as the
"Trust") is a business trust organized under the laws of Delaware. The Victory
Portfolios' Declaration of Trust, pursuant to which the Victory Portfolios was
originally called the North Third Street Fund, was filed with the Secretary of
State of the Commonwealth of Massachusetts on February 6, 1986. On September 22,
1986, an Amended and Restated Declaration of Trust was filed to change the name
of the Trust to The Emblem Fund and to make certain other changes. A second
amendment was filed October 23, 1986 providing for voting of shares in the
aggregate except where voting of shares by series is otherwise required by law.
An amendment to the Amended and Restated Declaration of Trust was filed on March
15, 1993 to change the name of the Trust to The Society Funds. An Amended and
Restated Declaration of Trust was then filed on September 2, 1994 to change the
name of the Trust to The Victory Portfolios. On February 29, 1996, the Victory
Portfolios reorganized as a Delaware business trust. The currently effective
Delaware Trust Instrument authorizes the Trustees to issue an unlimited number
of shares, which are units of beneficial interest, without par value. The
Victory Portfolios presently has twenty-eight series of shares, which represent
interests in the U.S. Government Obligations Fund, the Prime Obligations Fund,
the Tax-Free Money Market Fund, the Balanced Fund, the Stock Index Fund, the
Value Fund, the Diversified Stock Fund, the Growth Fund, the Special Value Fund,
the Special Growth Fund, the Ohio Regional Stock Fund, the International Growth
Fund, the Limited Term Income Fund, the Government Mortgage Fund, the Ohio
Municipal Bond Fund, the Intermediate Income Fund, the Investment Quality Bond
Fund, the Florida Tax-Free Bond Fund, the Municipal Bond Fund, the Convertible
Securities Fund, the Short-Term U.S. Government Income Fund, the Government Bond
Fund, the Fund for Income, the National Municipal Bond Fund, the New York
Tax-Free Fund, the Institutional Money Market Fund, the Financial Reserves Fund
and the Ohio Municipal Money Market Fund, respectively. The Victory Portfolios'
Declaration of Trust authorizes the Trustees to divide or redivide any unissued
shares of the Victory Portfolios into one or more additional series by setting
or changing in any one or more aspects their respective preferences, conversion
or other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.

Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.

As of February 2, 1996, the Fund believes that SNBOC and Company was shareholder
of record of 92.64% of the outstanding shares of the Fund, but did not hold such
shares beneficially.

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<PAGE>

Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. In addition, Trustees may be removed from office by a vote of the
holders of at least two-thirds of the outstanding shares of the Victory
Portfolios. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value per share of at least $25,000 or
constituting 1% of the outstanding shares) stating that such shareholders wish
to communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a Trustee, the
Victory Portfolios will provide a list of shareholders or disseminate
appropriate materials (at the expense of the requesting shareholders). Except as
set forth above, the Trustees shall continue to hold office and may appoint
their successors.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Victory Portfolios voting without regard to series.

SHAREHOLDER AND TRUSTEE LIABILITY. The Delaware Business Trust Act provides that
a shareholder of a Delaware business trust shall be entitled to the same
limitation of personal liability extended to shareholders of Delaware
corporations, and the Delaware Trust Instrument provides that shareholders of
the Victory Portfolios shall not be liable for the obligations of the Victory
Portfolios. The Delaware Trust Instrument also provides for indemnification out
of the trust property of any shareholder held personally liable solely by reason
of his or her being or having been a shareholder. The Delaware Trust Instrument
also provides that the Victory Portfolios shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Victory Portfolios, and shall satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
considered to be extremely remote.

The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the Funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.

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<PAGE>

MISCELLANEOUS. As used in the Prospectus and in this Statement of Additional
Information, "assets belonging to a fund" (or "assets belonging to the Fund")
means the consideration received by the Victory Portfolios upon the issuance or
sale of shares of a fund (or the Fund), together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or payments derived from any reinvestment of such proceeds and any general
assets of the Victory Portfolios, which general liabilities and expenses are not
readily identified as belonging to a particular fund (or the Fund) that are
allocated to that fund (or the Fund) by the Trustees. The Trustees may allocate
such general assets in any manner they deem fair and equitable. It is
anticipated that the factor that will be used by the Trustees in making
allocations of general assets to a particular fund of the Victory Portfolios
will be the relative net asset value of each respective fund at the time of
allocation. Assets belonging to a particular fund are charged with the direct
liabilities and expenses in respect of that fund, and with a share of the
general liabilities and expenses of each of the funds not readily identified as
belonging to a particular fund, which are allocated to each fund in accordance
with its proportionate share of the net asset values of the Victory Portfolios
at the time of allocation. The timing of allocations of general assets and
general liabilities and expenses of the Victory Portfolios to a particular fund
will be determined by the Trustees and will be in accordance with generally
accepted accounting principles. Determinations by the Trustees as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular fund are
conclusive.

As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.

The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.

The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.

THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.

- 30 -

<PAGE>

APPENDIX

DESCRIPTION OF SECURITY RATINGS.

The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.

LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).

Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.

Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

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<PAGE>

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.

Description of the three highest long-term debt ratings by Duff:

AAA. Highest credit quality. The risk factors are
negligible being only slightly more than for
risk-free U.S. Treasury debt.

AA+, AA, AA-. High credit quality Protection factors are strong.
Risk is modest but may vary slightly from time to
time because of economic conditions.

A+, A, A-. Protection factors are average but adequate. However,
risk factors are more variable and greater in periods
of economic stress.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."

A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

IBCA's description of its three highest long-term debt ratings:

AAA. Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.

AA. Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.

A. Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions
may lead to increased investment risk.

SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).

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<PAGE>

Moody's description of its three highest short-term debt ratings:

Prime-1. Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by many of the following
characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.

- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

S&P's description of its three highest short-term debt ratings:

A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely
strong safety characteristics are denoted with a plus sign (+).

A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.

Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to
assist investors in recognizing quality differences within the highest
rating category):

Duff 1+. Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

Duff 1-. High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.

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<PAGE>

Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.

Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade.

Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.

Fitch's description of its four highest short-term debt ratings:

F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.

F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.

F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ or F-1 ratings.

F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.

IBCA's description of its three highest short-term debt ratings:

A+. Obligations supported by the highest capacity for timely repayment.

A1. Obligations supported by a very strong capacity for timely
repayment.

A2. Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.

SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS.

Moody's description of its two highest short-term loan/municipal note
ratings:

MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

S&P's description of its two highest municipal note ratings: SP-1. Very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given
a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

SHORT-TERM DEBT RATINGS

Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.

BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.

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<PAGE>

The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.

The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.

The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.

TBW-1. The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.

TBW-2. The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".

TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.

TBW-4. The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS

Commercial Paper. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.

Certificates of Deposit. Certificates of Deposit are negotiable certificates
issued against funds deposited in a commercial bank or a savings and loan
association for a definite period of time and earning a specified return.

Bankers' Acceptances. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.

U.S. Treasury Obligations. U.S. Treasury Obligations are obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Government. These obligations may include Treasury bills, notes and
bonds, and issues of agencies and instrumentalities of the U.S. Government,
provided such obligations are guaranteed as to payment of principal and interest
by the full faith and credit of the U.S. Government.

U.S. Government Agency and Instrumentality Obligations. Obligations issued by
agencies and instrumentalities of the U.S. Government include such agencies and
instrumentalities as the Government National Mortgage Association, the
Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. A Fund will invest in the obligations of such instrumentalities
only when the investment adviser believes that the credit risk with respect to
the instrumentality is minimal.

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Rule 497(c)
Registration No. 33-8982

STATEMENT OF ADDITIONAL INFORMATION

THE VICTORY PORTFOLIOS

FUND FOR INCOME

MARCH 1, 1996

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios - The Fund for
Income, dated the same date as the date hereof (the "Prospectus"). This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectus. Copies of the Prospectus may be obtained by writing The
Victory Portfolios at Primary Funds Service Corporation, P.O. Box 9741,
Providence, RI 02940-9741, or by telephoning toll free 800-539-FUND or
800-539-3863.

TABLE OF CONTENTS

INVESTMENT OBJECTIVE AND POLICIES....... 2 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS. 3 KeyCorp Mutual Fund Advisers, Inc.
VALUATION OF PORTFOLIO SECURITIES....... 5
ADDITIONAL PURCHASE, EXCHANGE AND INVESTMENT SUB-ADVISER
REDEMPTION INFORMATION..............10 First Albany Asset Management
DIVIDENDS AND DISTRIBUTIONS.............11 Corporation
TAXES .................................11
TRUSTEES AND OFFICERS...................13 ADMINISTRATOR
ADVISORY AND OTHER CONTRACTS............18 Concord Holding Corporation
ADDITIONAL INFORMATION..................26
APPENDIX................................29 DISTRIBUTOR
Victory Broker-Dealer Services, Inc.
INDEPENDENT AUDITOR'S REPORT
FINANCIAL STATEMENTS TRANSFER AGENT
Primary Funds Service Corporation

CUSTODIAN
Key Trust Company of Ohio, N.A.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

The Victory Portfolios (the "Victory Portfolios") is an open-end
management investment company. The Victory Portfolios consist of twenty-eight
series of units of beneficial interest ("shares"), four of which series are
currently inactive. The outstanding shares represent interests in the
twenty-four separate investment portfolios which are currently active. This
Statement of Additional Information relates to the Victory Fund for Income (the
"Fund") only. Much of the information contained in this Statement of Additional
Information expands on subjects discussed in the Prospectus. Capitalized terms
not defined herein are used as defined in the Prospectus. An investment in
shares of the Fund should not be made without first reading the Fund's
Prospectus.

INVESTMENT OBJECTIVE AND POLICIES

ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.

MORTGAGE-RELATED SECURITIES -- IN GENERAL

Mortgage-related securities are backed by mortgage obligations including, among
others, conventional 30-year fixed rate mortgage obligations, graduated payment
mortgage obligations, 15-year mortgage obligations, and adjustable rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligation is repaid. The opposite is true for pass-throughs purchased at a
discount. The Fund may purchase mortgage-related securities at a premium or at a
discount. Among the U.S. Government securities in which the Fund may invest are
government "mortgage-backed" (or government guaranteed mortgage related
securities). Such guarantees do not extend to the value of yield of the
mortgage-backed securities themselves or of the Fund's shares.

GNMA CERTIFICATES. Certificates of the Government National Mortgage Association
("GNMA") are mortgage-backed securities which evidence an undivided interest in
a pool or pools of mortgages. GNMA Certificates that the funds may purchase are
the "modified pass-through" type, which entitle the holder to receive timely
payment of all interest and principal payments due on the mortgage pool, net of

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<PAGE>

fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.

INVESTMENT LIMITATIONS AND RESTRICTIONS

The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "Additional Information--Miscellaneous" of this Statement of
Additional Information.

THE FUND MAY NOT:

1. Purchase the securities of any issuer (except the United States government,
its agencies and instrumentalities), with regard to 50% of total assets, if as a
result more than 5% of its total assets would be invested in the securities of
such issuer.

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<PAGE>

In determining the issuer of a tax-exempt security, each state and each
political subdivision, agency, and instrumentality of each state and each
multi-state agency of which such state is a member is a separate issuer. Where
securities are backed only by assets and revenues of a particular
instrumentality, facility or subdivision, such entity is considered the issuer.

2. Invest more than 25% of its total assets in securities whose interest
payments are derived from revenue from similar projects.

3. Borrow money, except for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding 5% of the value of
its total assets at the time of the borrowing.

4. Pledge, mortgage or hypothecate its assets, except that, to secure borrowings
permitted by subparagraph (3) above, it may pledge securities having a market
value at the time of pledge not exceeding 10% of the value of its total assets.

5. Issue any senior security (as defined in the 1940 Act), except that (a) the
Fund may engage in transactions which may result in the issuance of senior
securities to the extent permissible under the applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) the Fund may acquire
other securities that may be deemed senior securities to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth above, the Fund may borrow money as authorized by the
1940 Act.

6. Underwrite any issue of securities.

7. Purchase or sell commodities or commodity contracts, or oil, gas or
other mineral exploration or development programs.

8. Make loans to other persons except through the use of repurchase agreements
or the purchase of commercial paper. For these purposes, the purchase of a
portion of an issue of debt securities which is part of an issue to the public
shall not be considered the making of a loan.

The following restrictions are not fundamental and may be changed
without shareholder approval:

1. The Fund will not make short sales of securities or purchase any
securities on margin, except for such short-term credits as are necessary for
the clearance of transactions; or

2. The Fund will not participate on a joint, or a joint and several, basis
in any trading account in securities except pursuant to an exemptive order or
otherwise permitted by the 1940 Act; the "bunching" of orders for the sale or
purchase of portfolio securities with other funds advised by the Adviser or its
affiliates to reduce brokerage commissions or otherwise to achieve best overall
execution is not considered participation in a trading account in securities;

With respect to non-municipal bond investments, in addition to the foregoing
limitations, the Fund will not purchase securities (other than securities of the
United States government, its agencies or instrumentalities), if as a result of
such purchase 25% or more of the total Fund's assets would be invested in any
one industry, or enter into a repurchase agreement if, as a result thereof, more
than 10% of its total assets would be subject to repurchase agreements maturing
in more than seven days.

The Fund does not normally engage in short-term trading but may do so when the
Adviser believes a particular action will contribute to the achievement of the

- 4 -

<PAGE>

Fund's investment objective. Portfolio turnover in the Fund is not expected t
exceed 100% (annualized).

