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PROSPECTUS
VISION GROUP OF FUNDS, INC.
PROSPECTUS DATED JUNE 30, 1994
Vision Group of Funds, Inc. 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 combined prospectus relates to
three diversified portfolios (the "Funds"), each of which is a no-load fund, so
you pay no sales charge to purchase Fund shares. The Funds are:
VISION MONEY MARKET FUND
VISION TREASURY MONEY MARKET FUND
VISION NEW YORK TAX-FREE MONEY MARKET FUND
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
This combined prospectus gives you information about each of the Funds and can
help you decide if any of the Funds 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 each of the Funds in the respective
Statement of Additional Information dated June 30, 1994, which have also been
filed with the Securities and Exchange Commission. The information contained in
the Statements of Additional Information is incorporated by reference into this
prospectus. To obtain a free copy of any of these Statements of Additional
Information or make other inquiries about any of the Funds, 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) 836-2211 (716) 842-4488
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TABLE OF CONTENTS
Synopsis 3
A Summary of the Funds' Expenses 4
Financial Highlights 5
Some Basic Facts About the
Money Market and Money
Market Mutual Funds 8
How the Funds Show Performance 9
How the Funds Invest 10
Vision Money Market Fund 10
Vision Treasury Money Market Fund 12
Vision New York Tax-Free
Money Market Fund 13
Common Fund Investment Techniques,
Features and Limitations 17
Fund Management, Distribution and
Administration 20
Your Guide to Using the Funds 23
Tax Information 29
Financial Statements 32
Report of Ernst & Young,
Independent Auditors 50
Addresses 51
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SYNOPSIS
INVESTMENT OBJECTIVE
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in three separate, professionally managed,
diversified portfolios of short-term money market securities.
-------------------------------------------------------
VISION MONEY MARKET FUND
(THE "MONEY MARKET FUND") SEEKS CURRENT INCOME WITH LIQUIDITY AND STABILITY
VISION TREASURY MONEY
MARKET FUND
(THE "TREASURY FUND") SEEKS CURRENT INCOME WITH LIQUIDITY AND STABILITY OF
PRINCIPAL BY INVESTING IN DIRECT OBLIGATIONS OF THE U.S. TREASURY, SUCH AS
TREASURY BILLS AND NOTES, AND REPURCHASE AGREEMENTS
SECURED BY THESE OBLIGATIONS. (SEE PAGE 12
FOR MORE INFORMATION.)
VISION NEW YORK TAX-FREE
MONEY MARKET FUND
(THE "TAX-FREE FUND") SEEKS AS HIGH A LEVEL OF CURRENT INTEREST INCOME THAT
IS EXEMPT FROM FEDERAL REGULAR INCOME TAX AS IS CONSISTENT WITH LIQUIDITY
AND RELATIVE STABILITY OF PRINCIPAL. (SEE PAGE 13 FOR DETAILS.)
-------------------------------------------------------
VALUING FUND SHARES
The Funds attempt to maintain a stable market value (referred to as net asset
value) of $1.00 per share, although there is no assurance that they will be able
to do so. (See page 23.)
BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Funds are bought and redeemed without charge at net asset value.
The minimum initial investment in each Fund is $500 ($250 for retirement plans),
except under certain circumstances described in this prospectus. (See pages 23
to 28.)
FUND MANAGEMENT
The Funds' investment adviser is Manufacturers and Traders Trust Company ("M&T
Bank"), which makes investment decisions for the Funds. (See page 20.)
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account, and about the Funds and their services 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 Funds may involve certain risks that are explained more
fully in the sections of this prospectus discussing each Fund's investment
policies and their common investment techniques.
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A SUMMARY OF THE FUNDS' EXPENSES
Every money market fund incurs expenses in conducting operations, managing
investments and providing services to shareholders. The following summary breaks
out each Fund's expenses. You should consider this expense information, along
with other information provided in this prospectus, in making investment
decisions.
<TABLE>
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
---------------
--------------- ---------------
TREASURY NEW YORK
MONEY MARKET MONEY MARKET TAX-FREE
FUND FUND MONEY MARKET
FUND
--------------- --------------- ---------------
Management Fees (After Waiver)(1) 0.25% 0.25% 0.00%
12b-1 Fees None None None
Other Expenses (After Waiver)(2) 0.22% 0.21% 0.38%
Total Fund Operating Expenses 0.47% 0.46% 0.38%
The table below can help you understand the
various costs and expenses that a shareholder in
the Funds 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 20.
EXAMPLE:
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each time period. The
Funds charge no redemption fees.
1 YEAR............................................ $ 5 $ 5 $ 4
3 YEARS........................................... $15 $15 $12
5 YEARS........................................... $26 $26 $21
10 YEARS.......................................... $59 $57 $48
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
(1) The management fee of each Fund has been reduced to reflect the voluntary
waiver of a portion of or all of the management fee. The adviser can terminate
these voluntary waivers at any time at its sole discretion. The maximum
management fee is 0.50% for each Fund.
