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PROSPECTUS
VISION GROWTH AND INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED MAY 31, 1994
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of six separate
investment portfolios with distinct investment objectives and policies. This
prospectus relates to one of the six portfolios, Vision Growth and Income Fund
("Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY, ARE NOT ENDORSED OR GUARANTEED BY
MANUFACTURERS AND TRADERS TRUST COMPANY, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THESE SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
This prospectus gives you information about the Fund, and can help you decide if
the Fund is a suitable investment for you. Please read the prospectus before you
invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of Additional
Information dated May 31, 1994, which has also been filed with the Securities
and Exchange Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. To
obtain a free copy of the Statement of Additional Information, or make other
inquiries about the Fund, simply call or write Vision Group of Funds, Inc. at
the telephone number or address below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VISION GROUP OF FUNDS, INC.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-22ll (716) 842-4488
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TABLE OF CONTENTS
Synopsis 3
A Summary of the Fund's Expenses 4
Financial Highlights 5
General Information 6
How the Fund Invests 6
Fund Management, Distribution
and Administration 14
Your Guide to Using the Fund 18
How the Fund Values Its Shares 18
What Fund Shares Cost 18
How To Buy Shares 20
How to Exchange Shares 21
How to Redeem Shares 22
Tax Information 25
Description of Fund Shares 25
How the Fund Shows Performance 26
Financial Statements 27
Report of Ernst & Young, Independent
Auditors 37
Addresses 38
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SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in six separate, professionally managed
portfolios. This prospectus describes the Vision Growth and Income Fund.
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VISION GROWTH AND INCOME FUND
(THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH SEEKS LONG-TERM GROWTH OF
CAPITAL AND INCOME. THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
IN A DIVERSIFIED PORTFOLIO CONSISTING PRIMARILY OF EQUITY SECURITIES (E.G.,
COMMON STOCK, CONVERTIBLE SECURITIES), ALTHOUGH IT MAY ALSO INVEST IN DEBT
SECURITIES (E.G., BONDS, NOTES). (SEE PAGE 6 FOR DETAILS.)
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BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Fund are sold at net asset value plus a sales charge and redeemed
at net asset value. The minimum initial investment in the Fund is $500 ($250 for
retirement plans), and it may be waived or lowered from time to time. (See pages
18 to 24.)
FUND MANAGEMENT
The Fund's investment adviser is Manufacturers and Traders Trust Company ("M&T
Bank"), and the Fund's sub-adviser is Harbor Capital Management Company, Inc.
("Harbor"). Subject to supervision and review of M&T Bank and the Directors of
the Corporation, Harbor makes investment decisions for the Fund. M&T Bank is the
primary banking subsidiary of First Empire State Corporation, which also owns
The East New York Savings Bank. (See pages 14 to 15.)
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your account
by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in the Buffalo
area, phone
842-4488).
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
techniques.
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A SUMMARY OF THE FUND'S EXPENSES
Every mutual fund incurs expenses in conducting operations, managing investments
and providing services to shareholders. The following summary breaks out the
Fund's expenses. You should consider this expense information, along with other
information provided in this prospectus, in making your investment decision.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable)............................................................ None
Redemption Fees (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.38%
12b-1 Fee (2)......................................................................... 0.00%
Other Expenses (after expense reimbursement)(3)....................................... 0.38%
Shareholder Servicing Fee(2).............................................. 0.00%
Total Fund Operating Expenses................................................ 0.76%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at their sole discretion. The maximum management fee is
0.70%.
(2) The Fund has no present intention of paying or accruing 12b-l fees or
shareholder servicing fees during the fiscal year ending April 30, 1995. If
the Fund were paying or accruing 12b-l fees or shareholder servicing fees,
the Fund would be able to pay up to 0.25% of its average daily net assets
for 12b-l fees and up to 0.25% of its average daily net assets for
shareholder servicing fees. See "Fund Management, Distribution and
Administration."
(3) Other expenses are anticipated to be 0.69% absent the voluntary waiver of a
portion of the administrative fee and voluntary reimbursement of certain
other expenses by the adviser. The administrator and/or the adviser can
terminate the voluntary waiver or reimbursement of expenses at any time at
their sole discretion.
The Annual Fund Operating Expenses were 0.00% for the fiscal year ended
April 30, 1994. The Annual Fund Operating Expenses in the table above are
based on estimated expenses expected during the fiscal year ending April 30,
1995. The Total Fund Operating Expenses are anticipated to be 1.39% absent
the voluntary waivers and reimbursement explained in footnotes (1) and (3).
The table above can help you understand the various costs and expenses that
a shareholder in the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses see the section
"Fund Management, Distribution and Administration" on page 14.
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period.
The Fund charges no redemption fees...................................... $ 52 $ 68
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
VISION GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
37.
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30,
1994**
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.07
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Net realized and unrealized gain (loss) on investments (0.08)
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Total from investment operations (0.01)
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LESS DISTRIBUTIONS
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Dividends to shareholders from net investment income (0.06)
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NET ASSET VALUE, END OF PERIOD $9.93
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TOTAL RETURN* (0.12)%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.00%(a)
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Net investment income 2.24%(a)
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Expense waiver/reimbursement(b) 2.15%(a)
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $22,944
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Portfolio turnover rate 27%
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</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period from November 29, 1993 (date of initial
public investment) to
April 30, 1994.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended April 30, 1994, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
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GENERAL INFORMATION
Vision Group of Funds, Inc. was established as a Maryland corporation on
February 23, 1988. The Articles of Incorporation allow the Corporation to offer
separate series of shares of common stock representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in one
or more separate classes.
HOW THE FUND INVESTS
Investment Information
Investment Objective
The investment objective of the Fund is to provide long-term growth of capital
and income. This investment objective cannot be changed without approval of the
Fund's shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
<TABLE>
<S> <C> <C> <C>
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THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY ESTABLISHED" COMPANIES, ALTHOUGH COMPANIES
INVESTING IN A DIVERSIFIED PORTFOLIO WITH LESS-ESTABLISHED OPERATING HISTORIES MAY
CONSISTING PRIMARILY OF EQUITY SECURITIES BE CHOSEN FOR INVESTMENT IF THEY HAVE GROWTH
(E.G., COMMON STOCK, CONVERTIBLE SECURITIES) ELEMENTS AND PRESENT OPPORTUNITIES FOR
AND DEBT SECURITIES (E.G., BONDS, NOTES). INCOME.
HARBOR WILL SELECT EQUITY SECURITIES TO
ACHIEVE GROWTH AND WILL SELECT FIXED INCOME, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65%
CONVERTIBLE SECURITIES AND OTHER INTEREST OF THE VALUE OF THE FUND'S TOTAL ASSETS WILL
PAYING DEBT SECURITIES TO OBTAIN INCOME. BE INVESTED IN EQUITY AND DEBT SECURITIES
HOWEVER, EITHER CATEGORY OF EQUITY AND DEBT THAT ARE EXPECTED TO PRODUCE GROWTH OF
SECURITIES MAY BE PURCHASED FOR GROWTH OF CAPITAL AND/OR INCOME. HOWEVER, AS A MATTER
CAPITAL AND/OR INCOME. HARBOR WILL INVEST IN OF OPERATING POLICY, HARBOR INTENDS TO INVEST
COMPANIES ON THE BASIS OF TRADITIONAL AT LEAST 65% OF THE FUND'S TOTAL ASSETS IN
RESEARCH TECHNIQUES, INCLUDING ASSESSMENT OF EQUITY SECURITIES THAT ARE EXPECTED TO
THE COMPANIES' EARNINGS AND DIVIDEND GROWTH PRODUCE GROWTH OF CAPITAL AND/OR INCOME.
PROSPECTS, SOUND MANAGEMENT TECHNIQUES, UNLESS INDICATED OTHERWISE, THIS POLICY AND
ABILITY TO FINANCE EXPECTED GROWTH, AND ON THE OTHER INVESTMENT POLICIES OF THE FUND MAY
THE BASIS OF A COMPANY'S UNDERVALUATION BE CHANGED BY THE DIRECTORS WITHOUT APPROVAL
RELATIVE TO OTHER COMPANIES IN THE SAME OF SHAREHOLDERS. SHAREHOLDERS WILL BE
INDUSTRY. THESE COMPANIES MAY BE CATEGORIZED NOTIFIED BEFORE ANY MATERIAL CHANGES IN THESE
AS "SEASONED" OR "WELL- POLICIES BECOME EFFECTIVE.
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</TABLE>
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
- common or preferred stocks of U.S. companies which are either listed on the
New York or American Stock Exchange or traded in the over-the-counter
markets and are considered by Harbor to have an established market;
- convertible securities (see below);
- investments in American Depository Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market. The
Fund may not invest more than 25% of its total assets in ADRs. In addition,
the Fund may invest up to 20% of its total assets in other securities of
foreign issuers ("Non-ADRs") (see page 10);
- domestic issues of corporate debt obligations (including convertible bonds
and debentures) rated, at the time of purchase, investment grade (e.g., Baa
or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher
by Standard and Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch") or, if unrated, of comparable quality as determined by Harbor. If
any security purchased by the Fund is subsequently downgraded, securities
will be evaluated on a case by case basis by Harbor. Harbor will determine
whether or not the security continues to be an acceptable investment. If
not, the security will be sold. The lowest category of investment grade
securities (e.g., Baa or BBB) have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest payments on such obligations
than higher rated obligations. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information;
- U.S. Government securities (see page 8);
- mortgage-backed securities (see page 8);
- asset-backed securities (see pages 9 to 10);
- money market instruments, including commercial paper that, at the time of
purchase, are rated not less than P-1, A-1 or F-1, by Moody's, S&P or Fitch,
respectively, or, if unrated, are of comparable quality as determined by
Harbor, time and savings deposits (including certificates of deposit) in
commercial or savings banks, and bankers' acceptances; and
- warrants.
In addition, the Fund may purchase the investments and engage in the investment
techniques described below. For additional information about the investments and
investment techniques, please refer to the Statement of Additional Information.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock when, in the opinion of Harbor, the investment characteristics of
the underlying common shares will assist the Fund in achieving its investment
objectives. Otherwise the Fund may hold or trade convertible securities. In
selecting convertible securities for the Fund, Harbor evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Harbor considers numerous factors, including the economic
and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations, including corporate bonds,
notes, and debentures, which may have floating or fixed rates of interest. These
obligations will be rated at the time of purchase in the top four rating
categories (investment grade). If the obligations are unrated, they will be of
comparable quality as determined by Harbor.
FIXED RATE CORPORATE DEBT OBLIGATIONS
The Fund may invest in fixed rate securities, including fixed rate securities
with short-term characteristics. Fixed rate securities with short-term
characteristics are long-term debt obligations, but are treated in the market as
having short maturities because call features of the securities may make them
callable within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to call or
redemption price or a fixed income security approaching maturity, where the
expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described below, behave
like short-term instruments in that the rate of interest they pay is subject to
periodic adjustments based on a designated inter-
est rate index. Fixed rate securities pay a fixed rate of interest and are more
sensitive to fluctuating interest rates. In periods of rising interest rates,
the value of a fixed rate security is likely to fall. Fixed rate securities with
short-term characteristics are not subject to the same price volatility as fixed
rate securities without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.
FLOATING RATE CORPORATE
DEBT OBLIGATIONS
The Fund may invest in floating rate corporate debt obligations, including
increasing rate securities. Floating rate securities are generally offered at an
initial interest rate which is at or above prevailing market rates. The interest
rate paid on these securities is then reset periodically (commonly every 90
days) to an increment over some predetermined interest rate index. Commonly
utilized indices include the three-month Treasury bill rate, the 180-day
Treasury bill rate, the one-month or three-month London Interbank Offered Rate
(LIBOR), the prime rate of a bank, the commercial paper rates, or the
longer-term rates on U.S. Treasury securities.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on a published interest rate or interest rate
index. Many variable rate demand notes allow the Fund to demand the repurchase
of the security on not more than seven days prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which are debt securities issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities which include:
- direct obligations of the U.S. Treasury such as U.S. Treasury bills, notes,
and bonds; and
- obligations of U.S. government agencies or instrumentalities such as Federal
Land Banks, Farmers Home Administration, Federal Home Loan Banks, The
Student Loan Marketing Association ("Sallie Mae"), Federal Farm Credit
Banks, Government National Mortgage Association ("Ginnie Mae"), Federal Home
Loan Mortgage Corporation ("Freddie Mac"), Housing and Urban Development,
and Federal National Mortgage Association ("Fannie Mae").
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Ginnie Mae participation certificates, are backed by
the full faith and credit of the U.S. Treasury. No assurances can be given that
the U.S. government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These instrumentalities
are supported by:
- the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities which are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as Ginnie Mae,
Fannie Mae, and Freddie Mac; (ii) those issued by private issuers that represent
an interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities;
and (iii) those issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a government
guarantee but usually having some form of private credit enhancement.
ADJUSTABLE RATE MORTGAGE
SECURITIES ("ARMS")
ARMS are pass-through mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. The ARMS in which the Fund invests
are issued by Ginnie Mae, Fannie Mae, or Freddie Mac, and are actively traded.