In the event the Fund acquires liquid assets as a result of the exercise of a
security interest relating to municipal bonds, the Fund's trustees will dispose
of such assets as promptly as possible.

STATE REGULATIONS. In addition, the Fund, so long as its shares are registered
under the securities laws of the State of Texas and such restrictions are
required as a consequence of such registration, is subject to the following
non-fundamental policies, which may be modified in the future by the Victory
Portfolio's Board of Trustees (the "Board of Trustees") without a vote of the
Fund's shareholders: (1) the Fund has represented to the Texas State Securities
Board, that it will not invest in oil, gas or mineral leases or purchase or sell
real property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.

VALUATION OF PORTFOLIO SECURITIES

Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment securities not having
readily available market quotations will be priced at fair value using a
methodology approved in good faith by the Trustees.

- 5 -

<PAGE>

PERFORMANCE

From time to time the "standardized yield," "dividend yield," "average annual
total return," "total return," and "total return at net asset value" of an
investment in each class of Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components of
those calculations are set forth below.

Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the shares of the Fund are affected by portfolio quality,
portfolio maturity, the type of investments the Fund holds and operating
expenses.

STANDARDIZED YIELD. The Fund's "yield" (referred to as "standardized yield") for
a given 30-day period for a class of shares is calculated using the following
formula set forth in rules adopted by the Commission that apply to all funds
that quote yields:

Standardized Yield = 2 [(a-b + 1)6 - 1]
---
cd

The symbols above represent the following factors:

a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of the class on the last
day of the period, adjusted for undistributed net investment
income.

The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on shares for the 30-day period ended October 31,
1995 was 6.76% .

- 6 -

<PAGE>

DIVIDEND YIELD AND DISTRIBUTION RETURNS. From time to time the Fund may quote a
"dividend yield" or a "distribution return" for each class. Dividend yield is
based on the dividends derived from net investment income during a stated
period. Distribution return includes dividends derived from net investment
income and from realized capital gains declared during a stated period. Under
those calculations, the dividends and/or distributions for that class declared
during a stated period of one year or less (for example, 30 days) are added
together, and the sum is divided by the maximum offering price per share) on the
last day of the period. When the result is annualized for a period of less than
one year, the "dividend yield" is calculated as follows:

Dividend Yield of the Class = Dividends + Number of days (accrual period) x 365
---------
Max. Offering Price (last day of period)

The maximum offering price includes the maximum front-end sales charge.

From time to time similar yield or distribution return calculations may also be
made using the net asset value (instead of its respective maximum offering
price) at the end of the period. The dividend yields at maximum offering price
and net asset value for the 30-day period ended October 31, 1995 were 5.93% and
6.05%, respectively. The distribution returns at maximum offering price and net
asset value as of October 31, 1995 were 5.93% and 6.05%, respectively.

TOTAL RETURNS. The "average annual total return" of each class is an average
annual compounded rate of return for each year in a specified number of years.
It is the rate of return based on the change in value of a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:

(ERV/P)^1/N-1 = Average Annual Total Return

The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:

(ERV/P)-1 = Total Return

In calculating total returns the current maximum sales charge of 2.00% (as a
percentage of the offering price) is deducted from the initial investment ("P")
(unless the return is shown at net asset value, as discussed below). Total
returns also assume that all dividends and capital gains distributions during
the period are reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period. The average annual
total return and cumulative total return on shares for the period December 10,
1993 (commencement of operations) to October 31, 1995 (life of fund) at maximum
offering price were 8.41% and 98.52%, respectively. For the one and five year
periods ended October 31, 1995 the average annual total return was 10.52% and
43.06%, respectively.

- 7 -

<PAGE>

asset value, was 8.66% and 102.48%, respectively. For the one and five year
periods ended October 31, 1995, the average annual total return at net asset
value was 12.75% and 45.93%, respectively.

OTHER PERFORMANCE COMPARISONS.

From time to time the Fund may publish the ranking of the performance of its
shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the performance of
regulated investment companies, including the Fund, and ranks the performance of
the Fund's classes against (1) all other funds, excluding money market funds,
and (2) all other government bond funds. The Lipper performance rankings are
based on total return that includes the reinvestment of capital gains
distributions and income dividends but does not take sales charges or taxes into
consideration.

From time to time the Fund may publish the ranking of the performance of its
shares by Morningstar, Inc., an independent mutual fund monitoring service that
ranks mutual funds, including the Fund, in broad investment categories (equity,
taxable bond, tax-exempt and other) monthly, based upon each fund's three, five
and ten-year average annual total returns (when available) and a risk adjustment
factor that reflects Fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads. There are
five ranking categories with a corresponding number of stars: highest (5), above
average (4), neutral (3), below average (2) and lowest (1). Ten percent of the
funds, series or classes in an investment category receive 5 stars, 22.5%
receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars, and the bottom 10%
receive one star.

The total return on an investment made in shares of the Fund may be compared
with the performance for the same period of one or more of the following
indices: the Consumer Price Index, the Salomon Brothers World Government Bond
Index, the Standard & Poor's 500 Index, the Shearson Lehman Government/Corporate
Bond Index, the Lehman Aggregate Bond Index, and the J.P. Morgan Government Bond
Index. Other indices may be used from time to time. The Consumer Price Index is
generally considered to be a measure of inflation. The Salomon Brothers World
Government Bond Index generally represents the performance of government debt
securities of various markets throughout the world, including the United States.
The Lehman Government/Corporate Bond Index generally represents the performance
of intermediate and long-term government and investment grade corporate debt
securities. The Lehman Aggregate Bond Index measures the performance of U.S.
corporate bond issues, U.S. government securities and mortgage-backed
securities. The J.P. Morgan Government Bond Index generally represents the
performance of government bonds issued by various countries including the United
States. The S&P 500 Index is a composite index of 500 common stocks generally
regarded as an index of U.S. stock market performance. The foregoing bond
indices are unmanaged indices of securities that do not reflect reinvestment of
capital gains or take investment costs into consideration, as these items are
not applicable to indices.

From time to time, the yields and the total returns of shares of the Fund may be
quoted in and compared to other mutual funds with similar investment objectives
in advertisements, shareholder reports or other communications to shareholders.
The Fund may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples are based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through

- 8 -

<PAGE>

reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash. The Fund
may also include discussions or illustrations of the potential investment goals
of a prospective investor (including but not limited to tax and/or retirement
planning), investment management techniques, policies or investment suitability
of the Fund, economic conditions, legislative developments (including pending
legislation), the effects of inflation and historical performance of various
asset classes, including but not limited to stocks, bonds and Treasury bills.
From time to time advertisements or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund, as well as the views of the investment adviser
as to current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund.) The Fund may also include in
advertisements, charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to stock, bonds, and Treasury bills, as compared to an investment in
shares of the Fund, as well as charts or graphs which illustrate strategies such
as dollar cost averaging, and comparisons of hypothetical yields of investment
in tax-exempt versus taxable investments. In addition, advertisements or
shareholder communications may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
communications may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein. With proper
authorization, the Fund may reprint articles (or excerpts) written regarding the
Fund and provide them to prospective shareholders. Performance information with
respect to the Fund is generally available by calling 1-800-539-3863.

Investors may also judge, and the Fund may at times advertise, the performance
of shares by comparing it to the performance of other mutual funds or mutual
fund portfolios with comparable investment objectives and policies, which
performance may be contained in various unmanaged mutual fund or market indices
or rankings such as those prepared by Dow Jones & Co., Inc., Standard & Poor's
Corporation, Lehman Brothers, Merrill Lynch, and Salomon Brothers, and in
publications issued by Lipper and in the following publications: IBC's Money
Fund Reports, Value Line Mutual Fund Survey, Morningstar, CDA/Wiesenberger,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Fortune, Institutional Investor, Ibbotsor
Associates and U.S.A. Today. In addition to yield information, general
information about the Fund that appears in a publication such as those mentioned
above may also be quoted or reproduced in advertisements or in reports to
shareholders.

Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis.

Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management, and its
investment philosophy.

When comparing yield, total return and investment risk of an investment in
shares of the Fund with other investments, investors should understand that
certain other investments have different risk characteristics than an investment
in shares of the Fund. For example, certificates of deposit may have fixed rates
of return and may be insured as to principal and interest by the FDIC, while the
Fund's returns will fluctuate and its share values and returns are not
guaranteed. Money market accounts offered by banks also may be insured by the
FDIC and may offer stability of principal. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and credit of the U.S.

- 9 -

<PAGE>

government. Money market mutual funds may seek to maintain a fixed price per
share.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The New York Stock Exchange ("NYSE") and Federal Reserve Bank of Cleveland
holiday closing schedule indicated in the Prospectus under "Share Price" are
subject to change.

When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.

If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Fund's net asset value. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes, and will incur any costs
of sale, as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee, or deferred sales charge
ordinarily payable at the time of exchange, or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission, or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.

The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers' or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.

PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the NYSE
and the Federal Reserve Wire System are open for business. The procedure for
purchasing shares of the Fund is explained in the Prospectus under "How to
Invest, Exchange and Redeem."

EXCHANGING SHARES

Shares of the Fund may be exchanged for shares of any Victory money market fund
or any other fund of the Victory Portfolios. Shares of any Victory money market
fund or any other fund of the Victory Portfolios with a reduced sales charge may
be exchanged for shares of the Fund upon payment of the difference in the sales
charge.

- 10 -

<PAGE>

REDEEMING SHARES

The Fund redeems shares at the next computed net asset value after the
redemption request is received. Redemption procedures are explained in the
Prospectus under "How to Redeem."

Redemption in kind will be made in conformity with applicable Commission rules,
taking such securities at the same value employed in determining net asset value
and selecting the securities in a manner the Trustees determine to be fair and
equitable.

The Fund has elected to be governed by Rule 18f-1 of the 1940 Act under which
the Fund is obligated to redeem shares for any one shareholder in cash only up
to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period.

The Victory Portfolios may redeem shares involuntarily if redemption appears
appropriate in light of the Victory Portfolios' responsibilities under the 1940
Act. (See "Valuation of Portfolio Securities" above.)

DIVIDENDS AND DISTRIBUTIONS

The Fund ordinarily declares and pays dividends from its net investment income
monthly. The Fund distributes substantially all of its net investment income and
net capital gains, if any, to shareholders within each calendar year as well as
on a fiscal year basis to the extent required for the Fund to qualify for
favorable federal tax treatment.

The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund.

For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.

TAXES

- 11 -

<PAGE>

In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the fund's assets is represented by cash or cash items,
U.S. Government securities, securities of other RICs and other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the fund's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities) or of two or more issuers that the Fund controls and that are
engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.

Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.

- 12 -

<PAGE>

Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.

TRUSTEES AND OFFICERS

BOARD OF TRUSTEES. Overall responsibility for management of the Victory
Portfolios rests with the Trustees, who are elected by the shareholders of the
Victory Portfolios. The Victory Portfolios are managed by the Trustees in
accordance with the laws of the Commonwealth of Massachusetts governing business
trusts. There are currently seven Trustees, six of whom are not "interested
persons" of the Victory Portfolios within the meaning of that term under the
1940 Act ("Independent Trustees"). The Trustees, in turn, elect the officers of
the Victory Portfolios to actively supervise its day-to-day operations.

The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:

x
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

Leigh A. Wilson*, 51 Trustee and From 1989 to present, Chairman
Glenleigh International Ltd. President and Chief Executive Officer,
53 Sylvan Road North Glenleigh International
Westport, CT 06880 Limited; from 1984 to 1989,
Chief Executive Officer,
Paribas North America and
Paribas Corporation; President
and Trustee, The Victory Funds
and the Spears, Benzak,
Salomon and Farrell Funds (the
"SBSF Funds"), dba Key Mutual
Funds, (the "Key Funds"),
formerly the SBSF Funds.

- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory
Portfolios under the 1940 Act solely by reason of his position as
President.

- 13 -

<PAGE>

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs. Hill
17822 Lake Road and Thomas Corp.; Trustee, The
Lakewood, Ohio 44107 Victory Funds.

- 15 -

<PAGE>

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.

Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).

The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.

- 15 -

<PAGE>

Estimated Annual Total Total Compensation
Pension or Retirement Benefits Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" (1)
----------------------------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee...... -0- -0- $248.70 $46,716.97
Robert G. Brown, Trustee -0- -0- 217.14 39,815.98
John D. Buckingham, Trustee(2). -0- -0- 82.92 18,841.89
Edward P. Campbell, Trustee... -0- -0- 114.18 39,799.68
Harry Gazelle, Trustee........ -0- -0- 189.79 35,916.98
John W. Kemper, Trustee(2).... -0- -0- 161.55 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 157.16 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 228.46 40,366.98
H. Patrick Swygert, Trustee... -0- -0- 228.46 37,116.98
John R. Young, Trustee(2)..... -0- -0- 140.67 21,963.81
</TABLE>

(2) Resigned

OFFICERS.

The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:

x
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

- 16 -

<PAGE>

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

J. David Huber, 49 Vice President Executive Vice
BISYS Fund Services President, BISYS Fund
3435 Stelzer Road Services.
Columbus, OH 43219-3035

The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.

The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of

- 17 -

<PAGE>

their offices. Concord Holding Corporation receives fees from the Victory
Portfolios for acting as Administrator.