(2) Other Expenses for the New York Tax-Free Money Market Fund are anticipated
to be 0.45% absent the voluntary waiver of a portion of the administrator's fee.
The administrator can terminate this waiver at any time at its sole discretion.
The Annual Fund Operating Expenses for the Money Market Fund, the Treasury Money
Market Fund, and the New York Tax-Free Money Market Fund were 0.28%, 0.31%, and
0.41% respectively, for the fiscal year ended April 30, 1994. The Operating
Expenses in the table above are based on estimated expenses expected during the
fiscal year ending April 30, 1995. Total Fund Operating Expenses for the Money
Market Fund, the Treasury Money Market Fund, and the New York Tax-Free Money
Market Fund, are anticipated to be 0.72%, 0.71%, and 0.95%, respectively, absent
the voluntary waivers explained in footnotes (1) and (2).
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VISION MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
50.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1994 1993 1992 1991 1990 1989**
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
Net investment income 0.03 0.03 0.05 0.07 0.08 0.07
----------------------------------- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
-----------------------------------
Dividends to shareholders from
net investment income (0.03) (0.03) (0.05) (0.07) (0.08) (0.07)
----------------------------------- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------- ----- ----- ----- ----- ----- -----
TOTAL RETURN* 3.01% 3.21% 4.60% 7.21% 8.58% 7.52%
-----------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------
Expenses 0.28% 0.36% 0.75% 0.81% 0.72% 0.74%(a)
-----------------------------------
Net investment income 2.98% 3.13% 4.40% 6.99% 8.19% 8.00%(a)
-----------------------------------
Expense waiver/reimbursement(b) 0.42% 0.39% 0.06% 0.09% 0.25% 0.29%(a)
-----------------------------------
SUPPLEMENTAL DATA
-----------------------------------
Net assets, end of period (000
omitted) $266,626 $226,298 $143,670 $86,973 $121,227 $84,668
-----------------------------------
</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 June 1, 1988 (date of initial public
offering) to April 30, 1989.
(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).
(See Notes which are an integral part of the Financial Statements)
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VISION TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
50.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1994 1993 1992 1991 1990 1989**
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
Net investment income 0.03 0.03 0.04 0.07 0.08 0.07
----------------------------------- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
-----------------------------------
Dividends to shareholders from
net investment income (0.03) (0.03) (0.04) (0.07) (0.08) (0.07)
----------------------------------- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------- ----- ----- ----- ----- ----- -----
TOTAL RETURN* 2.88% 3.05% 4.54% 6.96% 8.17% 7.08%
-----------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------
Expenses 0.31% 0.40% 0.75% 0.75% 0.86% 0.68%(a)
-----------------------------------
Net investment income 2.86% 2.98% 4.38% 6.52% 7.88% 7.48%(a)
-----------------------------------
Expense waiver/reimbursement(b) 0.43% 0.39% 0.04% 0.06% 0.25% 0.34%(a)
-----------------------------------
SUPPLEMENTAL DATA
-----------------------------------
Net assets, end of period (000
omitted) $197,521 $128,825 $100,373 $91,682 $32,986 $31,388
-----------------------------------
</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 June 1, 1988 (date of initial public
offering) to April 30, 1989.
(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).
(See Notes which are an integral part of the Financial Statements)
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VISION NEW YORK TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
50.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------------------------
1994 1993 1992 1991 1990 1989**
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------
Net investment income 0.02 0.02 0.03 0.05 0.05 0.04
------------------------------------------ ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
------------------------------------------
Dividends to shareholders from net
investment income (0.02) (0.02) (0.03) (0.05) (0.05) (0.04)
------------------------------------------ ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------ ----- ----- ----- ----- ----- -----
TOTAL RETURN* 1.88% 1.68% 2.99% 4.73% 5.24% 4.55%
------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------
Expenses 0.41% 0.71% 0.95% 0.69% 0.83% 0.68%(a)
------------------------------------------
Net investment income 1.88% 1.67% 2.92% 4.66% 5.11% 4.83%(a)
------------------------------------------
Expense waiver/reimbursement(b) 0.58% 0.63% 0.65% 0.87% 0.65% 0.45%(a)
------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------
Net assets, end of period (000 omitted) $40,180 $17,899 $7,028 $9,445 $8,494 $8,309
------------------------------------------
</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 June 1, 1988 (date of initial public
offering) to April 30, 1989.
(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).
(See Notes which are an integral part of the Financial Statements)
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SOME BASIC FACTS
ABOUT THE MONEY MARKET AND
MONEY MARKET MUTUAL FUNDS
The money market is the marketplace in which governments and companies borrow
money for short periods of time by issuing short-term debt obligations known as
money market instruments or money market securities. These securities often have
maturity dates of a year or less, at which time the debt obligation comes due
and must be repaid by the issuer. The marketplace is known as the money market
because these instruments can generally be converted into cash quickly.