The underlying mortgages which collateralize ARMS issued by Ginnie Mae are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by Fannie Mae or
Freddie Mac are typically conventional residential mortgages conforming to
strict underwriting size and maturity constraints. ARMS may also be
collateralized by whole loans or private pass-through securities.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus a holder of the ARMS, such as
the Fund, would receive monthly scheduled
payments of principal and/or interest and may receive unscheduled principal
payments representing payments on the underlying mortgages. At the time that a
holder of the ARMS reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of interest which is
actually lower than the rate of interest paid on the existing ARMS. As a
consequence, ARMS may be a less effective means of "locking in" long-term
interest rates than other types of fixed-income securities.
Not unlike other fixed-income securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but may be
collateralized by whole loans or private pass-through securities.
The Fund will only invest in CMOs which, at the time of purchase, are rated AAA
by a nationally recognized statistical rating organization ("NRSRO") or are of
comparable quality as determined by Harbor, and which may be: (i) collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(ii) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (iii) collateralized by pools of mortgages
without a U.S. government guarantee as to payment of principal and interest, but
which have some form of credit enhancement.
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages. Once
REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interest." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. The Fund may invest
in asset-backed securities which, at the time of purchase, are rated in the top
four rating categories (investment grade) by a NRSRO, including, but not
limited to, interest in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. These securities may be in the
form of pass-through instruments or asset-backed bonds. The securities are
issued by non-governmental entities and carry no direct or indirect government
guarantee.
Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans or the
collateral supporting asset-backed securities may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in U.S. dollar-denominated and foreign currency denominated
securities of foreign issuers. There may be certain risks associated with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, currency fluctuations, less uniformity in
accounting and reporting requirements, higher transaction costs and the
possibility that there will be less information on such securities and their
issuers available to the public. In addition, there are restrictions on foreign
investments in other jurisdictions and there tends to be difficulty in obtaining
judgments from abroad and affecting repatriation of capital invested abroad.
Delays could occur in settlement of foreign transactions, which could adversely
affect shareholder equity. Foreign securities may be subject to foreign taxes,
which reduce yield, and may be less marketable than comparable United States
securities. To the extent that securities purchased by the Fund are denominated
in currencies other than the U.S. dollar, changes in foreign currency exchange
rate will affect the Fund's net asset value; the value of any interest earned,
gains and losses realized on the sale of securities; and net investment income
and capital gain, if any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of the
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
the Fund's assets in that currency will decrease. As a matter of practice, the
Fund will not invest in the securities of a foreign issuer if any risk
identified above appears to Harbor to be substantial.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell U.S.
government securities or other high quality, liquid securities to the Fund and
agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase price.
No fees or expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities, which
may include restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objectives and
policies, but which are subject to restriction on resale under federal
securities laws. To the extent these securities are deemed to be illiquid, the
Fund will limit its purchases, together with other securities not determined by
the Directors to be liquid, to 15% of its net assets.
INVESTING IN SECURITIES OF
OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies. The Fund
will limit its investment in other investment companies to not more than 3% of
the total outstanding voting stock of any investment company, will invest no
more than 5% of its total assets in any one investment company, and will invest
no more than 10% of its total assets in investment companies in general. In
order to comply with certain state restrictions, the Fund will limit its
investment in securities of other open-end investment companies to those with
sales loads of less than 1.00% of the offering price of such securities. The
Fund will purchase securities of closed-end investment companies only in open
market transactions involving only customary brokers' commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. While it is a policy to
waive advisory fees on Fund assets invested in securities of other open-end
investment companies, it should be noted that investment companies incur certain
expenses such as custodian and transfer agency fees and, therefore, any
investment by the Fund in shares of another investment company would be subject
to such duplicate expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis or both up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which Harbor has determined are creditworthy under
guidelines established by the Corporation's Board of Directors and will receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the value of the securities loaned.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not own is
sold in anticipation of a decline in its price. If the decline occurs, shares
equal in number to those sold short can be purchased at the lower price. If the
price increases, the higher price must be paid. The purchased shares are then
returned to the original lender. Risk arises because no loss limit can be placed
on the transaction. When the Fund enters into a short sale, assets that are
equal to the market price of the securities sold short or any lesser price at
which the Fund can obtain such securities, are segregated on the Fund's records
and maintained until the Fund meets its obligations under the short sale.
The Fund will not sell securities short unless (1) it owns, or has a right to
acquire, an equal amount of such securities, or (2) it has segregated an amount
of its other liquid assets equal to the lesser of the market value of the
securities sold short or the amount required to acquire such securities. The
segregated amount will not exceed 20% of the Fund's net assets. While in a short
position, the Fund will retain the securities, rights, or segregated assets.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against fluctuations in value. The Fund may also write put and call options on
all or any portion of its portfolio securities to generate income for the Fund.
The Fund will write put and call options on securities either held in its
portfolio or for which the Fund has the right to obtain without payment of
further consideration or for which it has segregated cash in the amount of any
additional consideration. The Fund also may purchase call options on securities
to protect against price movements in particular securities which the Fund
intends to purchase. A call option gives the Fund, in return for a premium, the
right (but not the obligation) to buy the underlying security from the seller at
a pre-determined price.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on certain portfolio securities held by the Fund are not traded on
an exchange. The Fund purchases and writes options only with investment dealers
and other financial institutions (such as commercial banks or broker/dealers)
deemed creditworthy by Harbor.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
If the Fund does not exercise an option it has purchased, then the Fund loses in
value the price it paid for the option premium. If the Fund writes (sells) an
option which is subsequently exercised, the premium received by the Fund from
the option purchaser may not exceed the increase (in the case of a call option)
or decrease (in the case of a put option) in the value of the securities
underlying the option, in which case the difference represents a loss for the
Fund. However, if the option expires without being exercised, the Fund realizes
a gain in the amount of the premium it received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial and stock index futures contracts to
attempt to hedge all or a portion of its portfolio against changes in interest
rates or economic market conditions. Financial futures contracts generally
require for the delivery of particular debt instruments at a certain time in the
future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract, and the buyer agrees to take delivery of
the instrument at the specified future time. Stock index futures contracts
generally involve cash settlement rather than delivery of the stocks comprising
the index.
The Fund may also write call options and purchase put options on financial or
stock index futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of selling a futures contract
at a fixed price at any time during a specified period if the option is
exercised. Conversely, as purchaser of a put option on a futures contract, the
Fund is entitled (but not obligated) to sell a futures contract at the fixed
price during the life of the option.
Generally, the Fund may not purchase or sell futures contracts or related
options if immediately thereafter the sum of the amount of margin deposits on
the Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the Fund
purchases futures contracts, an amount of cash and cash equivalents equal to the
underlying commodity value of the futures contracts (less any related margin
deposits) will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS
When the Fund uses futures and options on futures as hedging devices, there is a
risk that the prices of the securities subject to the futures contracts may not
correlate with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, Harbor could be incorrect
in its expectations about the direction or extent of market factors such as
interest rate
movements. In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although Harbor will consider liquidity
before entering into options transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any particular
futures contract or option at any particular time. The Fund's ability to
establish and close out futures and options positions depends on this secondary
market.
WARRANTS
The Fund has no present intent to invest more than 5% of its net assets in
warrants.
INVESTMENT RISKS
As with other mutual funds that invest in equity securities, the Fund is subject
to market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time, and the United States equity market
tends to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease.
With respect to the debt obligations which the Fund may purchase, their prices
move inversely to interest rates. A decline in market interest rates results in
a rise in the market prices of outstanding debt obligations. Conversely, an
increase in market interest rates results in a decline in market prices of
outstanding debt obligations. In either case, the amount of change in market
prices of debt obligations in response to changes in market interest rates
generally depends on the maturity of the debt obligations: the debt obligations
with the longest maturities will experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset value,
will fluctuate due to changes in economic conditions and other market factors
such as interest rates which are beyond the control of Harbor. Harbor could be
incorrect in its expectations about the direction or extent of these market
factors. Although debt obligations with longer maturities offer potentially
greater returns, they have greater exposure to market price fluctuation.
Consequently, to the extent the Fund is significantly invested in debt
obligations with longer maturities, there is a greater possibility of
fluctuation in the Fund's net asset value. However, Harbor will attempt to
minimize the fluctuation of the Fund's net asset value by predicting the
direction of interest rates.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may borrow up to one-third of
the value of its total assets and pledge up to 15% of the value of its total
assets to secure such borrowings; and
- with respect to 75% of the value of its total assets, invest more than 5% of
its total assets in securities of one issuer other than cash, cash items, or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such securities, or acquire more than 10% of the voting securities of any
one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Board of Directors
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 15% of its net assets in illiquid securities.
- --------------------------------------------------------------------------------
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FUND MANAGEMENT,
DISTRIBUTION AND
ADMINISTRATION
BOARD OF DIRECTORS
- -------------------------------------------------------
THE FUND IS MANAGED BY A BOARD OF DIRECTORS.
- -------------------------------------------------------
The Directors are responsible for managing the business affairs for the Fund and
for exercising all the Fund's powers except those reserved for the shareholders.
INVESTMENT ADVISER AND
SUB-ADVISER
- -------------------------------------------------------
THE FUND IS MANAGED BY M&T BANK, PURSUANT TO AN INVESTMENT ADVISORY
AGREEMENT (THE "INVESTMENT ADVISORY AGREEMENT") WITH THE CORPORATION. M&T
BANK, IN TURN, HAS ENTERED INTO A SUB-ADVISORY CONTRACT (THE "SUB-ADVISORY
CONTRACT") WITH HARBOR AND THE CORPORATION.
- -------------------------------------------------------
It is M&T Bank's responsibility to select, subject to review and approval by the
Corporation's Board of Directors, a sub-adviser for the Fund that has
distinguished itself in its area of expertise in asset management and to review
the sub-adviser's continued performance.
Subject to the supervision and direction of the Corporation's Board of
Directors, M&T Bank provides investment management evaluation services
principally by performing initial due diligence on Harbor and thereafter
monitoring Harbor's performance through quantitative and qualitative analysis,
as well as periodic in-person, telephonic and written consultations with Harbor.
In evaluating Harbor, M&T Bank considers, among other factors, Harbor's level of
expertise; relative performance and consistency of performance over a minimum
period of time; level of adherence to investment discipline or philosophy;
personnel, facilities and financial strength; and quality of service and client
communications. M&T Bank has responsibility for communicating performance
expectations and evaluations to Harbor and ultimately recommending to the
Corporation's Board of Directors whether Harbor's contract should be renewed,
modified, or terminated. M&T Bank provides written reports to the Board of
Directors regarding the results of its evaluation and monitoring functions. M&T
Bank is also responsible for conducting all operations of the Fund, except those
operations contracted to Harbor, the custodian, the transfer agent, and the
administrator. Although Harbor's activities are subject to oversight by the
Board of Directors and the officers of the Corporation, neither the Board of
Directors, the officers, nor M&T Bank evaluates the investment merits of
Harbor's individual security selections. Harbor has complete discretion to
purchase, manage and sell portfolio securities for the Fund subject to the
Fund's investment objective, policies and limitations.
ADVISORY AND SUB-ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as investment
adviser, M&T Bank is entitled to receive a fee from the Fund, equal to an annual
rate of .70% of the Fund's average daily net assets. This fee is computed daily
and paid monthly. M&T Bank has agreed to pay all expenses it incurs in
connection with its advisory activities, other than the cost of securities
(including any brokerage commissions) purchased for the Fund. From time to time,
M&T Bank may voluntarily waive all or a portion of its advisory fees in order to
help the Fund maintain a competitive expense ratio or to meet state limitations
on expense ratios.
M&T Bank shall pay to Harbor, as compensation for Harbor's services, 0.50% per
annum of the Fund's average daily net assets up to $100 million and 0.40% of
such assets in excess thereof, provided that no such fee shall accrue, or be
payable until the earlier of: (i) the first day on which the Fund has net assets
of at least $30 million or (ii) six months after the commencement of the Fund's
operations. This fee is computed daily and paid monthly. From time to time,
Harbor may voluntarily waive all or a portion of its fee charged to M&T Bank,
and may terminate any such voluntary waiver at any time in its sole discretion.
ADVISER'S BACKGROUND
M&T Bank is the primary banking subsidiary of First Empire State Corporation, a
$10.4 billion
bank holding company, as of December 31, 1993, headquartered in Buffalo, New
York. M&T Bank had $8.6 billion in assets, as of December 31, 1993, and over 120
offices throughout New York State plus offices in New York City and the Bahamas.
First Empire State Corporation also owns The East New York Savings Bank, which
has 19 offices throughout metropolitan New York City, as of December 3l, 1993.
M&T Bank was founded in 1856 and provides comprehensive banking and financial
services to individuals, governmental entities and businesses throughout New
York State. The Fund's investments are managed through the Trust & Investment
Services Division of M&T Bank. As of December 31, 1993, M&T Bank had $1.6
billion in assets under management for which it has investment discretion (which
includes employee benefits, personal trusts, estates, agencies and other
accounts). M&T Bank has served as investment adviser to various funds of the
Corporation since 1988 as well as to Vision Fiduciary Funds, Inc., another
open-end management investment company. As of April 30, 1994, M&T Bank managed
over $591 million in assets of the Corporation's money market funds. As part of
its regular banking operations, M&T Bank may make loans to public companies.