As of January 6, 1996, the Trustees and officers as a group owned beneficially
less than 1% of the Fund.

ADVISORY AND OTHER CONTRACTS

INVESTMENT ADVISER AND SUB-ADVISER.

Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of Society National Bank, a wholly-owned
subsidiary of KeyCorp. Affiliates of Key Advisers manage approximately $66
billion for numerous clients including large corporate and public retirement
plans, TaftHartley plans, foundations and endowments, high net worth individuals
and mutual funds.

The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.

.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund (1)

.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund (1)
Victory U.S. Government Obligations Fund (1)
Victory Tax-Free Money Market Fund (1)

.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund (1)
Victory Government Bond Fund (1)
Victory New York Tax-Free Fund (1)

.60 OF 1% OF AVERAGE DAILY NET ASSETS Victory Ohio Municipal Bond
Fund (1) Victory Stock Index Fund (1)

.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund (1)

- 18 -

<PAGE>

.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund (1)
Victory Investment Quality Bond Fund (1)
Victory Ohio Regional Stock Fund (1)

1.00% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund (1)
Victory Value Fund (1)
Victory Growth Fund (1)
Victory Special Value Fund (1)
Victory Special Growth Fund (3)

1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund (1)

- --------------

(1) Society Asset Management, Inc. serves as sub-adviser to each of these
funds. For its services under the Investment Sub-Advisory Agreement,
Key Advisers pays the Sub-Adviser sub-advisory fees at rates (based on
an annual percentage of average daily net assets) which vary according
to the table set forth below, following these footnotes.

(2) First Albany Asset Management Corporation serves as sub-adviser to the
Victory Fund for Income, for which it receives .20% of such fund's
average daily net assets.

The Investment Sub-advisory fees payable by Key Advisers to the
Sub-Adviser are as follows:

For the Victory Balanced Fund, For the Victory International Growth
Diversified Stock Fund, Growth Ohio Regional Stock Fund and Fund,
Fund, Stock Index Fund and Value Value Special Fund:
Fund:

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%

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Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%

- --------------------

(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to
voluntarily waive any portion of the sub-advisory fee from time to
time. Any such voluntary waiver will be irrevocable and determined in
advance of rendering sub-investment advisory services by the
Sub-Adviser, and will be in writing.

THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.

Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Victory Portfolios'
Trustees or by vote of a majority of the outstanding shares of the Fund (as
defined under "Additional Information"), and, in either case, by a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement, by votes cast in person at a meeting called for such
purpose.

Prior to January 1, 1996 Society Asset Management, Inc. served as investment
adviser to the Fund. From May 1, 1994 to June 5, 1995, Society's affiliate, Key
Trust Company, served as the investment adviser to the Fund and its Predecessor
Fund. Prior to May 1, 1994, First Albany served as the investment adviser to the
Investors Preference Fund for Income, the Predecessor to the Predecessor Fund.
For the fiscal years ended October 31, 1995 and the fiscal period ended October

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<PAGE>

31, 1994, the adviser earned investment advisory fees of $87,483 and $84,270,
respectively, after fee reductions of $36,865 and $2,027, respectively.

Key Advisers has entered into an investment sub-advisory agreement with First
Albany on behalf of the Fund. With respect to the day to day management of the
Fund, under the sub-advisory agreement, the Sub-Adviser makes decisions
concerning, and places all orders for, purchases and sales of securities and
helps maintain the records relating to such purchases and sales. The Sub-Adviser
may, in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as an
investment adviser to the Company under applicable laws and are under the common
control of KeyCorp; provided that (i) all persons, when providing services under
the sub-advisory agreement, are functioning as part of an organized group of
persons, and (ii) such organized group of persons is managed at all times by
authorized officers of the Sub-Adviser. The sub-advisory arrangement does not
result in the payment of additional fees by the Fund.

Effective May 1, 1996, First Albany will no longer serve as Sub-Adviser and Key
Advisers will assume all of the duties of the Sub-Adviser described in this
Statement of Additional Information.

GLASS-STEAGALL ACT.

In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.

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<PAGE>

PORTFOLIO TRANSACTIONS.

Pursuant to the Investment Advisory Agreement and Sub-Advisory Agreement, Key
Advisers and the Sub-Adviser determine, subject to the general supervision of
the Trustees of the Victory Portfolios, and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by the Fund, and which brokers are to be eligible to execute its portfolio
transactions. Purchases from underwriters and/or broker-dealers of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and/or broker-dealer and purchases from dealers serving as market
makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.

Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions. In such event, the Trustees will adopt procedures
incorporating the standards of Rule 17e-1 of the 1940 Act, which require that
the commission paid to affiliated broker-dealers must be reasonable and fair
compared to the commission, fee or other remuneration received, or to be
received, by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. At times, the Fund may
also purchase portfolio securities directly from dealers acting as principals,
underwriters or market makers. As these transactions are usually conducted on a
net basis, no brokerage commissions are paid by the Fund.

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<PAGE>

of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.

In the fiscal years ended October 31, 1994 and 1995, the Fund paid $176,716 and
$0, respectively, in brokerage commissions.

PORTFOLIO TURNOVER. The turnover rate stated in the Prospectus for the Fund's
investment portfolio is calculated by dividing the lesser of the Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities, at the time of acquisition, were one year or less. In the fiscal
period from February 1, 1994 to October 31, 1994 and the fiscal year ended
October 31, 1995, the Fund's portfolio turnover rates were 18.00% and 35.20%,
respectively.

ADMINISTRATOR.

Currently, Concord Holding Corporation ("CHC") serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the Fund (other than those performed by Key Advisers or the
SubAdviser under the Investment Advisory Agreement and Sub-Investment Advisory
Agreement). Prior to June 5, 1995, the Winsbury Company ("Winsbury"), now known
as BISYS Fund Services, served as the Fund's administrator.

While CHC and Winsbury are distinct legal entities from BISYS Fund Services, CHC
and Winsbury are considered to be affiliated persons of BISYS Fund Services
under the Investment Company Act of 1940 due to, among other things, the fact
that CHC and Winsbury are owned by substantially the same persons that directly
or indirectly own BISYS Fund Services.

The Administration Agreement provides that CHC shall not be liable for any error
of judgment or mistake of law or any loss suffered by the Victory Portfolios in

connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.

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<PAGE>

the preparation, filing, printing and dissemination of reports to shareholders,
coordinating the preparation of income tax returns, arranging for the
maintenance of books and records and providing the office facilities necessary
to carry out the duties thereunder. Under the Administration Agreement, CHC may
delegate all or any part of its responsibilities thereunder.

In the fiscal periods ended October 31, 1994 and October 31, 1995, the
Administrator earned aggregate administration fees of $224,695 and $27,624,
respectively, after fee reductions of $8,592 and $9,681, respectively.

DISTRIBUTOR.

Victory Broker-Dealer Services, Inc. serves as distributor (the "Distributor")
for the continuous offering of the shares of the Fund pursuant to a Distribution
Agreement between the Distributor and the Victory Portfolios. Prior to May 31,
1995, Winsbury served as distributor of the Fund. Unless otherwise terminated,
the Distribution Agreement will remain in effect with respect to the Fund for
two years, and thereafter for consecutive one-year terms, provided that it is
approved at least annually (1) by the Trustees or by the vote of a majority of
the outstanding shares of the Fund, and (2) by the vote of a majority of the
Trustees of the Victory Portfolios who are not parties to the Distribution
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate in the event of its assignment, as defined under the 1940 Act.
For the Victory Portfolios' fiscal year ended October 31, 1994 Winsbury earned
$212,021, in underwriting commissions, and retained $15; for the fiscal year
ended October 31, 1995, the Distributor earned $721,000 in underwriting
commissions, and retained $107,000.

TRANSFER AGENT.

Primary Funds Service Corporation ("PFSC") serves as transfer agent and dividend
disbursing agent for the Fund, pursuant to a Transfer Agency Agreement. Under
its agreement with the Victory Portfolios, PFSC has agreed (1) to issue and
redeem shares of the Victory Portfolios; (2) to address and mail all
communications by the Victory Portfolios to its shareholders, including reports
to shareholders, dividend and distribution notices, and proxy material for its
meetings of shareholders; (3) to respond to correspondence or inquiries by
shareholders and others relating to its duties; (4) to maintain shareholder
accounts and certain sub-accounts; and (5) to make periodic reports to the
Trustees concerning the Victory Portfolios' operations. For the services
provided under the Transfer Agency and Shareholder Servicing Agreement, PFSC
receives a maximum monthly fee of $1,250 from the Fund and a maximum of $3.50
per account of the Fund.

SHAREHOLDER SERVICING PLAN.

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<PAGE>

providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations.

FUND ACCOUNTANT.

BISYS Fund Services Ohio, Inc. serves as fund accountant for the Fund pursuant
to a fund accounting agreement with the Victory Portfolios dated June 5, 1995
(the "Fund Accounting Agreement"). As fund accountant for the Victory
Portfolios, BISYS Fund Services Ohio, Inc. calculates the Fund's net asset
value, the dividend and capital gain distribution, if any, and the yield. BISYS
Fund Services Ohio, Inc. also provides a current security position report, a
summary report of transactions and pending maturities, a current cash position
report, and maintains the general ledger accounting records for the Fund. Under
the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc. is entitled to
receive annual fees of .03% of the first $100 million of the Fund's daily
average net assets, .02% of the next $100 million of the Fund's daily average
net assets, and .01% of the Fund's remaining daily average net assets. These
annual fees are subject to a minimum monthly assets charge of $2,500 per taxable
fund, and does not include out-of-pocket expenses or multiple class charges of
$833 per month assessed for each class of shares after the first class. In the
fiscal period ended October 31, 1995 the Fund accountant earned fund accounting
fees of $32,288.

CUSTODIAN.

Cash and securities owned by the Fund are held by Key Trust Company of Ohio,
N.A. as custodian. Key Trust Company of Ohio, N.A. serves as custodian to the
Fund pursuant to a Custodian Agreement dated May 24, 1995. Under this Agreement,
Key Trust Company of Ohio, N.A. (1) maintains a separate account or accounts in
the name of the Fund; (2) makes receipts and disbursements of money on behalf of
the Fund; (3) collects and receives all income and other payments and
distributions on account of portfolio securities; (4) responds to correspondence
from security brokers and others relating to its duties; and (5) makes periodic
reports to the Trustees concerning the Victory Portfolios' operations. Key Trust
Company of Ohio, N.A. may, with the approval of the Victory Portfolios and at
the custodian's own expense, open and maintain a sub-custody account or accounts
on behalf of the Fund, provided that Key Trust Company of Ohio, N.A. shall
remain liable for the performance of all of its duties under the Custodian
Agreement.

INDEPENDENT ACCOUNTANTS.

The financial highlights appearing in the Prospectus have been derived from
financial statements of the Fund incorporated by reference in this Statement of
Additional Information which, for the fiscal year ended October 31, 1995, have
been audited by Coopers & Lybrand L.L.P. as set forth in their report
incorporated by reference herein, and are included in reliance upon such report
and on the authority of such firm as experts in auditing and accounting.
Information for the fiscal period February 1, 1994 through October 31, 1994 have
been audited by KPMG Peat Marwick, L.L.P., independent accountants for the
Predecessor Fund, as set forth in their report incorporated by reference herein,
and are experts in auditing and accounting. Coopers & Lybrand L.L.P. serves as
the Victory Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East
Broad Street, Columbus, Ohio 43215.

LEGAL COUNSEL.

Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York,
New York 10022 is the counsel to the Victory Portfolios.

EXPENSES.

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<PAGE>

auditing and legal expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and transfer agent, certain insurance
premiums, costs of maintenance of the fund's existence, costs of shareholders'
reports and meetings, and any extraordinary expenses incurred in the Fund's
operation.

If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
SubAdviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES.

The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business Trust. Its Delaware Trust Instrument was adopted on December 6, 1995
and a certificate of Trust for the Trust was filed in Delaware on December 21,
1995. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware business trust.

The currently effective Delaware Trust Instrument authorizes the Trustees to
issue an unlimited number of shares, which are units of beneficial interest,
without par value. The Victory Portfolios presently has twenty-eight series of
shares, which represent interests in the U.S. Government Obligations Fund, the
Prime Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the
Stock Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund,
the Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund,
the International Growth Fund, the Limited Term Income Fund, the Government
Mortgage Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the
Investment Quality Bond Fund, the Florida Tax-Free Bond Fund, the Municipal Bond
Fund, the Convertible Securities Fund, the Short-Term U.S. Government Income
Fund, the Government Bond Fund, the Fund for Income, the National Municipal Bond
Fund, the New York Tax-Free Fund, the Institutional Money Market Fund, the
Financial Reserves Fund and the Ohio Municipal Money Market Fund, respectively.
The Victory Portfolios' Delaware Trust Instrument authorizes the Trustees to
divide or redivide any unissued shares of the Victory Portfolios into one or
more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.

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<PAGE>

Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds of the Victory Portfolios, of
any general assets not belonging to any particular fund which are available for
distribution.

Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. In addition, Trustees may be removed from office by a vote of the
holders of at least two-thirds of the outstanding shares of the Victory
Portfolios. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of all of the Victory Portfolios voting without regard to series.

SHAREHOLDER AND TRUSTEE LIABILITY.