Among the most common types of money market securities are:
- Certificates of deposit issued by banks;
- Bankers' acceptances, a means of short-term financing for importers and
exporters;
- Commercial paper, short-term debt obligations issued by corporations;
- U.S. Treasury bills issued by the U.S. Government; and
- Short-term municipal securities, such as bond anticipation notes ("BANs"),
tax anticipation notes ("TANs") and revenue anticipation notes ("RANs")
issued by state or local governments.
UNDERSTANDING MONEY MARKET FUNDS
When you invest in a money market fund your money is pooled with that of many
other investors. Professional investment managers use the money to purchase a
portfolio of various money market securities, which represent debt issued by
different companies or government entities. The Fund earns interest on the
securities in its portfolio and passes on the income to shareholders in the form
of dividend distributions. That income represents your return on the money you
have invested in the Fund and it is usually referred to as yield.
Money market funds generally offer the following basic advantages.
- PROFESSIONAL INVESTMENT MANAGEMENT.
You get the benefit of full-time, experienced, professional management that
might otherwise be unavailable to you. The Fund's portfolio managers make
investment decisions on behalf of you and other shareholders, selecting
securities that they believe will best achieve the Fund's objectives, as
stated in the Fund's prospectus.
- DIVERSIFICATION. Diversification--spreading investments among a number of
different securities--is a basic principle in reducing overall investment
risk. Money market funds usually invest in a large number of securities,
maintaining a level of diversification that most investors could not afford
on their own because money market instruments typically require a minimum
investment of $10,000 to $1 million.
- COMPETITIVE MONEY MARKET YIELDS.
Money market funds often offer higher yields than most investors could
obtain on other short-term savings and investment alternatives. Money
market funds are not insured or guaranteed by the U.S. Government, and
their yields fluctuate as market conditions change.
- STABILITY OF PRINCIPAL. There is relatively little risk of losing your
principal--the money you invest--with a money market fund because the
securities it holds are short-term and of high credit quality. In fact, most
money market funds are managed with the objective of maintaining a stable
net asset value of $1 per share.
- LIQUIDITY. Money market fund shares are highly liquid and easily converted
into cash. The Funds are legally required to redeem or buy back investors'
shares and pay within seven days.
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HOW
THE FUNDS SHOW
PERFORMANCE
-------------------------------------------------------
FROM TIME TO TIME, THE FUNDS MAY ADVERTISE THEIR PERFORMANCE USING CERTAIN
REPORTING SERVICES AND/OR COMPARE THEIR PERFORMANCE TO CERTAIN INDICES. THE
FUNDS MAY ADVERTISE THEIR PERFORMANCE IN TERMS OF YIELD, EFFECTIVE YIELD,
TAX-EQUIVALENT 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 each Fund refers to the income generated by an investment in the
Fund over a seven-day period. This income is then annualized, which means it is
assumed to be generated by the investment each week for a 52-week period, and
then it is expressed as a percentage of the investment.
EFFECTIVE YIELD
The effective yield is calculated similarly to the yield, but it assumes that
the annualized income earned from the investment is reinvested in the Fund on a
daily basis. The effective yield will be slightly higher than the yield because
this assumed reinvestment produces a compounding effect.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Tax-Free Fund is calculated similarly to the
yield. However, it is adjusted to show the taxable yield an investor would have
to earn to equal the Fund's tax-free yield, assuming a specific tax rate.
The tax-equivalent yield is computed by dividing the tax-free yield by the
result of one minus the combined federal and state tax rate. For example, if an
investor is in the 31% federal income tax bracket, and the rate for state taxes
is 7.59375%, assuming the tax-free yield is 3.5%, the investor would have to
receive 5.70% from a taxable investment to equal that tax-free yield (3.5%
divided by [1 - (.31 + .0759375)] = 5.70%).
TOTAL RETURN
Total return represents the overall change in value of an investment in a Fund
over a specified period of time, assuming all dividend distributions are
reinvested in the Fund. Total return is calculated by dividing that overall
change in value by the amount of the initial investment, and it is expressed as
a percentage.
For example, suppose $1,000 is invested in a Fund on January 1 and on December
31 of that year the investment is worth $1,075 (assuming all dividends are
reinvested). The overall change in value is $75 and the total return on the
investment over that period of time would be 7.5% (75 divided by 1,000 = 7.5%).
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HOW THE FUNDS INVEST
Vision
Money Market
Fund
-------------------------------------------------------
THE MONEY MARKET FUND IS DESIGNED FOR CONSERVATIVE INVESTORS WHO WANT
CURRENT INCOME, LIQUIDITY AND STABILITY OF PRINCIPAL.
BY INVESTING ONLY IN HIGH QUALITY SECURITIES WITH MINIMAL CREDIT RISK AND
WITH SHORT-TERM MATURITIES, THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE
PRICE, REFERRED TO AS NET ASSET VALUE PER SHARE (SEE PAGE 23). THE FUND
CANNOT GUARANTEE A STABLE SHARE PRICE. HOWEVER, THE SHORT-TERM NATURE OF
ITS INVESTMENTS HELPS TO MINIMIZE PRICE FLUCTUATIONS.