Thus, it may be possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of M&T Bank. The lending
relationship will not be a factor in the selection of securities.
SUB-ADVISER'S BACKGROUND
Harbor Capital Management Company, Inc. ("Harbor"), 125 High Street, Boston,
Massachusetts 02110-2701, is an investment management firm which has been
providing counsel to both individuals and institutions, including endowment
funds, foundations and pension and profit-sharing trusts since 1979. As of March
31, 1994, Harbor Capital Management had $2.2 billion in assets under management.
Harbor has served as investment adviser to Keystone Precious Metals Holdings,
Inc., an open-end management investment company, since Harbor's inception in
1979.
PORTFOLIO MANAGEMENT TEAM
The Fund will be managed by three persons, Alan S. Fields, Frederick G. P.
Thorne, and William S. Peck, CFA.
Alan S. Fields joined Harbor in 1979 as Managing Director. In 1993, Alan S.
Fields assumed the position of Chairman, Executive Committee & Managing
Director, Harbor Capital Management Co., Inc. Mr. Fields obtained his A.B. and
M.B.A. from the University of North Carolina.
Frederick G. P. Thorne joined Harbor in 1979 as President & Managing Director.
In 1993, Mr. Thorne assumed the position of Chairman of the Board & Managing
Director, Harbor Capital Management Co., Inc. Mr. Thorne obtained his A.B.
degree from Bowdoin College. Mr. Thorne has managed Keystone Precious Metals
Holdings, Inc. since 1974.
William S. Peck, CFA joined Harbor in 1987 as Vice President & Portfolio
Manager. Mr. Peck came to Harbor from Gardner & Preston Moss where he served as
Assistant Vice President, Portfolio Manager and Research Analyst. Mr. Peck
received his B.A. from Yale University, M.A. from Middlebury College and his
M.B.A. from Boston University.
DISTRIBUTION OF FUND SHARES
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FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
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Shares of the Fund are sold on a continuous basis by Federated Securities Corp.
It is a Pennsylvania corporation organized on November 14, 1969, and is also the
principal distributor for a number of other investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors, Pittsburgh,
Pennsylvania.
DISTRIBUTION PLAN
Under a distribution plan (referred to as the "Plan") adopted in accordance with
Rule 12b-l promulgated under the Investment Company Act of 1940, the Fund may
pay to the distributor an amount computed at an annual rate of 0.25% of the
Fund's average daily net assets to finance any activity which is principally
intended to result in the sale of shares subject to the Plan. The distributor
may from time to time and for such periods as it deems appropriate, voluntarily
reduce its 12b-1 compensation under the Plan to the extent the expenses
attributable to shares of the Fund exceed such lower expense limitation as the
distributor may, by notice to the Corporation, voluntarily declare to be
effective. The Fund has no present intention of paying or accruing 12b-1 fees
during the fiscal year ending April 30, 1995.
Financial institutions will receive fees from the distributor based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or savings bank) to become an underwriter or distributor of
securities. The Glass-Steagall Act also limits the ability of affiliates of a
bank that is a member of the Federal Reserve System (such as M&T Bank) to become
an underwriter or distributor of securities.
Under current judicial and regulatory interpretations of the Glass-Steagall Act,
banks and their affiliates are allowed to act as investment advisers to mutual
funds and to act as agents for customers in the purchase or redemption of shares
of mutual funds. If the Glass-Steagall Act were amended or interpreted in the
future to prohibit depository institutions from acting in the capacities
described herein or to increase the allowable activities of banks and their
affiliates, the Directors will consider appropriate changes in the services,
which may affect the services of M&T Bank and M&T Securities, Inc. described
herein.
State securities laws governing the ability of depository institutions to act as
underwriters or
distributors of securities may differ from interpretations given to the
Glass-Steagall Act and, therefore, banks and other financial institutions may be
required to register as brokers or dealers pursuant to state law.
The distributor may select certain entities to provide sales and/or
administrative services as agents for holders of shares of the Fund. For a
description of administrative services, see "Administrative
Arrangements" below.
SHAREHOLDER SERVICING ARRANGEMENTS
M&T Bank is the shareholder servicing agent (the "Shareholder Servicing Agent")
for the Fund. The Fund may pay the Shareholder Servicing Agent a fee based on
the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be equal to 0.25% of the Fund's average daily net assets
for which the Shareholder Servicing Agent provides services; however, the
Shareholder Servicing Agent may choose voluntarily to waive all or a portion of
its fee at any time. The Fund will not accrue or pay any shareholder servicing
agent fees until a separate class of shares has been created for the Fund or the
prospectus is amended to reflect the imposition of fees.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings banks)
to provide administrative services that are not provided by Federated
Administrative Services (see below). These administrative services include
distributing prospectuses and other information, providing accounting assistance
and shareholder communications, or otherwise facilitating shareholder purchases
and redemptions (sales) of Fund shares. The administrators appointed could
include affiliates of the advisers.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. If the distributor pays any fees for these services, the fees will be
reimbursed by one of the advisers and not the Fund.
ADMINISTRATION OF THE FUND
- -------------------------------------------------------
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUND WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUND.
- -------------------------------------------------------
ADMINISTRATIVE SERVICES
Such services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these services for an
annual fee as specified below:
<TABLE>
<CAPTION>
AGGREGATE DAILY NET ASSETS
OF VISION GROUP OF FUNDS,
ADMINISTRATIVE FEE INC.
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any year shall be at least $50,000 for
the Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT, AND
DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, Boston, Massachusetts, is the custodian for
the securities and cash of the Fund.
Federated Services Company, Pittsburgh, Pennsylvania, is the transfer agent for
the shares of the Fund, and dividend disbursing agent responsible for
distributing dividends to the Fund's shareholders.
LEGAL COUNSEL
Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh,
Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young, Pittsburgh,
Pennsylvania.
EXPENSES OF THE FUNDS
The Fund pays all of its own expenses and its allocable share of the expenses of
the Corporation. The expenses borne by the Fund include, but are not limited to,
the cost of: organizing the Corporation and continuing its existence; Directors'
fees; investment advisory and administrative services; printing prospectuses and
other Fund documents for shareholders; registering the Corporation, the Fund and
shares of the Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, accounting, and legal
expenses; reports to shareholders and governmental agencies; meetings of
Directors and shareholders and proxy solicitations therefor; insurance premiums;
association membership dues; and such non-recurring and extraordinary items as
may arise. However, M&T Bank may voluntarily assume some expenses and has, in
addition, undertaken to reimburse the Fund, up to the amount of the Fund's
advisory fee, the amount by which operating expenses exceed limitations imposed
by certain states.
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YOUR GUIDE
TO USING
THE FUND
HOW THE FUND VALUES
ITS SHARES
- -------------------------------------------------------
THE FUND'S NET ASSET VALUE PER SHARE FLUCTUATES.
- -------------------------------------------------------
The net asset value for the Fund's shares is determined by adding the market
value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund and dividing the remainder by the total number of the
Fund's shares outstanding.
MINIMUM INITIAL INVESTMENT
The minimum initial investment in the Fund is $500, unless the investment is in
a retirement plan, in which case the minimum initial investment is $250.
Subsequent investments must be in amounts of at least $25. In addition, the
minimum initial and subsequent investment amounts may be waived or lowered from
time to time, such as for customers participating in the automatic investment
services described below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
PUBLIC OFFERING NET AMOUNT
AMOUNT OF TRANSACTION PRICE INVESTED
<S> <C> <C>
Less than $100,000.... 4.50% 4.7l%
$100,000 but less than
$250,000............ 3.75% 3.90%
$250,000 but less than
$500,000............ 3.00% 3.09%
$500,000 but less than
$1 million.......... 2.00% 2.04%
$1 million but less
than $2 million..... 1.00% 1.01%
$2 million or more.... 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on:
(i) days when the value of the Fund's portfolio securities do not change
sufficiently to materially affect the net asset value;
(ii) days when no shares are tendered for redemption by shareholders and no
orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may from
time to time offer certain items of nominal value to any shareholder or
investor.
SALES CHARGE REALLOWANCE
For sales of shares of the Fund, a broker/dealer will normally receive up to 90%
of the applicable sales charge. Any portion of the sales charge which is not
paid to a broker/dealer will be retained by the Distributor. However, the
Distributor will uniformly and periodically offer to pay broker/dealers up to
100% of the sales charge retained by it. Such payments may take the form of
cash, items of material value, or promotional incentives, such as payment of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational or
resort facilities. In some instances, these incentives will be made available
only to broker/dealers whose employees have sold or may sell significant amounts
of shares.
The Distributor may pay fees to financial institutions out of the sales charge
in exchange for sales and/or administrative services performed on behalf of
their customers in connection with the initiation of customer accounts and
purchases of shares of the Fund.
In addition, the distributor will offer to pay broker/dealers an amount of up to
1.00% of the net asset value of shares purchased for an account of their client
or customer in an amount of $2 million or more.
The Distributor, M&T Bank, Harbor, or affiliates thereof, at their own expense
and out of their own assets, may also provide other compensation to financial
institutions in connection with sales of shares of the Fund or as financial
assistance for providing substantial marketing, sales and opera-
tional support. Compensation may include, but is not limited to, financial
assistance to financial institutions in connection with conferences, sales, or
training programs for their employees, seminars for the public, advertising or
sales campaigns, or other special events. In some instances, this compensation
may be predicated upon the amount of shares sold and/or upon the type and nature
of sales or operational support they furnish. Dealers may not use sales of the
Corporation's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
other compensation shall be paid for by the Corporation, the Fund, or its
shareholders, nor will it change the price paid by investors for the purchase of
Fund shares.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased, subject to applicable law and regulation
from time to time, at net asset value, without a sales charge, by the following
investors, their spouses and their immediate relatives: (i) current and retired
employees and directors of M&T Bank, The East New York Savings Bank, First
Empire State Corporation and their subsidiaries; (ii) current and former
Directors of the Corporation; (iii) clients of the Trust & Investment Services
Division of M&T Bank; (iv) employees (including registered representatives) of a
dealer which has a selling group agreement with the Fund's distributor and
consents to such purchases; (v) current and retired employees of any sub-adviser
to the Vision Group of Funds, Inc; and (vi) investors referred by any
sub-adviser to the Vision Group of Funds, Inc. Immediate relatives include
grandparents, parents, siblings, children, and grandchildren of a qualified
investor, and the spouse of any immediate relative. A special application form,
which is available from the Shareholder Servicing Agent, must be submitted with
the initial purchase.
PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF MUTUAL FUND SHARES
Investors may purchase shares of the Fund at net asset value, without a sales
charge, with the proceeds from the redemption of shares of a mutual fund which
was sold with a sales charge or commission. The purchase must be made within 60
days of the redemption, and M&T Bank's Mutual Fund Services must be notified by
the investor in writing, or by the investor's financial institution, at the time
the purchase is made, and must present satisfactory evidence of the redemption.
Redemptions of mutual fund shares that are subject to a contingent deferred
sales charge are not eligible to purchase Fund shares under this method. The
distributor will uniformly and periodically offer to pay cash payments as
incentives to broker/dealers whose customers or clients purchase shares of the
Fund under this "no-load" purchase provision. This payment will be made out of
the distributor's assets and not by the Corporation, the Fund or its
shareholders.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- concurrent purchases.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES
As shown in the table on page 18, larger purchases reduce the sales charge paid.
The Fund will combine purchases made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it calculates
the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will consider
the previous purchases still invested in the Fund in calculating the applicable
sales charge rate. For example, if a shareholder already owns shares which were
purchased at the public offering price of $70,000 and then purchases $40,000
more at the current public offering price, the sales charge of the additional
purchase according to the schedule now in effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, M&T Bank's Mutual Fund Services or the
Distributor must be notified by the shareholder in writing at the time the
purchase is made that Fund shares are already owned or that purchases are being
combined. The Fund will reduce the sales charge after it confirms the purchase.
LETTER OF INTENT
If a shareholder intends to purchase shares of the Fund equal in value to at
least $100,000 over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Custodian to hold
4.50% of the total amount intended to be purchased in escrow
(in shares of the Fund) until such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period, unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time right
to reinvest, within 90 days, the redemption proceeds in the Fund at the
next-determined net asset value without any sales charge. M&T Bank's Mutual Fund
Services or the Distributor must be notified by the shareholder in writing or by
the shareholder's financial institution of the reinvestment in order to
eliminate the sales charge. If the shareholder redeems his or her shares in the
Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Vision
Group of Funds, Inc., the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $70,000 in one of the funds with
a sales charge, and $40,000 in another fund with a sales charge, the sales
charge would be reduced to 3.75%.
To receive this sales charge reduction, M&T Bank's Mutual Fund Services or the
Distributor must be notified by the agent placing the order at the time the
concurrent purchases are made. The sales charge will be reduced after the
purchase is confirmed.
HOW TO BUY SHARES
- -------------------------------------------------------
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS WHICH
THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS WHEN WIRE
TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND MARTIN LUTHER
KING DAY).