The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations and the Delaware Trust
Instrument provides that shareholders of the Victory Portfolios shall not be
liable for the obligations of the Victory Portfolios. The Delaware Trust
Instrument also provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Delaware Trust Instrument also provides that the
Victory Portfolios shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Victory Portfolios, and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring

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financial loss on account of shareholder liability is considered to be extremely
remote.

The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.

MISCELLANEOUS.

As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Victory Portfolios' Trustees. The Trustees may
allocate such general assets in any manner they deem fair and equitable. It is
anticipated that the factor that will be used by the Trustees in making
allocations of general assets to a particular fund of the Victory Portfolios
will be the relative net asset value of the respective fund at the time of
allocation. Assets belonging to a particular fund are charged with the direct
liabilities and expenses in respect of that fund, and with a share of the
general liabilities and expenses of each of the funds not readily identified as
belonging to a particular fund, which are allocated to each fund in accordance
with its proportionate share of the net asset values of the Victory Portfolios
at the time of allocation. The timing of allocations of general assets and
general liabilities and expenses of the Victory Portfolios to a particular fund
will be determined by the Trustees and will be in accordance with generally
accepted accounting principles. Determinations by the Trustees as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular fund are
conclusive.

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APPENDIX

DESCRIPTION OF SECURITY RATINGS.

LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).

Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

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Description of the three highest long-term debt ratings by Duff:

AAA. Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.

AA+ AA, AA-. High credit quality Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+ A, A-. Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated "[-]+."

IBCA's description of its three highest long-term debt ratings:

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SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).

Moody's description of its three highest short-term debt ratings:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.

- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

S&P's description of its three highest short-term debt ratings:

A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely
strong safety characteristics are denoted with a plus sign (+).

A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

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<PAGE>

Duff 1-. High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.

Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade.

Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.

Fitch's description of its four highest short-term debt ratings:

F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.

F-1. Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.

F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ or F-1 ratings.

IBCA's description of its three highest short-term debt ratings:

A+. Obligations supported by the highest capacity for timely
repayment.

A1. Obligations supported by a very strong capacity for timely
repayment.

A2. Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.

SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS

Moody's description of its two highest short-term loan/municipal note
ratings:

MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SP-2. Satisfactory capacity to pay principal and interest.

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SHORT-TERM DEBT RATINGS

BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.

The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.

The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.

The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.

TBW-1. The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.

TBW-4. The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS

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<PAGE>

Treasury; others, such as those of the Export-Import Bank of the United States,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. A Fund will invest in the obligations of such instrumentalities only
when the investment adviser believes that the credit risk with respect to the
instrumentality is minimal.

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<PAGE>

Rule 497(c)
Registration No. 33-8982

STATEMENT OF ADDITIONAL INFORMATION

THE VICTORY PORTFOLIOS

GOVERNMENT BOND FUND

MARCH 1, 1996

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios - Government Bond
Fund, dated the same date as the date hereof (the "Prospectus"). This Statement
of Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Portfolios at Primary Funds Service Corporation, P.O. Box 9741, Providence, RI
02940-9741, or by telephoning toll free 800-539-FUND or 800-539-3863.

TABLE OF CONTENTS

INVESTMENT OBJECTIVE AND POLICIES.........1 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS. 14 KeyCorp Mutual Fund Advisers, Inc.
VALUATION OF PORTFOLIO SECURITIES........16
PERFORMANCE..............................16
ADDITIONAL PURCHASE, EXCHANGE AND INVESTMENT SUB-ADVISER
REDEMPTION INFORMATION.............. 11 Society Asset Management, Inc.
DIVIDENDS AND DISTRIBUTIONS..............14
TAXES....................................15 ADMINISTRATOR
TRUSTEES AND OFFICERS....................16 Concord Holding Corporation
ADVISORY AND OTHER CONTRACTS.............21
ADDITIONAL INFORMATION...................31 DISTRIBUTOR
APPENDIX.................................36 Victory Broker-Dealer
Services, Inc.
INDEPENDENT AUDITORS REPORT
FINANCIAL STATEMENTS TRANSFER AGENT
Primary Funds Service
Corporation

CUSTODIAN
Key Trust Company of Ohio,
N.A.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-eight series of
units of beneficial interest ("shares"), four of which series are currently
inactive. The outstanding shares represent interests in the twenty-four separate
investment portfolios, which are currently active. This Statement of Additional
Information relates to The Victory Government Bond Fund (the "Fund") only. Much
of the information contained in this Statement of Additional Information expands
on subjects discussed in the Prospectus. Capitalized terms not defined herein
are used as defined in the Prospectus. No investment in shares of the Fund
should be made without first reading the Fund's Prospectus.

INVESTMENT OBJECTIVE AND POLICIES

ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.

DELAYED-DELIVERY TRANSACTIONS. The Fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
by the Fund to purchase or sell specific securities at a predetermined price or
yield, with payment and delivery taking place after the customary settlement
period for that type of security (and more than seven days in the future).
Typically, no interest accrues to the purchaser until the security is delivered.
The Fund may receive fees for entering into delayed-delivery transactions.

When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risks of price and yield
fluctuations in addition to the risks associated with the Fund's other
investments. Because the Fund is not required to pay for securities until the
delivery date, these delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, the Fund will set
aside cash and appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When the Fund has sold a security on a
delayed-delivery basis, it does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery transaction
fails to deliver or pay for the securities, the Fund could miss a favorable
price or yield opportunity or suffer a loss.

The Fund may renegotiate delayed-delivery transactions after they are entered
into or may sell underlying securities before they are delivered, either of
which may result in capital gains or losses.

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<PAGE>

ILLIQUID INVESTMENTS. Illiquid investments cannot be sold or disposed of, within
seven business days, in the ordinary course of business at approximately the
prices at which they are valued. Under the supervision of the Victory
Portfolios' Board of Trustees (the "Board of Trustees" or the "Trustees"), the
Adviser determines the liquidity of the Fund's investments and, through reports
from the Adviser, the Trustees monitor investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Adviser may consider
various factors, including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days, over the counter options,
non-government stripped fixed-rate mortgage-backed securities, and Restricted
Securities. Also, Key Advisers or the Sub-Adviser may determine some
government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options the Fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets held
to cover the option and the nature and terms of any agreement the Fund may have
to close out the option before expiration. In the absence of market quotations,
illiquid investments are priced at fair value as determined in good faith by a
committee appointed by the Trustees. If through a change in values, net assets,
or other circumstances, the Fund were in a position where more than 10% of its
net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Fund may engage in a repurchase
agreement with respect to any security in which it is authorized to invest.
Since it is not possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Fund in connection with
bankruptcy proceedings), it is the Victory Portfolios' current policy to limit
repurchase agreements for the Fund to those parties whose creditworthiness has
been reviewed and found satisfactory by Key Advisers or the Sub-Adviser.
Repurchase agreements are considered by the staff of the Commission to be loans
by the Fund.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the Fund sells
the portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, the Fund will
maintain appropriate liquid assets in a segregated custodial account to cover
its obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness is deemed satisfactory by
Key Advisers or the Sub-Adviser. Such transactions may increase fluctuations in
the market value of the Fund's assets, and may be viewed as a form of leverage.

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<PAGE>

registration expense and a considerable period may elapse between the time it
decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
shares.

SECURITIES LENDING. The Fund may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows the Fund to
retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties deemed by Key Advisers or
the Sub-Adviser to be of good standing. Furthermore, they will only be made if,
in Society's judgment, the consideration to be earned from such loans would
justify the risk.

It is the current view of the staff of the Commission that the Fund may engage
in loan transactions only under the following conditions: (1) the Fund must
receive 100% collateral in the form of cash or cash equivalents (e.g., U.S.
Treasury bills or notes) from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on a
daily basis) rises above the value of the collateral; (3) after giving notice,
the Fund must be able to terminate the loan at any time; (4) the Fund must
receive reasonable interest on the loan or a flat fee from the borrower, as well
as amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; and (6) the Board of
Trustees must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower.

Cash received through loan transactions may be invested in any security in which
the Fund is authorized to invest. Investing this cash subjects that investment,
as well as the security loaned, to market forces (i.e., capital appreciation or
depreciation).

INVESTMENT LIMITATIONS AND RESTRICTIONS

The following investment restrictions are fundamental with respect to the Fund
and may be changed only a vote of a majority of the outstanding shares of the
Fund as defined in "Additional Information -- Miscellaneous" of this Statement
of Additional Information.

The Fund may not:

1. With respect to 75% of the Fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities) if, as a result, (a) more than 5% of
the Fund's total assets would be invested in the securities of that issuer, or
(b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.

2. Issue any senior security (as defined in the 1940 Act), except that (a) the
Fund may engage in transactions which may result in the issuance of senior
securities to the extent permissible under the applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) the Fund may acquire
other securities that may be deemed senior securities to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.

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<PAGE>

3. Borrow money, except that the Fund may borrow money from banks for
temporary or emergency purposes (not for leveraging or investment), and engage
in reverse repurchase agreements in an amount not exceeding 33-1/3% of its total
assets, including the amount borrowed less liabilities other than borrowings
(any borrowings exceeding this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the
33-1/3% limitation), provided that any such borrowings representing more than 5%
of the Fund's total assets must be repaid before the Fund may make additional
investments.

4. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities.

5. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instrument backed by real estate).

6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.

7. Lend any portfolio security or make any other loan if, as a result, more
than 33-1/3% of the Fund's total assets would be lent to other parties, but this
restriction does not apply to purchases of debt securities or to repurchase
agreements.

The following restrictions are nonfundamental and may be changed without
shareholder approval:

1. The Fund may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short,
and provided that transactions in futures contracts and options are not deemed
to constitute selling securities short.

2. The Fund may purchase securities on margin, except that the Fund may obtain
such short-term credits as are necessary for the clearance of transactions and
provided that margin payments in connection with futures contracts and options
on futures contracts shall not constitute purchasing securities on margin.

3. The Fund may not purchase any security while borrowings representing more
than 5% of the Fund's total assets are outstanding.

4. The Fund may not purchase any security or enter into a repurchase agreement
if, as a result, more than 15% of the Fund's net assets would be invested in
repurchase agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by virtue of
legal or contractual restriction on resale or the absence of a readily available
market.

5. The Fund shall not invest in the securities of other investment companies,
except that the Fund may invest in shares of money market funds that are not
"affiliated persons" of the fund and that limit their investment by the Fund,
provided investment by the Fund is limited to: (a) ten percent of the Fund's
assets; (b) five percent of the Fund's total assets in the shares of a single
money market fund; and (c) not more than three percent of the net assets of any
one acquired money market fund. The investment adviser will waive the portion of
its fee attributable to the assets of the Fund invested in such money market
funds to the extent required by the laws of any jurisdiction in which shares of
the Fund are registered for sale.

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<PAGE>

STATE REGULATIONS. In addition, the Fund, so long as its shares are registered
under the securities laws of the State of Texas and such restrictions are
required as a consequence of such registration, is subject to the following
non-fundamental policies, which may be modified in the future by the Trustees
without a vote of the Fund's shareholders: (1) the Fund has represented to the
Texas State Securities Board that it will not invest in oil, gas or mineral
leases or purchase or sell real property (including limited partnership
interests, but excluding readily marketable securities of companies which invest
in real estate); and (2) the Fund has represented to the Texas State Securities
Board that it will not invest more than 5% of its net assets in warrants valued
at the lower of cost or market; provided that, included within that amount, but
not to exceed 2% of net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. For purposes of this restriction, warrants
acquired in units or attached to securities are deemed to be without value.

VALUATION OF PORTFOLIO SECURITIES

PERFORMANCE

Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under

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<PAGE>

applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and its operating expenses.

STANDARDIZED YIELDS.

The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:

Standardized Yield = 2 [(a-b + 1)6 - 1]
---
cd

The symbols above represent the following factors:

a = dividends and interest earned during the 30-day period.

b = expenses accrued for the period (net of any expense reimbursements).

c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.

d = the maximum offering price per share of the class on the last day of the
period, adjusted for undistributed net investment income.

The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares and the Class B shares for the
30-day period ended October 31, 1995 was 4.82% and 4.44%, respectively.

DIVIDEND YIELD AND DISTRIBUTION RETURN.

From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared during
a stated period of one year or less (for example, 30 days) are added together,
and the sum is divided by the maximum offering price per share of that class A)
on the last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:

Dividend Yield of the Class = Dividends of the Class + Number of days
----------------------------- (accrual period) x 365
Max. Offering Price of
the Class
(last day of period)

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<PAGE>

The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, without considering the effect of contingent deferred sales
charges ("CDSC").

From time to time similar yield or distribution return calculations may also be
made using the Class A net asset value (instead of its respective maximum
offering price) at the end of the period. The dividend yields on Class A shares
at maximum offering price and net asset value for the 30-day period ended
October 31, 1995 were 5.62% and 5.89%, respectively. Dividend yield on Class B
shares at maximum offering price for the 30-day period ended October 31, 1995
was 5.30%.

(ERV/P)^1/N-1 = Average Annual Total Return

(ERV/P)-1 = Total Return

In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable CDSC (5.0%
for the first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). Total returns also
assume that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual total return
and cumulative total return on Class A shares for the period May 3, 1993
(commencement of operations) to October 31, 1995 (life of fund) at maximum
offering price were 2.98% and 7.60%, respectively. For the one year period ended
October 31, 1995, average annual total return for Class A shares was 8.93%. The
average annual total return and cumulative total return on the Class B shares
for the period September 26, 1994 (commencement of operations) to October 31,
1995 were 8.27% and 9.12%, respectively. For the one year period ended October
31, 1995, the average annual total return for Class B shares was 9.58%.