-------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Money Market Fund (referred to in this section
as the "Fund") is to seek current income with liquidity and stability of
principal by investing in high quality money market instruments. The Fund
pursues this investment objective by investing in a broad range of short-term
debt obligations issued by the U.S. Government, banks and corporations.
These obligations generally mature and come due for repayment by the issuer in
397 days or less. However, securities subject to repurchase agreements may have
longer maturities (see page 17 for a definition of repurchase agreements). While
the Fund may hold individual securities with longer maturities, the average
maturity of the money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, must be 90 days or less.
There is no assurance that the Fund will achieve its investment objective, but
it endeavors to do so by following the investment policies described in this
prospectus. The Fund's investment objective and the investment policies and
limitations described below cannot be changed without shareholder approval.
INVESTMENT POLICIES
-------------------------------------------------------
THE FUND INVESTS IN A WIDE RANGE OF HIGH QUALITY MONEY MARKET INSTRUMENTS.
THESE INCLUDE CORPORATE COMMERCIAL PAPER IN S&P'S OR MOODY'S TWO HIGHEST
RATING CATEGORIES, CERTIFICATES OF DEPOSIT ISSUED BY MAJOR BANKS, AND U.S
GOVERNMENT SECURITIES.
-------------------------------------------------------
ACCEPTABLE INVESTMENTS
The high quality money market instruments in which the Fund invests include, but
are not limited to, the following:
- commercial paper (short-term promissory notes issued by corporations) rated
A-2 or better by Standard & Poor's Corporation ("S&P"), or Prime-2 or better
by Moody's Investors Service, Inc. ("Moody's"), money market instruments
(including commercial paper) which are not rated but are determined by M&T
Bank, the Fund's investment adviser, to be of comparable quality pursuant to
guidelines approved by the Board of Directors, and variable amount demand
master notes (see page 17 for a definition);
- instruments of domestic banks and savings and loans (such as certificates of
deposit, time deposits, and bankers' acceptances) if they have capital,
surplus and undivided profits of over $100,000,000 and if their deposits are
insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"). The Fund may also make interest-
bearing savings deposits in commercial banks and savings banks not in excess
of 5% of the Fund's total assets. In addition, the Fund may purchase U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions
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having total assets at the time of purchase in excess of $1 billion;
- obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including certain of these obligations purchased on a
when-issued or delayed delivery basis (see page 17 for a definition). Some
obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. Other securities, such as obligations of the Federal National
Mortgage Corporation, Federal Farm Credit Banks or Federal Home Loan
Mortgage Corporation, are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith and credit of
the U.S. government; and
- repurchase agreements secured by any of the above instruments (see page 17
for a definition).
RISK FACTORS ASSOCIATED WITH
FOREIGN INVESTMENTS
-------------------------------------------------------
THE FUND MAY INVEST ONLY IN HIGH QUALITY DEBT OBLIGATIONS OF FOREIGN
BANKS.
-------------------------------------------------------
The Fund's investment in U.S. dollar-denominated obligations of foreign banks
and foreign branches of U.S. banks is limited to less than 25% of the value of
the Fund's total assets at the time of purchase. Further, the Fund may invest in
an obligation of a foreign bank or a foreign branch of a U.S. bank only if the
investment adviser considers the instrument to present minimal credit risk.
Nevertheless, this type of investment may subject the Fund to different risks
than investing in domestic obligations of U.S. banks because political,
regulatory, and economic systems and conditions vary from country to country.
These risks include possible adverse political and economic developments, the
possible imposition of withholding taxes on interest income and the possible
seizure or nationalization of foreign deposits. Additional risks include the
possible establishment of exchange controls and the possible adoption of foreign
government restrictions that might adversely affect the payment of principal and
interest on these foreign obligations.
In addition, foreign banks and foreign branches of U.S. banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
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Vision
Treasury
Money Market
Fund
-------------------------------------------------------
THE TREASURY FUND IS DESIGNED FOR CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY, AND STABILITY OF PRINCIPAL.
BY INVESTING IN U.S. TREASURY SECURITIES WITH SHORT-TERM MATURITIES, THE
FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS NET ASSET
VALUE PER SHARE (SEE PAGE 23). THE FUND CANNOT GUARANTEE A STABLE SHARE
PRICE. HOWEVER, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO MINIMIZE
PRICE FLUCTUATIONS.
-------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Treasury Fund (referred to in this section as
the "Fund") is to seek current income with liquidity and stability of principal.
The Fund pursues this investment objective by investing in direct obligations of
the U.S. Treasury, such as Treasury bills and notes, and repurchase agreements
secured by these obligations. A repurchase agreement is an agreement in which
the organization selling U.S. Treasury securities to the Fund agrees to
repurchase the securities at a mutually agreed upon price and time (see page 17
for further details).
