VICTORY PORTFOLIOS, 497, 1999-04-07

VICTORY PORTFOLIOS
497, 1999-04-07

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Victory Funds

PROSPECTUS

GRADISON GOVERNMENT
RESERVES FUND
Class G Shares
April 5, 1999

As with all mutual funds, the Securities and Exchange Commission has not
approved the Fund's securities or determined whether this Prospectus is accurate
or complete. Anyone who tells you otherwise is committing a crime.

Call Gradison McDonald: 513-579-5999 or 800-869-5999

Or Call Victory at: 800-539-FUND or 800-539-3863

<PAGE>

THE VICTORY PORTFOLIOS

PROSPECTUS FOR:
GRADISON GOVERNMENT RESERVES FUND

TABLE OF CONTENTS

RISK/RETURN SUMMARY OF THE FUND 2
An analysis which includes the investment objective,
principal strategies,
principal risks, performance, and expenses

Risk Factors 4

Share Price 5

Dividends, Distributions, and Taxes 5

INVESTING WITH VICTORY 8
- How to Buy Shares 8
- How to Exchange Shares 11
- How to Sell Shares 12

Organization and Management of the Fund 14

Additional Information 16

Other Securities and Investment Practices 17

Financial Highlights 18

KEY TO FUND INFORMATION:

[Graphic] OBJECTIVE AND STRATEGIES The goals and the strategies that the Fund
plans to use to pursue its investment objective.

[Graphic] RISK FACTORS The risks you may assume as an investor in the Fund.

[Graphic] PERFORMANCE
A summary of the historical performance of the Fund.

[Graphic] EXPENSES
The costs you will pay, directly or indirectly, as an investor in the Fund,
including ongoing expenses.

[Graphic FDIC]

[Graphic BANK]

Shares of the Fund are:

- Not insured by the FDIC;

- Not deposits or other obligations of KeyBank or any of its affiliates;

- Subject to possible investment risk, including possible loss of the amount
invested.

Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.

<PAGE>

GRADISON GOVERNMENT RESERVES FUND Risk/Return Summary

[Graphic] Investment Objective

The Fund's investment objective is to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.

[Graphic] Principal Investment Strategies

The Fund pursues its investment objective by investing only in securities issued
by the U.S. Government, its agencies and/or instrumentalities. Securities issued
by U.S. Government instrumentalities such as the Student Loan Marketing
Association (SLMA), Federal Farm Credit Bank (FFCB), Federal Home Loan Bank
(FHLB), Federal Home Loan Mortgage Corporation (FHLMC) and the Federal
Agricultural Mortgage Corporation (FAMC) are supported only by the credit of the
federal instrumentality. The Fund intends to invest primarily, and may invest
exclusively, in these instruments. The Fund plans, as much as possible, to
invest in securities whose interest payments are exempt from state and local
taxes.

Important Characteristics of the Fund:

Quality: The Fund invests only in U.S. Government securities, including agencies
and instrumentalities of the U.S. Government. The Board of Trustees has
established policies to ensure that the Fund invests in high quality, liquid
instruments.

Maturity: The Fund has a weighted average maturity of 90 days or less.
Individual investments may be purchased with remaining maturities ranging from
one day to 397 days. The Fund will invest in variable and floating rate
instruments issued by agencies and instrumentalities of the U.S. Government.
These securities are considered to be within the maturity range described above,
despite having nominal remaining maturities greater than 397 days, because of
their reset or floating rate features. For a description of variable and
floating rate securities, see "Other Securities and Investment Practices" in
this Prospectus.

[Graphic] Principal Risks

The Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Fund's yield or the stability of its $1.00 share price may
be adversely affected if any of the following occurs:

- - An agency or instrumentality defaults on its obligation and the U.S.
Government does not provide financial support

- - Short-term interest rates decline, causing the Fund to invest assets at lower
rates

- - The rate of inflation increases more quickly than the returns for money
market funds

- - The market value of floating or variable rate securities falls to the extent
that the Fund's share price declines below $1.00 due to changing interest
rate relationships among securities maturing at different times.

- - Rapidly rising short-term interest rates cause securities held by ththe Fund
to decline in value and cause the Fund's share price to decline below $1.00

An investment in the Fund is not insured or guaranteed by the FDIC or any
other government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.

Who May Want to Invest In the Fund:

- Investors seeking relative safety and easy access to investments

- Investors with a low risk tolerance

- Investors seeking preservation of capital

- Investors willing to accept lower potential returns in return for safety

- Investors seeking the ability to convert their investment to cash quickly

<PAGE>
GRADISON GOVERNMENT RESERVES FUND Risk/Return Summary

[Graphic] Investment Performance

The chart shown below gives an indication of the risks and variability of
returns by investing in the Fund by showing changes in the Fund's performance as
of December 31 from year to year for the last ten years. The table below shows
the Fund's average annual returns for one year, five years, and ten years. The
figures shown assume reinvestment of dividends and distributions. The
performance information below reflects the performance of Gradison U.S.
Government Reserves, the predecessor to the Fund. Returns for the Fund would be
substantially similar because the shares will be invested in the same portfolio
of securities.

[Graph]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
8.78% 7.61% 5.47% 3.33% 2.51% 3.45% 5.24% 4.75% 4.90% 4.87%

Past Performance Does Not Indicate Future Results.

During the period shown in the bar chart, the highest return for a quarter was
2.26% (quarter ending June 30, 1989) and the lowest return for a quarter was
0.60% (quarter ending September 30, 1993).

[Chart]
Average Annual Total Returns Past Past 5 Past 10
for the periods ended December 31, 1998 One Year Years Years

Class G Shares 4.87% 4.64% 5.07%

The "seven-day yield" is an annualized figure -- the amount you would earn if
you kept your investment in the Fund and the Fund continued to earn the same net
interest income throughout the year. The Fund's seven-day yield as of December
31, 1998 was 4.45%. For the Fund's current seven-day yield, call the Gradison
Division of McDonald Investments Inc., an affiliate of Key Asset Management Inc.
(Gradison McDonald), at 513-579-5999 or 800-869-5999 or the Fund at
800-539-FUND.

The "seven-day effective yield" (also an annualized figure) assumes that
dividends are reinvested and compounded. The Fund's seven-day effective yield as
of December 31, 1998 was 4.55%.

[Graphic] Fund Expenses

This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Fund.

Shareholder Transaction Expenses
(paid directly from your investment)* Class G
------------------------------------- -------

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on
Reinvested Dividends None
- --------------------------------------------------------------------------------
Deferred Sales Charge None
- --------------------------------------------------------------------------------
Redemption Fees None
- --------------------------------------------------------------------------------
Exchange Fees None

*You may be charged additional fees if you buy, exchange, or sell shares through
a broker or agent.

The Annual Fund Operating Expenses table below illustrates the net operating
expenses that you will incur as a shareholder of the Fund. The Fund pays these
expenses from its assets.

Annual Fund Operating Expenses Class G
------------------------------ -------

Management Fees(1) 0.44%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.10%
- --------------------------------------------------------------------------------
Other Expenses 0.34%
- --------------------------------------------------------------------------------

Total Fund Operating Expenses 0.88%
- --------------------------------------------------------------------------------

Fee Waiver (0.16%)
- --------------------------------------------------------------------------------
Net Expenses(2,3) 0.72%
==== ====

(1) The management fees are based on the average daily net assets of the Fund at
an annual rate of 0.50% on the first $400 million, 0.45% on the next $600
million, 0.40% on the next $1 billion, and 0.35% in excess of $2 billion.

(2) The expenses shown are based on historical expenses of the Fund adjusted to
reflect current expenses.

(3) Key Asset Management Inc., the Fund's investment adviser (KAM or the
Adviser), has agreed to waive its management fee or to reimburse expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses at a maximum of 0.72% until at least April 1, 2001.

EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods shown
and then sell all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same.* Although your actual costs may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class G $74 $248 $455 $1,054

*This Example assumes that Total Annual Fund Operating Expenses will equal 0.72%
until April 1, 2001 and will equal 0.88% thereafter.
3
<PAGE>

Risk Factors

This Prospectus describes the principal risks that you may assume as an investor
in the Fund. The "Other Securities and Investment Practices" section in this
Prospectus provides additional information on the securities mentioned in the
Risk/Return Summary for the Fund. As with any mutual fund, there is no guarantee
that the Fund will earn income or show a positive total return over time. The
Fund's yield and total return will fluctuate.

The Fund is subject to the principal risks described below.

General risks:

- - MARKET RISK is the risk that the market value of a security may fluctuate,
depending on the supply and demand for that type of security. As a result of
this fluctuation, a security may be worth more or less than the price the Fund
originally paid for the security, or more or less than the security was worth
at an earlier time. Market risk may affect a single issuer, an industry, a
sector of the economy, or the entire market and is common to all investments.

- - MANAGER RISK is the risk that the Fund's portfolio manager may use a
strategy that does not produce the intended result. Manager risk also refers
to the possibility that the portfolio manager may fail to execute the Fund's
investment strategy effectively and, thus fail to achieve its objective.

- - $1.00 NET ASSET VALUE RISK. In order to maintain a $1.00 per share net asset
value, the Fund could reduce the number of its outstanding shares. The Fund
could do this if there were a default on, or significant decline in value of,
an investment held by the Fund. If this happened, you would own fewer shares.

Risks associated with investing in debt securities:

- - INCOME RISK. Declines in the general level of short-term interest rates
obligate the Fund to make new investments in securities that offer less
interest than older securities.

- - INFLATION RISK is the risk that inflation will erode the purchasing power of
the cash flows generated by debt securities held by the Fund. Fixed-rate debt
securities are more susceptible to this risk than floating-rate debt
securities.

- - ADJUSTABLE RATE SECURITY RISK. The market price of an adjustable rate
security may fall for various reasons, including the following:

- the relationship among interest rates across a range of maturities
(often referred to as the "yield curve") changes

- investors demand higher risk premiums

- investors believe that interest rates will rise

- the supply of securities associated with the relevant benchmark interest
rate or index exceeds the demand.

For example, an adjustable rate security's market price will decline if one or
more of these factors causes the interest rate of newly-issued adjustable rate
securities to be set at a level above the relevant benchmark interest rate or
index greater than that of the older security. For instance, the market price of
an outstanding adjustable rate note that pays 3.00% below a bank's prime lending
rate will decline if comparable newly-issued adjustable rate notes offer 2.00%
below the bank's prime rate.

[By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.]

[It is important to keep in mind one basic principle of investing: the greater
the risk, the greater the potential reward. The reverse is also generally true:
the lower the risk, the lower the potential reward.]

[An investment in the Fund is not a complete investment program.]

4
<PAGE>

SHARE PRICE

The Fund's share price, called its "net asset value" (NAV), is calculated each
business day, normally at 12:00 p.m. Eastern Time. You may buy, exchange, and
sell your shares on any business day at the NAV that is calculated after you
place your order. A business day is a day on which the Federal Reserve Bank of
Cleveland and the New York Stock Exchange, Inc. (NYSE) are open or any day in
which enough trading has occurred in the securities held by the Fund to
materially affect the NAV. You may not be able to buy or sell shares on certain
holidays when the Federal Reserve Bank of Cleveland is closed, but the NYSE and
other financial markets are open.

The Fund seeks to maintain a $1.00 NAV, although there is no guarantee that
it will be able to do so. The Fund uses the "Amortized Cost Method" to value
securities. You can read about this method in the Statement of Additional
Information (SAI).

The Fund's performance can be found once a week in The Wall Street Journal
and other newspapers.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Fund passes its earnings along to investors in
the form of dividends. Dividend distributions are the net interest earned on
investments after expenses. Money market funds usually do not realize capital
gains; however, the Fund will distribute short-term gains, as necessary, and if
the Fund does make a long-term capital gain distribution, it is normally paid
once a year. As with any investment, you should consider the tax consequences of
an investment in the Fund.

Ordinarily, the Fund declares dividends daily and pays them monthly.

5
<PAGE>

DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)

You can receive distributions in one of the following ways. Please check
with your Investment Professional to find out if these options are available to
you. An Investment Professional is an investment consultant, salesperson,
financial planner, investment adviser, or trust officer who provides you with
investment information.

REINVESTMENT OPTION

You can have distributions automatically reinvested in additional shares of
the Fund. If you do not indicate another choice on your Account Application,
you will be assigned this option automatically.

[Your choice of distribution should be set up on the original account
application. If you would like to change the option you selected, please call
Gradison McDonald at 513-579-5999 or 800-869-5999 or the Fund at 800-539-FUND.]

CASH OPTION

A check will be mailed to you no later than seven days after the pay date.

DIRECTED DIVIDENDS OPTION

In most cases, you can automatically reinvest distributions in the same class
of shares of another fund of The Victory Portfolios. If you reinvest your
distributions in a different class of another fund, you may pay a sales
charge on the reinvested distributions.

DIRECTED BANK ACCOUNT OPTION

In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Fund will
transfer your distributions within seven days of the pay date. The bank
account must have a registration identical to that of your Fund account.

6
<PAGE>

DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)

- Important Information about Taxes

- The Fund pays no federal income tax on the earnings and capital gains it
distributes to its shareholders.

- Ordinary dividends from the Fund are taxable as ordinary income;
dividends from the Fund's long-term capital gains, if any, are taxable
as capital gain. Capital gains may be taxable at different rates
depending on how long the Fund holds certain assets.

- Dividends are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares. They also may
be subject to state and local taxes.

- Dividends from the Fund that are attributable to interest on certain
U.S. Government obligations may be exempt from certain state and local
income taxes. The extent to which ordinary dividends are attributable to
these U.S. Government obligations will be provided on the tax statements
you receive from the Fund.

- Certain dividends paid to you in January may be taxable as if they had
been paid to you the previous December.

- When you sell or exchange shares of the Fund you must recognize any gain
or loss. However, as long as the Fund's NAV per share does not deviate
from $1.00, there will be no gain or loss.

- Tax statements will be mailed from the Fund every January showing the
amounts and tax status of distributions made to you.

- An exchange of the Fund's shares for shares of another fund will be
treated as a sale. When you sell or exchange shares of the Fund, you
must recognize any gain or loss.

- Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use in
determining your tax.

- You should review the more detailed discussion of federal income tax
considerations in the SAI.

[The tax information in this Prospectus is provided as general information. You
should consult your tax adviser about the tax consequences of an investment in
the Fund.]

7
<PAGE>

INVESTING WITH VICTORY

If you are looking for a convenient way to open an account or to add money
to an existing account, Victory can help. The sections that follow will serve as
a guide to your investments with Victory. The following sections will describe
how to open an account, how to access information on your account, and how to
buy, exchange and sell shares of the Fund. We want to make it simple for you to
do business with us. If you have questions about any of this information, please
call your Investment Professional, a representative of Gradison McDonald at
513-579-5999 or 800-869-5999, or one of our customer service representatives at
800-539-FUND. They will be happy to assist you. The Fund offers only Class G
Shares, which have no sales charge. Class G Shares are available only through
certain broker-dealers.

[All you need to do to get started is to fill out an application.]

HOW TO BUY SHARES

[When you buy shares of the Fund, your cost will be $1.00 per share.]

You can buy shares in a number of different ways. The minimum initial investment
required to open an account is $500 ($100 for IRAs), with additional investments
of at least $25. The Fund offers only Class G shares. The Shares have no
front-end or back-end sales charge. You can send in your investment by check,
wire transfer, exchange from another Victory Fund, or through arrangements with
your Investment Professional. Sometimes an Investment Professional will charge
you a fee for these services. This fee will be in addition to, and unrelated to,
the fees and expenses charged by the Fund. If you maintain a brokerage account
with Gradison McDonald, you may buy or sell Fund shares without incurring any
fees.

If you buy shares directly from the Fund and your investment is received and
accepted by 12:00 p.m. Eastern Time, your purchase will be processed the same
day.

Make your check payable to:

[Graphic]
The
Victory
Funds

8
<PAGE>

HOW TO BUY SHARES (CONTINUED)

Keep the following addresses handy for purchases, exchanges, or redemptions:

[Graphic] By Regular U.S. Mail

Send completed Account Applications with your check, bank draft, or money order
to:

The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202

The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527

[Graphic] By Overnight Mail

Use the following address ONLY for overnight packages.

The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202
PHONE: 513-579-5999

The Victory Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
PHONE: 800-539-FUND

[Graphic] By Wire

The Transfer Agent may charge a wire fee of $10 for wires under $50,000, and
your originating bank may charge a fee. Always call Gradison McDonald at
513-579-5999 or 800-869-5999 or the Transfer Agent at 800-539-FUND BEFORE wiring
funds to obtain a confirmation number.

The Victory Funds
c/o Gradison McDonald
Firstar Bank
ABA #042000013
For Credit to DDA
Account #9307398
(insert account number, name,
and confirmation number
assigned by Gradison McDonald)

The Victory Funds
State Street Bank and Trust Co.
ABA #011000028
For Credit to DDA
Account #9905-201-1
(insert account number, name,
and confirmation number
assigned by the Fund)

[Graphic] By Telephone

Gradison McDonald at:
513-579-5999
or 800-869-5999

Victory at:
800-539-FUND
(800-539-3863)

FAX Number:

800-529-2244

Telecommunication Device for the Deaf (TDD):

800-970-5296

9
<PAGE>

HOW TO BUY SHARES (CONTINUED)

- - ACH

After your account is set up, your purchase amount can be transferred by
Automated Clearing House (ACH) if this feature is available for your account.
Only domestic member banks may be used. It takes about 15 days to set up an ACH
account. Currently, the Fund does not charge a fee for ACH transfers.

- - Statements and Reports

You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, account activity will be detailed in his or her
statements to you. Share certificates are not issued. Twice a year, you will
receive the financial reports of the Fund. By January 31 of each year, you will
be mailed an IRS form reporting distributions for the previous year, which also
will be filed with the IRS.