- -------------------------------------------------------
Shares may be purchased either by wire, mail or transfer. The Fund reserves the
right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
l-800-618-8573.
THROUGH THE BANK
You may purchase shares through M&T Bank. To do so, contact an account
representative at M&T Bank or those affiliates of M&T Bank which make shares
available (such as The East New York Savings Bank), or M&T Bank's Mutual Fund
Services at (800)836-2211 (in the Buffalo area, phone 842-4488).
THROUGH M&T SECURITIES, INC.
You may purchase shares of the Fund through any representative of M&T
Securities, Inc.
THROUGH AUTHORIZED BROKER/DEALERS.
An investor may place an order through authorized brokers and dealers to
purchase shares of the Fund. For additional details, contact your broker.
PAYMENT
Payment may be made by either check or federal funds or by debiting a customer's
account at M&T Bank or any of its affiliate banks. Purchase orders must be
received by 4:00 p.m. (Eastern time) in order to be credited that same day. For
settlement of an order to occur, payment must be received on the next business
day following the order.
BUYING SHARES BY WIRE
You can purchase shares of the Fund by Federal Reserve wire. This is referred to
as wiring federal funds, and it simply means that your bank sends money to the
Fund's bank through the Federal Reserve System. To purchase shares by Federal
Reserve wire, call M&T Bank's Mutual Fund Services before 4:00 p.m. (Eastern
time) to place your order. The order is considered immediately received,
provided payment by federal funds is
received before 3:00 p.m. (Eastern time) the next business day.
BUYING SHARES BY MAIL
To buy shares of the Fund for the first time by mail, complete and sign an
account application form and mail it, together with a check made payable to
"Vision Growth and Income Fund" in an amount of $500 or more, to the address
below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York, 14240-4556
Current shareholders can purchase shares by mail by sending a check to the same
address. Orders by mail are considered received after payment by check has been
converted into federal funds. This is normally the next business day after the
check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account, you
must maintain a checking or NOW deposit account at M&T Bank or any of its
affiliate banks. To place an order, call M&T Bank's Mutual Fund Services before
4:00 p.m. (Eastern time). The money will be transferred from your checking or
NOW deposit account to your Fund account by the next business day and your
purchase of shares will be effected on the day the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a regular
basis in amounts of $25 or more through automatic deductions from your checking
or NOW deposit account. The money may be withdrawn periodically and invested in
Fund shares at the next net asset value calculated after your order is received
plus any applicable sales charge. To sign up for this program, please call M&T
Bank's Mutual Fund Services for an application.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays dividends quarterly. Capital gains realized by the
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains will be automatically reinvested in additional shares of the Fund
on payment dates at the ex-dividend date's net asset value without a sales
charge, unless payments are requested by writing to the Fund or M&T Bank's
Mutual Fund Services. Dividends and capital gains can also be reinvested in
shares of any other fund comprising the Vision Group of Funds,
Inc., subject to any applicable investment requirements.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or IRA
accounts. For further details, including prototype plans, contact the Fund and
consult a tax adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. The Fund will not issue certificates for your
shares unless you make a written request to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Confirmations are sent to shareholders of the Fund to report
dividends paid during the quarter.
HOW TO EXCHANGE SHARES
- -------------------------------------------------------
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP OF
FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS IN THE CORPORATION (REFERRED
TO AS "PARTICIPATING FUNDS") THROUGH AN EXCHANGE PROGRAM. YOU MAY EXCHANGE
SHARES OF THE FUND FOR SHARES OF OTHER PARTICIPATING FUNDS AT NET ASSET
VALUE, PLUS ANY APPLICABLE SALES CHARGE.
- -------------------------------------------------------
When exchanging into and out of Participating Funds with a sales charge and
Participating Funds without a sales charge, shareholders who have paid a sales
charge once upon purchasing shares of any Participating Fund, including those
shares obtained through the reinvestment of dividends, will not have to pay a
sales charge again on an exchange. Shares of Participating Funds with no sales
charge acquired by direct purchase or reinvestment of dividends on such shares
may be exchanged for shares of a Participating Fund with a sales charge at net
asset value plus the applicable sales charge.
To be eligible for this exchange privilege, you must exchange shares with a net
asset value of at
least the minimum initial investment required by the Participating Fund into
which you are exchanging if it is a new account. You may exchange your shares
only for shares of Participating Funds that may legally be sold in your state of
residence. Prior to any exchange, the shareholder must receive a copy of the
current prospectus of the Participating Fund into which an exchange is to be
made.
Once the transfer agent has received proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the next
net asset value calculated. If you do not have an account in the Participating
Fund whose shares you want to acquire, you must establish a new account. Unless
you specify otherwise, this account will be registered in the same name and have
the same dividend and capital gains payment options as you selected with your
existing account. If the new account registration (name, address, and taxpayer
identification number) is not identical to your existing account, you must
provide a signature guarantee to verify your signature. Please see page 23 for
more information about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a short
or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege at any
time. Shareholders will be notified prior to any modification or termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services at the number listed below.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's Mutual
Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-4488). To sign
up for telephone exchanges, you must select the telephone exchange option on the
new account application. It is recommended that you request this privilege on
your initial application. If you do not and later wish to take advantage of
telephone exchanges, you may call M&T Bank's Mutual Fund Services for
authorization forms.
You can only exchange shares by telephone between fund accounts with identical
shareholder registrations (names, addresses, and taxpayer identification
numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated Services
Company before 4:00 p.m. (Eastern time) for shares to be exchanged that same
day. You will not receive a dividend from the fund into which you are exchanging
on the date of the exchange.
You may have difficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services by
telephone, please send a written exchange request by mail for next day delivery
to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot make a
telephone exchange. Instead, the certificates must be properly endorsed and
should be sent by registered or certified mail, along with your written exchange
request, to the Vision Group of Funds, Inc. at the address shown below. M&T
Bank's Mutual Fund Services will then forward the certificate to the transfer
agent, Federated Services Company, and the shares will be deposited into your
account before the exchange is made.
Shareholders requesting the telephone exchange service authorize the Corporation
and its agents to act upon their telephonic instructions to exchange shares from
any account for which they have authorized such services. Exchange instructions
given by telephone may be electronically recorded for your protection. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
- -------------------------------------------------------
THE FUND REDEEMS YOUR SHARES AT THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE FUND RECEIVES YOUR REDEMPTION REQUEST. WHEN FUND
SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
- -------------------------------------------------------
You may redeem shares only on days when the Fund computes its net asset value.
You cannot redeem shares on days when the New York Stock
Exchange or M&T Bank are closed, or on holidays when wire transfers are
restricted (Columbus Day, Veterans' Day, and Martin Luther King Day). While you
may redeem various amounts by telephone or written request, you can close your
account only by written request.
TELEPHONE REDEMPTIONS
You may redeem your shares by calling M&T Bank's Mutual Fund Services at (800)
836-2211 (in the Buffalo area, phone 842-4488) before 4:00 p.m. (Eastern time).
The proceeds will be wired the next business day directly to your account at M&T
Bank or an affiliate or to another account you previously designated at a
domestic commercial bank that is a member of the Federal Reserve System. M&T
Bank reserves the right to charge a fee for a wire transfer from a customer
checking account, which may contain redemption proceeds, to another commercial
bank.
You will be automatically eligible for telephone redemptions, unless you check
the box on the new account application form to decline this privilege. It is
recommended that you provide the necessary information for the telephone/wire
redemption option on your initial application. If you do not do this and later
wish to take advantage of telephone redemptions, you must call M&T Bank's Mutual
Fund Services for authorization forms.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services by
telephone, please send a written redemption request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time. Shareholders will be notified prior to any modification
or termination.
If you hold shares in certificate form or hold Fund shares through an IRA
account, you cannot redeem those shares by phone, but instead must redeem them
in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to redeem
shares from any account for which they have authorized such services. Redemption
instructions given by telephone may be electronically recorded for your
protection. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES BY MAIL
You may redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions before
redeeming by letter. Your written request must include your name, the Fund's
name, your account number, and the share or dollar amount you want to redeem. If
share certificates have been issued to you, those certificates must be properly
endorsed and should be sent by registered or certified mail along with your
redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
- if you are redeeming shares worth $50,000 or more;
- if you want a redemption of any amount sent to an address other than your
address on record with the Fund;
- if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
- if you want to transfer the registration of the Fund shares.
The signature guarantee must be provided by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which also is administered
by the FDIC;
- a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request, provided the Fund or its agents have received payment for shares from
the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
If you own Fund shares worth $10,000 or more, you can have regular payments of
$50 or more sent from your Fund account to you, another person you designate or
your checking or NOW deposit account. Fund shares are redeemed to provide
periodic payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends or any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in the Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason, you
should not consider systematic withdrawal payments as yield or income received
from your investment in the Fund. Due to the fact that shares are sold with a
sales charge, it is not advisable for shareholders to be purchasing shares while
participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the Fund may
redeem your shares and send you the proceeds if your account balance falls below
a minimum value of $250 due to shareholder redemptions. Shareholders who make
large or frequent withdrawals may be particularly vulnerable to this involuntary
redemption process. However, before shares are redeemed to close an account, the
shareholder will be notified in writing and given 30 days to purchase additional
shares to meet the minimum balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate to
do so in light of the Fund's responsibilities under the Investment Company Act
of 1940.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX INFORMATION
- -------------------------------------------------------
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE INCOME TAX
TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
- -------------------------------------------------------
The tax consequences discussed here apply whether you receive dividends in cash
or reinvest them in additional shares. The Fund will send you tax information
annually regarding the federal income tax consequences of distributions made
during the year. You should definitely consult your own tax adviser about any
state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax purposes.
Income earned by the Fund, including any capital gains or losses realized, is
not combined with income earned on the Corporation's other portfolios.
The Fund intends to qualify each year as a regulated investment company under
the Internal Revenue Code so that it is not required to pay federal income taxes
on the income and capital gains distributed to shareholders.
FEDERAL INCOME TAXES
Unless shareholders of the Fund are otherwise exempt from taxes, they are
required to pay federal income taxes on dividends and other distributions
received (including capital gains distributions, if any) from the Fund.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on February
23, 1988, and consists of six available portfolios: Vision Money Market Fund,
Vision Treasury Money Market Fund, Vision New York Tax-Free Money Market Fund,
Vision U.S. Government Securities Fund, Vision Growth & Income Fund and Vision
New York Tax-Free Fund. The Corporation's Articles of Incorporation permit the
Corporation to offer separate series of shares in these funds or other future
portfolios.
Each Fund share represents an equal proportionate interest in the Fund with
other shares and participates equally in the dividends and any other
distributions that are declared at the discretion of the Fund's Board of
Directors.
VOTING RIGHTS AND OTHER INFORMATION
- -------------------------------------------------------
SHAREHOLDERS OF THE FUND ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE THEY
HOLD AND TO FRACTIONAL VOTES FOR ANY FRACTIONAL SHARES THEY HOLD.
- -------------------------------------------------------
Shareholders in the Fund generally vote in the aggregate and not by class,
unless the law expressly requires otherwise or the Board of Directors determines
that the matter to be voted upon affects only the interests of shareholders of a
particular class. (See the "Description of Fund Shares" in the Statement of
Additional Information for examples of when the Investment Company Act of 1940,
as amended requires that shareholders vote by class.) As of May 10, 1994, Tice &
Co., Buffalo, New York, owned 40.5% of the voting securities of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
The Fund is not required to hold annual shareholder meetings, unless matters
arise that require a vote of the shareholders under the Investment Company Act
of 1940, as amended. That law requires a vote of the shareholders to approve
changes in the Fund's investment advisory agreements, to replace the Fund's
independent certified public accountants and, under certain circumstances, to
elect members to the Board of Directors.
Directors may be removed by the Board of Directors or by a vote of shareholders
at a special meeting. The Board of Directors will promptly call a special
meeting of shareholders upon the writ-
ten request of shareholders owning at least 10% of any Fund's outstanding
shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment of that money. This includes any proceeds from the sale, exchange, or
liquidation of these investments, any funds or payments derived from the
reinvestment of these proceeds, and a portion of the general assets of the
Corporation that do not otherwise belong to the Fund.
Assets belonging to the Fund are charged with the direct expenses and
liabilities of the Fund and with a share of the general expenses and liabilities
of the Corporation. The general expenses and liabilities of the Corporation are
allocated in proportion to the relative asset values of all the Corporation's
portfolios at the time the expense or liability is incurred.
The management of the Corporation determines the Fund's direct and allocable
liabilities at the time the expense or liability is incurred as well as the
Fund's allocable share of any general assets at the time the asset is acquired.
These determinations are reviewed and approved annually by the Corporation's
Board of Directors and are conclusive.
HOW THE FUND SHOWS
PERFORMANCE
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices. The Fund
may advertise its performance in terms of yield and total return, as defined
below. Of course, yield and total return figures are based on past results and
are not an indication of future performance.