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<PAGE>

For the one year period ended October 31, 1995, average annual total return for
Class A shares at net asset value was 14.40%. For the one year period ended
October 31, 1995, the average annual total return at net asset value for Class B
shares at net asset value was 13.58%. The average annual total return and
cumulative total return on Class B shares for the period September 26, 1994
(commencement of operations) to October 31, 1995 were 11.88% and 13.12%,
respectively.

OTHER PERFORMANCE COMPARISONS.

From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the Fund's classes against (1) all other funds, excluding
money market funds, and (2) all other government bond funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.

From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.

The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded as an index of U.S. stock market
performance. The foregoing bond indices are unmanaged indices of securities that
do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.

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<PAGE>

discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund). The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stock,
bonds and Treasury bills as compared to an investment in shares of the Fund as
well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, the
Fund may reprint articles (or excerpts) written regarding the Fund and provide
them to prospective shareholders. Performance information with respect to the
Fund is generally available by calling 1-800-539-3863.

Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper Analytical Services, Inc. and in
the following publications: IBC's Money Fund Reports, Value Line Mutual Fund
Survey, Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Investor, Ibbotson Associates and U.S.A. Today. In
addition to yield information, general information about the Fund that appears
in a publication such as those mentioned above may also be quoted or reproduced
in advertisements or in reports to shareholders.

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<PAGE>

than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may seek to maintain a
fixed price per share.

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION

The New York Stock Exchange ("NYSE") and Federal Reserve Bank of Cleveland
holiday closing schedule indicated in the Prospectus under "Share Price" are
subject to change.

When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.

If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.

The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.

PURCHASING SHARES

ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial to the investor depending on the amount of the purchase,
the length of time the investor expects to hold shares and other relevant
circumstances. Investors should understand that the purpose and function of the
deferred sales charge and asset-based sales charge with respect to Class B
shares are the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation for
selling Fund shares may receive different compensation with respect to one class
of shares on behalf of a single investor (not including dealer "street name" or
omnibus accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.

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<PAGE>

The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including the asset-based sales charge to which
Class B shares are subject.

CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured Class
B shares that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan after
such shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.

The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.

The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's total net assets, and then pro rata to each
outstanding share within a given class. Such general expenses include (1)
management fees, (2) legal, bookkeeping and audit fees, (3) printing and mailing
costs of shareholder reports, prospectuses, statements of additional information
and other materials for current shareholders, (4) fees to the Trustees who are
not affiliated with Key Advisers, (5) custodian expenses, (6) share issuance
costs, (7) organization and start-up costs, (8) interest, taxes and brokerage
commissions, and (9) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (1) Rule 12b-1
distribution fees and shareholder servicing fees, (2) incremental transfer and
shareholder servicing agent fees and expenses, (3) registration fees and (4)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.

REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of shares of other funds of the Victory Portfolios. To obtain the
reduction of the sales charge, you or your Investment Professional must notify
the Transfer Agent at the time of purchase whenever a quantity discount is
applicable to your purchase.

- 12 -

<PAGE>

In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:

COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a parent-
subsidiary group of "employee benefit plans" (as defined in Section 3(3) of
ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.

RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Victory Portfolios shares held by you, your
spouse, and your children under age 21, determined at the previous day's net
asset value at the close of business, to the amount of your new purchase valued
at the current offering price to determine your reduced sales charge.

LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.

You are not obligated to complete the additional purchases contemplated by a
letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.

If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.

EXCHANGING SHARES

Class A shares of the Fund may be exchanged for shares of any Victory money
market fund or any other fund of the Victory Portfolios with a reduced sales
charge. Shares of any Victory money market fund or any other fund of the Victory
Portfolios with a reduced sales charge may be exchanged for shares of the Fund
upon payment of the difference in the sales charge (or, if applicable, shares of
any Victory money market fund may be used to purchase Class B shares of the
Fund.)

- 13 -

<PAGE>

Class B shares of the Fund may be exchanged for shares of other Victory
Portfolios that offer Class B shares. The CDSC applicable to Class B shares is
imposed on Class B shares redeemed within six years of the initial purchase of
the exchanged Class B shares. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares.

REDEEMING SHARES

REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
charge is currently made for reinvestment in shares of the Fund but a
reinvestment in shares of certain other Victory Portfolios is subject to a $5.00
service fee. The shareholder must ask the Distributor for such privilege at the
time of reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption, some
or all of the loss may not be tax deductible, depending on the timing and amount
of the reinvestment. Under the Internal Revenue Code, as amended (the "IRS
Code"), if the redemption proceeds of Fund shares on which a sales charge was
paid are reinvested in shares of the Fund or another of the Victory Portfolios
within 90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the sales
charge paid. That would reduce the loss or increase the gain recognized from
redemption. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation. The reinstatement must be into an account bearing the
same registration. This privilege may be exercised only once by a shareholder
with respect to the Fund.

DIVIDENDS AND DISTRIBUTIONS

The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income monthly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.

The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will also
differ in amount as a consequence of any difference in net asset value between
Class A and Class B shares.

- 14 -

<PAGE>

all expenses and liabilities of the Fund chargeable against income. Interest
income shall include discount earned, including both original issue and market
discount, on discount paper accrued ratably to the date of maturity. Expenses,
including the compensation payable to Key Advisers or the Sub-Adviser, are
accrued each day. The expenses and liabilities of the Fund shall include those
appropriately allocable to the Fund as well as a share of the general expenses
and liabilities of the Victory Portfolios in proportion to the Fund's share of
the total net assets of the Victory Portfolios.

TAXES

In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.

- 15 -

<PAGE>

to properly include on his or her income tax return payments of interest or
dividends. This "backup withholding" is not an additional tax, and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.

TRUSTEES AND OFFICERS

BOARD OF TRUSTEES.

Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.

The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory
Portfolios under the 1940 Act solely by reason of his position as
President.

- 16 -

<PAGE>

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs. Hill
17822 Lake Road and Thomas Corp.; Trustee, The
Lakewood, Ohio 44107 Victory Funds. Ohio 44107

- 17 -

<PAGE>

- 18 -

<PAGE>

the Legal Committee and the Nominating Committee, which met three times, one
time and one time, respectively, during the 12 month period ended October 31,
1995.

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.

The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.

<TABLE>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" (1)
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee....... -0- -0- $874.92 $46,716.97
Robert G. Brown, Trustee -0- -0- 733.66 39,815.98
John D. Buckingham, Trustee(2). -0- -0- 318.60 18,841.89
Edward P. Campbell, Trustee.... -0- -0- 389.76 39,799.68
Harry Gazelle, Trustee......... -0- -0- 675.74 35,916.98
John W. Kemper, Trustee(2)..... -0- -0- 624.83 22,567.31
Stanley I. Landgraf, Trustee... -0- -0- 535.10 34,615.98
Thomas F. Morrissey, Trustee... -0- -0- 819.94 40,366.98
H. Patrick Swygert, Trustee.... -0- -0- 819.94 37,116.98
John R. Young, Trustee(2)...... -0- -0- 535.81 21,963.81

</TABLE>

(2) Resigned

- 19 -

<PAGE>

OFFICERS.

The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

J. David Huber, 49 Vice President Executive Vice
BISYS Fund Services President, BISYS Fund
3435 Stelzer Road Services.
Columbus, OH 43219-3035

- 20 -
<PAGE>

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.

As of January 6, 1996, the Trustees and officers as a group owned beneficially
less than 1% of the Fund.

ADVISORY AND OTHER CONTRACTS

INVESTMENT ADVISER AND SUB-ADVISER.

Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of Society National Bank, a wholly-owned
subsidiary of KeyCorp. Affiliates of Key Advisers manage approximately $66
billion for numerous clients including large corporate and public retirement
plans, Taft-Hartley plans, foundations and endowments, high net worth
individuals and mutual funds.

The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.

- 21 -

<PAGE>

.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund (1)

.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund (1)
Victory U.S. Government Obligations Fund (1)
Victory Tax-Free Money Market Fund (1)

.50 OF 1% OF AVERAGE DAILY NET ASSETS Victory Ohio Municipal Money
Market Fund (1) Victory Limited Term Income Fund (1) Victory
Government Mortgage Fund (1) Victory Financial Reserves Fund
(1) Victory Fund for Income (2)

.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund (1)
Victory Government Bond Fund (1)
Victory New York Tax-Free Fund (1)

.60 OF 1% OF AVERAGE DAILY NET ASSETS Victory Ohio Municipal Bond
Fund (1) Victory Stock Index Fund (1)

.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund (1)

.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund (1)
Victory Investment Quality Bond Fund (1)
Victory Ohio Regional Stock Fund (1)

1.00% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund (1)
Victory Value Fund (1)
Victory Growth Fund (1)
Victory Special Value Fund (1)
Victory Special Growth Fund (3)

1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund (1)

- --------------

(2) First Albany Asset Management Corporation serves as sub-adviser to the
Victory Fund for Income, for which it receives .20% of such fund's
average daily net assets.

- 22 -

<PAGE>

The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:

For the Victory Balanced Fund, For the Victory International Growth
Diversified Stock Fund, Growth Ohio Regional Stock Fund and Fund,
Fund, Stock Index Fund and Value Value Special Fund:
Fund:

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%

- 23 -

<PAGE>

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%

- --------------------

(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to
voluntarily waive any portion of the sub- advisory fee from time to
time. Any such voluntary waiver will be irrevocable and determined in
advance of rendering sub-investment advisory services by the
Sub-Adviser, and will be in writing.

THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.

Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Victory Portfolios'
Trustees or by vote of a majority of the outstanding shares of the Fund (as
defined under "Additional Information" in the Prospectuses),
and, in either case, by a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement, by votes cast in person at a
meeting called for such purpose.

Key Trust Company, an affiliate of Society, serves as the investment adviser of
the Predecessor Fund. For the period May 3, 1993 to April 30, 1994, Key Trust
Company earned fees of $380,730, all of which was voluntarily waived by Key
Trust Company. For the fiscal year ended April 30, 1995, Key Trust Company
received

- 24 -

<PAGE>

fees of $608,134 before voluntary waiver of $317,598. For the fiscal period
ended October 31, 1995, the Adviser earned investment advisory fees of $120,425
after fee reductions of $35,976.

Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of KeyCorp;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the Sub- Adviser. The sub-advisory arrangement does not result in the payment
of additional fees by the Fund.

GLASS-STEAGALL ACT.

- 25 -

<PAGE>

PORTFOLIO TRANSACTIONS.

Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commissions, available on
each transaction, for reasons discussed below.

The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. or their affiliates or Concord Holding
Corporation, Victory Broker-Dealer Services, Inc. or their affiliates, and will
not give preference to Key Trust Company of Ohio, N.A.'s correspondent banks or
affiliates, or Concord Holding Corporation or Victory Broker-Dealer Services,
Inc. with respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.

- 26 -

<PAGE>

Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the Sub-Adviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.

In the fiscal year ended October 31, 1993, 1994 and 1995, the Fund paid $0, $0
and $0, respectively, in brokerage commissions.

ADMINISTRATOR.

Currently, Concord Holding Corporation ("CHC") serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the Fund (other than those performed by Key Advisers or the
Sub-Adviser under the Investment Advisory Agreement and Sub-Investment Advisory
Agreement). Prior to June 5, 1995, the Winsbury Company ("Winsbury"), now known
as BISYS Fund Services, served as the Fund's administrator.

Under the Administration Agreement, CHC assists in the Fund's administration and
operation, including providing statistical and research data, clerical services,
internal compliance and various other administrative services, including among
other responsibilities, forwarding certain purchase and redemption requests to
the Transfer Agent, participation in the updating of the prospectus,
coordinating the preparation, filing, printing and dissemination of reports to
shareholders, coordinating the preparation of income tax returns, arranging for
the maintenance of books and records and providing the office facilities
necessary to carry out

- 27 -

<PAGE>

the duties thereunder. Under the Administration Agreement, CHC may delegate all
or any part of its responsibilities thereunder.

Until July 1, 1994 Fidelity Distributors Corporation, 82 Devonshire Street,
Boston, Massachusetts 02109, was the Administrator and Distributor to the
Predecessor Fund under separate Administration and General Distribution
Agreements. For the period May 3, 1993 to April 30, 1994, Fidelity Distributors
Corporation earned $103,835 from the Predecessor Fund for services rendered to
the Victory Funds pursuant to the Administration Agreement. During the same
period, Fidelity Distributors Corporation voluntarily reimbursed $17,404 in fees
and expenses to the Predecessor Fund. For the fiscal year ended April 30, 1995,
the Fund paid $165,855 in administration fees of which Fidelity Distributors
Corporation earned $30,762 and CHC earned $135,093. During the same period, fees
and expenses of $0 were reimbursed to the Fund. In the fiscal period ended
October 31, 1995, the Administrator earned aggregate administration fees of
$39,816 after fee reductions of $2,839.

DISTRIBUTOR.