- - Automatic and Systematic Investment Plan

To enroll in the Automatic or Systematic Investment Plan, you should complete a
separate Automatic Investment Plan Application. We will need both your bank
account information and the amount and frequency of your investment. You can
select monthly, quarterly, semi-annual, or annual investments. You should attach
a voided personal check so the proper information can be obtained. You must
first meet the minimum initial investment requirement of $500 ($100 for IRAs),
then we will make automatic withdrawals of the amount you indicate ($25 or more)
from your bank account and invest it in shares of the Fund.

- - Retirement Plans

You can use the Fund as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-deferred
retirement plans. Please contact your Investment Professional or the Fund for
details regarding an IRA or other retirement plan that works best for your
financial situation.

[If you would like to make investments after your account is already
established, use the Investment Stub attached to your confirmation statement and
send it with your check to the address indicated.]

All purchases must be made in U.S. dollars and drawn on U.S. banks. The Transfer
Agent may reject any purchase order in its sole discretion. If your check is
returned for any reason, you will be charged for any resulting fees and/or
losses. Thirdparty checks may not be accepted by the Transfer Agent. You may
only buy or exchange into fund shares legally available in your state. If your
account falls below $500 ($100 for IRAs), we may ask you to re-establish the
minimum investment. If you do not do so within 60 days, we may close your
account and send you the value of your account.

<PAGE>

HOW TO EXCHANGE SHARES

You can sell shares of one fund of The Victory Portfolios to buy shares of
another. This is considered an exchange. You may exchange shares of one Victory
fund for shares of the same class of any other, generally without paying any
additional sales charges. If your request is received and accepted by 4:00 p.m.
Eastern Time, your exchange will be processed the same day. (See the more
complete explanation below.)

[You can obtain a list of funds available for exchange by calling the
Gradison McDonald at 513-579-5999 or 800-869-5999 or the Fund at
800-539-FUND.]

You can exchange shares of the Fund by writing or calling Gradison McDonald
at 513-579-5999 or 800-869-5999 or the Transfer Agent at 800-539-FUND. When
you exchange shares of the Fund, you should keep the following in mind:

- Shares of the Fund selected for exchange must be available for sale in
your state of residence.

- Both funds must offer the exchange privilege.

- Shares of the Fund may be exchanged at relative net asset value if they
are the same class.

- If you own Class G Shares, you can exchange into Class G Shares, Select
Shares, or any single class money market fund shares of a Victory Fund
without paying a sales charge. If a Victory Fund has both Class G and
Class A Shares, you can only exchange into Class G Shares. However, if
you owned Gradison Shares as of the date of the reorganization, you can
exchange into Class A Shares of any Victory Fund that does not offer
Class G Shares without paying a sales charge.

- Exchange orders will be accepted up to 4:00 p.m. Eastern Time.

- You must meet the minimum purchase requirements for the fund you
purchase by exchange.

- The registration and tax identification numbers of the two accounts must
be identical.

- You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them; after the account is open
seven days, you can exchange shares on any business day.

- An exchange of Fund shares constitutes a sale for tax purposes.

- Before exchanging, read the prospectus of the fund you wish to purchase
by exchange.

11
<PAGE>

HOW TO SELL SHARES

If we receive and accept your request by 12:00 p.m. Eastern Time, your
redemption will be processed the same day.

[Graphic] By Telephone

The easiest way to sell shares is by calling Gradison McDonald at 513-579-5999
or 800-869-5999 or the Fund at 800-539-FUND. When you fill out your original
application, be sure to check the box marked "Telephone Authorization." Then
when you are ready to sell, call and tell us which one of the following options
you would like to use:

- Mail a check to the address of record;

- Wire funds to a domestic financial institution;

- Electronically transfer your redemption via the Automated Clearing House
(ACH). This feature is available only to certain accounts.

The Transfer Agent records all telephone calls for your protection and takes
measures to verify the identity of the caller. If the Transfer Agent properly
acts on telephone instructions and follows reasonable procedures to ensure
against unauthorized transactions, neither Victory, its servicing agents, the
Adviser, nor the Transfer Agent will be responsible for any losses. If the
Transfer Agent does not follow these procedures, it may be liable to you for
losses resulting from unauthorized instructions.

If there is an unusual amount of market activity and you cannot reach the
Transfer Agent or your Investment Professional by telephone, consider placing
your order by mail.

[Graphic] By Mail

Use the same Regular U.S. Mail or Overnight Mail Address listed for purchases to
sell shares. Send us a letter of instruction indicating your Fund account
number, amount of redemption, and where to send the proceeds. A signature
guarantee is required for the following redemption requests:

- Redemptions over $10,000;

- Your account registration has changed within the last 15 days;

- The check is not being mailed to the address on your account;

- The check is not being made payable to the owner of the account;

- The redemption proceeds are being transferred to another Victory Fund
account with a different registration; or

- The check or wire is being sent to a different bank account.

You can get a signature guarantee from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.

[Graphic] By Wire

If you want to sell shares by wire, you must establish a Fund account that will
accommodate wire transactions. If you call by 12:00 p.m. Eastern time, your
funds will be wired on the same business day. There is a $10 wire fee for
amounts less than $50,000.

[There are a number of convenient ways to sell your shares. You can use the same
mailing addresses listed for purchases. You will earn dividends up to and
including the date your redemption request is processed.]

12
<PAGE>

HOW TO SELL SHARES (CONTINUED)

[Graphic] By ACH

Normally, if this feature is available for your account, your redemption will be
processed on the same day or the next day if received after 12:00 p.m. Eastern
Time. It will be transferred by ACH as long as the transfer is to a domestic
bank, and the ACH feature is available for your account.

- - Check Writing

You may withdraw funds by writing a check for $100 or more without paying any
fees. Checks also may be written in amounts of less than $100, in which case you
will be charged a fee of $0.30 per check, which reimburses the Fund for expenses
associated with clearing these checks. Shares continue to earn daily dividends
until these checks are presented for payment. In order to activate the check
writing option on your account, all owners on the account must sign a signature
card. The names of payees of checks and the date checks are cashed appear on
monthly transaction statements. You may not close your account by writing a
check. Please call the Fund for a complete redemption.

- - Systematic Withdrawal Plan

If you check this box on the Account Application, we will send monthly,
quarterly, semi-annual, or annual payments to the person you designate. The
minimum withdrawal is $25, and you must have a balance of $5,000 or more to
start withdrawals. Once again, we will need a voided personal check to activate
this feature. You should be aware that your account eventually may be depleted
and that each withdrawal may be a taxable transaction. However, you cannot
automatically close your account using the Systematic Withdrawal Plan. If your
account balance falls below $500, we may ask you to bring the account back to
the minimum balance. If you decide not to increase your account to the minimum
balance, your account may be closed and the proceeds mailed to you.

- - Additional Information about Redemptions

- - Redemption proceeds from the sale of shares purchased by a check mamay be
held up to 15 business days or until the purchase check has cleared.

- - If you request a complete redemption, the Fund will include any didividends
accrued with the redemption proceeds.

- - The Fund may suspend your right to redeem your shares in the fofollowing
circumstances:

- During non-routine closings of the NYSE;

- When the Securities and Exchange Commission (SEC) determines that
(a) trading on the NYSE is restricted or (b) an emergency prevents
the sale or valuation of the Fund's securities; or

- When the SEC orders a suspension to protect the Fund's shareholders.

- - The Fund will pay redemptions by any one shareholder during any 9090-day
period in cash up to the lesser of $250,000 or 1% of the Fund's net assets.
The Fund reserves the right to pay the remaining portion "in kind," that is,
in portfolio securities rather than cash.

13
<PAGE>

ORGANIZATION AND MANAGEMENT OF THE FUND

- - About Victory

The Fund is a member of The Victory Portfolios, a group of over 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.

- - The Investment Adviser and Sub-Administrator

The Fund has an Advisory Agreement which is one of the Fund's most important
contracts. Key Asset Management Inc. (KAM), a New York corporation registered as
an investment adviser with the SEC, is the Adviser of the Fund. KAM, a
subsidiary of KeyCorp, oversees the operations of the Fund according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $68 billion for a limited number of
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114. McDonald & Co. Securities Inc. was the former adviser of
the Fund. Since the merger with KeyCorp, Gradison McDonald became a subsidiary
of KeyCorp. KAM will be paid a management fee based on the average daily net
assets of the Fund at an annual rate of 0.50% on the first $400 million, 0.45%
on the next $600 million, 0.40% on the next $1 billion, and 0.35% in excess of
$2 billion.

Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the
Fund's administrator, pays KAM a fee at the annual rate of up to 0.05% of the
Fund's average daily net assets to perform some of the administrative duties for
the Fund.

Gradison McDonald acts as an administrative agent to the Fund and is paid a
fee for these services.

- - Distribution and Service Plan

Under the terms of a Distribution and Service Plan adopted according to Rule
12b-1 under the Investment Company Act of 1940, the Fund pays to the Distributor
a monthly distribution fee at an annual rate of 0.10% of the average daily net
assets of the Fund. The Rule 12b-1 fee is paid to securities broker-dealers or
other financial intermediaries for providing personal services to shareholders
of the Fund, including responding to inquiries, providing information to
shareholders about their Fund accounts, establishing and maintaining accounts
and records, processing dividend and distribution payments, arranging for bank
wires, assisting in transactions, and changing account information. The Fund may
enter into agreements with various shareholder servicing agents, including
KeyCorp and its affiliates, and with other financial institutions that provide
such services.

Because Rule 12b-1 fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.

[We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Fund to
provide services to its shareholders. Each of these organizations is paid a fee
for its services.]

14
<PAGE>

ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)

OPERATIONAL STRUCTURE OF THE FUND

Trustees --------------------- Adviser

Shareholders

Financial Services Firms and
their Investment Professionals
Advise current and prospective
shareholders on their Fund investments.

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

Transfer Agent/Servicing Agent
State Street Bank and Trust Company Gradison Division
225 Franklin Street of McDonald Investments Inc.
Boston, MA 02110 580 Walnut Street
Cincinnati, OH 45203
Boston Financial Data Services
Two Heritage Drive Provides services to
Quincy, MA 02171 certain shareholders.

Handles services such as record-keeping,
statements, processing of buy and sell
requests, distribution of dividends,
and servicing of shareholder accounts.

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

Administrator, Distributor,
and Fund Accountant
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219

Markets the Fund, distributes shares through
Investment Professionals, and
calculates the value of shares.
As Administrator, handles the
day-to-day activities of the Fund.

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

Custodian
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114

Provides for safekeeping of the
Fund's investments and cash, and
settles trades made by the Fund.

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

Sub-Administrator
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114

Performs certain
sub-administrative services.

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

[The Fund is supervised by the Board of Trustees who monitors the services
provided to investors.]

15
<PAGE>

ADDITIONAL INFORMATION

- - Share Classes

The Fund offers only the Class G Shares described in this Prospectus. At some
future date, the Fund may offer additional classes of shares through a separate
prospectus. The Fund is the successor to Gradison U.S. Government Reserves since
the completion of a reorganization with The Victory Portfolios.

- - Code of Ethics

The Fund and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons of the Fund must conform.
Investment personnel must refrain from certain trading practices and are
required to report certain personal investment activities. Violations of the
Code of Ethics can result in penalties, suspension, or termination of
employment.

- - Banking Laws

The Adviser is a subsidiary of a bank holding company. Banking laws, including
the Glass-Steagall Act, currently prevent a bank holding company or its
affiliates from sponsoring, organizing, or controlling a registered, open-end
investment company. However, bank holding company subsidiaries may act as an
investment adviser, transfer agent, custodian, or shareholder servicing agent.
They also may pay third parties for performing these functions and buy shares of
such an investment company for their customers. Should these laws change in the
future, the Trustees would consider selecting another qualified firm so that all
services would continue.

- - Year 2000 Issues

Like all mutual funds, the Fund could
be adversely affected if the computer systems used by its service providers,
including shareholder servicing agents, are unable to recognize dates after
1999. The Fund's service providers have been actively updating their systems to
be able to process Year 2000 data. There can be no assurance, however, that
these steps will be adequate to avoid a temporary service disruption or other
adverse impact on the Fund. In addition, an issuer's failure to process
accurately Year 2000 data may cause that issuer's securities to decline in value
or delay the payment of interest to the Fund.

- - Shareholder Communications

In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Fund will send only one copy of
any financial reports, prospectuses, and their supplements.

[Some additional information you should know about the Fund.]

[If you would like to receive additional copies of any materials, please call
Gradison McDonald at 513-579-5999 or 800-869-5999 or the Fund at 800-539-FUND.]

16
<PAGE>

OTHER SECURITIES AND INVESTMENT PRACTICES

The following table describes some of the types of securities the Fund may
purchase under normal market conditions. For cash management or for temporary
defensive purposes in response to market conditions, the Fund may hold all of
its assets in cash. This may reduce the benefit from any upswing in the market
and may cause the Fund to fail to meet its investment objective. For detailed
descriptions of each of these investments, see the SAI.

U.S. GOVERNMENT SECURITIES. Notes and bonds issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. Some are direct obligations
of the U.S. Treasury; others are obligations only of the U.S. agency or
instrumentality.

U.S. GOVERNMENT INSTRUMENTALITIES. Securities issued by U.S. Government
instrumentalities such as the Student Loan Marketing Association (SLMA),
Federal Farm Credit Bank (FFCB), Federal Home Loan Bank (FHLB), Federal Home
Loan Mortgage Corporation (FHLMC), and the Federal Agricultural Mortgage
Corporation (FAMC) are supported only by the credit of the federal
instrumentality. The Fund intends to invest primarily, and may invest
exclusively, in these instruments.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. A security that is purchased
for delivery at a later time. The market value may change before the
delivery date, and the value is included in the NAV of the Fund.

REPURCHASE AGREEMENTS. An agreement involving the Fund's purchase of a
security and the seller's agreement to repurchase the same security at a
stated price plus interest. The seller's obligation to the Fund is secured
by the instrument. Subject to an exemptive order from the SEC, the Adviser
may combine repurchase transactions among one or more Victory funds into a
single transaction.

VARIABLE & FLOATING RATE SECURITIES. The interest rate offered by a variable
rate security adjusts (resets) on particular dates (such as the last day of
a month or calendar quarter). The interest rate offered by a floating rate
security adjusts whenever a specified interest rate (such as a bank's prime
lending rate) changes. Upon adjustment, the market value of a variable or
floating rate security can reasonably be expected to equal its amortized
cost. Some of these securities may be illiquid.

ZERO COUPON BONDS. These securities are purchased at a discount from face
value. The bond's face value is received at maturity, with no interest
payments before then. These securities may be subject to greater risks of
price fluctuation than securities that periodically pay interest.

* The Fund may concentrate its investments in government securities and
certain instruments issued by domestic banks.

+ Derivative Instruments: Indicates a "derivative instrument," whose value is
linked to, or derived from another security, instrument, or index. The Fund
may, but is not required to, use derivative instruments for any of the
following reasons:
- To hedge against adverse changes in the market value of securities
- As a temporary substitute for purchasing or selling securities
- In limited situations, to attempt to profit from anticipated market
developments

17
<PAGE>

[Graphic] FINANCIAL HIGHLIGHTS GRADISON GOVERNMENT RESERVES FUND

The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information shows the
results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).

These financial highlights reflect historical information about Gradison
U.S. Government Reserves, the predecessor to the Fund. The financial highlights
were audited by Arthur Andersen LLP, whose report, along with the financial
statements of Gradison U.S. Government Reserves, are included in that fund's
annual report, which is available by calling Gradison McDonald at 800-869-5999
or 513-579-5999 or the Fund at 800-539-FUND.

Year Year Year Year Year
Ended Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1996 1995 1994

<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF YEAR $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .049 .047 .047 .050 .029
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.049) (.047) (.047) (.050) (.029)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT END OF YEAR $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 4.98% 4.85% 4.86% 5.10% 2.97%
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of year (in millions) $ 1,933.8 $ 1,610.1 $ 1,333.1 $ 1,224.1 $ 1,001.2
Ratio of gross expenses to average net assets(a) .73% .73% .76% .80% --

Ratio of net expenses to average net assets(b) .72% .72% .75% .78% .80%
Ratio of net investment income to average
net assets(b) 4.86% 4.75% 4.72% 5.00% 2.90%

<FN>

(a) Effective for the fiscal year ended September 30, 1995, this ratio reflects
gross expense before reduction for earnings credits on cash balances; such
reductions are included in the ratio of net expenses.

(b) During the year ended September 30, 1994, Gradison U.S. Government Reserves'
investment adviser absorbed expenses of that fund through waiver of a
portion of the investment advisory fee. Assuming no waiver of expenses, the
ratio of expenses to average net assets was 0.81% and the ratio of net
investment income to average net assets was 2.89%.

</FN>
</TABLE>

18
<PAGE>

This page is intentionally left blank.

19
<PAGE>

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20
<PAGE>

PRESORTED STANDARD
U.S. POSTAGE
PAID
CLEVELAND, OH
Permit No. 469

The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114

If you would like a free copy of any of the following documents or would
like to request other information regarding the Fund, you can call or write the
Fund or Gradison McDonald.

- - STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more details describing the Fund and its policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated
by reference in this Prospectus.

- - ANNUAL AND SEMI-ANNUAL REPORTS

Describes the Fund's performance, lists portfolio holdings, and discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

- - HOW TO OBTAIN INFORMATION

BY TELEPHONE: Call Gradison McDonald at 513-579-5999 or 800-869-5999 or Victory
Funds at 800-539-FUND (800-539-3863).

You also may obtain copies of materials from the SEC's Public Reference Room in
Washington, D.C. (Call 800-SEC-0330 for information on the operation of the
SEC's Public Reference Room.)

BY MAIL: The Victory Funds or The Victory Funds
c/o Gradison McDonald P.O. Box 8527
580 Walnut Street Boston, MA 02266-8527
Cincinnati, OH 45202

You also may write the Public Reference Section of the SEC, 450 Fifth St., N.W.,
Washington, D.C. 20549-6009, and pay the costs of duplication.

ON THE INTERNET: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov.