YIELD
The yield of the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
TOTAL RETURN
The average annual total return of the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
VISION GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--9.3%
- --------------------------------------------------------------------------------------
BANKING--3.9%
----------------------------------------------------------------------
$ 500,000 Chemical Bank of New York, 6.70%, 8/15/2008 $ 448,930
----------------------------------------------------------------------
500,000 Korea Development Bank, 6.75%, 12/1/2005 445,440
---------------------------------------------------------------------- -----------
Total 894,370
---------------------------------------------------------------------- -----------
FOREST PRODUCTS--2.2%
----------------------------------------------------------------------
500,000 Scott Paper Co., 8.80%, 5/15/2022 515,415
---------------------------------------------------------------------- -----------
INDUSTRIAL PRODUCTS--2.1%
----------------------------------------------------------------------
500,000 + Hanson PLC, 7.375%, 1/15/2003 487,935
---------------------------------------------------------------------- -----------
MORTGAGE--1.1%
----------------------------------------------------------------------
250,000 Federal National Mortgage Association, 7.60%, 4/14/2004 247,380
---------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $2,232,980) 2,145,100
---------------------------------------------------------------------- -----------
COMMON STOCKS--81.9%
- --------------------------------------------------------------------------------------
AUTOMOBILE--5.2%
----------------------------------------------------------------------
10,000 Chrysler Corp. 480,445
----------------------------------------------------------------------
12,500 General Motors Corp. 709,375
---------------------------------------------------------------------- -----------
Total 1,189,820
---------------------------------------------------------------------- -----------
BANKING--10.9%
----------------------------------------------------------------------
4,000 Banco de Santander, ADR 174,000
----------------------------------------------------------------------
7,000 Banco LatinoAmericano de Export, ADR 258,452
----------------------------------------------------------------------
11,000 Boatmens Bancshares, Inc. 346,500
----------------------------------------------------------------------
6,000 First Interstate Bancorp 478,500
----------------------------------------------------------------------
17,081 First Republican Bancorp, Inc. 224,188
----------------------------------------------------------------------
8,000 First Union Corp. 357,000
----------------------------------------------------------------------
15,000 Union Planters Corp. 397,500
----------------------------------------------------------------------
10,000 UJB Financial Corp. 272,500
---------------------------------------------------------------------- -----------
Total 2,508,640
---------------------------------------------------------------------- -----------
BROADCASTING--1.4%
----------------------------------------------------------------------
6,000 Grupo Television S.A. de C.V. 318,000
---------------------------------------------------------------------- -----------
CHEMICALS--2.9%
----------------------------------------------------------------------
5,300 Dow Chemical Co. 332,575
----------------------------------------------------------------------
17,000 Praxair, Inc. 325,125
---------------------------------------------------------------------- -----------
Total 657,700
---------------------------------------------------------------------- -----------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
COMPUTER SOFTWARE--1.3%
----------------------------------------------------------------------
3,000 + BMC Software, Inc. $ 180,000
----------------------------------------------------------------------
1,500 Microsoft Elks 127,125
---------------------------------------------------------------------- -----------
Total 307,125
---------------------------------------------------------------------- -----------
CONSUMER GOODS--RETAIL--2.2%
----------------------------------------------------------------------
20,325 Mattel, Inc. 510,666
---------------------------------------------------------------------- -----------
DRUGS--3.4%
----------------------------------------------------------------------
11,000 Alza Corp. 277,750
----------------------------------------------------------------------
7,500 Warner Lambert Co. 509,063
---------------------------------------------------------------------- -----------
Total 786,813
---------------------------------------------------------------------- -----------
ELECTRONICS--3.4%
----------------------------------------------------------------------
4,500 General Electric Co. 428,062
----------------------------------------------------------------------
10,000 Singer Co. 356,250
---------------------------------------------------------------------- -----------
Total 784,312
---------------------------------------------------------------------- -----------
ENERGY--1.7%
----------------------------------------------------------------------
3,500 Royal Dutch Petroleum Co. 381,500
---------------------------------------------------------------------- -----------
ENTERTAINMENT--5.4%
----------------------------------------------------------------------
16,000 Blockbuster Entertainment Corp. 434,000
----------------------------------------------------------------------
13,000 International Game Technology 338,000
----------------------------------------------------------------------
13,000 Promus Cos, Inc. 465,523
---------------------------------------------------------------------- -----------
Total 1,237,523
---------------------------------------------------------------------- -----------
EQUIPMENT--0.9%
----------------------------------------------------------------------
4,500 + Ionics, Inc. 204,750
---------------------------------------------------------------------- -----------
FINANCIAL--2.1%
----------------------------------------------------------------------
13,000 John Alden Financial Corp. 490,095
---------------------------------------------------------------------- -----------
FOOD AND BEVERAGE--1.4%
----------------------------------------------------------------------
7,500 Coca Cola Co. 312,187
---------------------------------------------------------------------- -----------
FOREST PRODUCTS--1.1%
----------------------------------------------------------------------
6,000 Weyerhaeuser Co. 255,750
---------------------------------------------------------------------- -----------
HEALTH CARE--2.9%
----------------------------------------------------------------------
5,000 + Alpha Beta Technology, Inc. 107,500
----------------------------------------------------------------------
12,000 + Horizon Healthcare Corp. 280,500
----------------------------------------------------------------------
7,000 Value Health, Inc. 271,250
---------------------------------------------------------------------- -----------
Total 659,250
---------------------------------------------------------------------- -----------
HOME FURNISHINGS--2.4%
----------------------------------------------------------------------
13,000 Home Depot, Inc. 546,000
---------------------------------------------------------------------- -----------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS--2.3%
----------------------------------------------------------------------
14,000 Thermo Electron Corp. $ 528,500
---------------------------------------------------------------------- -----------
INSURANCE--7.1%
----------------------------------------------------------------------
6,000 American International Group, Inc. 511,500
----------------------------------------------------------------------
13,000 CCP Insurance, Inc. 267,015
----------------------------------------------------------------------
5,500 ITT Corp. 493,625
----------------------------------------------------------------------
6,000 Kemper Corp. 354,000
---------------------------------------------------------------------- -----------
Total 1,626,140
---------------------------------------------------------------------- -----------
MINING AND DEVELOPMENT--4.6%
----------------------------------------------------------------------
13,000 American Barrick Resources Corp. 299,000
----------------------------------------------------------------------
3,000 Franco Nev Mining, Ltd. 154,600
----------------------------------------------------------------------
12,000 Freeport McMoran Copper & Gold, Inc. 324,000
----------------------------------------------------------------------
6,992 Newmont Mining Corp. 288,436
---------------------------------------------------------------------- -----------
Total 1,066,036
---------------------------------------------------------------------- -----------
MORTGAGE--1.4%
----------------------------------------------------------------------
4,000 Federal National Mortgage Association 333,000
---------------------------------------------------------------------- -----------
OIL & GAS--3.4%
----------------------------------------------------------------------
11,000 Louisiana Land & Exploration Co. 434,500
----------------------------------------------------------------------
14,000 YPF Sociedad Anonima, ADR 346,500
---------------------------------------------------------------------- -----------
Total 781,000
---------------------------------------------------------------------- -----------
OTHER--0.9%
----------------------------------------------------------------------
4,500 + Cemex SA, ADR 195,413
---------------------------------------------------------------------- -----------
REAL ESTATE--5.9%
----------------------------------------------------------------------
10,000 + Chelsea GCA Realty, Inc. 295,000
----------------------------------------------------------------------
12,000 Crescent Real Estate Equities 300,000
----------------------------------------------------------------------
6,000 Merry Land and Investment Co. 137,250
----------------------------------------------------------------------
7,000 Nationwide Health Properties, Inc. 276,500
----------------------------------------------------------------------
11,000 Post Properties, Inc. 335,500
---------------------------------------------------------------------- -----------
Total 1,344,250
---------------------------------------------------------------------- -----------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS--7.7%
----------------------------------------------------------------------
9,600 + Ericsson (LM) Telephone Co. $ 434,400
----------------------------------------------------------------------
5,000 MCI Communications Corp. 114,375
----------------------------------------------------------------------
9,000 Motorola, Inc. 401,625
----------------------------------------------------------------------
10,000 Northern Telecommunications, Ltd. 297,500
----------------------------------------------------------------------
2,500 Telefonos de Mexico, ADR 147,188
----------------------------------------------------------------------
4,500 Vodafone Group, PLC., ADR 369,000
---------------------------------------------------------------------- -----------
Total 1,764,088
---------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $19,252,659) 18,788,558
---------------------------------------------------------------------- -----------
CONVERTIBLE PREFERRED STOCKS--4.1%
- --------------------------------------------------------------------------------------
COMPUTER--0.9%
----------------------------------------------------------------------
3,000 Storage Technology Corp. 214,125
---------------------------------------------------------------------- -----------
ELECTRONICS--1.4%
----------------------------------------------------------------------
10,000 Tandy Corp. 323,750
---------------------------------------------------------------------- -----------
INSURANCE--1.8%
----------------------------------------------------------------------
7,000 + Travelers, Inc. 413,000
---------------------------------------------------------------------- -----------
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST, $1,056,185) 950,875
---------------------------------------------------------------------- -----------
MONEY MARKET MUTUAL FUND SHARES--1.5%
- --------------------------------------------------------------------------------------
351,415 Seven Seas Money Market Fund (at net asset value) 351,415
---------------------------------------------------------------------- -----------
*REPURCHASE AGREEMENT--8.7%
- --------------------------------------------------------------------------------------
$2,000,000 State Street Bank & Trust Co., 3.00%, dated 4/29/94, due 5/2/94 (Note
2B) (at amortized cost) 2,000,000
---------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $24,893,239) $24,235,948++
---------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ Non-income producing.
++ The cost for federal tax purposes amounts to $24,893,239. The net unrealized
depreciation of investments on a federal tax basis amounts to $657,291, which
is comprised of $451,543 appreciation and $1,108,834 depreciation at April
30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($22,944,233) at April 30, 1994.
ADR -- American Depository Receipts
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------
Investments, at value (Note 2A) (identified and tax cost, $24,893,239) $24,235,948
- ------------------------------------------------------------------------------------
Receivable for investments sold 278,931
- ------------------------------------------------------------------------------------
Receivable for capital stock sold 190,615
- ------------------------------------------------------------------------------------
Dividend and interest receivable 66,007
- ------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 8,361
- ------------------------------------------------------------------------------------ -----------
Total assets 24,779,862
- ------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------
Payable for investments purchased $1,803,806
- -----------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 5,252
- -----------------------------------------------------------------------
Accrued expenses and other liabilities 26,571
- ----------------------------------------------------------------------- ----------
Total liabilities 1,835,629
- ------------------------------------------------------------------------------------ -----------
NET ASSETS for 2,310,813 shares of capital stock outstanding $22,944,233
- ------------------------------------------------------------------------------------ -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------
Paid-in capital $23,808,182
- ------------------------------------------------------------------------------------
Net unrealized depreciation of investments (657,291)
- ------------------------------------------------------------------------------------
Accumulated net realized loss on investments (226,887)
- ------------------------------------------------------------------------------------
Undistributed net investment income 20,229
- ------------------------------------------------------------------------------------ -----------
Total Net Assets $22,944,233
- ------------------------------------------------------------------------------------ -----------
NET ASSET VALUE and Redemption Price Per Share ($22,944,233 / 2,310,813 shares of
capital stock outstanding) $9.93
- ------------------------------------------------------------------------------------ -----------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/95.5 of $9.93)* $10.40
- ------------------------------------------------------------------------------------ -----------
</TABLE>
* See "What Fund Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 29, 1993 (DATE OF INITIAL PUBLIC INVESTMENT)
TO APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest income (Note 2C) $ 83,668
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $26,123
- -----------------------------------------------------------------------------
Administrative personnel and services fee (Note 4) 20,822
- -----------------------------------------------------------------------------
Custodian and recordkeeping fees 23,925
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 7,466
- -----------------------------------------------------------------------------
Legal fees 672
- -----------------------------------------------------------------------------
Printing and postage 456
- -----------------------------------------------------------------------------
Miscellaneous 704
- ----------------------------------------------------------------------------- -------
Total expenses 80,168
- -----------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $26,123
- -------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 4) 15,888
- -------------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 38,157 80,168
- ------------------------------------------------------------------- ------- -------
Net expenses 0
- ---------------------------------------------------------------------------------------- ---------
Net investment income 83,668
- ---------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (226,887)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (657,291)
- ---------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (884,178)
- ---------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $(800,510)
- ---------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
4/30/94*
--------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 83,668
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($0 as computed for federal tax
purposes) (226,887)
- -------------------------------------------------------------------------------
Net Change in unrealized appreciation (depreciation) on investments (657,291)
- ------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations (800,510)
- ------------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income (63,439)
- ------------------------------------------------------------------------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------------------------
Net proceeds from sale of shares 23,938,946
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 33,036
- -------------------------------------------------------------------------------
Cost of shares redeemed (163,800)
- ------------------------------------------------------------------------------- -------------
Change in net assets resulting from capital stock transactions 23,808,182
- ------------------------------------------------------------------------------- -------------
Change in net assets 22,944,233
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------- -------------
End of period (including undistributed net investment income of $20,229) $ 22,944,233
- ------------------------------------------------------------------------------- -------------
</TABLE>
* For the period from November 29, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Vision Group of Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Corporation consists of five diversified portfolios and one
non-diversified portfolio (individually referred to as the "Fund", or
collectively as the "Funds"): Vision Money Market Fund ("Money Market"), Vision
Treasury Money Market ("Treasury Money Market"), Vision New York Tax-Free Money
Market Fund ("New York Tax-Free Money Market"), Vision Growth and Income Fund
("Growth and Income"), Vision New York Tax-Free Fund ("New York Tax-Free")*, and
Vision U.S. Government Securities Fund ("U.S. Government Securities"). The
financial statements included herein present only those of the Growth and Income
Fund. The financial statements of the other portfolios are presented separately.
The assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held.
* Non-diversified portfolio.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other fixed securities
are valued at the last sales price reported on national securities exchanges. Unlisted
securities and bonds are generally valued at the price provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or less may be stated
at amortized cost, which approximates value. Investments in other regulated investment
companies are valued at net asset value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian bank's vault, all securities held as collateral in support
of repurchase agreement investments. Additionally, procedures have been established by the
Fund to monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure the value at least equals the principal amount of the
repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of Directors ("Directors").
Risks may arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to share-
holders are recorded on the ex-dividend date. Interest income and expenses are accrued
daily. Bond premium and discount, if applicable, are amortized as required by the Internal
Revenue Code ("Code").
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable
to regulated investment companies and to distribute to shareholders each year substantially
all of its taxable income. Accordingly, no provisions for federal tax are necessary.
Additionally, net capital losses of $226,887 attributable to security transactions incurred
after October 31, 1993 are treated as arising on May 1, 1994, the first day of the Fund's
next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed
delivery transactions. The Fund records when-issued securities on the trade date and
maintains
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
security positions such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares
in its first fiscal year, excluding the initial expense of registering the shares, have been
deferred and are being amortized using the straight-line method over a period of five years
from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) CAPITAL STOCK
At April 30, 1994, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized for the Fund. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
- ------------------------------------------------------------------------------ ----------------
<S> <C>
Shares sold 2,324,148
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 3,199
- ------------------------------------------------------------------------------
Shares redeemed (16,534)
- ------------------------------------------------------------------------------ -------------
Net change resulting from capital stock transactions 2,310,813
- ------------------------------------------------------------------------------ -------------
</TABLE>
* For the period from November 29, 1993 (date of initial public investment) to
April 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--M&T Bank, the Fund's investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .70 of 1%
of the Fund's average daily net assets. M&T Bank has entered into a sub-advisory
contract with Harbor Capital Management Company, Inc. ("Sub-Adviser"). The
Adviser shall pay Sub-Adviser up to .50 of 1% of the Fund's average daily net
assets up to $100 million and .40 of 1% of such assets in excess thereof,
provided that the Fund has $30 million in assets, or six months has elapsed from
commencement date, whichever occurs first. Adviser and Sub-Adviser may
voluntarily choose to waive a portion or all of their fees and reimburse certain
operating expenses of the Fund. Adviser and Sub-Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at their sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Corporation for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION AND SERVICE PLAN--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
the terms of the Plan, the Fund will compensate Federated Securities Corp.
("FSC"), the principal distributor, from the net assets of the Fund to finance
activities intended to result in the sale of the Fund's shares. The Plan
provides that the Fund may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Fund, annually, to compensate FSC. The Fund did
not pay or accrue 12b-1 fees during the fiscal year ended April 30, 1994.
Under the terms of a shareholder service agreement with M&T Bank, the Fund will
pay M&T Bank a fee to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The fee is based on the level of average
net assets of the Fund for the period. The Fund did not pay or accrue any
shareholder servicing agent fees for the fiscal year ended April 30, 1994.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The fee
is based on the size, type and number of accounts and transactions made by
shareholders.
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
ORGANIZATIONAL EXPENSES--Organizational expenses ($18,626) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following November 2, 1993 (date the Fund first
became effective). For the period ended April 30, 1994, the Fund paid $694
pursuant to this agreement.
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period from November 29, 1993 (date of initial public investment) to April 30,
1994 were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
PURCHASES $24,057,353
- ----------------------------------------------------------------------------------- -----------
SALES $ 1,884,422
- ----------------------------------------------------------------------------------- -----------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Directors and Shareholders of
VISION GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Vision
Growth and Income Fund, including the portfolio of investments, as of April 30,
1994, and the related statement of operations, the statement of changes in net
assets, and the financial highlights (see page 5 of this prospectus) for the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of April 30, 1994, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Vision
Growth and Income Fund at April 30, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the period then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
May 23, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDRESSES
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
SUB-ADVISER
Harbor Capital Management Company, Inc.
125 High Street
Boston, Massachusetts 02110-2701
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
LEGAL COUNSEL
Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
LEGAL COUNSEL
Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
INDEPENDENT AUDITORS
Ernst & Young
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Vision
Growth and Income
Fund
---------------------------------------------
Prospectus dated
May 31, 1994
FEDERATED SECURITIES CORP.
MANUFACTURERS AND TRADERS
(LOGO)
- ---------------------------------------------
TRUST COMPANY
Distributor
--------------------------------------
A subsidiary of FEDERATED INVESTORS
Investment Adviser
A subsidiary of First Empire State
Corporation
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
HARBOR CAPITAL MANAGEMENT
3100401A (5/94)
COMPANY, INC.
--------------------------------------
Sub-Adviser
VISION GROUP OF FUNDS, INC.
VISION GROWTH AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
May 31, 1994
This Statement of Additional Information relates to the prospectus of one
portfolio of the Vision Group of Funds, Inc., referred to as the Vision Growth
and Income Fund (the "Fund") dated May 31, 1994.
This Statement is not a prospectus itself, but should be read in conjunction
with the Fund's current prospectus dated
May 31, 1994. This Statement of Additional Information is incorporated into the
Fund's prospectus by reference. To receive a copy of the prospectus write to
Vision Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of Additional
Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ----------------------------------------------------------------
INVESTMENT OBJECTIVE 1
- ----------------------------------------------------------------
INVESTMENT POLICIES 1
- ----------------------------------------------------------------
ACCEPTABLE INVESTMENTS 1
- ----------------------------------------------------------------
INVESTMENT LIMITATIONS 7
- ----------------------------------------------------------------
MANAGEMENT OF VISION GROUP OF FUNDS, INC. 10
- ----------------------------------------------------------------
Officers and Directors 10
Fund Ownership 10
Director Liability 10
INVESTMENT ADVISORY SERVICES 11
- ----------------------------------------------------------------
Investment Adviser and Sub-Adviser 11
Advisory and Sub-Advisory Fees 11
ADMINISTRATIVE SERVICES 12
- ----------------------------------------------------------------
BROKERAGE TRANSACTIONS 12
- ----------------------------------------------------------------
DESCRIPTION OF FUND SHARES 13
- ----------------------------------------------------------------
HOW TO BUY SHARES 13
- ----------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES 13
- ----------------------------------------------------------------
HOW TO REDEEM SHARES 14
- ----------------------------------------------------------------
Redemption in Kind 14
DETERMINING NET ASSET VALUE 14
- ----------------------------------------------------------------
TAX STATUS 14
- ----------------------------------------------------------------
The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 14
TOTAL RETURN 14
- ----------------------------------------------------------------
YIELD 15
- ----------------------------------------------------------------
PERFORMANCE COMPARISONS 15
- ----------------------------------------------------------------
APPENDIX 17
- ----------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in the Vision Group of Funds, Inc. ("the Corporation").
The Corporation was established as a Maryland Corporation under Articles of
Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Vision Growth and Income Fund (the "Fund") is to
provide long term growth of capital and income. The investment objective of the
Fund cannot be changed without approval of its shareholders.
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The prospectus discusses the Fund's investment policies. Supplemental
information is set out below concerning the types of securities and other
instruments in which the Fund may invest, the investment policies and strategies
that the Fund may utilize, and certain risks attendant to those investments,
policies and strategies.
ACCEPTABLE INVESTMENTS
- --------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations. Corporate debt obligations
may bear fixed, fixed and contingent, or variable rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for the
acquisition of common stock of the same or a different issuer, participations
based on revenues, sales, or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are offered as a
unit).
Increasing rate securities, which currently do not make up a significant share
of the market in corporate debt obligations, are generally offered at an initial
interest rate which is at or above prevailing market rates. Interest rates are
reset periodically (most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set at
progressively higher increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These securities may also contain
features which allow the issuer the option to convert the increasing rate of
interest to a fixed rate under such terms, conditions, and limitations as are
described in each issuer's prospectus.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which may be in the form of zero
coupon convertible securities. Zero coupon bonds are debt securities which are
issued at a discount to their face amount and do not entitle the holder to any
periodic payments of interest prior to maturity. Rather, interest earned on zero
coupon bonds accretes at a stated yield until the security reaches its face
amount at maturity. Zero coupon convertible securities are convertible into a
specific number of shares of the issuer's common stock. Zero coupon convertible
bonds usually have put features that provide the holder with the opportunity to
put the bonds back to the issuer at a stated price before maturity. Generally,
the prices of zero coupon bonds may be more sensitive to market interest rate
fluctuations than conventional debt securities.
Federal income tax law requires the holder of a zero coupon bond to recognize
income from the security prior to the receipt of cash payments. To maintain its
qualification as regulated investment companies and avoid liability of federal
income taxes, the Fund will be required to distribute income accrued from zero
coupon bonds which the Fund owns, and may have to sell portfolio securities
(perhaps at disadvantageous times) in order to generate cash to satisfy these
distribution requirements.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
- - the full faith and credit of the U.S. Treasury;
- - the issuer's right to borrow from the U.S. Treasury;
- - the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- - the credit of the agency or instrumentality issuing the obligations.
- --------------------------------------------------------------------------------
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- - Federal Farm Credit Banks;
- - The Student Loan Marketing Association;
- - Federal Home Loan Banks;
- - Federal Home Loan Mortgage Corporation; and
- - Federal National Mortgage Association.
MORTGAGE-BACKED SECURITIES
Privately issued mortgage-related securities which the Fund may purchase
generally represent an ownership interest in federal agency mortgage
pass-through securities such as those issued by Governmental National Mortgage
Association. The terms and characteristics of the mortgage instruments may vary
among pass-through mortgage loan pools. The market for such mortgage-related
securities has expanded considerably since its inception. The size of the
primary issuance market and the active participation in the secondary market by
securities dealers and other investors makes government-related pools highly
liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund
may invest generally are readjusted at intervals of one year or less to
an increment over some predetermined interest rate index. There are two
main categories of indices: those based on U.S. Treasury securities and
those derived from a calculated measure, such as a cost of funds index or
a moving average of mortgage rates. Commonly utilized indices include the
one-year and five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the National Median Cost of Funds, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime
rate of a specific bank, or commercial paper rates. Some indices, such as
the one-year constant maturity Treasury Note rate, closely mirror changes
in market interest rate levels. Other tend to lag changes in market rate
levels and tend to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence,
adjustable rate mortgage securities which use indices that lag changes in
market rates should experience greater price volatility than adjustable
rate mortgage securities that closely mirror the market. Certain residual
interest tranches of CMOs may have adjustable interest rates that deviate
significantly from prevailing market rates, even after the interest rate
is reset, and are subject to correspondingly increased price volatility.
In the event the Fund purchases such residual interest mortgage
securities, it will factor in the increased interest and price volatility
of such securities when determining its dollar-weighted average duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs
in which the Fund invests will frequently have caps and floors which
limit the maximum amount by which the loan rate to the residential
borrower may change up or down: (1) per reset or adjustment interval, and
(2) over the life of the loan. Some residential mortgage loans restrict
periodic adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest rate
changes. These payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be
affected if market interest rates rise or fall faster and farther than
the allowable caps or floors on the underlying residential mortgage
loans. Additionally, even though the interest rates on the underlying
residential mortgages are adjustable, amortization and prepayments may
occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities
stated in the underlying mortgages.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
- - instruments of domestic and foreign banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is federally insured;
- - commercial paper rated, at the time of purchase, not less than A-1 by Standard
& Poor's Corporation ("S&P"), Prime-1 by Moody's Investors Services, Inc.
("Moody's"), or F-1 by Fitch Investors Service, Inc. ("Fitch"), or if not
rated are determined to be of comparable quality by the Fund's sub-adviser,
Harbor Capital Management Company, Inc. ("Harbor") (see Appendix for a
description of the basis of those ratings);
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- - time and savings deposits (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund ("BIF"),
or institutions whose accounts are insured by the Savings Association
Insurance Fund ("SAIF"), including certificates of deposit issued by, and
other time deposits in, foreign branches of BIF-insured banks which, if
negotiable, mature in six months or less or if not negotiable, either mature
in ninety days or less, or are withdrawable upon notice not exceeding ninety
days; and
- - bankers' acceptances.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in securities of foreign issuers. Securities of foreign
issuers may include debt obligations of supranational entities, which include
international organizations designed or supported by governmental entities to
promote economic reconstruction or development, and international banking
institutions and related government agencies. Examples of these include, but are
not limited to, the International Bank for Reconstruction and Development (World
Bank), European Investment Bank and InterAmerican Development Bank.