Victory Broker-Dealer Services, Inc. serves as distributor (the "Distributor")
for the continuous offering of the shares of the Fund pursuant to a Distribution
Agreement between the Distributor and the Victory Portfolios. Prior to May 31,
1995, Winsbury served as distributor of the Fund. Unless otherwise terminated,
the Distribution Agreement will remain in effect with respect to the Fund for
two years, and thereafter for consecutive one-year terms, provided that it is
approved at least annually (1) by the Trustees or by the vote of a majority of
the outstanding shares of the Fund, and (2) by the vote of a majority of the
Trustees of the Victory Portfolios who are not parties to the Distribution
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate in the event of its assignment, as defined under the 1940 Act.
For the Victory Portfolios' fiscal period ended October 31, 1994 Winsbury earned
$212,021, in underwriting commissions, and retained $15; for the fiscal period
ended October 31, 1995, the Distributor earned $721,000 in underwriting
commissions, and retained $107,000.

TRANSFER AGENT.

SHAREHOLDER SERVICING PLAN.

- 28 -

<PAGE>

(3) processing dividend and distribution payments on behalf of customers; (4)
providing information periodically to customers showing their positions in
shares; (5) arranging for bank wires; (6) responding to customer inquiries; (7)
providing subaccounting with respect to shares beneficially owned by customers
or providing the information to the Fund as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any proposals regarding this Plan; and (10)
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations.

CLASS A SHARES DISTRIBUTION PLAN.

The Victory Portfolios, on behalf of the Class A shares of the Fund, has adopted
a Distribution and Service Plan ("Plan") for the Fund under Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"). No separate payments are
authorized to be made by the Fund under the Plan. Rather, the Plan recognizes
that Society or the Distributor may use of their fee revenues, or other
resources to pay expenses associated with activities primarily intended to
result in the sale of the shares of the Fund. The Plan also provides that
Society or the Distributor may make payments from these sources to third
parties, including affiliates, such as banks or broker-dealers, that engage in
the sale of the shares of a Fund. See "Investment Adviser" with respect to
certain prohibitions under the Glass-Steagall Act.

CLASS B SHARES DISTRIBUTION PLAN.

The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the 1940 Act.

The Distribution Plan adopted by the Trustees with respect to the Class B shares
of the Fund provides that the Fund will pay the Distributor a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares. The distribution fees may be used
by the Distributor for: (a) costs of printing and distributing the Fund's
prospectus, statement of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of the Fund's Class B shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions and providing
any other shareholder services not otherwise provided by the Victory Portfolios'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee and the CDSCs received by the
Distributor; and (f) any other expense primarily intended to result in the sale
of the Fund's Class B shares, including, without limitation, payments to
salesmen and selling dealers at the time of the sale of Class B shares, if
applicable, and continuing fees to each such salesmen and selling dealers, which
fee shall begin to accrue immediately after the sale of such shares.

The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.

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<PAGE>

The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.

The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the Sub-Adviser or
the Distributor greater flexibility in connection with the distribution of Class
B shares of the Fund, additional sales of the Fund's Class B shares may result.
Additionally, certain Class B shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have other
relationships.

FUND ACCOUNTANT.

BISYS Fund Services Ohio, Inc. serves as fund accountant for the Fund pursuant
to a fund accounting agreement with the Victory Portfolios dated May 31, 1995
(the "Fund Accounting Agreement"). As fund accountant for the Victory
Portfolios, BISYS Fund Services Ohio, Inc. calculates the Fund's net asset
value, the dividend and capital gain distribution, if any, and the yield. BISYS
Fund Services Ohio, Inc. also provides a current security position report, a
summary report of transactions and pending maturities, a current cash position
report, and maintains the general ledger accounting records for the Fund. Under
the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc. is entitled to
receive annual fees of .03% of the first $100 million of the Fund's daily
average net assets, .02% of the next $100 million of the Fund's daily average
net assets, and .01% of the Fund's remaining daily average net assets. These
annual fees are subject to a minimum monthly assets charge of $2,500 per taxable
fund, and does not include out-of-pocket expenses or multiple class charges of
$833 per month assessed for each class of shares after the first class. For the
period ended April 30, 1994 and the fiscal year ended April 30, 1995, the Fund
paid fees of $40,881 and $41,053, respectively. For the period ended October 31,
1995, the Fund Accountant earned fund accounting fees of $29,165.

CUSTODIAN.

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<PAGE>

INDEPENDENT ACCOUNTANTS.

The financial highlights appearing in the Prospectus for the Fund, have been
derived from financial statements of the Fund incorporated by reference in this
Statement of Additional Information which, for the sixth month period ended
October 31, 1995, have been audited by Coopers and Lybrand, L.L.P. as set forth
in their report incorporated by reference herein, and are included in reliance
upon such report and on the authority of such firm as experts in auditing and
account. In formation for the fiscal years ended April 30, 1994 and April 30,
1995 have been audited by KPMG reference herein, and are experts in auditing and
accounting. Coopers & Lybrand L.L.P. serves as the Victory Portfolios' auditors.
Coopers & Lybrand L.L.P.'s address is 100 East Broad Street, Columbus, Ohio
43215.

LEGAL COUNSEL.

Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York,
New York 10022 is the counsel to the Victory Portfolios.

EXPENSES.

The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES.

The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. Its Delaware Trust Instrument was adopted on December 6, 1995
and a certificate of Trust for the Trust was filed in Delaware on December 21,
1995. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware business trust.

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<PAGE>

Trust was filed to change the name of the Trust to The Emblem Fund and to make
certain other changes. A second amendment was filed October 23, 1986 providing
for voting of shares in the aggregate except where voting of shares by series is
otherwise required by law. An amendment to the Amended and Restated Declaration
of Trust was filed on March 15, 1993 to change the name of the Trust to The
Society Funds. An Amended and Restated Declaration of Trust was then filed on
September 2, 1994 to change the name of the Trust to The Victory Portfolios.

Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds of the Victory Portfolios, of
any general assets not belonging to any particular fund which are available for
distribution.

As February 2, 1996, the Fund believes that Key Trust of Cleveland was
shareholder of record of 91.43% of the outstanding Class A shares of the Fund,
but did not hold such shares beneficially.

The following shareholders beneficially owned 5% or more of the outstanding
Class B shares of the Fund as of February 2, 1996:

- -----------------------------------------------------------------------------
Number of Shares Outstanding % of Shares Outstanding
- -----------------------------------------------------------------------------
Mary T Salony 9,041.885 7.28%
5 Stonehenge Lane
Apt 8C
Albany, NY 12203
- -----------------------------------------------------------------------------
Jessica Lattimore TTEE 10,472.760 8.43%
Jennifer Lattimore TR
152 Rear Brunswick Rd
Troy, NY 12180

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<PAGE>

- -----------------------------------------------------------------------------
George W. Schneider Jr 6,224.571 5.01%
Deer Ridge Rd
RR 2 Box 404
Wingdale, NY
12594-9535
- -----------------------------------------------------------------------------
Society National Bank 7,485.030 6.03%
IRA of Clara R. Hiatt
5367 W. Penway St
Indianapolis, IN
46224
- -----------------------------------------------------------------------------

Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. In addition, Trustees may be removed from office by a vote of the
holders of at least two-thirds of the outstanding shares of the Victory
Portfolios. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of all of the Victory Portfolios voting without regard to series.

SHAREHOLDER AND TRUSTEE LIABILITY.

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<PAGE>

shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Delaware Trust Instrument also provides that the
Victory Portfolios shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Victory Portfolios, and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered to be extremely
remote.

The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.

MISCELLANEOUS.

As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund are charged with the direct liabilities and expenses in respect
of that fund, and with a share of the general liabilities and expenses of each
of the funds not readily identified as belonging to a particular fund, which are
allocated to each fund in accordance with its proportionate share of the net
asset values of the Victory Portfolios at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of the
Victory Portfolios to a particular fund will be determined by the Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular fund are conclusive.

As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Victory Portfolios or such fund are represented in person or by proxy, or (b)
more than 50% of the outstanding shares of the Fund.

- 34 -

<PAGE>

- 35 -

<PAGE>

APPENDIX

DESCRIPTION OF SECURITY RATINGS.

LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).

A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

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<PAGE>

Description of the three highest long-term debt ratings by Duff:

AAA. Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-. High credit quality Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.

A+, A, A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

A. Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.

IBCA's description of its three highest long-term debt ratings:

AA. Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very
significantly.

A. Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong,

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<PAGE>

although adverse changes in business, economic or financial conditions
may lead to increased investment risk.

SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).

Moody's description of its three highest short-term debt ratings:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.

- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

S&P's description of its three highest short-term debt ratings:

A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely
strong safety characteristics are denoted with a plus sign (+).

A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3. Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.

Duff 1+. Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources

- 38 -

<PAGE>

of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

Duff 1-. High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.

Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade.

Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.

Fitch's description of its four highest short-term debt ratings:

F-1+. Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.

F-1. Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.

F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ or F-1 ratings.

IBCA's description of its three highest short-term debt ratings:

A+. Obligations supported by the highest capacity for timely
repayment.

A1. Obligations supported by a very strong capacity for timely
repayment.

A2. Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.

SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS

Moody's description of its two highest short-term loan/municipal note
ratings:

MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

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<PAGE>

SP-2. Satisfactory capacity to pay principal and interest.

SHORT-TERM DEBT RATINGS

BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.

The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.

The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.

The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.

TBW-1. The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.

TBW-4. The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS

- 40 -

<PAGE>

- 41 -

<PAGE>

Rule 497(c)
Registration No. 33-8982

STATEMENT OF ADDITIONAL INFORMATION

THE VICTORY PORTFOLIOS

GOVERNMENT MORTGAGE FUND

MARCH 1, 1996

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios Government Mortgage
Fund, dated the same date as the date hereof (the "Prospectus"). This Statement
of Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Portfolios at Primary Funds Service Corporation, P.O. Box 9741, Providence, RI
02940-9741, or by telephoning toll free 800-539-FUND or 800-539-3863.

TABLE OF CONTENTS

INVESTMENT OBJECTIVE AND POLICIES.........2 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS.. 8 KeyCorp Mutual Fund Advisers, Inc.
VALUATION OF PORTFOLIO SECURITIES........10
PERFORMANCE..............................10 INVESTMENT SUB-ADVISER
ADDITIONAL PURCHASE, EXCHANGE AND Society Asset Management, Inc.
REDEMPTION INFORMATION.............. 14
DIVIDENDS AND DISTRIBUTIONS..............16 ADMINISTRATOR
TAXES....................................16 Concord Holding Corporation
TRUSTEES AND OFFICERS....................17
ADVISORY AND OTHER CONTRACTS.............21 DISTRIBUTOR
ADDITIONAL INFORMATION...................29 Victory Broker-Dealer Services, Inc.
APPENDIX.................................32
TRANSFER AGENT
INDEPENDENT AUDITORS REPORT Primary Funds Service Corporation
FINANCIAL STATEMENTS
CUSTODIAN
Key Trust Company of Ohio, N.A.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-eight series of
units of beneficial interest ("shares"), four of which series are currently
inactive. The outstanding shares represent interests in the twenty-four separate
investment portfolios which are currently active. This Statement of Additional
Information relates to the Victory Government Mortgage Fund (the "Fund") only.
Much of the information contained in this Statement of Additional Information
expands on subjects discussed in the Prospectus. Capitalized terms not defined
herein are used as defined in the Prospectus. No investment in shares of the
Fund should be made without first reading the Fund's Prospectus.

INVESTMENT OBJECTIVE AND POLICIES

ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.

Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.

The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.

<PAGE>

investment policies, a variable amount master note will be deemed to have a
maturity equal to the longer of the period of time remaining until the next
readjustment of its interest rate or the period of time remaining until the
principal amount can be recovered from the issuer through demand.

VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.

Variable or floating rate notes may have maturities of more than one year, as
follows:

1. A note that is issued or guaranteed by the United States government or
any agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.

2. A variable rate note, the principal amount of which is scheduled on the
face of the instrument to be paid in one year or less, will be deemed by the
Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.

3. A variable rate note that is subject to a demand feature scheduled to
be paid in one year or more will be deemed by the Fund to have a maturity equal
to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.

4. A floating rate note that is subject to a demand feature will be deemed
by the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.

<PAGE>

OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money the
market funds of the Victory Portfolios. Key Advisers will waive its investment
advisory fee with respect to assets of the Fund invested in any of the money
market funds of the Victory Portfolios, and, to the extent required by the laws
of any state in which the Fund's shares are sold, Key Advisers will waive its
investment advisory fee as to all assets invested in other investment companies.

SHORT-TERM FUNDING AGREEMENTS. The Fund may invest in short-term funding
agreements (sometimes referred to as "GICs") issued by insurance companies.
Pursuant to such agreements, the Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
the Fund, on a monthly basis, guaranteed interest which is based on an index.
The short-term funding agreements provide that this guaranteed interest will not
be less than a certain minimum rate. Because the principal amount of a
short-term funding agreement may not be received from the insurance company on
seven days notice or less, the agreement is considered to be an illiquid
investment and, together with other instruments in the Fund which are not
readily marketable, will not exceed 10% of the Fund's total assets. In
determining dollar-weighted average portfolio maturity, a short-term funding
agreement will be deemed to have a maturity equal to the period of time
remaining until the next readjustment of the guaranteed interest rate.

TEMPORARY INVESTMENTS. The Fund may also invest temporarily in high quality
investments or cash during times of unusual market conditions for defensive
purposes and in order to accommodate shareholder redemption requests although
currently it does not intend to do so. Any portion of the Fund's assets
maintained in cash will reduce the amount of assets in securities and thereby
reduce the Fund's yield or total return.