If you would like to receive copies of the
annual and semi-annual reports and/or the SAI at no charge, please call
Gradison McDonald at
513-579-5999 or 800-869-5999
or the Fund at
800-539-FUND.

The securities described in this Prospectus and the SAI are not offered in any
state in which they may not lawfully be sold. No sales representative, dealer,
or other person is authorized to give any information or make any representation
other than those contained in this Prospectus and the SAI.

[LOGO]
VICTORY FUNDS
Investment Company Act File Number. 811-4852

PRINTED ON RECYCLED PAPER

VF-GGR-PRO (4/99)
<PAGE>
[LOGO]
VICTORY FUNDS

PROSPECTUS

ESTABLISHED
VALUE FUND
Class G Shares
April 5, 1999

Call Gradison McDonald: 513-579-5999 or 800-869-5999

Or Call Victory: 800-539-FUND or 800-539-3863

<PAGE>

THE VICTORY PORTFOLIOS

PROSPECTUS FOR:
ESTABLISHED VALUE FUND

TABLE OF CONTENTS

RISK/RETURN SUMMARY OF THE FUND 2
An analysis which includes the investment objective,
principal strategies,
principal risks, performance, and expenses

Risk Factors 4

Share Price 5

Dividends, Distributions, and Taxes 5

INVESTING WITH VICTORY 8
- How to Buy Shares 8
- How to Exchange Shares 11
- How to Sell Shares 12

Organization and Management of the Fund 14

Additional Information 16

Other Securities and Investment Practices 17

Financial Highlights 18

KEY TO FUND INFORMATION

OBJECTIVE AND STRATEGIES The goals and the strategies that the Fund plans to use
to pursue its investment objective.

RISK FACTORS The risks you may assume as an investor in the Fund.

PERFORMANCE
A summary of the historical performance of the Fund in comparison to an
unmanaged index.

EXPENSES
The costs you will pay, directly or indirectly, as an investor in the Fund,
including ongoing expenses.

[Graphic] FDIC

[Graphic] BANK

Shares of the Fund are:
- Not insured by the FDIC;
- Not deposits or other obligations of KeyBank or any of its affiliates;
- Subject to possible investment risks, including possible loss of the amount
invested.

<PAGE>

ESTABLISHED VALUE FUND RISK/RETURN SUMMARY

[ICON] INVESTMENT OBJECTIVE

The investment objective of the Fund is long-term capital growth by investing
primarily in common stocks.

[ICON] PRINCIPAL INVESTMENT STRATEGIES

The Fund pursues its investment objective by investing primarily in equity
securities of companies with market capitalization of $1 billion or more. The
companies are usually selected from those in the Standard & Poor's Composite
Stock Price Index (S&P 500).

In making investment decisions, Key Asset Management Inc., the Fund's
investment adviser (KAM or the Adviser), looks for companies whose stock is
trading at prices below what the Adviser believes represent their true value.
When selecting investments for the Fund's portfolio, the Adviser looks for the
following characteristics, among others; consistent earnings growth;
risk-adjusted growth combined with dividend yield; rising earnings;
price-to-book ratios and price-to-earnings ratios that are generally lower than
those prevalent in the market; and the rate at which a stock's price is rising.
The Adviser uses a computer model to assist in selecting securities that appear
favorably priced.

Under normal market conditions, the Fund:

- Will invest at least 80% of its total assets in equity securities of
companies with market capitalization of $1 billion or more. These equity
investments include:

- Common stock

- Convertible preferred stock

- Debt convertible or exchangeable into equity securities

- May invest up to 20% of its total assets in:

- Short-term U.S. Government obligations

- Repurchase agreements

- Other money market obligations

- Investment grade debt securities

[ICON] PRINCIPAL RISKS

The Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Fund's net asset value, yield and/or total return may be
adversely affected if any of the following occurs:

- The market value of securities acquired by the Fund declines

- Value stocks decline in price faster than growth stocks or other types
of stocks

- A particular strategy does not produce the intended result or the
portfolio manager does not execute the strategy effectively

- A company's earnings do not increase as expected

An investment in the Fund is not a deposit of KeyBank or any of its affiliates
and is not insured or guaranteed by the FDIC or any other government agency.

Who May Want to Invest In the Fund:

- Investors who want a diversified portfolio of equity securities

- Investors willing to accept the risk of price and dividend fluctuations

- Investors willing to accept higher short-term risk along with higher
potential long-term returns

- Long-term investors with a particular goal, like saving for retirement
or a child's education

- Investors who want potential growth over time

2
<PAGE>
ESTABLISHED VALUE FUND RISK/RETURN SUMMARY

[ICON] INVESTMENT PERFORMANCE

The chart and table shown below give an indication of the risks of investing in
the Fund by showing changes in the Fund's performance as of December 31 from
year to year for the last ten years. The table below shows how the Fund's
average annual returns for one year, five years, and ten years compare to the
returns of a broad-based securities market index. The figures shown assume
reinvestment of dividends and distributions. The performance information below
reflects the performance of the Gradison Established Value Fund, the predecessor
to the Fund. Returns for the Fund would be substantially similar because the
shares will be invested in the same portfolio of securities. The performance
information would differ only to the extent that the Fund and its predecessor
have different expense ratios.

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
16.05% -8.11% 22.23% 10.20% 20.78% 0.32% 26.44% 19.32% 22.65% 6.12%

Past performance does not indicate future results.

During the period shown in the bar chart, the highest return for a quarter was
14.12% (quarter ending December 31, 1998) and the lowest return for a quarter
was -13.23% (quarter ending September 30, 1998).

AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED PAST PAST PAST
DEC. 31, 1998) ONE YEAR 5 YEARS 10 YEARS
-------------- -------- ------- --------

Glass G Shares 6.12% 14.52% 13.08%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.06% 19.21%

*The S&P 500 Index of large capitalization companies is a widely recognized,
unmanaged index of common stock prices.

[ICON] FUND EXPENSES

This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Fund.

SHAREHOLDER TRANSACTION EXPENSES
(PAID DIRECTLY FROM YOUR INVESTMENT)* CLASS G
------------------------------------- -------

Maximum Sales Charge Imposed on Purchases NONE
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends NONE
- --------------------------------------------------------------------------------
Deferred Sales Charge NONE**
- --------------------------------------------------------------------------------
Redemption Fees NONE
- --------------------------------------------------------------------------------
Exchange Fees NONE

**You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.

The Annual Fund Operating Expenses table below illustrates the net operating
expenses that you will incur as a shareholder of the Fund. The Fund pays these
expenses from its assets.

ANNUAL FUND OPERATING EXPENSES CLASS G
------------------------------ -------

Management Fees(1) 0.51%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.50%
- --------------------------------------------------------------------------------
Other Expenses 0.25%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 1.26%
----
- --------------------------------------------------------------------------------
Fee Waiver (0.16)%
- --------------------------------------------------------------------------------
Net Expenses(2) 1.10%
====

(1) The management fees are based on the average daily net assets of the Fund
at an annual rate of 0.65% on the first $100 million, 0.55% on the next
$100 million, and 0.45% in excess of $200 million.

(2) The expenses shown are based on historical expenses of the Fund adjusted to
reflect current expenses. KAM has agreed to waive its management fee or to
reimburse expenses, as allowed by law, to the extent necessary to maintain
the net operating expenses at a maximum of 1.10% until at least April
1, 2001.
<PAGE>

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class G $112 $367 $660 $1,494

*This Example assumes that Total Annual Fund Operating Expenses will equal 1.10%
until April 1, 2001 and will equal 1.26% thereafter.

3
<PAGE>

[ICON] RISK FACTORS

[By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.]

The Fund is subject to the principal risks described below.

General risks:

- - MARKET RISK is the risk that the market value of a security may
flfluctuate, depending on the supply and demand for that type of security.
As a result of this fluctuation, a security may be worth more or less than
the price the Fund originally paid for the security, or more or less than
the security was worth at an earlier time. Market risk may affect a single
issuer, an industry, a sector of the economy, or the entire market and is
common to all investments.

- - MANAGER RISK is the risk that the Fund's portfolio manager may use a
strategy that does not produce the intended result. Manager risk also
refers to the possibility that the portfolio manager may fail to execute
the Fund's investment strategy effectively and, thus, fail to achieve its
objective.

Risk associated with investing
in equity securities:

- - Equity risk is the risk that the value of the security will flfluctuate in
response to changes in earnings or other conditions affecting the
issuer's profitability or as a result of a general market decline.

Unlike debt securities, which have preference to a company's earnings
and cash flow in case of liquidation, equity securities are entitled
to the residual value after the company meets its other obligations.
For example, in the event of bankruptcy, holders of debt securities
have priority over holders of equity securities to a company's assets.

[It is important to keep in mind one basic principle of investing: in general,
the greater the risk, the greater the potential reward. The reverse is also
generally true: the lower the risk, the lower the potential reward.]

[An investment in the Fund is not a complete investment program.]

<PAGE>

SHARE PRICE

The Fund calculates its share price, called its "net asset value" (NAV), each
business day, at the close of trading on the New York Stock Exchange, Inc.
(NYSE), which is normally at 4:00 p.m. Eastern Time. The share price of Class G
Shares is equal to the Fund's Class G NAV. You may buy, exchange, and sell your
shares on any business day at the NAV that is calculated after you place your
order. A business day is a day on which the Federal Reserve Bank of Cleveland
and the NYSE are open or any day in which enough trading has occurred in the
securities held by the Fund to materially affect the NAV. You may not be able to
buy or sell shares on certain holidays when the Federal Reserve Bank of
Cleveland is closed, but the NYSE and other financial markets are open.

The Fund values its investments based on market value. When market
quotations are not readily available, the Fund values its investments based on
fair value methods approved by the Board of Trustees of The Victory Portfolios.
The Fund calculates its NAV by adding up the total value of its investments and
other assets, subtracting its liabilities, and then dividing that figure by the
number of outstanding shares of the Fund.

Total Assets - Liabilities
NAV = --------------------------------
Number of Shares Outstanding

You can find the Fund's net asset value each day in the Wall Street Journal and
other newspapers.

[The daily NAV is useful to you as a shareholder because the NAV, multiplied by
the number of Fund shares you own gives you the value of your investment.]

DIVIDENDS, DISTRIBUTIONS, AND TAXES

[Buying a Dividend. You should check the Fund's distribution schedule before you
invest. If you buy shares of the Fund shortly before it makes a distribution,
some of your investment may come back to you as a taxable distribution.]

Ordinarily, the Fund declares and pays dividends quarterly. Generally, the
Fund will distribute short-term capital gains, as necessary, and if the Fund
makes a long-term capital distribution, it is normally paid at least once a
year.

5
<PAGE>

DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)

REINVESTMENT OPTION

You can have distributions automatically reinvested in additional shares of the
Fund. If you do not indicate another choice on your Account Application, you
will be assigned this option automatically.

CASH OPTION

A check will be mailed to you no later than seven days after the pay date.

[Your choice of distribution should be set up on the original account
application. If you would like to change the option you selected, please call
the Fund at 800-359-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999.]

INCOME EARNED OPTION

You can automatically reinvest your dividends in your Fund and have your
capital gains paid in cash, or reinvest capital gains and have your dividends
paid in cash.

DIRECTED DIVIDENDS OPTION

In most cases, you can automatically reinvest distributions in the same class of
shares of another fund of The Victory Portfolios. If you reinvest your
distributions in a different class of another fund, you may pay a sales charge
on the reinvested distributions.

DIRECTED BANK ACCOUNT OPTION

In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Fund will transfer
your distributions within seven days of the pay date. The bank account must have
a registration identical to that of your Fund account.

6
<PAGE>

DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)

- - IMPORTANT INFORMATION ABOUT TAXES

The Fund pays no federal income tax on the earnings and capital gains it
distributes to its shareholders.

- - Ordinary dividends from the Fund are taxable to shareholders as orordinary
income; dividends from the Fund's long-term capital gains are taxable as
capital gain. Capital gains may be taxable at different rates depending
upon how long the Fund holds certain assets.

- - Dividends are treated in the same manner for federal income tax pupurposes
whether you receive them in cash or in additional shares. They also may be
subject to state and local taxes.

- - Dividends from the Fund that are attributable to interest on cecertain U.S.
Government obligations may be exempt from certain state and local income
taxes. The extent to which ordinary dividends are attributable to these
U.S. Government obligations will be provided on the tax statements you
receive from the Fund.

- - An exchange of the Fund's shares for shares of another fund will bebe
treated as a sale. When you sell or exchange shares of the Fund, you must
recognize any gain or loss.

- - Certain dividends paid to you in January will be taxable as if ththey had
been paid to you the previous December.

- - Tax statements will be mailed from the Fund every January showing ththe
amounts and tax status of distributions made to you.

- - Because your tax treatment depends on your purchase price and tax
poposition, you should keep your regular account statements for use in
determining your tax.

- - You should review the more detailed discussion of federal income tatax
considerations in the Statement of Additional Information.

The following table provides general guidelines for potential federal
income tax liability when you sell or exchange shares of the Fund (unless your
investment is in a tax-deferred retirement plan like an IRA). In general,
distributions are taxable as follows:

[The tax information in this Prospectus is provided as general information. You
should consult your tax adviser about the tax consequences of an investment in
the Fund.]
<TABLE>
<CAPTION>

Tax Rate for
Tax Rate for 28% Bracket
Type of Distribution 15% Bracket or Above
-------------------- ----------- --------

<S> <C> <C>
Income Ordinary Ordinary
dividends income rate income rate
- ---------------------------------------------------------------
Short-term capital
gains (Shares sold Ordinary Ordinary
up to 12 months income rate income rate
after purchase)
- ---------------------------------------------------------------
Long-term capital
gains (Shares sold
more than 12 months 10% 20%
after purchase)

</TABLE>

7
<PAGE>

INVESTING WITH VICTORY

If you are looking for a convenient way to open an account or to add money
to an existing account, Victory can help. The sections that follow will serve as
a guide to your investments with Victory. The following sections will describe
how to open an account, how to access information on your account, and how to
buy, exchange and sell shares of the Fund. We want to make it simple for you to
do business with us. If you have questions about any of this information, please
call your Investment Professional, a representative of the Gradison McDonald
Division of McDonald Investments Inc., an affiliate of KAM (Gradison McDonald),
at 513-579-5999 or 800-869-5999, or one of our customer service representatives
at 800-539-FUND. They will be happy to assist you.

The Fund offers only Class G Shares, which have no sales charge. Class G
Shares are available only through certain broker-dealers.

[All you need to do to get started is to fill out an application.]

[An Investment Professional is an investment consultant, salesperson, financial
planner, investment adviser, or trust officer who provides you with investment
information.]

HOW TO BUY SHARES

You can buy shares in a number of different ways. The minimum initial investment
required to open an account is $500 ($100 for IRAs), with additional investments
of at least $25. The Fund offers only Class G Shares, which do not have a sales
charge. You can send in your investment by check, wire transfer, exchange from
another Victory Fund, or through arrangements with your Investment Professional.
Sometimes an Investment Professional will charge you a fee for these services.
This fee will be in addition to, and unrelated to, the fees and expenses charged
by the Fund. If you maintain a brokerage account with Gradison McDonald, you may
buy or sell Fund shares without incurring any fees.

If you buy shares directly from the Fund and your investment is received
and accepted by the close of trading on the NYSE (usually 4:00 p.m. Eastern
Time), your purchase will be processed the same day using that day's share
price.

Make your check payable to:

[Logo]
The
Victory
Funds

8
<PAGE>

HOW TO BUY SHARES (CONTINUED)

Keep the following addresses handy for purchases, exchanges, or redemptions:

[ICON] By Regular U.S. Mail

Send completed Account Applications with your check, bank draft, or money order
to:

The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527

The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202

[ICON] By Overnight Mail

Use this address ONLY for overnight packages.

The Victory Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
PHONE: 800-539-FUND

The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202
PHONE: 513-579-5999
or: 800-869-5999

[ICON] By Wire

The Transfer Agent does not charge a wire fee, but your originating bank may
charge a fee. Always call the Transfer Agent BEFORE wiring funds and to obtain a
confirmation number.

The Victory Funds 800-539-FUND
State Street Bank and Trust Co.
ABA #011000028
For Credit to DDA
Account #9905-201-1
For Further Credit to Account (insert account number, name, and confirmation
number assigned by the Fund)

The Victory Funds
c/o Gradison McDonald
513-579-5999 or
800-869-5999
Firstar Bank
ABA #042000013
For Credit to DDA
Account #9307703
(insert account number, name and confirmation number assigned by Gradison
McDonald)

[ICON] Telephone Number

Victory at:
800-539-FUND
or (800-539-3863)

Gradison McDonald at:
513-579-5999
or (800-869-5999)

- ----------------
FAX Number:

800-529-2244

Telecommunication
Device for the
Deaf (TDD):

800-970-5296

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

9
<PAGE>

HOW TO BUY SHARES (CONTINUED)

- - ACH

- - STATEMENTS AND REPORTS

You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, account activity will be detailed in his or her
account statements to you. Share certificates are not issued. Twice a year, you
will receive the financial reports of the Fund. By January 31 of each year, you
will be mailed an IRS form reporting distributions for the previous year, which
also will be filed with the IRS.

- - SYSTEMATIC AND AUTOMATIC INVESTMENT PLAN

To enroll in the Systematic or Automatic Investment Plan, you should check this
box on the Account Application or complete a separate Automatic Investment Plan
Application. We will need your bank account information and the amount and
frequency of your investment. You can select monthly, quarterly, semi-annual, or
annual investments. You should attach a voided personal check so the proper
information can be obtained. You must first meet the minimum initial investment
requirement of $500 ($100 for IRA's), then we will make automatic withdrawals of
the amount you indicate ($25 or more) from your bank account and invest it in
shares of the Fund.

- - RETIREMENT PLANS

[If you would like to make additional investments after your account is
established, use the Investment Stub attached to your confirmation statement and
send it with your check to the address indicated.]