Securities of a foreign issuer may present greater risks than investments in
U.S. securities, including higher transaction costs as well as the imposition of
additional taxes by foreign governments. In addition, investments in foreign
issuers may include additional risks associated with less complete financial
information about the issuers, less market liquidity, and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of principal and interest on securities of foreign issuers. As a matter of
practice, the Fund will not invest in the securities of a foreign issuer if any
risk appears to Harbor to be substantial.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/ dealers, and other recognized financial
institutions sell U.S. government securities or certificates of deposit to the
Fund and agree at the time of sale to repurchase them at a mutually agreed upon
time and price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements and these securities will be marked to market daily. To the extent
that the original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund may
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are found by Harbor to be creditworthy
pursuant to guidelines established by the Board of Directors.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. These transactions are made to
secure what is considered to be an advantageous price and yield for the Fund.
The Fund has adopted an operating policy, which can be changed by the Board of
Directors of the Corporation, that such investments will be limited to 20% of
the Fund's assets.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest in illiquid and restricted securities. The ability of the
Board of Directors to determine the liquidity of certain restricted securities
is permitted under a Securities and Exchange Commission staff position set forth
in the adopting release for Rule 144A under the Securities Act of 1933 (the
"Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
The Rule was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under the Rule. The Fund believes that the
staff of the Securities and Exchange Commission has left the question of
determining the liquidity of all restricted securities (eligible for resale
under the Rule) to the Corporation's Board.
Under the criteria currently established by the Directors, Harbor must consider
the following factors in determining the liquidity of restricted securities; (i)
the frequency of trades and quotes for the security; (ii) the volatility of
quotations and trade prices for the security; (iii) the number of dealers
willing to purchase or sell the security and the number of potential purchasers;
(iv) dealer undertakings to make a market in the security; (v) the nature of the
security and the nature of the marketplace trades; (vi) the rating of the
security and the financial condition and prospects of the issuer of the
security; and (vii) such other factors as may be relevant to a Fund's ability to
dispose of the security.
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The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund, who
agrees that it is purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Directors are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by Harbor, as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because Section 4(2) commercial
paper is liquid, the Fund intends to not subject such paper to the limitation
applicable to restricted securities.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any interest paid
on such securities. Loans are subject to termination at the option of the Fund
or the borrower. The Fund may pay reasonable administrative and custodial fees
in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or equivalent collateral to the borrower or placing broker.
The Fund does not have the right to vote securities on loan, but would terminate
the loan and regain the right to vote if that were considered important with
respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction is settled.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolios by buying
and selling futures contracts, buying put options on portfolio securities and
listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase current income.
The Fund will maintain its position in securities, options and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position of futures transactions may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. The Fund currently does not
intend to invest more than 5% of its total assets in options transactions.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Fund also may purchase
and sell stock index futures to hedge against changes in prices. The Fund
will not engage in futures transactions for speculative purposes. A
futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
For example, in the fixed income securities market, prices move inversely
to interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. In order to hedge its holdings of
fixed income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined price
(i.e., "go short") to protect itself against the possibility that the
prices of its fixed income
- --------------------------------------------------------------------------------
securities may decline during the Fund's anticipated holding period. The
Fund would "go long" (i.e., agree to purchase securities in the future at
a predetermined price) to hedge against a decline in market interest
rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the issuers included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark-to-
market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
The Fund will comply with the following restrictions when purchasing and
selling futures contracts. First, the Fund will not participate in
futures transactions if the sum of its initial margin deposits on open
contracts and options on premiums will exceed 5% of the market value of
the Fund's total assets, after taking into account the unrealized profits
and losses on those contracts it has entered into. Second, the Fund will
not enter into these contracts for speculative purposes. Third, since the
Fund does not constitute a commodity pool, it will not market itself as
such, nor serve as a vehicle for trading in the commodities futures or
commodity options markets. Connected with this, the Fund will disclose to
all prospective investors the limitations on its futures and options
transactions, and make clear that these transactions are entered into
only for bona fide hedging purposes, or other permissible purposes
pursuant to regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"). Finally, because the Fund will submit to the CFTC
special calls for information, the Fund will not register as a
commodities pool operator.
PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
The Fund may purchase listed put options on financial and stock index
futures contracts. The Fund would purchase put options on futures
contracts to protect portfolio securities against decreases in value
resulting from an anticipated increase in market interest rates or
changes in stock prices. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument on a
set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or
before a future date whether to assume a short position at the specified
price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on financial and stock index futures contracts to
hedge its portfolio against an increase in market interest rates or
changes in stock market conditions. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price
at any time during the life
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of the option if the option is exercised. As market interest rates rise
or market conditions change, causing the prices of futures to go down,
the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in their portfolios. A
put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. The Fund may purchase these put options as long
as the underlying stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options on securities either held in
its portfolio or which it has the right to obtain without payment of
further consideration or for which it has segregated cash in the amount
of any additional consideration. As the writer of a call option, the Fund
has the obligation upon exercise of the option during the option period
to deliver the underlying security upon payment of the exercise price.
Covered call options generally do not present investment risks different
from those associated with a security purchase. For example, a security
may be sold before it reaches its maximum potential value, or it may be
retained even though its current market price has dropped below its
purchase price. Similarly, a covered call option presents these risks.
For example, when the option purchaser acquires the security at the
predetermined exercise price, the Fund could be giving up any capital
appreciation above the exercise price that is not offset by the option
premium paid by the option purchaser to the Fund. Conversely, if the
underlying security decreases in price and the option purchaser decides
not to carry out the transaction, the Fund keeps the premium and the Fund
can sell the security or hold onto it for future price appreciation. The
Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without
payment of further consideration or for which it has segregated cash in
the amount of any additional consideration. Writing of call options by
the Fund is intended to generate income for the Fund and thereby protect
against price movements in particular securities in the Fund's portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyer or writers of the
options for those options on portfolio securities held by the Funds and
not traded on an exchange.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stock included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Fund will realize a gain or
loss from the purchase of options on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case
of certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use
by the Fund of options on stock indices will be subject to the ability of
Harbor to predict correctly movements in the direction of
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the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
RISKS
When the Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market
changes. In addition, Harbor could be incorrect in its expectations about
the direction or extent of market factors such as stock price movements.
In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although Harbor will
consider liquidity before entering into these transactions, there is not
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular
time. The Fund's ability to establish and close out futures and options
positions depends on this secondary market. The inability to close out
these positions could have an adverse effect on the Fund's ability to
effectively hedge its portfolio.
To minimize risks, the Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum the amount of margin
deposits on the Fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Fund's total
assets. When the Fund purchases futures contracts, an amount of cash and
cash equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use
of such futures contract is unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the underlying
future or security, or will make deposits to collateralize the position
as discussed above.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
its investment objective. M&T Bank and Harbor do not anticipate that the Fund's
annual portfolio rate will exceed 100% under normal market conditions. During
the period from November 29, 1993 (date of initial public investment) through
April 30, 1994, the Fund's portfolio turnover rate was 27%. Securities in its
portfolio will be sold whenever Harbor believes it is appropriate to do so in
light of the Fund's investment objectives, without regard to the length of time
a particular security may have been held.
INVESTMENT LIMITATIONS
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SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, except as described below and other than in connection with
buying futures contracts and put options, and writing covered call
options, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities.
The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.
To comply with registration requirements in certain states, the Fund (1)
will limit short sales of securities of any class of any one issuer to
20% of the Fund's net assets, and (2) will make short sales only on
securities listed on recognized stock exchanges. The latter restrictions,
however, do not apply to short sales of securities the Fund holds or has
a right to acquire without the payment of further consideration. (If
state requirements change, these restrictions may be revised without
shareholder notification.)
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The Fund may purchase and dispose of U.S. Government securities and CMOs
before they are issued and may also purchase and dispose of them on a
delayed delivery basis.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may mortgage,
pledge, or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of the borrowing. For purposes of this limitation, the
following are not deemed to be pledges: margin deposits for the purchase
and sale of futures contracts and related options and segregation or
collateral arrangements made in connection with options, futures, options
on futures, reverse repurchase agreements, lending of portfolio
securities, or the purchase of securities on a when-issued basis.
UNDERWRITING
The Fund will not underwrite any issue of securities except as they may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests although it may invest in securities of companies
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities, the
market value of which does not exceed one-third of the value of the
Fund's total assets. This shall not prevent the Fund from purchasing or
holding U.S. government obligations, money market instruments, variable
rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell
futures contracts and related options.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the
value of its total assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan
association and bankers' acceptances), securities issued or guaranteed by
the U.S. government, its agencies, or instrumentalities, and repurchase
agreements collateralized by such securities.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer. Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
The above investment limitations are fundamental policies of the Fund and cannot
be changed without shareholder approval. The following limitations, however, may
be changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
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INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
Officers and Directors of the Corporation or the Fund's investment
adviser or sub-adviser, owning individually more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's
securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options, certain
restricted securities not determined by the Directors to be liquid, and
non-negotiable time deposits with maturities over seven days.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities where the principal and interest are the responsibility of
companies (or guarantors, where applicable) with less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although they may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
In order to comply with the investment restrictions imposed by certain
states, the Fund will limit investments in the securities of other
investment companies to those with sales loads not exceeding l.00% of the
offering price of such securities. The Fund may amend this investment
policy without notice to shareholders in the event that the state
restriction on this type of investment is amended.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put
options on stock indices, unless the underlying securities are held in
the Fund's portfolio and not more than 5% of the value of the Fund's
total assets would be invested in premiums on open put options.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the underlying
securities are held in a Fund's portfolio, or unless the Fund is entitled
to them in deliverable form without further payment or after segregating
cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on nationally recognized stock
exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund has no present intent to borrow money in excess of 5% of
the value of its net assets during the coming fiscal year. In order to permit
the sale of the Fund's shares in certain states, the Fund may make commitments
more restrictive than the investment limitations described above. In this
regard, to comply with certain state restrictions, the Fund will not invest more
than 5% of its total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for commercial paper issued under
Section 4(2) of the Securities Act of 1933 and certain other restricted
securities which meet the criteria for liquidity as established by the
Directors. (If state restrictions change, these restrictions may be revised
without shareholder approval or notification.)
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
MANAGEMENT OF VISION GROUP OF FUNDS, INC.
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
The Officers and Directors of the Vision Group of Funds, Inc. are listed with
their addresses, principal occupations and present positions, including any
affiliation with Manufacturers and Traders Trust Company, Harbor Capital
Management Company, Inc., Federated Investors, Federated Securities Corp.,
Federated Services Company, and Federated Administrative Services.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Randy I. Benderson Director Senior Vice President and Chief Operating Officer, Benderson Development
570 Delaware Avenue Company, Inc.
Buffalo, NY
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Joseph J. Castiglia Director President, Pratt & Lambert, Inc.
75 Tonawanda Avenue
Buffalo, NY
- --------------------------------------------------------------------------------------------------------------------------------
Daniel R. Gernatt, Jr. Director President, Gernatt Asphalt Products, Inc.; Executive Vice President, Dan
Richardson & Taylor Gernatt Gravel Products, Inc.; Vice President, Countryside Sand & Gravel,
Hollow Roads Inc.
Collins, NY
- --------------------------------------------------------------------------------------------------------------------------------
George K. Hambleton, Jr. Director President, Brand Name Sales, Inc.; President,
670 Young Street Hambleton & Carr, Inc.
Tonawanda, NY
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President and Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Vice President and
Treasurer of certain investment companies organized, distributed or advised
by Federated Investors or its affiliates ("Federated Funds"); Trustee of
some of the Federated Funds.
- --------------------------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President and Director, Private Label Management, Federated Investors; formerly Vice
Federated Investors Assistant Treasurer President, Product Management, MNC Financial, Inc.; formerly Vice President
Tower and Director of Investor Relations, MNC Financial Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Joseph M. Huber Secretary Corporate Counsel, Federated Investors.
Federated Investors
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares. All of
the Corporation's Directors and Officers hold like positions with Vision
Fiduciary Funds, Inc. As of May 10, 1994, the following shareholders of record
owned 5% or more of the Fund: Krauss & Company, Buffalo, New York, owned
approximately 164,742 shares (7.1%); Tice & Co., Buffalo, New York, owned
approximately 937,610 shares (40.5%); Reho & Co., Buffalo, New York, owned
approximately 490,561 shares (21.2%).
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the Corporation's
By-Laws provide, in accordance with applicable law, that a Director may be
removed from the Board at a meeting of shareholders called for that purpose upon
the majority vote of the shareholders of the Corporation entitled to vote at
such meeting. Such a meeting shall be called by the President or the Board of
Directors or at the request in writing of shareholders entitled to cast at least
ten percent (10%) of the votes entitled to be cast at such meeting. Such
shareholders' request shall state the purpose of the proposed meeting, and the
Corporation shall inform those shareholders of the reasonably estimated cost of
preparing and mailing a notice of the meeting to the other shareholders and, on
payment of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND SUB-ADVISER
The Fund's investment adviser is Manufacturers and Traders Trust Company ("M&T
Bank"). It is M&T Bank's responsibility to select, subject to review and
approval by the Corporation's Board of Directors and shareholders, a sub-adviser
to the Fund which has distinguished itself in its area of expertise in asset
management and to review its continued performance. Pursuant to authority
granted to M&T Bank by the Corporation's Directors and pursuant to the
provisions of the Investment Advisory Agreement between M&T Bank and the
Corporation with respect to the Fund, M&T Bank has selected Harbor Capital
Management Company, Inc. ("Harbor"), an independent, employee-owned,
Massachusetts corporation, to act as a sub-investment adviser of the Fund and to
provide certain services, as described in the Sub-Advisory Contract and
summarized below.