The Fund invests in direct U.S. Treasury obligations that mature in 397 days or
less from the time of investment. However, securities subject to repurchase
agreements may have longer maturities. While the Fund may hold individual
securities with longer maturities, the average maturity of the obligations in
the Fund's portfolio, computed on a dollar-weighted basis, must be 90 days or
less.
There is no assurance that the Fund will achieve its investment objective, but
it endeavors to do so by following the investment policies described in this
prospectus. The Fund's investment objective and the investment policies and
limitations described below cannot be changed without shareholder approval.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS
The Fund invests in short-term U. S. Treasury obligations. The obligations are
issued by the U.S. Government and are fully guaranteed as to principal and
interest by the United States. The Fund may also invest in repurchase agreements
secured by these obligations.
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Vision
New York Tax-Free
Money Market
Fund
-------------------------------------------------------
THE TAX-FREE FUND IS DESIGNED FOR INVESTORS WHO WANT INCOME THAT IS FREE
FROM FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAXES, AS WELL AS
LIQUIDITY AND STABILITY OF PRINCIPAL.
BY INVESTING ONLY IN HIGH QUALITY SECURITIES WITH SHORT-TERM MATURITIES,
THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS NET
ASSET VALUE PER SHARE (SEE PAGE 23). THE FUND CANNOT GUARANTEE A STABLE
SHARE PRICE. HOWEVER, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO
MINIMIZE PRICE FLUCTUATIONS.
-------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Tax-Free Fund (referred to in this section as
the "Fund") is to seek as high a level of current interest income that is exempt
from federal regular income tax as is consistent with liquidity and relative
stability of principal. The Fund pursues this investment objective by investing
substantially all of its assets in a portfolio of high quality, tax-exempt debt
obligations (municipal securities) that mature in 397 days or less from the time
of investment. However, variable rate demand master notes and securities subject
to repurchase agreements may have longer maturities. See page 17 for
definitions. The average maturity of the tax-free obligations in the Fund's
portfolio, computed on a dollar-weighted basis, must be 90 days or less.
Under normal market conditions, the Fund intends to invest at least 80% of its
net assets in debt obligations that pay interest exempt from federal regular
income tax, although the Fund may also invest in short-term taxable debt
obligations in certain circumstances.
Subject to the Fund's investment objective and policies, the Fund will attempt
to invest its net assets, to the extent practicable, in tax-exempt obligations
issued by the State of New York and its political subdivisions (New York
municipal securities). The Fund intends to invest, under normal market
conditions, at least 80% of its net assets in New York municipal securities. To
the extent dividends paid by the Fund are derived from interest on New York
municipal securities, they will be exempt from both federal regular income tax
and New York State and New York City income taxes. New York municipal securities
are discussed in more detail on page 14.
There is no assurance that the Fund will achieve its investment objective, but
it endeavors to do so by following the investment policies described in this
prospectus. The Fund's investment objective and the investment policies
described below cannot be changed without shareholder approval.
INVESTMENT POLICIES
-------------------------------------------------------
THE TYPES OF MUNICIPAL SECURITIES IN WHICH THE FUND MAY INVEST ARE
DISCUSSED IN MORE DETAIL STARTING ON PAGE 14.
-------------------------------------------------------
ACCEPTABLE INVESTMENTS
The Fund intends to invest exclusively in a diversified portfolio of short-term,
tax-exempt municipal obligations. However, in certain extraordinary
circumstances, the Fund may make temporary investments, as defined on page 16.
Municipal securities include securities issued by or on behalf of states,
counties, and municipalities and their agencies, authorities and other political
subdivisions, as well as securities issued by the District of Columbia and
territories and possessions of the United States, such as Puerto Rico. When
these securities are issued, attorneys representing the issuer provide opinions
stating that the securities are valid municipal securities and that the interest
on the securities is exempt from federal regular income tax.
Municipal securities include, but are not limited to, the following types:
general obligation bonds and notes, revenue bonds and notes, tax and revenue
anticipation notes, bond and grant anticipation notes, construction loan notes,
and tax-
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exempt commercial paper. The types of municipal securities which the Fund may
purchase are generally defined beginning on page 15.
CREDIT GUIDELINES
-------------------------------------------------------
THE FUND HAS STRICT INVESTMENT STANDARDS.
-------------------------------------------------------
The Fund invests only in municipal securities that are determined by M&T Bank,
the Fund's investment adviser, to present minimal credit risks and that are
considered to be of "high quality", as defined below, at the time of purchase.
This includes securities that are:
- rated within the two highest rating categories by Moody's (Aaa or Aa) and by
S&P (AAA or AA), in the cases of bonds;
- rated SP-1 by S&P and MIG-1 by Moody's, in the case of notes;
- rated VMIG-1 by Moody's, in the case of variable rate municipal securities;
- rated A-1 or higher by S&P and Prime-1 by Moody's, in the case of tax-exempt
commercial paper; and
- securities that are not rated at the time of purchase but that are
determined to be of comparable quality by M&T Bank. M&T Bank uses guidelines
approved by the Corporation's Board of Directors to make these quality
determinations.