All purchases must be
made in U.S. dollars and
drawn on U.S. banks. The
Transfer Agent may reject any
purchase order in its sole discretion. If
your check is returned for any reason,
you will be charged for any resulting fees and/or
losses. Third party checks may not be accepted. You
may only buy or exchange into fund shares legally
available in your state. If your account falls below $500
($100 for IRAs), we may ask you to re-establish the minimum
investment. If you do not do so within 60 days, we may close your
account and send you the value of your account.

10
<PAGE>

HOW TO EXCHANGE SHARES

You can sell shares of one fund of the Victory Portfolios to buy shares of
another. This is considered an exchange. You may exchange shares of one Victory
fund for shares of the same class of any other, generally without paying any
additional sales charges.

[You can obtain a list of funds available for exchange by calling the Transfer
Agent at 800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999.]

You can exchange shares of the Fund by writing or calling the Transfer Agent
at 800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999. When
you exchange shares of the Fund, you should keep the following in mind:

- Shares of the Fund selected for exchange must be available for sale in
your state of residence.

- Both funds must offer the exchange privilege.

- Shares of the Fund may be exchanged at relative net asset value if they
are the same class.

- If you own Class G Shares, you can exchange into Class G Shares, Select
Shares, or any single class money market fund shares of a Victory Fund
without paying a sales charge. If a Victory Fund has both Class G and
Class A Shares, you can exchange into only Class G Shares. If you owned
Gradison Shares on the reorganization date, you can exchange into Class
A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.

- Exchange orders will be accepted up to 4:00 p.m. Eastern Time.

- You must meet the minimum purchase requirements for the fund you
purchase by exchange.

- The registration and tax identification numbers of the two accounts must
be identical.

- The Fund may refuse any exchange purchase request if the Adviser
determines that the request is associated with a market timing strategy.
The Fund may terminate or modify the exchange privilege at any time on
30 days' notice to shareholders.

- An exchange of Fund shares constitutes a sale for tax purposes.

- Before exchanging, read the prospectus of the fund you wish to purchase
by exchange.

11
<PAGE>
HOW TO SELL SHARES

If we receive and accept your request by the close of trading on the NYSE
(usually 4:00 p.m. Eastern Time), your redemption will be processed the same
day.

[ICON] BY TELEPHONE

The easiest way to sell shares is by calling 800-539-FUND or Gradison McDonald
at 513-579-5999 or 800-869-5999. When you fill out your original application, be
sure to check the box marked "Telephone Authorization." Then when you are ready
to sell, call and tell us which one of the following options you would like to
use:

- Mail a check to the address of record;

- Wire funds to a domestic financial institution;

- Electronically transfer your redemption via the Automated Clearing House
(ACH). This feature is available only to certain accounts.

If there is an unusual amount of market activity and you cannot reach the
Transfer Agent or your Investment Professional by telephone, consider placing
your order by mail.

[ICON] BY MAIL

Use the Regular U.S. Mail or Overnight Mail Address to sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:

- Redemptions over $10,000;

- Your account registration has changed within the last 15 days;

- The check is not being mailed to the address on your account;

- The check is not being made payable to the owner of the account;

- The redemption proceeds are being transferred to another Victory Fund
account with a different registration; or

- The check or wire is being sent to a different bank account.

You can get a signature guarantee from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.

[There are a number of convenient ways to sell your shares. You can use the same
mailing addresses listed for purchases.]

[ICON] By Wire

If you want to sell shares by wire, you must establish a Fund account that will
accommodate wire transactions. If you call by 4:00 p.m. Eastern time, your funds
will be wired on the next business day.

12
<PAGE>

HOW TO SELL SHARES (CONTINUED)

[ICON] By ACH

Normally, your redemption will be processed on the same day or the next day if
received after 4:00 p.m. Eastern Time. It will be transferred by ACH as long as
the transfer is to a domestic bank, and the ACH feature is available for your
account.

- - SYSTEMATIC WITHDRAWAL PLAN

If you check this box on the Account Application, we will send monthly,
quarterly, semi-annual, or annual payments to the person you designate. The
minimum withdrawal is $25, and you must have a balance of $5,000 or more to
start withdrawals. Once again, we will need a voided personal check to activate
this feature. You should be aware that your account eventually may be depleted
and that each withdrawal may be a taxable transaction. However, you cannot
automatically close your account using the Systematic Withdrawal Plan. If your
balance falls below $500, we may ask you to bring the account back to the
minimum balance. If you decide not to increase your account to the minimum
balance, your account may be closed and the proceeds mailed to you.

- - ADDITIONAL INFORMATION ABOUT REDEMPTIONS

- - Redemption proceeds from the sale of shares purchased by a check mamay be
held up to 15 business days or until the purchase check has cleared.

- - The Fund may suspend your right to redeem your shares in the fofollowing
circumstances:

- During non-routine closings of the NYSE;

- When the Securities and Exchange Commission (SEC) determines that (a)
trading on the NYSE is restricted or (b) an emergency prevents the sale
or valuation of the Fund's securities; or

- When the SEC orders a suspension to protect the Fund's shareholders.

13
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND

- - ABOUT VICTORY

The Fund is a member of The Victory Portfolios, a group of over 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.

- - THE INVESTMENT ADVISER
AND SUB-ADMINISTRATOR

The Fund has an Advisory Agreement which is one of its most important contracts.
Key Asset Management Inc. (KAM), a New York corporation registered as an
investment adviser with the SEC, is the adviser to the Fund. KAM, a subsidiary
of KeyCorp, oversees the operations of the Fund according to investment policies
and procedures adopted by the Board of Trustees. Affiliates of the Adviser
manage approximately $68 billion for a limited number of individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114. McDonald & Co. Securities Inc. was the former adviser of the Fund. Since
the merger with KeyCorp, Gradison McDonald became a subsidiary of KeyCorp. KAM
will be paid a management fee based on the average daily net assets of the Fund
at an annual rate of 0.65% on the first $100 million, 0.55% on the next $100
million, and 0.45% in excess of $200 million.

- - PORTFOLIO MANAGEMENT

William J. Leugers, Jr., Daniel R. Shick and Gary H. Miller have been the
Co-Portfolio Managers of the Fund and its predecessor, the Gradison Established
Value Fund since 1984, 1993 and 1998, respectively, and together are primarily
responsible for the day-to-day management of the Fund's portfolio. Messrs.
Leugers and Shick are Portfolio Managers and Managing Directors of Gradison
McDonald. Mr. Miller has been a Vice President and Portfolio Manager of Gradison
McDonald since 1998; prior to which he was a Portfolio Trader with Gradison
McDonald since 1993. Messrs. Leugers, Shick and Miller are also Co-Portfolio
Managers of the Victory Small Company Opportunity Fund.

- - DISTRIBUTION AND SERVICE PLAN

Under the terms of a Distribution and Service Plan adopted according to Rule
12b-1 under the Investment Company Act of 1940, the Fund pays to the Distributor
a monthly service fee at an annual rate of 0.25% of the average daily net assets
of the Fund. The service fee is paid to securities broker-dealers or other
financial intermediaries for providing personal services to shareholders of the
Fund, including responding to inquiries, providing information to shareholders
about their Fund accounts, establishing and maintaining accounts and records,
processing dividend and distribution payments, arranging for bank wires,
assisting in transactions, and changing account information. The Fund may enter
into agreements with various shareholder servicing agents, including KeyBank
National Association and its affiliates, and with other financial institutions
that provide such services.

The Fund also annually pays the Distributor a monthly distribution fee in an
additional amount up to 0.25% of the Fund's average daily net assets. The
distribution fee is paid to the Distributor for general distribution services
and for selling shares of the Fund. The Distributor makes payments to agents who
provide these services.

14
<PAGE>

ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)

OPERATIONAL STRUCTURE OF THE FUND

Trustees Adviser

Shareholders

Financial Services Firms and
their Investment Professionals
Advise current and prospective
shareholders on their Fund investments.

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

Transfer Agent/Servicing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171

Handles services such as record-keeping, statements, processing of buy and sell
requests, distribution of dividends,
and servicing of shareholder accounts.

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

Gradison Division
of McDonald Investments Inc.
580 Walnut Street
Cincinnati, OH 45202

Provides services
to certain
shareholders.

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

Administrator, Distributor,
and Fund Accountant
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219

Markets the Fund, distributes shares through
Investment Professionals, and
calculates the value of shares.
As Administrator, handles the
day-to-day activities of the Fund.

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

Custodian
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114

Provides for safekeeping of the
Fund's investments and cash, and
settles trades made by the Fund.

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

Sub-Administrator
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114

Performs certain
sub-administrative services.

[The Fund is supervised by the Board of Trustees who monitors the services
provided to investors.]

15
<PAGE>
ADDITIONAL INFORMATION

[Some additional information you should know about the Fund.]

- - SHARE CLASSES

The Fund offers only the Class G Shares described in this Prospectus. At some
future date, the Fund may offer additional classes of shares through a separate
prospectus. The Fund is the successor to the Gradison Established Value Fund
since the completion of a reorganization with The Victory Portfolios.

- - CODE OF ETHICS

- - BANKING LAWS

- - PERFORMANCE

The Victory Funds may advertise the performance of the Fund by comparing it to
other mutual funds with similar objectives and policies. Performance
information also may appear in various publications. Any fees charged by
Investment Professionals may not be reflected in these performance
calculations. Advertising information will include the average annual total
return of the Fund calculated on a compounded basis for specified periods of
time. Total return information will be calculated according to rules
established by the SEC. Such information may include performance rankings and
similar information from independent organizations, such as Lipper Analytical
Services, Inc., and industry publications such as Morningstar, Business Week,
or Forbes. You also should see "Investment Performance."

- - YEAR 2000 ISSUES

Like all mutual funds, the Fund could be adversely affected if the computer
systems used by its service providers, including shareholder servicing agents,
are unable to recognize dates after 1999. The Fund's service providers have been
actively updating their systems to be able to process Year 2000 data. There can
be no assurance, however, that these steps will be adequate to avoid a temporary
service disruption or other adverse impact on the Fund. In addition, an issuer's
failure to process accurately Year 2000 data may cause that issuer's securities
to decline in value or delay the payment of interest to the Fund.

- - SHAREHOLDER COMMUNICATIONS

In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Fund will send only one
copy of any financial reports, prospectuses and their supplements.

[If you would like to receive additional copies of any materials, please call
the Fund at 800-539-FUND or Gradison McDonald at 513-579-5999 or
800-869-5999.]

16
<PAGE>

OTHER SECURITIES AND INVESTMENT PRACTICES

The following table describes some of the types of securities the Fund may
choose to buy under normal market conditions. The Fund primarily invests in
equity securities. However, for cash management or for temporary defensive
purposes in response to market conditions, the Fund may hold all of its assets
in cash or short-term money market instruments. This may reduce the benefit from
any upswing in the market and may cause the Fund to fail to meet its investment
objective. For more information on ratings and detailed descriptions of each of
the investments, see the Statement of Additional Information.

U.S. EQUITY SECURITIES. Includes common stock, preferred stock, and
securities that are convertible or exchangeable into common stock of U.S.
corporations.

EQUITY SECURITIES OF FOREIGN COMPANIES TRADED ON U.S. EXCHANGES. Can include
common stock, preferred stock, and convertible preferred stock of non-U.S.
corporations. Also may include American Depositary Receipts (ADRs) and
Global Depositary Receipts (GDRs).

U.S. GOVERNMENT SECURITIES. Notes and bonds issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. Some are direct obligations
of the U.S. Treasury; others are obligations only of the U.S. agency or
instrumentality.

SHORT-TERM DEBT OBLIGATIONS. Includes bankers' acceptances, certificates of
deposit, prime quality commercial paper, Eurodollar obligations, variable
and floating rate notes, cash, and cash equivalents.

SECURITIES LENDING. To generate additional income, the Fund may lend its
portfolio securities. The Fund will receive collateral for the value of the
security plus any interest due. The Fund only will enter into loan
arrangements with entities that the Adviser has determined are creditworthy.
According to an exemptive order received from the SEC, Key Trust Company of
Ohio, N.A., the Fund's Custodian and lending agent, may earn a fee based on
the amount of income earned on the investment of collateral.

17
<PAGE>

[ICON] FINANCIAL HIGHLIGHTS ESTABLISHED VALUE FUND

The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information shows
the results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).

These financial highlights reflect historical information about the Gradison
Established Value Fund, the predecessor to the Fund. The financial highlights
for the four fiscal years or period ended March 31, 1998 and the fiscal year
ended April 30, 1994 were audited by Arthur Andersen LLP, whose report, along
with the financial statements of the Gradison Established Value Fund, are
included in that fund's annual report, which is available by calling the Fund at
800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999.
<TABLE>
<CAPTION>

6 Months 11
Ended Year Year Year Months Year
Sept. 30, Ended Ended Ended Ended Ended
1998 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Apr. 30,
(unaudited) 1998 1997 1996 1995(a) 1994
----------- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $33.941 $28.827 $27.567 $23.381 $22.515 $21.375
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income .212 .465 .445 .436 .376 .256
Net gains or losses on securities
(both realized and unrealized) (4.889) 7.699 3.615 5.190 1.520 2.104
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
Investment Operations (4.677) 8.164 4.060 5.626 1.896 2.360
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Dividends from net investment income (.220) (.480) (.450) (.430) (.370) (.220)
Distributions from realized capital gains (.980) (2.570) (2.350) (1.010) (.660) (1.000)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.200) (3.050) (2.800) (1.440) (1.030) (1.220)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $28.064 $33.941 $28.827 $27.567 $23.381 $22.515
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (14.23)%(b) 29.67% 15.14% 24.84% 8.85%(b) 11.30%

RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in millions) $ 471.2 $ 567.3 $ 429.7 $ 366.4 $ 277.4 $ 253.3
Ratio of gross expenses to
average net assets(c) 1.09%(d) 1.10% 1.12% 1.16% -- --
Ratio of net expenses to
average net assets 1.09%(d) 1.10% 1.12% 1.15% 1.20%(d) 1.22%
Ratio of net investment income
to average net assets 1.31%(d) 1.44% 1.57% 1.70% 1.87%(d) 1.15%
Portfolio Turnover 18% 20% 31% 18% 24% 38%

<FN>

(a) The Fund changed its fiscal year to March 31.
(b) Total return represents the actual return over the period and has not been
annualized.
(c) Effective March 31, 1996 this ratio reflects gross expenses before reduction
for earnings credits; such reductions are included in the ratio
of net expenses.
(d) Annualized.
</FN>
</TABLE>

18
<PAGE>

This page is intentionally left blank.

19
<PAGE>

This page is intentionally left blank.

20
<PAGE>

PRESORTED STANDARD
U.S. POSTAGE
PAID
CLEVELAND, OH
Permit No. 469

The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114

If you would like a free copy of any of the
following documents or would like to request
other information regarding the Fund, you can
call or write the Fund or Gradison McDonald.

- - STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more details describing the Fund and its policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.

- - ANNUAL AND SEMI-ANNUAL REPORTS

Describes the Fund's performance, lists portfolio holdings, and discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

- - HOW TO OBTAIN INFORMATION

BY TELEPHONE: Call Victory Funds at 800-539-FUND (800-539-3863) or Gradison
McDonald at 513-579-5999 or 800-869-5999.

You also may obtain copies of materials from the SEC's Public Reference Room in
Washington, D.C. (Call 800-SEC-0330 for information on the operation of the
SEC's Public Reference Room.)

BY MAIL: The Victory Funds or The Victory Funds
P. O. Box 8527 c/o Gradison McDonald
Boston, MA 02266-8527 580 Walnut Street
Cincinnati, OH 45202

You also may write the Public Reference Section of the SEC, 450 Fifth St., N.W.,
Washington, D.C. 20549-6009, and pay the costs of duplication.

ON THE INTERNET: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov.

If you would like to receive copies of
the annual and semi-annual reports
and/or the SAI at no charge, please
call the Fund at
800-539-FUND
or Gradison McDonald at
513-579-5999 or 800-869-5999.

The securities
described in this
Prospectus and the SAI are
not offered in any state in which
they may not lawfully be sold. No sales
representative, dealer, or other person is authorized to give any information or
make any representation other than those contained in this Prospectus
and the SAI.

[LOGO]
VICTORY FUNDS

Investment Company Act File Number 811-4852

PRINTED ON RECYCLED PAPER

VF-EVF-PRO (4/99)
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

THE VICTORY PORTFOLIOS

Gradison Government Reserves Fund

Established Value Fund

April 5, 1999

This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectuses of the Gradison Government Reserves Fund
and Established Value Fund (individually, a "Prospectus," and collectively, the
"Prospectuses") dated April 5, 1999, as amended or supplemented from time to
time.

This Statement of Additional Information is incorporated by reference in its
entirety into the Prospectuses. Copies of the Prospectuses may be obtained by
writing The Victory Portfolios at P.O Box 8527, Boston, MA 02266-8527, or by
calling toll free 800-539-FUND (800-539-3863) or Gradison McDonald at
513-579-5999 or 800-869-5999.

