Rule 497(e)
Registration No. 33-8982
THE VICTORY PORTFOLIOS
Supplement Dated September 1, 1997
to the Statement of Additional Information ("SAI") Dated March 1, 1997,
As Supplemented June 30, 1997
The Victory Balanced Fund
The Victory Diversified Stock Fund
The Victory Financial Reserves Fund
The Victory Fund For Income
The Victory Government Mortgage Fund
The Victory Growth Fund
The Victory Institutional Money Market Fund
The Victory Intermediate Income Fund
The Victory International Growth Fund
The Victory Investment Quality Bond Fund
The Victory Lakefront Fund
The Victory Limited Term Income Fund
The Victory National Municipal Bond Fund
The Victory New York Tax-Free Fund
The Victory Ohio Municipal Bond Fund
The Victory Ohio Municipal Money Market Fund
The Victory Ohio Regional Stock Fund
The Victory Prime Obligations Fund
The Victory Real Estate Investment Fund
The Victory Special Growth Fund
The Victory Special Value Fund
The Victory Stock Index Fund
The Victory Tax-Free Money Market Fund
The Victory U.S. Government Obligations Fund
The Victory Value Fund
The SAI of the above Funds is supplemented as follows:
1. On page 23 under The Victory U.S. Government Obligations Fund, add the
following bullet points:
The U.S. Government Obligations Fund can invest in:
o Securities Lending Transactions
o Ssecurities of Other Investment Companies.
2. The information under "Non-Fundamental Restrictions" in the first paragraph
of Item 3 on page 34 is replaced with the following:
3. OTHER INVESTMENT COMPANIES
The Funds may:
Invest up to 5% of their total assets in the securities of any one investment
company, but may not own more than 3% of the securities of any one investment
company or invest more than 10% of its total assets in the securities of other
investment companies. Pursuant to an exemptive order received by the Victory
Portfolios from the Securities and Exchange Commission (the "SEC"), the Funds
may invest in the other money market funds of the Victory Portfolios. Each Fund
will waive the portion of its fee attributable to the assets of each Fund
invested in such money market funds to the extent required by the laws of any
jurisdiction in which shares of the Funds are registered for sale."
3. The following information replaces the information under "Securities
Lending Transactions" on page 55:
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"SECURITIES LENDING. The Funds may from time to time lend securities from their
portfolio to broker-dealers, banks, financial institutions and institutional
borrowers of securities. The Funds will limit their securities lending to 33
1/3% of total assets.
Key Trust Company of Ohio, N.A. ("Key Trust"), an affiliate of the Adviser,
serves as the lending agent pursuant to a Securities Lending Agency Agreement
(the "Lending Agreement") for all of the Funds except the tax-exempt funds..
Under the guidelines established by the Board of Trustees (which may be changed
from time to time), Key Trust must maintain the loan collateral at all times in
an amount equal to at least 100% of the current market value of the loaned
securities. A Fund will not lend portfolio securities in excess of the amounts
specified in its prospectus. The Funds will not lend their portfolio securities
to any officer, director, trustee, employee, or affiliate of the Funds, the
KeyFunds, KAM, or the Distributor.
A Fund must initially receive a minimum of 102% collateral, in the form of cash
or U.S. Government obligations, to secure the return of the loaned securities.
Key Trust, at the direction of the Adviser, may invest the collateral in
short-term debt instruments that the Adviser has determined present minimal
credit risks. There is a risk of delay in receiving collateral or in receiving
the securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially. Each Fund remains the owner of the
securities during the term of the loan.
When portfolio securities are the subject of a loan, the borrower will pay a
Fund any dividends or interest paid on the loaned securities plus any interest
negotiated between the borrower and the seller. Key Trust, on behalf of the
Funds may terminate a particular loan at any time. While the Funds will not have
the right to vote securities on loan, the Adviser intends to direct Key Trust to
terminate the loan and regain the right to vote if the issue to be voted on is
considered important with respect to the investment. Each Fund will only enter
into loan arrangements with broker-dealers, banks or other institutions which
KAM has determined are creditworthy under the guidelines established by the
Trustees, and when, in KAM's judgment, the potential returns justify the
attendant risks.
For the services provided under the Lending Agreement, Key Trust receives a
transaction-based fee. The Victory Portfolios (with the exception of the
tax-exempt funds), Key Trust and certain affiliates have applied to the SEC for
an order that would exempt them from various provisions of the Investment
Company Act of 1940 that, among other things, would enable Key Trust to: (a)
receive compensation based on a percentage of the income earned on the
investment of the collateral received for each loan; and (b) invest the
collateral in a joint account for the administrative convenience and economic
benefit of the Funds and other affiliated investment companies."
4. Replace the last sentence in the last paragraph on page 82 under "Valuation
of Portfolio Securities for the Money Market Funds" with the following
sentence:
"The New York Stock Exchange will not open in observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas."
5. Effective October 1, 1997, the following information replaces the first and
second paragraphs under "Administrator" on page 119:
"BISYS serves as administrator (the "Administrator") to the Funds. The
Administrator assists in supervising all operations of the Funds (other than
those performed by the Adviser, or a Sub-Adviser, under the Investment Advisory
Agreement or Investment Sub-Advisory Agreement). BISYS receives a fee from the
Funds for its services as Administrator and is reimbursed by the Funds for
certain expenses which are incurred by performing the duties outlined in the
Administration Agreement. The fee is calculated daily, and paid monthly, at the
following annual rate based on each Fund's average daily net assets:
.15% For portfolio assets of $300 million and less
.12% For portfolio assets for the next $300 million through $600 million
.10% For portfolio assets greater than $600 million.
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BISYS may periodically waive all or a portion of its fee as Administrator in
order to increase the net income of the Funds.
Under the Administration Agreement, the Administrator may delegate a portion of
its responsibilities to a sub-administrator. Key Asset Management Inc., the
Sub-Administrator to the Funds, performs some of the duties of the
Administrator. Key Asset Management Inc. receives a fee from BISYS for its
services as Sub-Administrator and is reimbursed for expenses incurred by
carrying out the duties of the Sub-Administration Agreement. This fee is
calculated daily, and paid monthly, at an annual rate of up to five
one-hundredths of one percent (.05%) of each Fund's average daily net assets."
Please insert this Supplement in the front of your Statement of Additional
Information. Investors wishing to obtain more information should call the
Funds at 800-KEY-FUND(R).
VF-SAI-SUP2