See the Appendix to the Statement of Additional Information for a description of
applicable municipal securities ratings.
NEW YORK MUNICIPAL SECURITIES
-------------------------------------------------------
THE FUND INTENDS TO INVEST MOST OF ITS ASSETS IN NEW YORK MUNICIPAL
SECURITIES, PROVIDED A SUFFICIENT SUPPLY OF SUITABLE QUALITY NEW YORK
SECURITIES IS AVAILABLE.
-------------------------------------------------------
Whenever possible, M&T Bank intends to invest at least 80% of the Fund's net
assets in New York municipal securities, provided the investment is consistent
with the Fund's investment objective and policies and its status as a
diversified management investment company. Because the supply of New York
municipal securities that meet the Fund's investment objective may fluctuate,
M&T Bank cannot predict precisely what percentage of the Fund's portfolio will
be invested in such issuers.
New York municipal securities are generally issued to finance public works
within the state, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, or to make loans to other public institutions and
facilities.
New York municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing assistance to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increase local employment.
INVESTMENT RISKS OF NEW YORK
MUNICIPAL SECURITIES
Yields on New York municipal securities depend on a variety of factors,
including the general conditions of the short-term municipal note market and of
the municipal bond market, the size of the particular offering, the maturity of
the obligations, and the rating of the issue. Further, any adverse economic
conditions or developments affecting the State or City of New York could have an
impact on the Fund's portfolio. The ability of the Fund to achieve its
investment objective depends on the continuing ability of issuers of New York
municipal securities, or their guarantors, to meet their obligations for the
timely payment of interest and principal when due. Investing in New York
municipal securities that meet the Fund's quality standards may not be possible
if the State and City of New York do not maintain their current credit ratings.
CONCENTRATION OF INVESTMENTS
Except as stated above with respect to New York municipal securities, M&T Bank
does not intend to invest more than 25% of the Fund's net assets on a regular
basis in securities of issuers in the same industry.
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-------------------------------------------------------
TO THE EXTENT THE FUND CONCENTRATES ITS INVESTMENTS, IT IS SUBJECT TO
GREATER RISKS.
-------------------------------------------------------
To the extent the Fund's assets are concentrated in New York municipal
securities, the Fund will be subject to the special risks presented by the laws
and economic conditions relating to that state to a greater extent than it would
be if its assets were not so concentrated. In particular, an investment in the
Fund is subject to the risk of market value fluctuations inherent in owning New
York municipal securities.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities are general obligation
and revenue bonds. These and other types of municipal securities are discussed
below.
GENERAL OBLIGATION BONDS
-------------------------------------------------------
ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES, TOWNS
AND OTHER GOVERNMENTAL UNITS.
-------------------------------------------------------
General obligation bonds are secured by the issuer's pledge of its full faith
and credit and taxing power for the payment of principal and interest.
REVENUE BONDS
-------------------------------------------------------
REVENUE BONDS MAY BE ISSUED TO BUILD A TOLL BRIDGE, HIGHWAY, EDUCATIONAL
FACILITY, HOSPITAL OR OTHER FACILITY THAT SERVES A PUBLIC NEED AND
GENERATES REVENUE. THE TOLLS OR OTHER FEES COLLECTED BY THESE FACILITIES
ARE THEN USED TO REPAY THE BONDS.
-------------------------------------------------------
Interest on and principal of revenue bonds, however, are payable only from the
revenue generated by the facility financed by the bond or other specified
sources of revenue. Revenue bonds do not represent a pledge of credit or create
any debt or charge against the general revenues of a municipality or public
authority.
INDUSTRIAL DEVELOPMENT AND
POLLUTION CONTROL BONDS
-------------------------------------------------------
INDUSTRIAL DEVELOPMENT BONDS ARE ISSUED BY A STATE OR LOCAL GOVERNMENT TO
FINANCE PLANTS AND FACILITIES THAT ARE LEASED TO PRIVATE BUSINESSES.
-------------------------------------------------------
Industrial development bonds and pollution control bonds are typically
classified as revenue bonds and are not payable from the unrestricted revenues
of the issuer. Consequently, the credit quality of such revenue bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
MORAL OBLIGATION BONDS
Moral obligation bonds are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
interest and principal payments from current revenues, it may draw on a reserve
fund. The state or municipality that created the issuer has given a moral pledge
to appropriate funds to replenish the reserve fund. But that pledge is only a
moral commitment, not a legal obligation of the state or municipality.
VARIABLE RATE MUNICIPAL SECURITIES
Some of the municipal securities which the Fund purchases may have variable
interest rates. Variable interest rates are ordinarily based on a published
interest rate, interest rate index or some similar standard, such as the 91-day
U.S. Treasury bill rate.