Subject to the supervision and review of M&T Bank and of the Directors of the
Corporation, Harbor shall manage the investment operations of the Fund,
including the purchase, retention and disposition of securities, in accordance
with the Fund's investment objective, policies and restrictions. In addition,
Harbor shall supervise the Fund's investments and determine from time to time
what securities will be purchased, retained, sold or loaned, and what portion of
the assets will be invested or held uninvested as cash.
In the performance of its duties and obligations under the Sub-Advisory
Contract, Harbor shall act in conformity with the Corporation's Articles of
Incorporation and By-Laws, the Prospectus of the Fund, and with the instructions
and directions received in writing from M&T Bank or the Directors of the
Corporation. Harbor also will conform to and comply with the requirements of the
Investment Company Act of 1940, the Internal Revenue Code of 1986, as amended
(including the requirements for qualification as a regulated investment company)
and all other applicable federal and state laws and regulations.
M&T Bank and Harbor shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with their performance
under the respective advisory agreements, 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 their
part in the performance of their duties, or from reckless disregard by them of
their duties and obligations thereunder. Because of internal controls maintained
by M&T Bank to restrict the flow of non-public information, Fund investments are
typically made without any knowledge of M&T Bank's or its affiliates' lending
relationships with an issuer.
Unless sooner terminated, the Investment Advisory Agreement between the Fund and
M&T Bank, and the Sub-Advisory Contract among the Fund, M&T Bank and Harbor,
will each continue in effect from year to year if such continuance is approved
at least annually by the Corporation's Board of Directors, or by vote of a
majority of the outstanding shares of the Fund (as defined in the Investment
Company Act of 1940), and by a majority of the Directors who are not parties to
the respective advisory agreements or interested persons (as defined in the
Investment Company Act of 1940) of any party to the respective advisory
agreements, by vote cast in person at a meeting called for such purpose. Each
advisory agreement is terminable at any time on sixty days' written notice
without penalty by the Directors, by vote of a majority of the outstanding
shares of the Fund, by M&T Bank or by Harbor. Each advisory agreement also
terminates automatically in the event of its assignment, as defined in the
Investment Company Act of 1940.
ADVISORY AND SUB-ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory fee
from the Fund as described in the Prospectus. For its sub-advisory services,
Harbor receives from M&T Bank an annual investment advisory fee as described in
the Prospectus.
During the period from November 29, 1993 (date of initial public investment)
through April 30, 1994, M&T Bank and Harbor cumulatively earned $26,123, all of
which was voluntarily waived. In addition, M&T Bank reimbursed the Fund $38,157
of other operating expenses.
STATE EXPENSE LIMITATIONS
M&T Bank has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, M&T Bank will reimburse the
Fund for its expenses over the limitation. If the Fund's monthly
projected operating expenses exceed this limitation, the investment
advisory fee paid will be reduced by the amount of the excess, subject to
an annual adjustment. If the expense limitation is exceeded, the amount
to be reimbursed by M&T Bank will be limited by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
Prospectus. During the period from November 29, 1993 (date of initial public
investment) through April 30, 1994, the Fund incurred administrative service
costs of $20,822, of which $15,888 was voluntarily waived.
Prior to March 31, 1994, State Street Bank served as transfer agent for shares
of the Fund and dividend disbursing agent responsible for distributing dividends
to the Fund's shareholders.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
Pursuant to the Fund's Sub-Advisory Contract, Harbor determines which securities
are to be sold and purchased by the Fund and which brokers are to be eligible to
execute its portfolio transactions. Portfolio securities of the Fund are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from dealers serving as market makers may
include the spread between the bid and asking price. While Harbor generally
seeks competitive spreads or commissions, a Fund may not necessarily pay the
lowest spread or commission available on each transaction for reasons discussed
below.
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, Harbor looks for prompt execution of the order at a favorable
price. In working with dealers, Harbor will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. Harbor makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors and M&T Bank.
Harbor may select brokers and dealers who offer brokerage and research services.
These services may be furnished directly to the Fund or to Harbor. This
information is in addition to and not in lieu of services required to be
performed by Harbor and does not reduce the advisory fees payable to M&T Bank by
the Fund or to Harbor by M&T Bank. Such information may be useful to Harbor or
M&T Bank in serving both the Fund and other clients, and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to Harbor or M&T Bank in carrying out their obligations to the
Fund. This information may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
Harbor and its affiliates exercise reasonable business judgment in selecting
brokers and dealers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relation to the value of the brokerage and
research services provided.
The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with M&T Bank, or its affiliates, and will not
give preference to M&T Bank's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements and reverse repurchase
agreements. While serving as investment adviser to the Fund, M&T Bank has agreed
to maintain its policy and practice of conducting M&T Bank's Trust and
Investment Services Division independently of its Commercial Department.
In making investment recommendations for the Fund, Trust and Investment Services
Division personnel of M&T Bank will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale by the Fund is a
customer of the Commercial Department of M&T Bank and, in dealing with its
commercial customers, the Commercial Department will not inquire or take into
consideration whether securities of such customers are held by the Fund.
Investment decisions for the Fund are made independently from those for any
other investment portfolios or accounts managed by M&T Bank and Harbor. Such
other portfolios or accounts may also invest in the same securities as the Fund.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and another portfolio or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which M&T Bank or Harbor believes to be equitable to the Fund and
such other portfolio or account. In some instances, this investment procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, M&T Bank
or Harbor may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other portfolios or accounts in order to
obtain the best execution.
During the period from November 29, 1993 (date of initial public investment) to
April 30, 1994, the Fund paid $40,176 in commissions on brokerage transactions.
DESCRIPTION OF FUND SHARES
- --------------------------------------------------------------------------------
The Corporation's Articles of Incorporation authorize the Board of Directors to
issue up to 10 billion full and fractional shares of Common Stock, of which 6
billion shares have been classified into six classes of 1 billion shares each.
Four billion shares remain unclassified at this time. Shares of Classes A, B, C,
D and E Common Stock represent interests in Vision Money Market Fund, Vision
Treasury Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision
U.S. Government Securities Fund and Vision New York Tax-Free Fund. Shares of
Class F Common Stock represent interests in the Fund.
The Board of Directors may classify or reclassify any unissued shares of the
Corporation into one or more additional classes by setting or changing in any
one or more respects their respective preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Fund's Prospectus and this Statement of Additional
Information, the Fund's shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Corporation, shares of the Fund are
entitled to receive the assets available for distribution belonging to the Fund,
and a proportionate distribution, based upon the relative asset values of that
Fund and the Corporation's other portfolios, of any general assets not belonging
to any particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as the Corporation shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by the matter. A portfolio is not
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical, or that the matter does not affect any interest of the
portfolio. Under Rule 18f-2, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, Rule 18f-2 provides that the ratification of
independent certified public accountants, the approval of principal underwriting
contracts and the election of Directors may be effectively acted upon by
shareholders of the Corporation voting without regard to class.
Notwithstanding any provision of Maryland law requiring a greater vote of the
Corporation shares (or of any class voting as a class) in connection with any
corporate action, unless otherwise provided by law (for example, by Rule 18f-2)
or by the Corporation's Articles of Incorporation, the Corporation may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding common stock of the Fund and the Corporation's other portfolios
(voting together without regard to class).
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold at net asset value plus an applicable sales charge
on days on which the New York Stock Exchange and the Federal Reserve Wire System
are open for business. The procedure for purchasing shares of the Fund is
explained in the prospectus under "How to Buy Shares."
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
- - for equity securities, according to the last sales price on a national
securities exchange, if applicable;
- - in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
- - for bond and other fixed income securities, as determined by an independent
pricing service;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service or, for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options on portfolio securities and
options on futures at their market values established by the applicable
exchanges at the close of trading on such exchanges, unless the Directors
determine in good faith that another method of valuing these positions is
necessary to appraise their fair value.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "How to Redeem Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Directors determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated for shares of the Fund are described in the prospectus.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, a Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. Otherwise, these dividends, and any short-term capital gains are
taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If the
Fund realizes net long-term capital gains, it will distribute them at
least once every 12 months.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from November 29, 1993, (date of initial
public investment) to April 30, 1994, was (4.60)%. Cumulative total return
reflects the Fund's total performance over a specific period of time. This total
return assumes and is reduced by the payment of the maximum sales load. The
Fund's total return is representative of only 5 months of fund activity since
the Fund's effective date.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions. Any applicable redemption fee
is deducted from the ending value of the investment based on the lesser of the
original purchase price or the net asset value of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended April 30, 1994 was 2.36%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders. To the
extent that financial institutions and broker/dealers charge fees in connection
with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of shares of the Fund depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in a Fund's expenses; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return as
described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper rankings in the growth and
income category in advertising and sales literature.
- - LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average maturity of nine
years. It calculates total returns for one month, three month, twelve month,
and ten year periods, and year-to-date.
- - LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land
Bank and the Bank for Co-Operatives; foreign obligations; U.S.
investment-grade corporate debt; and mortgage-backed obligations. All
corporate debt included in the Aggregate Bond Index has a minimum rating of
BBB by S&P or Fitch, or a minimum rating of Baa by Moody's.
- - MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment grade issues (i.e., BBB/Baa or better).
- - MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form
of publicly placed, nonconvertible, coupon-bearing domestic debt and must
carry a term to maturity of at least one year. Par amounts outstanding must be
no less than $10 million at the start and at the close of the performance
measurement period. The Domestic Master Index is a broader index than the
Merrill Lynch Corporate and Government Index and includes, for example,
mortgage-related securities. The mortgage market is divided by agency, type of
mortgage and coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than $200 million at the start and at the close of
- --------------------------------------------------------------------------------
the performance measurement period. Corporate instruments must be rated by S&P
or by Moody's as investment grade issues (i.e., BBB/Baa or better).
- - SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or more
and companies in industry, public utilities, and finance.
- - SALOMON BROTHERS LONG-TERM HIGH GRADE CORPORATE BOND INDEX is an unmanaged
index of long-term high grade corporate bonds issued by U.S. corporations with
maturities ranging from 10 to 20 years.
- - LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by
market capitalization.
- - LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for
the stock market as a whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON STOCKS are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's indices assume reinvestment of all dividends
paid by stocks listed on its indices. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the Standard &
Poor's figures.
- - RUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily
in small capitalization common stocks.
- - WILSHIRE 5000 EQUITY INDEX consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can
be used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks.
- - CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
- - NEW YORK STOCK EXCHANGE COMPOSITE INDEX is a market value-weighted index which
relates all NYSE stocks to an aggregate market value as of December 31, 1965,
adjusted for capitalization changes.
- - VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of
the component stocks and does not include income.
- - NASDAQ OVER-THE-COUNTER COMPOSITE INDEX covers 4,500 stocks traded over the
counter. It represents many small company stocks but is heavily influenced by
about 100 of the largest NASDAQ stocks. It is a value-weighted index
calculated on price change only and does not include income.
- - AMEX MARKET VALUE INDEX covers approximately 850 American Stock Exchange
stocks and represents less than 5% of the market value of all US stocks. The
AMEX is a value-weighted index calculated on price change only and does not
include income.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than l,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for a Fund's shares may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in a
Fund's shares based on monthly reinvestment of dividends over a specified period
of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of its shares using charts, graphs and descriptions, compared to
federally insured bank products including certificates of deposit and time
deposits and to money market funds using the Lipper Analytical Services money
market instruments average. Unlike federally insured bank products, the shares
of the Fund are not insured. Unlike money market funds, which attempt to
maintain a stable offering price, the offering price of the Fund's shares
fluctuates. Advertisements may quote performance information which does not
reflect the effect of the sales load.
APPENDIX
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STANDARD & POOR'S CORPORATION BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
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STANDARD & POOR'S CORPORATION MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great for
issues assigned F-1+ and F-1 ratings.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess strong safety
characteristics are denoted with a plus (+) sign designation.
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.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
Leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earning 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 (or related supporting institutions) rated Prime-2 have a
strong capacity for repayment of short-term promissory 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, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
3100401 (5/94)
APPENDIX
The graphic presentation here displayed consists of a legend
in the upper left quadrant of the chart indicating the
components of the corresponding line graph. Vision Growth
and Income Fund (the "Fund") is represented by a solid
line. The Standard & Poors Daily Price Index of 500 Common
Stocks ("S&P 500 Index") is represented by a broken line.
The line graph is a visual representation of a comparison of
change in value of a hypothetical $10,000 purchase in the
Fund and the S&P 500 Index. The "y" axis reflects the cost
of the investment. The "x" axis reflects computation
periods from the Fund's start of business, 11/29/93, through
04/30/94. The right margin of the chart reflects the ending
value of the hypothetical investment in the Fund as compared
to the S&P 500 Index; the ending values are $9,540 and
$10,325, respectively.