INVESTMENT ADVISER and SUB-ADMINISTRATOR DIVIDEND DISBURSING AGENT
Key Asset Management Inc. and SERVICING AGENT
Boston Financial Data Services, Inc.
ADMINISTRATOR and DISTRIBUTOR
BISYS Fund Services CUSTODIAN
Key Trust Company of Ohio, N.A.
TRANSFER AGENT
State Street Bank and Trust Company INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP

COUNSEL
Kramer Levin Naftalis & Frankel LLP

<PAGE>

Table of Contents

INVESTMENT POLICIES AND LIMITATIONS...........................................1

FUNDAMENTAL RESTRICTIONS OF THE FUNDS.........................................2
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS.....................................4
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST.....................................5
Temporary Defensive Measures.........................................6
Bank Deposit Instruments.............................................6
Commercial Paper.....................................................6
Repurchase Agreements................................................6
Variable Amount Master Demand Notes..................................6
Variable and Floating Rate Notes.....................................7
Extendible Debt Securities...........................................7
Receipts.............................................................8
Zero-Coupon Bonds....................................................8
U.S. Government Obligations..........................................8
When-Issued Securities...............................................8
Delayed-Delivery Transactions........................................8
Mortgage-Backed Securities...........................................9
In General..................................................9
Federal Farm Credit Bank Securities.........................9
Federal Home Loan Bank Securities...........................9
U.S. Government Mortgage-Backed Securities..................9
GNMA Certificates..........................................10
FHLMC Securities...........................................10
FNMA Securities............................................10
SLMA Securities.....................................................10
Illiquid Investments................................................11
Securities Lending Transactions.....................................11
Investment Grade and High Quality Securities........................11

Valuation of Portfolio Securities for the Funds..............................12

DETERMINING NET ASSET VALUE FOR THE GRADISON GOVERNMENT RESERVES FUND........12

VALUATION OF PORTFOLIO SECURITIES FOR THE ESTABLISHED VALUE FUND.............13

THE GRADISON REORGANIZATION..................................................13

PERFORMANCE OF THE GRADISON GOVERNMENT RESERVES FUND.........................14

PERFORMANCE OF THE ESTABLISHED VALUE FUND....................................15

ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION....................18

DIVIDENDS AND DISTRIBUTIONS..................................................19

TAXES ....................................................................20

TRUSTEES AND OFFICERS........................................................25

ADVISORY AND OTHER CONTRACTS.................................................28

ADDITIONAL INFORMATION.......................................................35

APPENDIX ....................................................................A-1

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

The Victory Portfolios (the "Trust") is an open-end management investment
company. The Trust consists of 38 series (each a "Fund," and collectively, the
"Funds") of units of beneficial interest ("shares"). The outstanding shares
represent interests in the 38 separate investment portfolios. The two Funds
described in this statement of additional information (the "SAI"), the Gradison
Government Reserves Fund and the Established Value Fund (each a "Fund" and
collectively, the "Funds"), are diversified mutual funds.

Much of the information contained in this SAI expands on subjects discussed in
the Prospectuses. Capitalized terms not defined herein are used as defined in
the Prospectuses. No investment in shares of a Fund should be made without first
reading that Fund's Prospectus.

INVESTMENT POLICIES AND LIMITATIONS

Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding voting securities.
There can be no assurance that a Fund will achieve its investment objective.

Additional Information Regarding Fund Investments.

The following policies and limitations supplement the Funds' investment policies
set forth in the Prospectuses. The Funds' investments in the following
securities and other financial instruments are subject to the other investment
policies and limitations described in the Prospectuses and this SAI.

Unless otherwise noted in the prospectus or this SAI, a Fund may invest no more
than 5% of its total assets in any of the securities or financial instruments
described below (unless the context requires otherwise).

Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a 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 Investment Company Act of 1940, as amended (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 a Fund's investment policies and limitations. If the value of a
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 a Fund may be changed without an affirmative vote of
the holders of a majority of that Fund's outstanding voting securities unless
(1) a policy expressly is deemed to be a fundamental policy of the Fund or (2) a
policy expressly is deemed to be changeable only by such majority vote. A Fund
may, following notice to its shareholders, take advantage of other investment
practices which currently are not contemplated for use by the Fund or which
currently are not available but which may be developed to the extent such
investment practices are both consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the activities described in a
Fund's Prospectus.

The following sections list each Fund's investment policies, limitations, and
restrictions. The securities in which the Funds can invest and the risks
associated with these securities are discussed in the section "Instruments in
Which the Funds Can Invest."

Defined Terms. All capitalized terms listed in a Fund's Investment Policies and
Limitations section referring to permissible investments are described in the
section "Instruments in Which the Funds Can Invest."

The following terms are used throughout the Investment Policies and Limitations
sections.
S&P: Standard & Poor's
Moody's: Moody's Investors Service, Inc.
NRSRO: Nationally recognized statistical ratings organization

<PAGE>

Fundamental Restrictions of the Funds

Gradison Government Reserves Fund

1. Senior Securities

The Gradison Government Reserves Fund will not issue senior securities as
defined in the 1940 Act, except to the extent that such issuance might be
involved with respect to borrowings subject to fundamental restriction no. 3
below or with respect to transactions involving futures contracts or the writing
of options and provided that the Trust may issue shares of additional series or
classes that the Trustees may establish.

2. Underwriting

The Gradison Government Reserves Fund will not underwrite the securities of
other issuers, except insofar as the Fund may technically be deemed an
underwriter under the Securities Act of 1933, as amended (the "Securities Act"),
in connection with the disposition of portfolio securities.

3. Borrowing

The Gradison Government Reserves Fund will not borrow money, except from banks
as a temporary measure or for extraordinary or emergency purposes such as to
enable the Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous, and not for leverage purposes, and
then only in amounts not exceeding 15% of the total assets of the Fund at the
time of the borrowing. While any borrowing of greater than 5% of the assets is
outstanding, the Fund will not purchase additional portfolio securities.

4. Real Estate

The Gradison Government Reserves Fund will not purchase or sell real estate. The
purchase of securities secured by real estate which are otherwise allowed by the
Fund's investment objective and other investment restrictions shall not be
prohibited by this restriction.

5. Lending

The Gradison Government Reserves Fund will not make loans, except that the
purchase of debt securities as allowed by the Fund's investment objective and
other investment restrictions, entering into repurchase agreements, and the
lending of portfolio securities in an amount not to exceed 30% of the value of
its total assets with the collateral value of loaned securities marked-to-market
daily and in accordance with applicable regulations or guidelines established by
the Securities and Exchange Commission (the "SEC") shall not be prohibited by
this restriction.

6. Commodities

The Gradison Government Reserves Fund will not purchase or sell commodities,
commodity contracts or interests in oil, gas or other mineral exploration or
development programs or leases, except that the purchase or sale of financial
futures contracts or options on financial futures contracts is permissible.

7. Concentration

The Gradison Government Reserves Fund will not invest more than 25% of its total
assets in the securities of issuers in any single industry, provided that there
shall be no limitation on investments in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.

<PAGE>

Established Value Fund

1. Underwriting

The Established Value Fund will not underwrite the securities of other issuers,
except insofar as the Trust may technically be deemed an underwriter under the
Securities Act in connection with the disposition of portfolio securities.

2. Borrowing

The Established Value Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes, and then only in amounts not exceeding
5% of the total assets of the Fund, taken at the lower of acquisition cost or
market value.

3. Real Estate

The Established Value Fund will not purchase or sell real estate, except that it
is permissible to purchase securities secured by real estate or real estate
interests or issued by companies that invest in real estate or real estate
interests.

4. Lending

The Established Value Fund will not make loans, except (a) through the purchase
of publicly distributed corporate securities, U.S. Government obligations,
certificates of deposit, high-grade commercial paper and other money market
instruments, and (b) loans of portfolio securities to persons unaffiliated with
the Trust not in excess of 20% of the value of the Fund's total assets (taken at
market value) made in accordance with the guidelines of the SEC and with any
standards established from time to time by the Trust's Board of Trustees,
including the maintenance of collateral from the borrower at all times in an
amount at least equal to the current market value of the securities loaned.

5. Mortgage, Pledge or Hypothecation of Securities

The Established Value Fund will not mortgage, pledge or hypothecate securities,
except in connection with a permissible borrowing as set forth in fundamental
investment restriction no. 2 above, and then only in amounts not exceeding 10%
of the value of the assets of a Fund (taken at the lower of acquisition cost or
market value).

6. Commodities

The Established Value Fund will not purchase or sell commodities, commodity
contracts, or interests in oil, gas or other mineral exploration or development
programs, except that it is permissible to purchase securities issued by
companies that hold interests in oil, gas or other mineral exploration or
development programs.

7. Diversification

The Established Value Fund will not purchase any securities (other than
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities) if immediately after such purchase, more than 5% of the
Fund's total assets would be invested in securities of any one issuer or more
than 10% of the outstanding securities of any one issuer would be owned by the
Trust and held by the Fund. The Established Value Fund will not concentrate more
than 25% of its total assets in any one industry.

8. Short Sales, Margin

The Established Value Fund will not make short sales of securities, or purchase
securities on margin, except for short-term credit as is necessary for the
clearance of transactions.

<PAGE>

9. Other Investment Companies

The Established Value Fund will not purchase the securities of other investment
companies, except in connection with a merger, consolidation, reorganization or
acquisition of assets, and except by purchase in the open market of securities
of closed-end investment companies involving only customary broker's
commissions, and then only if immediately after such purchase, no more than 10%
of the value of the total assets of the Fund would be invested in such
securities.

10. Control

The Established Value Fund will not invest in companies for the purpose of
exercising control or management.

11. Restricted Securities

The Established Value Fund will not purchase securities subject to restrictions
on disposition under the Securities Act.

12. Illiquid Securities

The Established Value Fund will not purchase securities for which no readily
available market quotation exists, if at the time of acquisition more than 5% of
the total assets of the Fund would be invested in such securities (repurchase
agreements maturing in more than seven days are included within this
restriction).

13. Joint Trading

The Established Value Fund will not participate on a joint, or a joint and
several, basis in any securities trading account.

14. Options

The Established Value Fund will not write, purchase or sell puts, calls or
combinations thereof.

15. Ownership of Portfolio Securities by Trustees or Officers

The Established Value Fund will not purchase or retain the securities of any
issuer if any Trustee or officer of the Trust is or becomes a director or
officer of such issuer and owns beneficially more than 1/2 of 1% of the
securities of such issuer, or if those directors, trustees and officers of the
Trust and its investment adviser who are directors or officers of such issuer
together own or acquire more than 5% of the securities of such issuer.

16. Unseasoned Issuers

The Established Value Fund will not purchase any securities of companies which
have (with their predecessors) a record of less than three years of continuous
operation, if at the time of acquisition more than 5% of a Fund's total assets
would be invested in such securities.

NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS

Gradison Government Reserves Fund

1. Short Sales, Purchases on Margin

The Gradison Government Reserves Fund will not make short sales of securities,
or purchase securities on margin, except for short-term credit as is necessary
for the clearance of transactions.

<PAGE>

2. Other Investment Companies

The Gradison Government Reserves Fund will not purchase securities of other
investment companies except in connection with a reorganization, merger, or
consolidation with another open-end investment company.

3. Mortgage, Pledge or Hypothecation of Securities

The Gradison Government Reserves Fund will not mortgage, pledge or hypothecate
securities except in connection with permitted borrowings. The Fund has no
current intention of engaging in the lending of portfolio securities.

INSTRUMENTS IN WHICH THE FUNDS CAN INVEST

The following tables list some of the types of securities each of the Funds may
choose to purchase under normal market conditions. Unless otherwise stated, the
indicated percentage relates to a Fund's total assets that may be committed to
the stated investment.

Gradison Government Reserves Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Repurchase o No limit Borrowing from o 15%
Agreements Banks
- ---------------------------- -------------------------------- ------------------------ -------------------------------
When-Issued and o 33 1/3%/only U.S. Government U.S. Government o No limit
Delayed Delivery Securities Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Zero Coupon Bonds o No limit/only U.S. Government Variable and o No limit/only U.S.
Securities Floating Rate Government Securities
Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Securities of o No limit/only U.S. Government Mortgage-Backed o No limit/only U.S.
Any One Issuer Securities Securities Government Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Illiquid o 10% of total assets/only U.S.
Securities Government Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------

Established Value Fund

- ---------------------------- -------------------------------- ------------------------ -------------------------------
U.S. Equity Securities o 80 to 100% Repurchase Agreements o 20%
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Borrowing from Banks o 5% Real Estate Investment o 25% industry
Trusts concentration
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Illiquid Securities. o 5% of total assets Variable and Floating o 20%
Rate Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Securities Lending o 20% Investment Company o 10% in closed-end
Securities funds only
- ---------------------------- -------------------------------- ------------------------ -------------------------------
Receipts o 20% Short-Term Debt o 20%
Obligations
- ---------------------------- -------------------------------- ------------------------ -------------------------------
When-Issued and Delayed o 33 1/3% U.S. Government o 20%
Delivery Securities Securities
- ---------------------------- -------------------------------- ------------------------ -------------------------------
</TABLE>

<PAGE>

The instruments in which the Funds can invest, according to their investment
policies and limitations are described below.

The following paragraphs provide a brief description of some of the types of
securities in which the Funds may invest in accordance with their investment
objective, policies, and limitations, including certain transactions the Funds
may make and strategies they may adopt. The following also contains a brief
description of the risk factors related to these securities. The Funds may,
following notice to their shareholders, take advantage of other investment
practices which currently are not contemplated for use by the Funds or which
currently are not available but which may be developed, to the extent such
investment practices are both consistent with a Fund's investment objective and
are legally permissible for the Fund. Such investment practices, if they arise,
may involve risks which exceed those involved in the activities described in a
Fund's Prospectus and this SAI.

Temporary Defensive Measures. For temporary defensive purposes in response to
market conditions, the Gradison Government Reserves Fund may hold all of its
assets in cash and the Established Value Fund may hold up to 100% of its assets
in cash or high quality, short-term obligations such as domestic commercial
paper (including variable-amount master demand notes), bankers' acceptances,
certificates of deposit, and repurchase agreements. These temporary defensive
measures may result in performance that is inconsistent with a Fund's investment
objective.

Bank Deposit Instruments. 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.
Certificates of Deposit and demand and time deposits invested in by a 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.

Commercial Paper. Commercial paper is comprised of unsecured promissory notes,
usually 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.

The Funds 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 SAI.

Repurchase Agreements. Securities held by a Fund may be subject to Repurchase
Agreements. Under the terms of a Repurchase Agreement, a Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by the 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,
a 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.

Variable Amount Master Demand Notes. Variable Amount Master Demand Notes 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, a Fund
may demand payment of principal and accrued interest at any time and may resell

<PAGE>

the notes at any time to a third party. The absence of an active secondary
market, however, could make it difficult for a 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 typically are not 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 the Adviser will monitor
continuously 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," a 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 a Fund's investment policies, a
Variable Amount Master Demand 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. A Variable Rate Note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, reasonably can 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, reasonably can be expected to have a market value that
approximates its par value. Such notes frequently are not rated by credit rating
agencies; however, unrated Variable and Floating Rate Notes purchased by the
Fund will only be those determined by the 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, the 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 a 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 a Fund to dispose of a Variable or Floating
Rate Note in the event that the issuer of the note defaulted on its payment
obligations and a 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.

The maturities of Variable or Floating Rate Notes are determined as follows:

1. A Variable or Floating Rate 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 to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.

2. A Variable or Floating 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 or Floating Rate Note that is subject to a demand feature
scheduled to be paid in one year or more will be deemed 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 Variable or Floating Rate Note that is subject to a demand feature will be
deemed 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 a 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.

Extendible Debt Securities. Extendible Debt Securities are securities that can
be retired at the option of a Fund at various dates prior to maturity. In
calculating average portfolio maturity, a Fund may treat Extendible Debt
Securities as maturing on the next optional retirement date.

<PAGE>

Receipts. Receipts are separately traded interest and principal component parts
of bills, notes, and bonds issued by the U.S. Treasury that are transferable
through the Federal book entry system, known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry
Safekeeping ("CUBES"). These instruments are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank; the custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS").

Zero-Coupon Bonds. Zero-Coupon Bonds are purchased at a discount from the face
amount because the buyer receives only the right to a fixed payment on a certain
date in the future and does not receive any periodic interest payments. The
effect 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. This fluctuation increases
in accordance with the length of the period to maturity.

U.S. Government Obligations. U.S. Government Obligations are 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.

When-Issued Securities. A 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 a Fund agrees to purchase securities on a when issued basis, the
custodian will set aside cash or liquid 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 a 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 a 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
Funds do not intend to purchase when-issued securities for speculative purposes,
but only in furtherance of their investment objectives.

Delayed-Delivery Transactions. A Fund may buy and sell securities on a
delayed-delivery 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, a 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 a 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 a 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.

<PAGE>

A 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.

Mortgage-Backed Securities--In General. Mortgage-Backed 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 indicates. In addition,
during periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the pool. Conversely, in
periods of rising interest rates, prepayment rates tend to decrease, lengthening
a pool's average life. 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.

A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
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. Among the U.S. Government securities
in which a Fund may invest are Government Mortgage-Backed Securities (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.

Federal Farm Credit Bank Securities. A U.S. Government-sponsored institution,
the Federal Farm Credit Bank consolidates the financing activities of the
component banks of the Federal Farm Credit System, established by the Farm
Credit Act of 1971 to provide credit to farmers and farm-related enterprises.
The Federal Farm Credit Bank sells short-term discount notes maturing in 1 to
365 days, short-term bonds with 3- and 6-month maturities, and adjustable rate
securities through a national syndicate of securities dealers. Several dealers
also maintain an active secondary market in these securities. Federal Farm
Credit Bank Securities are not guaranteed by the U.S. Government and no
assurance can be given that the U.S. Government will provide financial support
to this instrumentality.

Federal Home Loan Bank Securities. Similar to the role played by the Federal
Reserve System with respect to U.S. commercial banks, the Federal Home Loan Bank
System (the "FHLB"), created in 1932, supplies credit reserves to savings and
loans, cooperative banks and other mortgage lenders. The FHLB sells short-term
discount notes maturing in 1 to 360 days and variable rate securities, and lends
the money to mortgage lenders based on the amount of collateral provided by the
institution. FHLB securities are not guaranteed by the U.S. Government and no
assurance can be given that the U.S. Government will provide financial support
to this instrumentality.

U.S. Government Mortgage-Backed Securities. Certain obligations of certain
agencies and instrumentalities of the U.S. Government are Mortgage-Backed
Securities. Some such obligations, such as those issued by GNMA 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.

<PAGE>

The principal governmental (i.e., backed by the full faith and credit of the
U.S. Government) guarantor of Mortgage-Backed 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.

GNMA Certificates. Certificates of the GNMA are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that a 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.

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 usually will
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 a Fund has
purchased the certificates above par in the secondary market.

FHLMC Securities. The 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, and collateralized mortgage obligations
("CMOs"). Participation Certificates resemble GNMA Certificates in that each
Participation Certificate 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 Participation Certificates guarantee the timely
payment of both principal and interest.