Many variable rate municipal securities are subject to payment of principal on
demand by the Fund (usually in not more than seven days) which is considered in
computing maturity. While some variable rate municipal securities without this
demand feature may not be considered liquid by M&T Bank, the Fund's investment
limitations require that it will invest no more than 10% of its total assets in
illiquid securities.
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All variable rate municipal securities will meet the quality standards for the
Fund. The investment adviser has been instructed by the Corporation's Board of
Directors to monitor the pricing, quality, and liquidity of the variable rate
municipal securities held by the Fund on the basis of published financial
information and reports of the rating agencies and other analytical services.
Where necessary to ensure that an instrument is of "high quality," the Fund will
require that the issuer's obligation to pay the principal of the instrument be
backed by an unconditional bank letter or line of credit guarantee or commitment
to lend.
AMT OBLIGATIONS
-------------------------------------------------------
INTEREST ON SOME MUNICIPALS MAY BE SUB-
JECT TO A SPECIAL ALTERNATIVE MINIMUM TAX.
-------------------------------------------------------
While traditional municipal bonds finance roads, schools, libraries, and other
public facilities, some municipal bonds known as private activity bonds provide
benefits to private parties. Examples of private activity bonds include
single-family housing bonds and some industrial development bonds. Interest on
certain private activity municipal bonds issued after August 7, 1986 is a tax
preference item for purposes of computing the federal alternative minimum tax
(AMT), although interest on these bonds is not subject to regular federal income
tax. These bonds are referred to as AMT bonds or AMT obligations. For more
information, about the AMT, please see page 29.
The Fund may purchase all kinds of municipal securities, including AMT
obligations. To the extent the Fund invests in AMT obligations, a portion of the
Fund's dividends will be treated as a tax preference item for shareholders
potentially subject to the AMT.
As noted earlier, the Fund has a policy of investing at least 80% of its net
assets in securities that pay interest exempt from federal regular income tax.
The Fund does not consider these AMT obligations tax-exempt for purposes of
determining its compliance with this investment policy.
TEMPORARY INVESTMENTS
-------------------------------------------------------
THE FUND MAY MAKE TEMPORARY TAXABLE INVESTMENTS.
-------------------------------------------------------
The Fund invests its assets so that at least 80% of its annual interest income
is exempt from federal regular income tax. However, from time to time, on a
temporary basis, or when M&T Bank determines that market conditions call for a
temporary defensive posture, the Fund may invest in short-term money market
instruments (referred to as temporary investments). Interest income from
temporary investments may be taxable to shareholders as ordinary income.
These temporary investments may not exceed 20% of the total assets of the Fund,
except when made for temporary defensive purposes. They include:
- obligations issued by or on behalf of municipal or corporate issuers having
the same quality characteristics as the New York municipal securities
purchased by the Fund;
- obligations issued or guaranteed by the U. S. Government, its agencies or
instrumentalities;
- certificates of deposit, bankers' acceptances, or other instruments issued
by a U. S. branch of a domestic bank or savings and loan association with
capital, surplus, and undivided profits in excess of $1 billion at the time
of investment;
- repurchase agreements and reverse repurchase agreements;
- certain specified private activity bonds; and
- debt securities, including commercial paper, of issuers having a quality
rating within the two highest rating categories of either S&P or Moody's at
the time of purchase.
In addition, the Fund may temporarily hold uninvested cash reserves that do not
earn income if, in the opinion of M&T Bank, suitable tax-exempt obligations are
unavailable. There is no percentage limitation on the amount of assets that may
be held uninvested.
See the Tax-Free Fund's Statement of Additional Information for a further
discussion of these temporary investments.
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COMMON FUND
INVESTMENT TECHNIQUES,
FEATURES AND
LIMITATIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery basis.
With these transactions, each Fund commits to purchase securities at a stated
price, but payment for and delivery of the securities are delayed until a future
date.
In when-issued and delayed delivery transactions, each Fund relies on the seller
to complete the transaction. The seller's failure to complete these transactions
may cause the Fund to miss a price or yield considered to be advantageous. Under
normal market conditions, each Fund will not enter into commitments to purchase
securities on a when-issued basis that exceed 25% of the value of its total
assets.
REPURCHASE AGREEMENTS
-------------------------------------------------------
IN A REPURCHASE AGREEMENT, A FUND BUYS SECURITIES AND AT THE SAME TIME
AGREES TO SELL THEM BACK AT A STATED PRICE.
-------------------------------------------------------
The Funds may enter into repurchase agreements for U.S. Government securities
and certificates of deposit with banks, broker/dealers, and other recognized
financial institutions. In a repurchase agreement, a Fund agrees to purchase
securities from the selling institution and the seller simultaneously agrees to
repurchase the securities at a specific price within a stated time. The stated
repurchase date must be within a year of the date the Fund acquires the
securities. The Funds or their custodian (the bank that holds each Fund's assets
in safekeeping) takes possession of securities subject to repurchase agreements,
and these securities are marked to the market or valued daily.