GOVERNMENT "MORTGAGE-BACKED" SECURITIES. The Fund may invest in obligations of
certain agencies and instrumentalities of the U.S. Government. Some such
obligations, such as those issued by GNMA or the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of FNMA, are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or FHLMC, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
and instrumentalities if it is not obligated to do so by law.

The principal governmental (i.e., backed by the full faith and credit of the
U.S. Government) guarantor of mortgage-related securities is GNMA. GNMA is a
wholly owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and pools of FHA-insured or
VA-guaranteed mortgages. Government-related (i.e., not backed by the full faith
and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA and
FHLMC are government-sponsored corporations owned entirely by private
stockholders. Pass-through securities issued by FNMA and FHLMC are guaranteed as
to timely payment of principal and interest by FNMA and FHLMC, respectively, but
are not backed by the full faith and credit of the U.S. Government.

<PAGE>

MORTGAGE-RELATED SECURITIES -- IN GENERAL

GNMA CERTIFICATES. Certificates of the Government National Mortgage Association
("GNMA") are mortgage-backed securities which evidence an undivided interest in
a pool or pools of mortgages. GNMA Certificates that the Fund may purchase are
the "modified pass-through" type, which entitle the holder to receive timely
payment of all interest and principal payments due on the mortgage pool, net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.

<PAGE>

FUTURES CONTRACTS. The Fund may enter into futures contracts, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested and reducing transaction costs. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security, class of securities, or an index at a
specified future time and at a specified price. A stock index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.

Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position (buying a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.

After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.

When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, the
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases.

The Fund will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase.

<PAGE>

The Fund's ability to effectively utilize futures trading depends on several
factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index.
Second, it is possible that a lack of liquidity for futures contracts could
exist in the secondary market, resulting in an inability to close a futures
position prior to its maturity date. Third, the purchase of a futures contract
involves the risk that the Fund could lose more than the original margin deposit
required to initiate a futures transaction.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
to the extent that, immediately thereafter, the sum of its initial margin
deposits on open contracts exceeds 5% of the market value of the Fund's total
assets. In addition, the Fund will not enter into futures contracts to the
extent that the value of the futures contracts held would exceed 1/3 of the
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain the Fund's qualification as a regulated investment
company.

The Victory Portfolios have undertaken to restrict their futures contract
trading as follows: first, the Victory Portfolios will not engage in
transactions in futures contracts for speculative purposes; second, the Victory
Portfolios will not market its funds to the public as commodity pools or
otherwise as vehicles for trading in the commodities futures or commodity
options markets; third, the Victory Portfolios will disclose to all prospective
shareholders the purpose of and limitations on its funds' commodity futures
trading; fourth, the Victory Portfolios will submit to the CFTC special calls
for information. Accordingly, registration as a commodities pool operator with
the CFTC is not required.

In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the Commission. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.

In addition, the extent to which the Fund may enter into transactions involving
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a registered investment company and the Fund's intention to
qualify as such.

RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge

<PAGE>

them. The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures contracts which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Fund are only for hedging purposes, Key
Advisers and the Sub-Adviser do not believe that the Fund is subject to the
risks of loss frequently associated with futures transactions. The Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.

Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contract
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.

INVESTMENT LIMITATIONS AND RESTRICTIONS

THE FUND MAY NOT:

1. Participate on a joint or joint and several basis in any securities
trading account.

2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).

3. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.

4. Issue any senior security (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.

<PAGE>

agreements, provided that the total amount of any such borrowing does not exceed
331/3% of the Fund's total assets; and (b) the Fund may borrow money for
temporary or emergency purposes in an amount not exceeding 5% of the value of
its total assets at the time when the loan is made. Any borrowings representing
more than 5% of the Fund's total assets must be repaid before the Fund may make
additional investments.

6. Lend any security or make any other loan if, as a result, more than
331/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of publicly issued debt securities or to repurchase
agreements.

7. Underwrite securities issued by others, except to the extent that the
Fund may be considered an underwriter within the meaning of the Securities Act
of 1933 (the "1933 Act") in the disposition of restricted securities.

The following restrictions are not fundamental and may be changed
without shareholder approval:

1. The Fund will not purchase or retain securities of any issuer if the
officers or Trustees of the Victory Portfolios or the officers or directors of
its investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.

2. The Fund will not invest more than 10% of its total assets in the
securities of issuers which together with any predecessors have a record of less
than three years of continuous operation.

3. The Fund will limit its investments in warrants to no more than 5% of
its net assets, and of this 5%, no more than 2% will be invested in warrants
which are not listed on the New York Stock Exchange or American Stock Exchange.

4. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.

5. The Fund will not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.

6. The Fund may invest up to 5% of its total assets in the securities of
any one investment company, but may not own more than 3% of the securities of
any one investment company or invest more than 10% of its total assets in the
securities of other investment companies. Pursuant to an exemptive order
received by the Victory Portfolios from the Commission, the Fund may invest in
the other money market funds of the Victory Portfolios.

<PAGE>

STATE REGULATIONS.

In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.

GENERAL.

The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent
change in values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and limitations. If the value of the Fund's holdings of illiquid securities at
any time exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.

The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund, or (2)
a policy is expressly deemed to be changeable only by such majority vote.

VALUATION OF PORTFOLIO SECURITIES

PERFORMANCE

From time to time the "standardized yield," "dividend yield," "average annual
total return," "total return," and "total return at net asset value" of an
investment in each class of Fund shares may be advertised. An explanation of how
yields and total returns are calculated and the components of those calculations
are set forth below.

<PAGE>

guaranteed and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original cost. Yield and
total return for any given past period are not a prediction or representation by
the Victory Portfolios of future yields or rates of return on its shares. The
yield and total returns of the Fund are affected by portfolio quality, portfolio
maturity, the type of investments the Fund holds and operating expenses.

STANDARDIZED YIELDS. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Commission that apply to all
funds that quote yields:

Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd

The symbols above represent the following factors:

a = dividends and interest earned during the 30-day period.

b = expenses accrued for the period (net of any expense
reimbursements).

c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.

d = the maximum offering price per share of the class on the last
day of the period, adjusted for undistributed net investment
income.

The standardized yield for a 30-day period may differ from its yield for any
other period. The Commission formula assumes that the standardized yield for a
30-day period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This standardized yield is not based on
actual distributions paid by the Fund to shareholders in the 30-day period, but
is a hypothetical yield based upon the net investment income from the Fund's
portfolio investments calculated for that period. The standardized yield may
differ from the "dividend yield," described below. Additionally, because each
class of shares is subject to different expenses, it is likely that the
standardized yields of the Fund classes of shares will differ. The yield for the
30-day period ended October 31, 1995 was 5.76% .

DIVIDEND YIELD AND DISTRIBUTION RETURNS. From time to time the Fund may quote a
"dividend yield" or a "distribution return." Dividend yield is based on the
share dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions declared during a stated period
of one year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of that class A) on the last day
of the period. When the result is annualized for a period of less than one year,
the "dividend yield" is calculated as follows:

Dividend Yield = Dividends + Number of days (accrual period) x 365
---------
Max. Offering Price (last day of period)

The maximum offering price for shares includes the maximum front-end sales
charge.

<PAGE>

TOTAL RETURNS. The "average annual total return" is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:

(ERV/P)^1/N-1 = Average Annual Total Return

(ERV/P)-1 = Total Return
P

In calculating total returns, the current maximum sales charge of 4.75% (as a
percentage of the offering price) is deducted from the initial investment ("P")
(unless the return is shown at net asset value, as discussed below). Total
returns also assume that all dividends and capital gains distributions during
the period are reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period. The average annual
total return and cumulative total return for the period from May 18, 1990
(commencement of operations) to October 31, 1995 at maximum offering price were
7.88% and 51.30%, respectively. For the one year period ended October 31, 1995
annual total return was 8.11%.

From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value." It is based on
the difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without
considering front-end or contingent sales charges) and takes into consideration
the reinvestment of dividends and capital gains distributions. The average
annual total return and cumulative total return for the period from May 18, 1990
(commencement of operations) to October 31, 1995 (life of fund), at net asset
value, was 8.85% and 58.87%, respectively. For the one and five year periods
ended October 31, 1995, average annual total return was 13.55% and 8.56%,
respectively.

OTHER PERFORMANCE COMPARISONS. From time to time the Fund may publish the
ranking of the performance of its shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the
Fund, and ranks the performance of the Fund against (1) all other funds,
excluding money market funds, and (2) all other government bond funds. The
Lipper performance rankings are based on total return that includes the
reinvestment of capital gains distributions and income dividends but does not
take sales charges or taxes into consideration.

<PAGE>

various markets throughout the world, including the United States. The Lehman
Government/ Corporate Bond Index generally represents the performance of
intermediate and long-term government and investment grade corporate debt
securities. The Lehman Aggregate Bond Index measures the performance of U.S.
corporate bond issues, U.S. government securities and mortgage-backed
securities. The J.P. Morgan Government Bond Index generally represents the
performance of government bonds issued by various countries including the United
States. The S&P 500 Index is a composite index of 500 common stocks generally
regarded as an index of U.S. stock market performance. The foregoing bond
indices are unmanaged indices of securities that do not reflect reinvestment of
capital gains or take investment costs into consideration, as these items are
not applicable to indices.

From time to time, the yields and the total returns of the Fund may be quoted in
and compared to other mutual funds with similar investment objectives in
advertisements, shareholder reports or other communications to shareholders. The
Fund may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples are based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or retirement planning), investment management techniques, policies or
investment suitability of Fund, economic conditions, legislative developments
(including pending legislation), the effects of inflation and historical
performance of various asset classes, including but not limited to stocks, bonds
and Treasury bills. From time to time advertisements or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of the Fund, as well as the views
of the investment adviser as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to the Fund). The
Fund may also include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to stocks, bonds, and Treasury bills, as
compared to an investment in shares of the Fund, as well as charts or graphs
which illustrate strategies such as dollar cost averaging, and comparisons of
hypothetical yields of investment in tax-exempt versus taxable investments. In
addition, advertisements or shareholder communications may include a discussion
of certain attributes or benefits to be derived by an investment in the Fund.
Such advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. With proper authorization, the Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance information with respect to the Fund is generally available by
calling 1-800-539-3863.

Investors may also judge, and the Fund may at times advertise, the performance
by comparing it to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies, which performance
may be contained in various unmanaged mutual fund or market indices or rankings
such as those prepared by Dow Jones & Co., Inc., Standard & Poor's Corporation,
Lehman Brothers, Merrill Lynch, and Salomon Brothers, and in publications issued
by Lipper Analytical Services, Inc. and in the following publications: IBC's
Money Fund Reports, Value Line Mutual Fund Survey, Morningstar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Institutional Investor,
Ibbotson Associates and U.S.A. Today. In addition to yield information, general
information about the Fund that appears in a publication such as those mentioned
above may also be quoted or reproduced in advertisements or in reports to
shareholders.

<PAGE>

When comparing yield, total return and investment risk of an investment in the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to maintain a fixed price per share.

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION

The New York Stock Exchange ("NYSE") and Federal Reserve Bank of Cleveland
holiday closing schedule indicated in the Prospectus under "Share Price" are
subject to change.

When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.

If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of the Fund. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes and will incur any
costs of sale as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.

PURCHASING SHARES

REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more alone or in combination with purchases of shares of other funds
of the Victory Portfolios. To obtain the reduction of the sales charge, you or
your Investment Professional must notify the Transfer Agent at the time of
purchase whenever a quantity discount is applicable to your purchase.

In addition to investing at one time in any combination of shares of the Victory
Portfolios in an amount entitling you to a reduced sales charge, you may qualify
for a reduction in the sales charge under the following programs:

COMBINED PURCHASES. When you invest in shares of the Victory Portfolios for
several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.

<PAGE>

by you, your spouse, and your children under age 21, determined at the previous
day's net asset value at the close of business, to the amount of your new
purchase valued at the current offering price to determine your reduced sales
charge.

LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with shares of certain other Victory Portfolios
within a 13-month period, you may obtain shares of the portfolios at the same
reduced sales charge as though the total quantity were invested in one lump sum,
by filing a non-binding Letter of Intent (the "Letter") within 90 days of the
start of the purchases. Each investment you make after signing the Letter will
be entitled to the sales charge applicable to the total investment indicated in
the Letter. For example, a $2,500 purchase toward a $60,000 Letter would receive
the same reduced sales charge as if the $60,000 had been invested at one time.
To ensure that the reduced price will be received on future purchases, you or
your Investment Professional must inform the transfer agent that the Letter is
in effect each time shares are purchased. Neither income dividends nor capital
gain distributions taken in additional shares will apply toward the completion
of the Letter.

You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.

EXCHANGING SHARES

Shares of the Fund may be exchanged for shares of any Victory money market fund
or any other fund of the Victory Portfolios with a reduced sales charge. Shares
of any Victory money market fund or any other fund of the Victory Portfolios
with a reduced sales charge may be exchanged for shares of the Fund upon payment
of the difference in the sales charge.