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 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.

SLMA Securities. Established by federal decree in 1972 to increase the
availability of education loans to college and university students, the Student
Loan Marketing Association ("SLMA") is a publicly traded corporation that
guarantees student loans traded in the secondary market. SLMA purchases student
loans from participating financial institutions that originate these loans and
provides financing to state education loan agencies. SLMA issues short- and
medium-term notes and floating rate securities. SLMA securities are not
guaranteed by the U.S.

<PAGE>

Government and no assurance can be given that the U.S. Government will provide
financial support to this instrumentality.

Illiquid Investments. Illiquid investments are investments that 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 Trust's Board of Trustees, the Adviser determines
the liquidity of the Funds' investments and, through reports from the Adviser,
the Trustees monitor investments in illiquid instruments. In determining the
liquidity of a 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 Funds' rights and obligations relating to the
investment).

Investments currently considered by a 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, the Adviser may determine some securities to be illiquid.

However, with respect to over-the-counter options a 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 a
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
Established Value Fund were in a position where more than 5% of its total assets
were invested in illiquid securities, the Fund would seek to take appropriate
steps to protect liquidity.

Securities Lending Transactions. The Established Value Fund may from time to
time lend securities from its portfolio to broker-dealers, banks, financial
institutions and institutional borrowers of securities and receive collateral in
the form of cash or U.S. Government Obligations. Key Trust Company of Ohio,
N.A., an affiliate of the Adviser, serves as lending agent for the Fund,
pursuant to a Securities Lending Agency Agreement that was adopted by the
Trustees of the Trust. Under the Established Value Fund's current practices
(which are subject to change), the Fund must receive initial collateral equal to
102% of the market value of the loaned securities, plus any interest due in the
form of cash or U.S. Government Obligations. The Established Value Fund will not
lend portfolio securities to: (a) any "affiliated person" (as that term is
defined in the 1940 Act) of the Fund; (b) any affiliated person of the Adviser;
or (c) any affiliated person of such an affiliated person. This collateral must
be valued daily and should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Established Value Fund
sufficient to maintain the value of the collateral equal to at least 100% of the
value of the loaned securities. During the time portfolio securities are on
loan, the borrower will pay the Established Value Fund any dividends or interest
paid on such securities plus any interest negotiated between the parties to the
lending agreement. Loans will be subject to termination by the Established Value
Fund or the borrower at any time. While the Established Value Fund will not have
the right to vote securities on loan, it intends to terminate loans and regain
the right to vote if that is considered important with respect to the
investment. The Established Value Fund will only enter into loan arrangements
with broker-dealers, banks or other institutions that the Adviser has determined
are creditworthy under guidelines established by the Trustees. The Established
Value Fund will limit its securities lending to 20% of total assets.

Investment Grade and High Quality Securities. The Established Value Fund may
invest in high-quality short-term obligations, which are those that, at the time
of purchase, (1) possess a rating in one of the two highest ratings categories
from at least one NRSRO (for example, commercial paper rated "A-1" or "A-2" by
S&P or "P-1" or "P-2" by Moody's) or (2) are unrated by an NRSRO but are
determined by the Adviser to present minimal credit risks and to be of
comparable quality to rated instruments eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees. The applicable securities ratings
are described in the Appendix.

<PAGE>

VALUATION OF PORTFOLIO SECURITIES FOR THE FUNDS

The net asset value of each Fund is determined as of the time(s) indicated in
the Prospectuses on each Business Day. A "Business Day" is a day on which the
New York Stock Exchange, Inc. (the "NYSE") and the Federal Reserve Bank of
Cleveland are open and any other day (other than a day on which no shares of a
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, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving, and Christmas.

DETERMINING NET ASSET VALUE FOR THE GRADISON GOVERNMENT RESERVES FUND

The Gradison Government Reserves Fund uses the amortized cost method to
determine its net asset value.

Use of the Amortized Cost Method. The Gradison Government Reserves Fund's use of
the amortized cost method of valuing its investments depends on its compliance
with certain conditions contained in Rule 2a-7 of the 1940 Act. Under Rule 2a-7,
the Trustees must establish procedures reasonably designed to stabilize the net
asset value per share ("NAV"), as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market conditions
and the Gradison Government Reserves Fund's investment objective.

The Gradison Government Reserves Fund has elected to use the amortized cost
method of valuation pursuant to Rule 2a-7. 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 Gradison Government Reserves Fund would receive if it sold
the instrument. The value of securities in the Gradison Government Reserves Fund
can be expected to vary inversely with changes in prevailing interest rates.

Pursuant to Rule 2a-7, the Gradison Government Reserves 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 Gradison
Government Reserves 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 the Gradison
Government Reserves Fund'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 Trust's Trustees also have established procedures reasonably designed,
taking into account current market conditions and the Trust's investment
objectives, to stabilize the net asset value per share of the Gradison
Government Reserves 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 Gradison Government Reserves Fund calculated by using available
market quotations deviates from $1.00 per share. In the event such deviation
exceeds one-half of one percent, Rule 2a-7 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 Gradison Government Reserves 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 Gradison
Government Reserves Fund's outstanding shares without monetary consideration, or
using a net asset value per share determined by using available market
quotations.

The Gradison Government Reserves 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, the net asset value usually is not affected
by any realized appreciation or depreciation of the portfolio.

<PAGE>

In periods of declining interest rates, the indicated daily yield on shares of
the Gradison Government Reserves Fund computed by dividing the annualized daily
income on the Fund's portfolio by the net asset value computed as above may tend
to be higher than a similar computation made 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
Gradison Government Reserves Fund computed the same way may tend to be lower
than a similar computation made using a method of calculation based upon market
prices and estimates.

Monitoring Procedures

The Trustees' 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 Gradison Government Reserves Fund's average
maturity) to minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.

VALUATION OF PORTFOLIO SECURITIES FOR THE ESTABLISHED VALUE FUND

Each equity security held by the Established Value Fund is valued at the last
sales price on the exchange where the security is principally traded or, lacking
any sales on a particular day, the security is valued at the last available bid
quotation on that day. Exchange listed convertible debt securities are valued at
the bid obtained from broker-dealers or a comparable alternative, such as
Bloomberg, based upon pricing procedures approved by the Board of Trustees. Each
security traded in the over-the-counter market (but not including securities
reported on the Nasdaq National Market System) is valued at the bid based upon
quotes furnished by market makers for such securities. Each security reported on
the Nasdaq National Market System is valued at the sales price on the valuation
date or absent a last sales price, at the mean between the closing bid and asked
prices on that day. Non-convertible debt securities are valued on the basis of
prices provided by independent pricing services. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as institution-sized trading in similar groups
of securities, developments related to special securities, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics and
other market data. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
supervision of The Victory Portfolios' officers in a manner specially authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued on the basis of amortized cost. For purposes of determining
net asset value per share, futures and options contracts generally will be
valued 15 minutes after the close of trading of the NYSE.

Generally, trading in U.S. Government securities and money market instruments is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of
each Fund's shares are determined at such times. Occasionally, events affecting
the values of such securities and such exchange rates may occur between the
times at which such values are determined and the close of the NYSE which will
not be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Trustees.

THE GRADISON REORGANIZATION

The Funds discussed in this SAI offer Class G shares. This Class was established
in October 1998 to facilitate the reorganization of the Gradison Funds, a family
of mutual funds advised by the Gradison Division of McDonald & Company
Securities, Inc. See "Additional Purchase, Exchange and Redemption Information
- -- Purchasing Shares -- Class G Shares -- The Gradison Fund Reorganization" in
this SAI. The following table lists each Gradison Fund and its corresponding
Victory Fund.

GRADISON FUND: VICTORY FUND (CLASS G):
U.S. Government Reserves -> Gradison Government Reserves Fund

<PAGE>

Government Income Fund -> Fund for Income*
Ohio Tax-Free Income Fund -> Ohio Municipal Bond Fund*
Established Value Fund -> Established Value Fund
Growth & Income Fund -> Diversified Stock Fund*
Opportunity Value Fund -> Small Company Opportunity Fund*
International Fund -> International Growth Fund*

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

* Described in a separate statement of additional information.

PERFORMANCE OF THE GRADISON GOVERNMENT RESERVES FUND

Performance for a class of shares of the Gradison Government Reserves Fund
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;
o changes in Fund expenses; and
o the relative amount of Fund cash flow.

From time to time the Gradison Government Reserves Fund may advertise its
performance compared to similar funds or portfolios using certain indices,
reporting services, and financial publications.

Yield. The Gradison Government Reserves 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 Gradison Government
Reserves Fund, the yield will be reduced for those shareholders paying those
fees.

The seven-day yield for the seven-day period ended September 30, 1998 for
Gradison U.S. Government Reserves, the predecessor to the Gradison Government
Reserves Fund, was 4.80%.

Effective Yield. The Gradison Government Reserves 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.

The effective yield for the fiscal year ended September 30, 1998 for Gradison
U.S. Government Reserves, the predecessor to the Gradison Government Reserves
Fund, was 4.92%.

14
<PAGE>

Total Return Calculations. Total returns quoted in advertising reflect all
aspects of the Gradison Government Reserves Fund's return, including the effect
of reinvesting dividends and net capital gain distributions (if any), and any
change in the net asset value per share of the Gradison Government Reserves Fund
over the period. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the
Gradison Government Reserves 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 (or "annualized total return") are a convenient
means of comparing investment alternatives, investors should realize that
performance for the Gradison Government Reserves Fund 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 Gradison Government Reserves
Fund with other mutual funds, investors should take into consideration permitted
portfolio composition methods used to value portfolio securities and computing
offering price.

The total return of Gradison U.S. Government Reserves, the predecessor to the
Gradison Government Reserves Fund, for the one year, five year, and ten year
periods ended September 30, 1998 and the period from inception to September 30,
1998 are 4.97%, 4.53%, 5.16% and 5.26%, respectively.

In addition to average annual total returns, the Gradison Government Reserves
Fund may quote unaveraged or cumulative total returns reflecting the total
income over a stated period. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or a series of redemptions, over any time
period. Total returns may be broken down into their components of income and
capital (including capital 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.

PERFORMANCE OF THE ESTABLISHED VALUE FUND

From time to time, the "standardized yield," "distribution return," "dividend
yield," and "total return," of an investment in Established Value 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
Established Value Fund's performance. The Established Fund's advertisement of
its performance must, under applicable SEC 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 Established Value
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. Investments in the Established
Value Fund are 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 Trust of
future yields or rates of return on its shares. The yield and total returns of
the Established Value Fund are affected by portfolio quality, portfolio
maturity, the type of investments the Fund holds, and operating expenses.

Standardized Yield. The "yield" (referred to as "standardized yield") of the
Established Value Fund for a given 30-day period for a class of shares is
calculated using the following formula set forth in rules adopted by the SEC
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).

<PAGE>

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 SEC 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 Established Value 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.

Dividend Yield and Distribution Returns. From time to time the Established Value
Fund may quote a "dividend yield" or a "distribution return." Dividend yield is
based on the dividends derived from net investment income during a one-year
period. Distribution return includes dividends derived from net investment
income and from net realized capital gains declared during a one-year period.
The "dividend yield" is calculated as follows:

Dividend Yield = Dividends for a Period of One-Year
----------------------------------
Max. Offering Price (last day of period)

For Class G shares, the maximum offering price is the net asset value per share.

The dividend yield of the Gradison Established Value Fund, the predecessor to
the Established Value Fund, for the twelve months ended September 30, 1998 is
8.99%

Total Returns. The "average annual total return" of the Established Value Fund
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)^1n - 1 = Average Annual Total Return
---
(P)

The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period greater than one year.
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 = Total Return
-------
P

Total returns also assume that all dividends and net 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 returns for the Gradison Established Value Fund, the
predecessor to the Established Value Fund, for the one, five and ten year
periods ended September 30, 1998 and since inception are 29.67%, 17.35%, 14.21%
and 15.27%, respectively.

Other Performance Comparisons.

From time to time the Established Value Fund may publish the ranking of its
performance or 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
Established Value Fund, and ranks the performance of the Fund against all other
funds in similar categories. 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 Established Value Fund may publish the ranking of its
performance or performance of its shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the Fund, in
broad investment categories (domestic equity, international equity taxable bond,
municipal bond or 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

<PAGE>

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 five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive one
star.

The total return on an investment made in the Established Value Fund may be
compared with the performance for the same period of the Consumer Price Index
and/or the Standard & Poor's 500 Index. Other indices may be used from time to
time. The Consumer Price Index generally is considered to be a measure of
inflation. The S&P 500 Index is a composite index of 500 common stocks generally
regarded as an index of U.S. stock market performance. These 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 Established Value
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 Established Value Fund also may 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 the Established Value 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 the Established Value Fund's investment are reinvested by being
paid in additional Established Value 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 Established Value Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash.

The Established Value Fund also may 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 the Established Value 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 Established
Value 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
Established Value 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
Established Value Fund may reprint articles (or excerpts) written regarding the
Fund and provide them to prospective shareholders. Performance information with
respect to the Established Value Fund is generally available by calling McDonald
Investments Inc. ("Gradison McDonald") at 513-579-5700 or 800-869-5999 or the
Trust at 800-539-FUND.

Investors also may judge, and the Established Value Fund may at times advertise,
its 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. and Standard &
Poor's 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

<PAGE>

yield information, general information about the Established Value 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 a
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis. Advertisements also may
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 Established Value 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 Established Value 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 NYSE holiday closing schedule indicated in this SAI under "Valuation of
Portfolio Securities for the Funds" is subject to change.

When the NYSE or the Federal Reserve Board of Cleveland 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 SEC to warrant
such action, the Funds may not be able to accept purchase or redemption
requests. A Fund's net asset value may be affected to the extent that its
securities are traded on days that are not Business Days.

The Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem
shares of each Fund solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90-day period for any one shareholder. The
remaining portion of the redemption may be made 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 may incur additional
costs as well as the associated inconveniences of holding and/or disposing of
such securities or other property.

Pursuant to Rule 11a-3 under the 1940 Act, the Funds are required to give
shareholders at least 60 days' notice prior to terminating or modifying a Fund's
exchange privilege. The 60-day notification requirement may, however, 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) a Fund temporarily suspends the offering of
shares as permitted under the 1940 Act or by the SEC or because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.

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

Purchasing Shares.

Class G Shares -- The Gradison Fund Reorganization. KeyCorp, the parent of Key
Asset Management Inc. ("KAM" or the "Adviser"), recently completed the
acquisition of McDonald & Company Investments, Inc., the corporate parent of
McDonald & Company Securities Inc., a major regional broker-dealer. In October
1998, McDonald & Company Securities Inc. changed its name to McDonald
Investments Inc. The Gradison Division of McDonald Securities Inc. (the
"Gradison Division") will join KAM. To achieve economies of scale, the Trust, on
behalf of certain of its series, acquired the portfolio securities of seven
funds previously managed by the Gradison Division in a tax-free exchange for
Class G shares of these series.

<PAGE>

As outlined in the table under "Performance -- Class G Shares" in this SAI, on
March 29, 1999, each of five of the seven Gradison funds transferred all of its
assets to its corresponding existing Victory Fund in exchange for newly
established Class G shares of such corresponding Fund and the assumption of its
liabilities by such corresponding Fund, followed by the constructive
distribution pro rata to its shareholders of the corresponding Fund's Class G
shares received in the reorganization. On april 2, 1999, the two remaining
Gradison Funds, Gradison U.S. Government Reserves and Gradison Established Value
Fund participated in a similar reorganization involving the two Funds that are
described in this SAI, the Gradison Government Reserves Fund and the Established
Value Fund. These Funds were established as new series of the Trust in October
1998.

No sales charge is imposed on the purchase of Class G shares. Gradison McDonald
compensates its own employees, and may compensate its affiliates, for Class G
share sales, some of which compensation may be recouped in the event of share
redemptions made during the first nine months after sale.

In addition, Class G shares of the Gradison Government Reserves Fund are subject
to an annual Rule 12b-1 fee of up to 0.10% of average daily net assets and Class
G shares of the Established Value Fund are subject to an annual Rule 12b-1 fee
of up to 0.50% of average daily net assets. There is no conversion feature
applicable to Class G shares. Distributions paid to holders of a Fund's Class G
shares may be reinvested in additional Class G shares of that Fund or Class G
shares of a different Fund.

Exchanging Shares.

Class G shares of any Fund may be exchanged for Class G shares, Select Class
shares, or any single class money market shares of a fund offered by the Trust.
Shareholders who acquired Class G shares as a result of the Gradison Fund
reorganization can exchange into Class A shares of any other series of the Trust
that does not offer Class G Shares without paying a sales charge.

DIVIDENDS AND DISTRIBUTIONS

The Funds distribute substantially all of their 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 Funds to qualify for favorable
federal tax treatment. The Gradison Government Reserves Fund declares dividends
daily and pays them monthly. The Established Value Fund declares and pays
dividends quarterly. The amount of a Fund's distributions may vary from time to
time depending on market conditions and the composition of a Fund's portfolio.

For this purpose, the net income of a 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 the Adviser, are accrued each
day. The expenses and liabilities of a Fund shall include those appropriately
allocable to the Fund as well as a share of the general expenses and liabilities
of the Trust in proportion to the Fund's share of the total net assets of the
Trust.

TAXES

Information set forth in the Prospectuses and this SAI that relates to federal
income taxation is only a summary of certain key federal income tax
considerations generally affecting each Fund and its shareholders that are not
described in the Prospectuses. No attempt has been made to present a complete
explanation of the federal tax treatment of the Funds or the implications to
shareholders, and the discussions here and in each Fund's prospectus are not
intended as substitutes for careful tax planning. Accordingly, potential
purchasers of shares of the Funds are urged to consult their tax advisers with
specific reference to their own tax circumstances. In addition, the tax

<PAGE>

discussion in the Prospectuses and this SAI is based on tax law in effect on the
date of the Prospectuses and this SAI; such laws and regulations may be changed
by legislative, judicial, or administrative action, sometimes with retroactive
effect.

Qualification as a Regulated Investment Company

Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, a Fund is not subject to federal income tax on the
portion of its net investment income (i.e., taxable interest, dividends, and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by a Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains for the
taxable year and will therefore count toward satisfaction of the Distribution
Requirement.

If a Fund has a net capital loss (i.e., an excess of capital losses over capital
gains) for any year, the amount thereof may be carried forward up to eight years
and treated as a short-term capital loss which can be used to offset capital
gains in such future years. As of September 30, 1998, the Gradison Government
Reserves Fund had capital loss carryforwards of approximately $244,412, which
expire in 2002, and $3,000, which expire in 2006; and the Established Value Fund
had no capital loss carryforwards. Under Code Sections 382 and 383, if a Fund
has an "ownership change," then the Fund's use of its capital loss carryforwards
in any year following the ownership change will be limited to an amount equal to
the net asset value of the Fund immediately prior to the ownership change
multiplied by the long-term tax-exempt rate (which is published monthly by the
Internal Revenue Service (the "IRS")) in effect for the month in which the
ownership change occurs (the rate for February, 1999 is 4.71%). The Funds will
use their best efforts to avoid having an ownership change. However, because of
circumstances which may be beyond the control or knowledge of a Fund, there can
be no assurance that a Fund will not have, or has not already had, an ownership
change. If a Fund has or has had an ownership change, then any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Fund Distributions"
below.

In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "Income Requirement").

In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box." However,
gain recognized on the disposition of a debt obligation (including municipal
obligations) purchased by a Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued while the Fund held the debt
obligation. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent attributable
to changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract, futures contract, option
or similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code Section 1256
(unless a Fund elects otherwise), generally will be treated as ordinary income
or loss.

Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction

<PAGE>

and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of Section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
such gain that is treated as ordinary income generally will not exceed the
amount of the interest that would have accrued on the net investment for the
relevant period at a yield equal to 120% of the applicable federal rate, reduced
by the sum of: (1) prior inclusions of ordinary income items from the conversion
transaction and (2) the capitalized interest on acquisition indebtedness under
Code Section 263(g). However, if a Fund has a built-in loss with respect to a
position that becomes a part of a conversion transaction, the character of such
loss will be preserved upon a subsequent disposition or termination of the
position. No authority exists that indicates that the character of the income
treated as ordinary under this rule will not pass through to the Funds'
shareholders.

In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected (as applicable, depending on the type of the
Fund involved) if (1) the asset is used to close a "short sale" (which includes
for certain purposes the acquisition of a put option) or is substantially
identical to another asset so used, (2) the asset is otherwise held by the Fund
as part of a "straddle" (which term generally excludes a situation where the
asset is stock and the Fund grants a qualified covered call option (which, among
other things, must not be deep-in-the-money) with respect thereto), or (3) the
asset is stock and the Fund grants an in-the-money qualified covered call option
with respect thereto. In addition, a Fund may be required to defer the
recognition of a loss on the disposition of an asset held as part of a straddle
to the extent of any unrecognized gain on the offsetting position.

Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.

In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (provided that, with
respect to each issuer, the Fund has not invested more than 5% of the value of
the Fund's total assets in securities of each such issuer and the Fund does not
hold more than 10% of the outstanding voting securities of each such issuer),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security, not the issuer of the option.
For purposes of asset diversification testing, obligations issued or guaranteed
by certain agencies or instrumentalities of the U.S. Government, such as the
Federal Agricultural Mortgage Corporation, the Farm Credit System Financial
Assistance Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association, are treated as
U.S. Government securities.

If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions may be eligible for the
dividends-received deduction in the case of corporate shareholders.

Excise Tax on Regulated Investment Companies

A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of its ordinary
taxable income for the calendar year and 98% of its capital gain net income for
the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)

<PAGE>

The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.

For purposes of calculating the excise tax, a regulated investment company: (1)
reduces its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) excludes foreign
currency gains and losses and ordinary gains or losses arising as a result of a
PFIC mark-to-market election (or upon the actual disposition of the PFIC stock
subject to such election) incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining the company's ordinary
taxable income for the succeeding calendar year).

Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.

Fund Distributions

Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes. Distributions attributable to dividends received by a Fund from
domestic corporations will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below. Distributions
attributable to interest received by the Funds will not, and distributions
attributable to dividends paid by a foreign corporation generally should not,
qualify for the dividend-received deduction.

Ordinary income dividends paid by a Fund with respect to a taxable year will
qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations such as S corporations, which are not
eligible for the deduction because of their special characteristics, and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by a Fund will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (2) by application of Code Section 246(b) which in general
limits the dividends-received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction and
certain other items).

A Fund may either retain or distribute to shareholders its net capital gain for
each taxable year. Each Fund currently intends to distribute any such amounts.
If net capital gain is distributed and designated as a capital gain dividend, it
will be taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder has held his or her shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares. The Code provides, however, that under certain conditions only 50%
of the capital gain recognized upon a Fund's disposition of domestic qualified
"small business" stock will be subject to tax.

<PAGE>

Conversely, if a Fund elects to retain its net capital gain, the Fund will be
subject to tax thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.

Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income, recognized net capital gain, or unrealized appreciation in the value of
the assets of the Fund, distributions of such amounts will be taxable to the
shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.

Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.

Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or is an "exempt recipient" (such as a corporation).

Sale or Redemption of Shares

The Gradison Government Reserves Fund seeks to maintain a stable net asset value
of $1.00 per share; however, there can be no assurance that this Fund will do
this. In such a case, and for the Established Value Fund, a shareholder will
recognize gain or loss on the sale or redemption of shares of a Fund in an
amount equal to the difference between the proceeds of the sale or redemption
and the shareholder's adjusted tax basis in the shares. All or a portion of any
loss so recognized may be disallowed if the shareholder purchases other shares
of a Fund within 30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the sale or redemption of
shares of a Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year. However,
any capital loss arising from the sale or redemption of shares held for six
months or less will be disallowed to the extent of the amount of exempt-interest
dividends received on such shares and (to the extent not disallowed) will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding period
rules of Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends-received deduction for corporations) generally will apply in
determining the holding period of shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.

If a shareholder (1) incurs a sales load in acquiring shares of a Fund, (2)
disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right acquired in connection with the acquisition of the shares
disposed of, then the sales load on the shares disposed of (to the extent of the
reduction in the sales load on the shares subsequently acquired) shall not be
taken into account in determining gain or loss on such shares but shall be
treated as incurred on the acquisition of the subsequently acquired shares.

<PAGE>

Foreign Shareholders

Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.

If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
such foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the dividend.
Such a foreign shareholder would generally be exempt from U.S. federal income
tax on gains realized on the sale of shares of a Fund, capital gain dividends
and exempt-interest dividends, and amounts retained by the Fund that are
designated as undistributed capital gains.

If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income dividends, capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or domestic corporations.

In the case of foreign noncorporate shareholders, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.

The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.

Effect of Future Legislation, Local Tax Considerations

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect.

Rules of state and local taxation of ordinary income and capital gain dividends
from regulated investment companies may differ from the rules for U.S. federal
income taxation described above. Shareholders are urged to consult their tax
advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.

TRUSTEES AND OFFICERS

Board of Trustees.

Overall responsibility for management of the Trust rests with the Trustees, who
are elected by the shareholders of the Trust. The Trust is managed by the
Trustees in accordance with the laws of the State of Delaware. There are
currently seven Trustees, five of whom are not "interested persons" of the Trust
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Trust to supervise actively its
day-to-day operations. There are also two Advisory Trustees who attend meetings
and serve on committees but do not vote.

The Trustees and the Advisory Trustees of the Trust, their ages, addresses, and
their principal occupations during the past five years are as follows. Each of
the following individuals, except Theodore H. Emmerich and Donald E. Weston,
holds the same position with The Victory Variable Insurance Funds, a registered
investment company in the same fund complex as the Trust. Whereas Messrs.
Emmerich and Weston serve as Advisory Trustees of the Trust, each of them serves
as a Trustee of The Victory Variable Insurance Funds.

<PAGE>

<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, AGE AND ADDRESS THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------- ----------------------------------------
<S> <C> <C>
Roger Noall,* 63 Chairman and Since 1996, Executive of KeyCorp; from
c/o Brighton Apt. 1603 Trustee 1995 to 1996, General Counsel and
8231 Bay Colony Drive Secretary of KeyCorp; from 1994 to 1996,
Naples, FL 34108 Senior Executive Vice President and
Chief Administrative Officer of KeyCorp;
from 1985 to 1994, Vice Chairman of the
Board and Chief Administrative Officer
of Society Corporation (now known as
KeyCorp).

Leigh A. Wilson,** 54 President and Since 1989, Chairman and Chief Executive
New Century Care, Inc. Trustee Officer, New Century Care, Inc.
53 Sylvan Road North (merchant bank); since 1995, Principal
Westport, CT 06880 of New Century Living, Inc.; since 1989,
Director of Chimney Rock Vineyard and
Chimney Rock Winery.

Dr. Harry Gazelle, 71 Trustee Retired radiologist, Drs. Hill and
17822 Lake Road Thomas Corporation.
Lakewood, OH 44107

Eugene J. McDonald, 66 Trustee Since 1990, Executive Vice President and
Duke Management Company Chief Investment Officer for Asset
2200 West Main Street Management of Duke University and
Suite 1000 President and CEO of Duke Management
Durham, NC 27705 Company; Director of CCB Financial
Corporation, Flag Group of Mutual Funds,
DP Mann Holdings, Greater Triangle
Community Foundation, and NC Bar
Association Investment Committee.

Dr. Thomas F. Morrissey, 65 Trustee Since 1970, Professor, Weatherhead
Weatherhead School of Management School of Management, Case Western
Case Western Reserve University Reserve University; from 1989 to 1995,
10900 Euclid Avenue Associate Dean of Weatherhead School of
Cleveland, OH 44106-7235 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

H. Patrick Swygert, 55 Trustee Since 1995, President, Howard
Howard University University; since May 1996, Director,
2400 6th Street, N.W. Hartford Financial Services Group; since
Suite 402 May 1997, Director, Hartford Life
Washington, DC 20059 Insurance Company; from 1990 to 1995,
President, State University of New York
at Albany.

Frank A. Weil, 67 Trustee Since 1984, Chairman and Chief Executive
Abacus & Associates Officer of Abacus & Associates, Inc.
147 E. 47th Street (private investment firm); Director and
New York, NY 10017 President of the Norman and Hickrill
Foundations; Director, Trojan
Industries; from 1977 to 1979, United
States Assistant Secretary of Commerce
for Industry and Trade.

- --------
* Mr. Noall is an "interested person" and an "affiliated person" of the
Trust.

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

<PAGE>

ADVISORY TRUSTEES

Theodore H. Emmerich, 72 Advisory Retired; until 1986, managing partner
1201 Edgecliff Place Trustee (Cincinnati office) Ernst & Young LLP;
Cincinnati, Ohio 45206 Director of Carillon Fund, Inc.
(investment company), American Financial
Group (insurance), and Cincinnati
Milacron Commercial Corporation
(financing arm of Cincinnati Milacron
Corporation, a machine tool
manufacturer); Trustee of Summit
Investment Trust and Carillon Investment
Trust.

Donald E. Weston, 63* Advisory Since October 1998, Chairman of Gradison
McDonald Investments Inc. Trustee McDonald Investments, a division of
580 Walnut Street McDonald Investments Inc.; until October
Cincinnati, Ohio 45202 1998, Chairman of the Gradison Division
of McDonald & Company Securities, Inc.
and a Director of McDonald & Company
Investments Inc.; Director of Cincinnati
Milacron Commercial Corporation.

</TABLE>

The Board currently has an Investment Committee, a Business, Legal, and Audit
Committee, and a Board Process and Nominating Committee. The members of the
Investment Committee are Messrs. Wilson (Chairman), Morrissey, Swygert, Weston
and Weil, who will serve until August 1999. The function of the Investment
Committee is to review the existing investment policies of the Trust, 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 Trust's shareholders for
their consideration. The members of the Business, Legal and Audit Committee are
Messrs. McDonald (Chairman), Emmerich, and Gazelle who will serve until August
1999. The function of the Business, Legal, and Audit Committee is to recommend
independent auditors and monitor accounting and financial matters and to review
compliance and contract matters. Mr. Swygert is the Chairman of the Board
Process and Nominating Committee (consisting of all the Trustees and Advisory
Trustees), which nominates persons to serve as Independent Trustees and Trustees
to serve on committees of the Board. This Committee also reviews Trustee
performance and compensation issues.

Remuneration of Trustees and Certain Executive Officers.

Each Trustee (other than Mr. Wilson) receives an annual fee of $31,500 for
serving as Trustee of all the Funds of the Trust, and an additional per meeting
fee ($3,500 in person and $1,500 per telephonic meeting). Mr. Wilson receives an
annual fee of $37,500 for serving as President and Trustee for all of the Funds
of the Trust, and an additional per meeting fee ($4,100 in person and $1,800 per
telephonic meeting). The Adviser pays the expenses of Messrs. Noall and Weston.

The following table indicates the estimated compensation received by each
Trustee from the Victory "Fund Complex"(1) for the fiscal year ended October 31,
1998.

<TABLE>
<CAPTION>
Aggregate
Pension or Retirement Estimated Annual Aggregate Compensation from
Benefits Accrued as Benefits Upon Compensation from Victory "Fund
Portfolio Expenses Retirement Victory Portfolios Complex"
------------------ ---------- ------------------ --------
<S> <C> <C> <C> <C>
Leigh A. Wilson................. -0- -0- $45,000 $53,250
Robert G. Brown*................ -0- -0- $18,300 $18,300
Edward P. Campbell**............ -0- -0- $36,600 $43,500
Theodore H. Emmerich# -0- -0- None None
Harry Gazelle................... -0- -0- $36,600 $39,000
Eugene J. McDonald+............. -0- -0- $25,050 $43,050
Thomas F. Morrissey............. -0- -0- $36,600 $39,000

- -----------
* Mr. Weston is an "interested person" and an "affiliated person" of the Trust.

<PAGE>

H. Patrick Swygert.............. -0- -0- $36,600 $39,000
Frank A. Weil+.................. -0- -0- $25,050 $44,250
(1) There are currently 41 mutual funds in the Victory "Fund Complex" for which the above-named Trustees are
compensated, but not all of these Trustees serve on the board of each fund of the "Fund Complex."
* Mr. Brown resigned as of April 4, 1998.
** Mr. Campbell resigned as of December 31, 1998.
# Mr. Emmerich commenced service on the Board as of January 1, 1999.
+ Mr. McDonald and Mr. Weil commenced service on the Board as of January 1, 1998.
</TABLE>

Officers.

The officers of the Trust, their ages, and principal occupations during the past
five years, are as follows:
<TABLE>
<CAPTION>
Position(s)
with the
Name and Age Trust Principal Occupation During Past 5 Years
------------ ----- ----------------------------------------

<S> <C>
Leigh A. Wilson, 54 President See biographical information under "Board
and Trustee of Trustees" above.

William B. Blundin, 60 Vice Senior Vice President of BISYS Fund
President Services Inc. ("BISYS"); officer of
other investment companies administered
by BISYS.

J. David Huber, 52 Vice President of BISYS; officer of BISYS since June 1987.
President

Robert D. Hingston,46 Secretary Since November 1998, Vice President of
BISYS; from January 1995 to October
1998, founder and principal of RDH
Associates (mutual fund management
consulting firm); from June 1980 to
January 1995, Vice President of
Investors Bank & Trust Company.

Joel B. Engle, 33 Treasurer Since September 1998, Vice President of
BISYS; from March 1995 to September
1998, Vice President, Northern Trust
Company; from July 1994 to February
1995, General Accountant, Wanger Asset
Management; from September 1988 to June
1994, Audit Manager with Ernst & Young
LLP.
</TABLE>

The mailing address of each officer of the Trust is 3435 Stelzer Road, Columbus,
Ohio 43219-3035.

The officers of the Trust (other than Mr. Wilson) receive no compensation
directly from the Trust for performing the duties of their offices. BISYS
receives fees from the Trust as Administrator.

As of December 31, 1998, the Trustees and officers as a group owned beneficially
less than 1% of all classes of outstanding shares of the Funds.

ADVISORY AND OTHER CONTRACTS

Investment Adviser.

One of the Fund's most important contracts is with its investment adviser, KAM,
a New York corporation registered as an investment adviser with the SEC. KAM is
a wholly owned subsidiary of KeyCorp. On October 23, 1998, the corporate parent

<PAGE>

of McDonald & Company Securities, Inc. merged with KeyCorp, as a result of which
KAM is expected to acquire certain of the investment advisory operations of
McDonald Investments Inc. ("McDonald"), including its Gradison Division.
Affiliates of the Adviser manage approximately $68 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, 1998, KeyCorp had an asset
base of $78 billion, with banking offices in 13 states from Maine to Alaska, and
trust and investment offices in 14 states. KeyCorp's affiliate McDonald, a
registered broker dealer, is located primarily in the midwestern United States.
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.

The following schedule lists the advisory fees for each of the Funds.

<TABLE>
<CAPTION>
<S> <C>
Gradison Government Reserves Fund: 0.50% of the first $400 million of average daily net assets,
0.45% of the next $600 million,
0.40 of the next $1 billion and
0.35% thereafter

Established Value Fund: 0.65% of the first $100 million of average daily net assets,
0.55% of the next $100 million and
0.45% thereafter
</TABLE>

For the three years indicated below, Gradison U.S. Government Reserves and
Gradison Established Value Fund, each Fund's predecessor mutual fund, paid the
following advisory fees to the Gradison Division of McDonald & Company
Securities, Inc., each predecessor fund's investment adviser:

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>

Gradison U.S. Government Reserves (years $7,875,357 $6,956,236 $6,078,331
ended September 30)

Gradison Established Value Fund (years $2,580,124 $2,093,562 $1,890,225
ended March 31)
</TABLE>

The Investment Advisory Agreement.