REDEEMING SHARES

REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of shares of the Fund or any of
the other Victory Portfolios into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after receipt by the
Transfer Agent of the reinvestment order. No charge is currently made for
reinvestment in shares of the Fund but a reinvestment in shares of certain other
Victory Portfolios is subject to a $5.00 service fee. The shareholder must ask
the Distributor for such privilege at the time of reinvestment. Any capital gain
that was realized when the shares were redeemed is taxable, and reinvestment
will not alter any capital gains tax payable on that gain. If there has been a
capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code of 1986, as amended (the "IRS Code"), if the redemption
proceeds of Fund shares on which a sales charge was paid are reinvested in
shares of the Fund or another of the Victory Portfolios within 90 days of
payment of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid. That
would reduce the loss or increase the gain recognized from redemption. The Fund
may amend, suspend or cease offering this reinvestment privilege at any time as
to shares redeemed after the date of such amendment, suspension or cessation.
The reinstatement must be into an account bearing the same registration. This
privilege may be exercised only once by a shareholder with respect to the Fund.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

The amount of distributions may vary from time to time depending on market
conditions, composition of the Fund's portfolio, and expenses borne by the Fund.

TAXES

In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the Fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the IRS Code.

<PAGE>

distributions to shareholders. The Victory Portfolios will endeavor to make any
available elections pertaining to such transactions in a manner believed to be
in the best interest of the Fund and its shareholders.

TRUSTEES AND OFFICERS

BOARD OF TRUSTEES.

Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios were previously managed by the Trustees in accordance with
the laws of the Commonwealth of Massachusetts governing business trusts.
Effective on February 29, 1996, the Victory Portfolios were converted to a
Delaware business trust). There are currently seven Trustees, six of whom are
not "interested persons" of the Victory Portfolios within the meaning of that
term under the 1940 Act ("Independent Trustees"). The Trustees, in turn, elect
the officers of the Victory Portfolios to actively supervise its day-to-day
operations.

The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:

Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------------- -------------------

<PAGE>

engaged in regional economic
development).

Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs. Hill
17822 Lake Road and Thomas Corp.; Trustee, The
Lakewood, Ohio 44107 Victory Funds.

<PAGE>

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.

The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.

<TABLE>

Leigh A. Wilson, Trustee...... -0- -0- $1,021.27 $46,716.97
Robert G. Brown, Trustee -0- -0- 1,126.45 39,815.98
John D. Buckingham, Trustee(2). -0- -0- 589.95 18,841.89
Edward P. Campbell, Trustee... -0- -0- 1,174.17 39,799.68
Harry Gazelle, Trustee........ -0- -0- 919.93 35,916.98
John W. Kemper, Trustee(2).... -0- -0- 589.95 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 949.17 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 1,174.17 40,366.98
H. Patrick Swygert, Trustee... -0- -0- 949.17 37,116.98
John R. Young, Trustee(2)..... -0- -0- 621.95 21,963.81

</TABLE>

(2) Resigned

<PAGE>

OFFICERS.

The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

J. David Huber, 49 Vice President Executive Vice
BISYS Fund Services President, BISYS Fund
3435 Stelzer Road Services.
Columbus, OH 43219-3035

<PAGE>

POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ----------------------------- ---------------------- ----------------------

The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219- 3035.

As of January 6, 1996, the Trustees and officers as a group owned beneficially
less than 1% of the Fund.

ADVISORY AND OTHER CONTRACTS

INVESTMENT ADVISER AND SUB-ADVISER.

Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of Society National Bank, a wholly-owned
subsidiary of KeyCorp. Affiliates of Key Advisers manage approximately $66
billion for numerous clients including large corporate and public retirement
plans, Taft-Hartley plans, foundations and endowments, high net worth
individuals and mutual funds.

KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of September 30, 1995, KeyCorp had an asset
base of $68 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which Society
National Bank was a wholly-owned subsidiary, and KeyCorp, the former bank
holding company. KeyCorp's major business activities include providing
traditional banking and associated financial services to consumer, business and
commercial markets. Its non-bank subsidiaries include investment advisory,
securities brokerage, insurance, bank credit card processing, and leasing
companies.
Society National Bank is the lead affiliate bank of KeyCorp.

The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.

.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund (1)

.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund (1)
Victory U.S. Government Obligations Fund (1)
Victory Tax-Free Money Market Fund (1)

21
<PAGE>

.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund (1)
Victory Government Bond Fund (1)
Victory New York Tax-Free Fund (1)

.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund (1)
Victory Stock Index Fund (1)

.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund (1)

.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund (1)
Victory Investment Quality Bond Fund (1)
Victory Ohio Regional Stock Fund (1)

1.00% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund (1)
Victory Value Fund (1)
Victory Growth Fund (1)
Victory Special Value Fund (1)
Victory Special Growth Fund (3)

1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund (1)

- --------------

(2) First Albany Asset Management Corporation serves as sub-adviser to the
Victory Fund for Income, for which it receives .20% of such fund's
average daily net assets.

22
<PAGE>

The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:

For the Victory Balanced Fund, For the Victory International Growth
Diversified Stock Fund, Growth Ohio Regional Stock Fund and Fund,
Fund, Stock Index Fund and Value Value Special Fund:
Fund:

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%

Rate of Rate of
Net Assets Sub-Advisory Fee(1) Net Assets Sub-Advisory Fee(1)

Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%

- --------------------

THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.

Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Victory Portfolios'
Trustees or by vote of a majority of the outstanding shares of the Fund (as
defined under Additional Information"), and, in either case, by
a majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement, by votes cast in person at a meeting called for
such purpose.

<PAGE>

for services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of Key Advisers in the performance of its duties, or from
reckless disregard by it of either duties and obligations thereunder.

Prior to January, 1993, Society served as investment adviser to the Fund. From
September 26, 1994 (commencement of operations) until December 31, 1995, Society
Asset Management, Inc. served as investment adviser to the Fund. For the fiscal
years ended October 31, 1993, October 31, 1994 and October 31, 1995 the Fund
paid investment advisory fees of $505,509, $800,556 and $702,724 respectively,
after fee reductions of $5,458, $30,223 and $15,995, respectively.

GLASS-STEAGALL ACT.

In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) does not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.

From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser including, but not limited to: (1) descriptions of the operations of
Key Trust Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2)
descriptions of certain personnel and their functions; and (3) statistics and
rankings related to the operations of Key Trust Company of Ohio, N.A., Key
Advisers and the Sub-Adviser.

<PAGE>

PORTFOLIO TRANSACTIONS.

Pursuant to the Investment Advisory Agreement and Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.

Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the same securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result tht would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the Sub-Adviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.

In the fiscal years ended October 31, 1994 and October 31, 1995, the Fund paid
$721,000 and $107,000 in brokerage commissions.

<PAGE>

PORTFOLIO TURNOVER. The turnover rate stated in the Prospectus for the Fund's
investment portfolio is calculated by dividing the lesser of the Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities, at the time of acquisition, were one year or less. In the fiscal
years ended October 31, 1993, October 31, 1994, and October 31, 1995 the Fund's
portfolio turnover rates were 50.18%, 131.63% and 59.14% respectively.

ADMINISTRATOR.

In the fiscal years ended October 31, 1993, October 31, 1994 and October 31,
1995, the Administrator earned aggregate administration fees of $151,653,
$235,613, and $215,665, respectively, after fee reductions of $1,711, $13,621
and $0, respectively.

DISTRIBUTOR.

<PAGE>

approved at least annually (1) by the Trustees or by the vote of a majority of
the outstanding shares of the Fund, and (2) by the vote of a majority of the
Trustees of the Victory Portfolios who are not parties to the Distribution
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate in the event of its assignment, as defined under the 1940 Act.
For the Victory Portfolios' fiscal year ended October 31, 1994 Winsbury earned
$212,021 in underwriting commissions, and retained $15; for the fiscal year
ended October 31, 1995, the Distributor earned $664 in underwriting commissions,
and retained $0.

TRANSFER AGENT.

SHAREHOLDER SERVICING PLAN.

Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser and Sub-Adviser)are for
administrative support services to customers who may from time to time
beneficially own shares, which services may include: (1) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (2) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments on behalf of customers; (4)
providing information periodically to customers showing their positions in
shares; (5) arranging for bank wires; (6) responding to customer inquiries; (7)
providing subaccounting with respect to shares beneficially owned by customers
or providing the information to the Fund as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any proposals regarding this Plan; and (10)
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations.

FUND ACCOUNTANT.

BISYS Fund Services Ohio, Inc. serves as fund accountant for the Fund pursuant
to a fund accounting agreement with the Victory Portfolios dated May 31, 1995
(the "Fund Accounting Agreement"). As fund accountant for the Victory
Portfolios, BISYS Fund Services Ohio, Inc. calculates the Fund's net asset
value, the dividend and capital gain distribution, if any, and the yield. BISYS
Fund Services Ohio, Inc. also provides a current security position report, a
summary report of transactions and pending maturities, a current cash position
report, and maintains the general ledger accounting records for the Fund. Under
the Fund Accounting Agreement, BISYS Fund Services Ohio, Inc. is entitled to
receive annual fees of .03% of the first $100 million of the Fund's daily
average net assets, .02% of the next $100 million of the Fund's daily average
net assets, and .01% of the Fund's remaining daily average net assets. These
annual fees are subject to a minimum monthly assets charge of $2,500 per taxable
fund, and does not include out-of-pocket expenses or multiple class charges of
$833 per month assessed for each class of shares after the first class. In the
fiscal years ended October 31, 1993, October 31, 1994 and October 31, 1995 the
Fund accountant earned fund accounting fees of $60,564, $106,719 and $83,080,
respectively.

<PAGE>

CUSTODIAN.

INDEPENDENT ACCOUNTANTS.

The financial highlights appearing in the Prospectus for the Fund, have been
derived from financial statements of the Fund incorporated by reference in this
Statement of Additional Information which have been audited by Coopers and
Lybrand, L.L.P. as set forth in their report incorporated by reference herein,
and are included in reliance upon such report and on the authority of such firm
as experts in auditing and accounting. Coopers & Lybrand L.L.P. serves as the
Victory Portfolios' auditors. Coopers & Lybrand L.LP.'s address is 100 East
Broad Street, Columbus, Ohio 43215.

LEGAL COUNSEL.

Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York,
New York 10022 is the counsel to the Victory Portfolios.

EXPENSES.

<PAGE>

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES.

The currently effective Delaware Trust Instrument authorizes the Trustees to
issue an unlimited number of shares, which are units of beneficial interest,
without par value. The Victory Portfolios presently has twenty-eight series of
shares, which represent interests in the U.S. Government Obligations Fund, the
Prime Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the
Stock Index Fund, the Value Fund, the Fund, the Growth Fund, the Special Value
Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the International
Growth Fund, the Limited Term Income Fund, the Government Mortgage Fund, the
Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment Quality
Bond Fund, the Florida Tax-Free Bond Fund, the Municipal Bond Fund, the
Convertible Securities Fund, the Short-Term U.S. Government Income Fund, the
Government Bond Fund, the Fund for Income, the National Municipal Bond Fund, the
New York Tax-Free Fund, the Institutional Money Market Fund, the Financial
Reserves Fund and the Ohio Municipal Money Market Fund, respectively. The
Victory Portfolios' Delaware Trust Instrument authorizes the Trustees to divide
or redivide any unissued shares of the Victory Portfolios into one or more
additional series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.

Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of the Fund are entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate distribution, based upon
the relative asset values of the Victory Portfolios, of any general assets not
belonging to any particular fund which are available for distribution.

As of February 2, 1996, the Fund believes that SNBOC and Company was shareholder
of record of 97.67% of the outstanding shares of the Fund, but did not hold such
shares beneficially.

<PAGE>

shareholders for at least six months, and who hold shares having a net asset
value of at least $25,000 or constituting 1% of the outstanding shares) stating
that such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a Trustee, the Victory Portfolios will provide a list of shareholders
or disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the Trustees shall continue to hold
office and may appoint their successors.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of all of the Victory Portfolios voting without regard to series.

SHAREHOLDER AND TRUSTEE LIABILITY

The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations. The Delaware Trust Instrument
also provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. The Delaware Trust Instrument also provides that the Victory
Portfolios shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Victory Portfolios, and shall
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered to be extremely
remote.

The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.

MISCELLANEOUS

As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund, which are charged with the direct liabilities and expenses in
respect of that fund, and with a share of the general liabilities and expenses
of each of the funds not readily identified as belonging to a particular fund
that are allocated to each fund in accordance with its proportionate share of
the net asset values of the Victory Portfolios at the time of allocation. The
timing of allocations of general assets and general liabilities and expenses of
the Victory Portfolios to a particular fund will be determined by the Trustees
and will be in accordance with generally accepted

<PAGE>

accounting principles. Determinations by the Trustees as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular fund are
conclusive.

As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund or such fund
present at a meeting at which the holders of more than 50% of the outstanding
shares of the Fund or such fund are represented in person or by proxy, or (b)
more than 50% of the outstanding shares of the Fund.

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APPENDIX

DESCRIPTION OF SECURITY RATINGS.

The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by Key Advisers or the
Sub-Adviser with regard to portfolio investments for the Funds include Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Duff
& Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
and its affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.

LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements -
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.

Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

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BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB. Debt rated BB is regarded, on balance, as predominately speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.

Description of the three highest long-term debt ratings by Duff:

AAA. Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-. High credit quality Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.

A+, A, A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA. Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA. Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "[-]+."

A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

IBCA's description of its three highest long-term debt ratings:

AA. Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very
significantly.

A. Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.