Unless sooner terminated, the Investment Advisory Agreement between the Adviser
and the Trust, on behalf of the Funds (the "Investment Advisory Agreement"),
provides that it will continue in effect as to the Funds for an initial two-year
term and for consecutive one-year terms thereafter, provided that such renewal
is approved at least annually by the Trustees or by vote of a majority of the
outstanding shares of each Fund (as defined under "Additional Information -
Miscellaneous"), 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 any particular 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, by vote of the Board of Trustees
of the Trust, or by the Adviser. 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 the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds 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 the Adviser
in the performance of its duties, or from reckless disregard by the Adviser of
its duties and obligations thereunder. The Adviser pays a fee to Disciplined
Investment Advisers, P.O. Box 112, Evanston, Illinois 60204, in connection with
the computer modeling methodology and the related database used by the
Established Value Fund.

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

<PAGE>

"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.

From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Funds may include
descriptions of Key Trust Company of Ohio, N.A. and the Adviser including, but
not limited to, (1) descriptions of the operations of Key Trust Company of Ohio,
N.A. and the 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. and the Adviser.

Portfolio Transactions.

Gradison Government Reserves Fund. Pursuant to the Investment Advisory Agreement
between the Adviser and the Trust, on behalf of the Gradison Government Reserves
Fund, the Adviser determines, subject to the general supervision of the Trustees
of the Trust, and in accordance with the Fund's investment objective, policies
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. Since
purchases and sales of portfolio securities by the Gradison Government Reserves
Fund are usually principal transactions, the Fund incurs little or no brokerage
commissions. Securities of the Gradison Government Reserves Fund are normally
purchased directly from the issuer or from a market maker for the securities.
The purchase price paid to dealers serving as market makers may include a spread
between the bid and asked prices. The Gradison Government Reserves Fund also may
purchase securities from underwriters at prices which include the spread
retained by the underwriter from the proceeds of the offering to the issuer.

The Gradison Government Reserves Fund will generally (but not always) hold
portfolio securities to maturity, but the Adviser may seek to enhance the yield
of the Fund by taking advantage of yield disparities or other factors that occur
in the money markets. For example, market conditions frequently result in
similar securities trading at different prices. The Adviser may dispose of any
portfolio security prior to its maturity if such disposition and reinvestment of
proceeds are expected to enhance yield consistent with the Adviser's judgment as
to desirable portfolio maturity structure or if such disposition is believed to
be advisable due to other circumstances or conditions. The investment policies
of the Gradison Government Reserves Fund require that investments mature in 397
days or less. Thus, there is likely to be relatively high portfolio turnover,
but since brokerage commissions are not normally paid on money market
instruments, the high rate of portfolio turnover is not expected to have a
material effect on the net income or expenses of the Gradison Government
Reserves Fund.

The Adviser's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order.
Allocation of transactions, including their frequency, among various dealers is
determined by the Adviser in its best judgment and in a manner deemed fair and
reasonable to shareholders.

Established Value Fund. Pursuant to the Investment Advisory Agreement, the
Adviser determines, subject to the general supervision of the Trustees of the
Trust, and in accordance with the Established Value 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 the Adviser generally seeks
competitive spreads or commissions, each Fund may not necessarily pay the lowest
spread or commission available on each transaction, for reasons discussed below.

<PAGE>

Allocation of transactions to dealers is determined by the Adviser in its 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 the Adviser may receive orders for transactions by the
Trust. Information so received is in addition to and not in lieu of services
required to be performed by the Adviser and does not reduce the investment
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Trust and other clients and,
conversely, such supplemental research information obtained by the placement of
orders on behalf of other clients may be useful to the Adviser in carrying out
its obligations to the Trust. The Trustees have authorized the allocation of
brokerage to affiliated broker-dealers on an agency basis to effect portfolio
transactions. The Trustees have adopted 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 Established Value 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 Established Value Fund.

Both Funds. The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase agreements with the Adviser, Key Trust Company of Ohio, N.A. ("Key
Trust") or their affiliates, or BISYS or its affiliates, and will not give
preference to Key Trust's correspondent banks or affiliates, or BISYS with
respect to such transactions, securities, savings deposits, and repurchase
agreements.

Investment decisions for each Fund are made independently from those made for
the other Funds of the Trust or any other investment company or account managed
by the Adviser. Such other investment companies or accounts may also invest in
the securities and may follow similar investment strategies as the Funds. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and any other Fund, investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which the Adviser believes to be equitable to such Funds,
investment company or account. In some instances, this investment procedure may
affect the price paid or received by a 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 that particular Fund had participated in or been allocated such
trades. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds of the Trust or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Trust,
the Adviser will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by a Fund is a customer of the Adviser,
their parents or subsidiaries or affiliates and, in dealing with their
commercial customers, the Adviser, its parents, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by the Trust.

Portfolio Turnover.

The portfolio turnover rates stated in the Prospectuses are calculated by
dividing the lesser of each 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. Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.

The portfolio turnover rate for Gradison Established Value Fund, the predecessor
to the Established Value Fund, was 20%.

Administrator.

BISYS Fund Services Ohio, Inc. (the "Administrator")) serves as administrator to
the Funds pursuant to an administration agreement dated October 1, 1997 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of the Funds (other than those performed by the Adviser under the
Investment Advisory Agreement), subject to the supervision of the Board of
Trustees.

For the services rendered to the Funds and related expenses borne by the
Administrator, each Fund pays the Administrator an annual fee, computed daily
and paid monthly, at the following annual rates based on each Fund's average
daily net assets:

<PAGE>

.15% for portfolio assets of $300 million and less,
.12% for the next $300 million through $600 million of portfolio
assets, and .10% for portfolio assets greater than $600 million.

The Administrator may periodically waive all or a portion of its fee with
respect to any Fund in order to increase the net income of one or more of the
Funds available for distribution to shareholders.

Unless sooner terminated, the Administration Agreement will continue in effect
as to each 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 each 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 the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Trust 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.

Under the Administration Agreement, the Administrator assists in each 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 the duties thereunder. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.

For the three years indicated below, Gradison U.S. Government Reserves and
Gradison Established Value Fund, each Fund's predecessor mutual fund, paid the
following fees to the Gradison Division of McDonald & Company Securities, Inc.,
which provided transfer agency and accounting services to each predecessor fund:
<TABLE>
<CAPTION>

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gradison U.S. Government Reserves (years $2,799,248 $2,408,388 $2,179,364
ended September 30)
Gradison Established Value Fund (years $384,111 $336,673 $294,992
ended March 31) (period from 6/1/95 to
3/31/96)
</TABLE>

In addition to the fees described above, for the three years ended September 30,
1998, Gradison U.S. Government Reserves reimbursed the Gradison Division of
McDonald & Company Securities, Inc., on a cost basis, for expenses allocable to
services performed by the Division's employees, including salaries and office
space, $5,068, $7,741 and $4,424, respectively.

Sub-Administrator.

KAM serves as sub-administrator to the Trust pursuant to a sub-administration
agreement dated October 1, 1997 (the "Sub-Administration Agreement"). As
sub-administrator, KAM assists the Administrator in all aspects of the
operations of the Trust, except those performed by KAM under its Investment
Advisory Agreement.

For services provided under the Sub-Administration Agreement, the Administrator
pays KAM a fee, with respect to each Fund, calculated at the annual rate of up
to five one-hundredths of one percent (.05%) of such Fund's average daily net
assets. Except as otherwise provided in the Administration Agreement, KAM shall
pay all expenses incurred by it in performing its services and duties as
sub-administrator. Unless sooner terminated, the Sub-Administration Agreement
will continue in effect as to each Fund for a period of two years, and for
consecutive one-year terms thereafter, unless written notice not to renew is
given by the non-renewing party.

Under the Sub-Administration Agreement, KAM's duties include maintaining office
facilities, furnishing statistical and research data, compiling data for various
state and federal filings by the Trust, assist in mailing and filing the Trust's
annual and semi-annual reports to shareholders, providing support for board
meetings, and arranging for the maintenance of books and records and providing
the office facilities necessary to carry out the duties thereunder.

In addition, Gradison McDonald acts as an administrative agent to the Gradison
Government Reserves Fund and is paid $23 per active account per year and $5 per
closed account per year for these services.

Distributor.

BISYS Fund Services Limited Partnership serves as distributor (the
"Distributor") for the continuous offering of the shares of the Funds pursuant
to a Distribution Agreement between the Distributor and the Trust. Unless
otherwise terminated, the Distribution Agreement will remain in effect with
respect to each Fund for two years, and will continue thereafter for consecutive
one-year terms, provided that the renewal is approved at least annually (1) by
the Trustees or by the vote of a majority of the outstanding shares of each
Fund, and (2) by the vote of a majority of the Trustees of the Trust 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.

<PAGE>

Transfer Agent.

State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Funds. Boston Financial Data Services, Inc. serves as the dividend
disbursing agent and shareholder servicing agent for the Funds, pursuant to a
Transfer Agency and Service Agreement. Under its agreement with the Trust, State
Street has agreed (1) to issue and redeem shares of the Funds; (2) to address
and mail all communications by the Funds to their 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 Trust's operations.

Class G Shares Distribution and Service Plan.

The Trust has adopted a Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act for Class G shares of each Fund (the "Plan"). Class G shares
of the Gradison Government Reserves Fund pay the Distributor a service fee of up
to 0.10 % (the Plan allows a maximum charge of up to 0.20%, but only a 0.10% fee
has been authorized). In addition, Class G shares of the Established Value Fund
pay the Distributor a service fee of up to 0.25% and a distribution fee of up to
0.25%.

The personal services for which these service fees are used are described in the
Prospectuses.

The distribution fees may be used by the Distributor for: (a) costs of printing
and distributing each Fund's prospectus, statement of additional information and
reports to prospective investors in the Funds; (b) costs involved in preparing,
printing and distributing sales literature pertaining to the Funds; (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 each Fund's Class G shares, including but
not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Funds, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the Funds'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee received by the Distributor; and (f)
any other expense primarily intended to result in the sale of the Funds' Class G
shares, including, without limitation, payments to salespersons and selling
dealers at the time of the sale of such shares, if applicable, and continuing
fees to each such salespersons and selling dealers, which fee shall begin to
accrue immediately after the sale of such shares.

The amount of the fees payable by any Fund under the Plan is not related
directly to expenses incurred by the Distributor and the Plan does not obligate
the Funds to reimburse the Distributor for such expenses. The fees set forth in
the Plan will be paid by each Fund to the Distributor unless and until the Plan
is terminated or not renewed with respect to such Fund; any distribution or
service expenses incurred by the Distributor on behalf of the Funds 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 Funds.

The Plan specifically recognizes that either the 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 Funds. In
addition, the Plan provides that the Adviser and the Distributor may use their
respective resources, including fee revenues, to make payments to third parties
that provide assistance in selling the Funds' Class G shares, or to third
parties, including banks, that render shareholder support services.

The 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 Funds and their Class G shareholders.
To the extent that the Plan gives the Adviser or the Distributor greater
flexibility in connection with the distribution of Class G shares of the Funds,
additional sales of the Funds' Class G shares may result. Additionally, certain
Class G shareholder support services may be provided more effectively under the
Plan by local entities with whom shareholders have other relationships.

Each Fund's predecessor fund also paid distribution fees pursuant to similar
Rule 12b-1 Plans. For the three years indicated below, Gradison U.S. Government
Reserves and Gradison Established Value Fund, each Fund's predecessor mutual
fund, paid the following distribution fees to the Gradison Division of McDonald
& Company Securities, Inc., each predecessor fund's distributor.
<TABLE>
<CAPTION>

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gradison U.S. Government Reserves (years $1,778,775 $1,550,945 $1,334,962
ended September 30)
(for shareholder services only)

Gradison Established Value Fund (years $2,454,412 $1,928,903 $1,460,779
ended March 31)
(1/2 for distribution and 1/2 for
shareholder services)
</TABLE>

<PAGE>

Fund Accountant.

BISYS Fund Services Ohio, Inc. ("BISYS, Inc.") serves as fund accountant for the
Funds, pursuant to a fund accounting agreement with the Trust dated May 31, 1995
(the "Fund Accounting Agreement"). As fund accountant for the Trust, BISYS, Inc.
calculates each Fund's net asset value, the dividend and capital gain
distribution, if any, and the yield. BISYS, 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 Funds. Under the Fund Accounting Agreement, BISYS,
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, $2,917 per tax-free fund and $3,333 per international
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.

Custodian.

Cash and securities owned by each of the Funds are held by Key Trust as
custodian pursuant to a Custodian Agreement dated August 1, 1996. Under this
Agreement, Key Trust (1) maintains a separate account or accounts in the name of
each respective fund; (2) makes receipts and disbursements of money on behalf of
each 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 Trust's operations. Key Trust may, with
the approval of a fund and at the custodian's own expense, open and maintain a
sub-custody account or accounts on behalf of a fund, provided that Key Trust
shall remain liable for the performance of all of its duties under the Custodian
Agreement.

Independent Accountants.

PricewaterhouseCoopers LLP serves as the Trust's auditors.
PricewaterhouseCoopers LLP's address is 100 East Broad Street, Columbus, Ohio
43215.

Legal Counsel.

Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022,
is the counsel to the Trust.

Expenses.

The Funds bear the following expenses relating to its operations, including:
taxes, interest, brokerage fees and commissions, fees of the Trustees, SEC 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 Funds' existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Funds' operation.

ADDITIONAL INFORMATION

Description of Shares.

The Trust is a Delaware business trust. The Delaware Trust Instrument authorizes
the Trustees to issue an unlimited number of shares, which are units of
beneficial interest, without par value. The Trust currently has 36 series of
shares, which represent interests in the Funds and their respective classes
listed below (described in separate statements of additional information) in
addition to those listed on the first page of this SAI.

33
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------- ---------------------------------------- ---------------------------------------
<S> <C> <C>
Balanced Fund Investment Quality Bond Fund Ohio Municipal Bond Fund
Class A Shares Class A Shares Class A Shares
Class B Shares Class G Shares
Lakefront Fund
Convertible Securities Fund Class A Shares Ohio Municipal Money Market Fund
Class A Shares Class A Shares
LifeChoice Conservative Investor Fund
Diversified Stock Fund Class A Shares Ohio Regional Stock Fund
Class A Shares Class A Shares
Class B Shares LifeChoice Moderate Investor Fund Class B Shares
Class G Shares Class A Shares
Prime Obligations Fund
Equity Income Fund LifeChoice Growth Investor Fund Class A Shares
Class A Shares Class A Shares
Federal Money Market Fund Real Estate Investment Fund
Select Shares Limited Term Income Fund Class A Shares
Investor Shares Class A Shares
Small Company Opportunity Fund
Financial Reserves Fund Maine Municipal Bond Fund Class A Shares
Class A Shares (Intermediate) Class G Shares
Class A Shares
Fund for Income Maine Municipal Bond Fund Special Value Fund
Class A Shares (Short-Intermediate) Class A Shares
Class G Shares Class A Shares Class B Shares

Government Mortgage Fund Michigan Municipal Bond Fund Stock Index Fund
Class A Shares Class A Shares Class A Shares
National Municipal Bond Fund
Growth Fund Class A Shares Tax-Free Money Market Fund
Class A Shares Class B Shares Class A Shares

Institutional Money Market Fund National Municipal Bond Fund (Long) U.S. Government Obligations Fund
Select Shares Class A Shares Select Shares
Investor Shares National Municipal Bond Fund Investor Shares
(Short-Intermediate)
Intermediate Income Fund Class A Shares Value Fund
Class A Shares Class A Shares
New York Tax-Free Fund
International Growth Fund Class A Shares
Class A Shares Class B Shares
Class G Shares
- ------------------------------------- ---------------------------------------- ---------------------------------------
</TABLE>

The Trust Instrument authorizes the Trustees to divide or redivide any unissued
shares of the Trust 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 Prospectuses and this SAI, the Trust's shares will
be fully paid and non-assessable. In the event of a liquidation or dissolution
of the Trust, 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 that are available for distribution.

Shares of the Funds 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 or class, 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

<PAGE>

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. 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 Trust 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 Trust 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 Trust 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 accountants, the approval of
principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
series.

Shareholder and Trustee Liability.

The Trust is organized as a Delaware business trust. 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 Trust shall not be liable for the obligations of the Trust.
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 Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust, 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 Trust shall be personally liable in connection with the administration or
preservation of the assets of the funds or the conduct of the Trust's 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
Trust shall look solely to the assets of the Trust for payment.

Financial Statements.

The audited financial statements of Gradison U.S. Government Reserves and the
Gradison Established Value Fund for the fiscal years ended September 30, 1998
and March 31, 1998, respectively, are incorporated by reference herein. These
financial statements have been audited by Arthur Andersen 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. Arthur Andersen LLP's address is 425 Walnut Street, Cincinnati, Ohio
45202. In addition, the unaudited semi-annual report to shareholders of the
Gradison Established Value Fund for the six months ended September 30, 1998 is
incorporated herein in its entirety.

Miscellaneous.

As used in the Prospectuses and in this SAI, "assets belonging to a fund" (or
"assets belonging to the Fund") means the consideration received by the Trust

<PAGE>

upon the issuance or sale of shares of a 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 Trust, which general liabilities and expenses are not
readily identified as belonging to a particular Fund that are allocated to that
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 Trust 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 Trust
at the time of allocation. The timing of allocations of general assets and
general liabilities and expenses of the Trust 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 Prospectuses and in this SAI, a "vote of a majority of the
outstanding voting securities" 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 Trust is registered with the SEC as an open-end management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Trust.

The Prospectuses and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.

The Prospectuses and this SAI are not an offering of the securities described in
these documents 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 Prospectuses and this SAI.

<PAGE>

APPENDIX
Description of Security Ratings.

The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Established Value Fund include Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's ("S&P"). Set forth below is a description
of the relevant ratings of each such NRSRO. The NRSROs that may be utilized by
the Adviser and the description of each NRSRO's ratings is as of the date of
this SAI, and may subsequently change.

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:

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.

A-1