If the original seller does not repurchase the securities from a Fund, that Fund
could receive less than the repurchase price on any sale of those securities. If
the seller filed for bankruptcy or became insolvent, the Fund's sale of the
securities might be delayed pending court action. The Funds have regular
procedures in effect for taking custody of portfolio securities subject to
repurchase agreements. Because of those established procedures, the Funds
believe that a court of competent jurisdiction would rule in favor of the Fund
and allow the Fund to retain or dispose of the securities.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers that the Funds' adviser
considers creditworthy under guidelines approved by the Board of Directors.
VARIABLE AMOUNT DEMAND
MASTER NOTES
-------------------------------------------------------
WITH A VARIABLE AMOUNT DEMAND MASTER NOTE, BOTH THE AMOUNT OF THE LOAN AND
THE INTEREST RATE MAY VARY.
-------------------------------------------------------
The Tax-Free Fund and the Money Market Fund may purchase variable amount demand
master notes. Variable amount demand master notes represent a borrowing
arrangement between a commercial paper issuer, the borrower, and an
institutional lender, such as the Fund. The Fund has the right to demand payment
of the loan it has made upon short notice. The Fund typically has the right to
increase the amount borrowed under the note, at any time, up to the full amount
provided by the note agreement.
Both the Fund and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. In some instances, however, the Fund and
the borrower may agree that the amount of outstanding indebtedness remain fixed.
Variable amount demand master notes provide that the interest rate on the amount
outstanding varies depending upon a stated short-term interest rate index.
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CREDIT ENHANCEMENT
Certain of the Acceptable Investments of the Tax-Free Fund and the Money Market
Fund may have been credit-enhanced by a guaranty, letter of credit, or
insurance. These Funds typically evaluate the credit quality and ratings of
credit-enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the credit enhancer), as well as the
issuer.
Generally, the Funds will not treat credit-enhanced securities as having been
issued by the credit enhancer for diversification purposes. However, under
certain circumstances applicable regulations may require the Funds to treat the
securities as having been issued by both the issuer and the credit enhancer. The
bankruptcy, receivership, or default of the credit enhancer will adversely
affect the quality and marketability of the underlying security. The Tax-Free
Fund and the Money Market Fund may have more than 25% of their total assets
invested in securities credit-enhanced by banks.
DEMAND FEATURES
The Tax-Free Fund and the Money Market Fund may acquire securities that are
subject to puts and standby commitments ("demand features") to purchase the
securities at their principal amount (usually with accrued interest) within a
fixed period (usually seven days) following a demand by the Funds. The demand
feature may be issued by the issuer of the underlying securities, a dealer in
the securities or another third party, and may not be transferred separately
from the underlying security. The Funds use these arrangements to provide the
Funds with liquidity and not to protect against changes in the market value of
the underlying securities.
The bankruptcy, receivership, or default by the issuer of the demand feature, or
a default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
REGULATORY COMPLIANCE
The Funds are money market funds. The Funds' investment policies, which are
fundamental and cannot be changed without vote of shareholders, were constructed
so as to comply with Rules promulgated by the Securities and Exchange Commission
(SEC) governing mutual funds' use of the amortized cost method of accounting, as
they were in effect at the time the Funds were created. (See the section of the
Statement of Additional Information entitled "Determining Net Asset Value" for a
more complete discussion of the amortized cost method of accounting.)
The SEC recently revised Rule 2a-7 under the Investment Company Act of 1940
which governs money market funds' use of the amortized cost method of
accounting. As a result of the revisions, the Funds will adhere to certain
nonfundamental operating policies in order to comply with revised Rule 2a-7.
Since the Funds may follow such operating policies without violating their
fundamental investment policies and limitations, the Funds do not presently
intend to ask for shareholder approval of changes to the Funds' investment
policies or limitations.
The Funds will invest in money market instruments (as described earlier under
"Acceptable Investments"). In the case of the Money Market Fund, these
securities must be either rated in one of the two highest short-term rating
categories by nationally recognized statistical rating organizations (NRSROs) or
be of comparable quality to securities having such rating. The two highest
rating categories for NRSROs are determined without regard to subcategories and
gradations. In the case of the Tax-Free Fund, these securities must be rated in
the highest short-term rating categories.
The Money Market Fund will limit its investments in securities rated in the
second highest short-term rating category--e.g., A-2 by S&P, Prime-2 by Moody's
or F-2 (+ or -) by Fitch--to not more than 5% of its total assets, with not more
than 1% invested in the securities of any one issuer. The Tax-Free Fund may also
invest in bonds with long-term ratings in the two highest long-term rating
categories. The Funds will follow applicable regulations in determining whether
a security rated by NRSROs can be treated as being in the highest short-term
rating category.
In addition, the Money Market Fund generally will not invest more than 5% of its
total assets in securities of any one issuer (other than the U.S. Government,
its agencies and instrumentalities), although its investment limitation requires
such 5% diversification with respect to 75% of its assets. The Funds will invest
more than 5% of their respective assets in any one issuer only under
circumstances permitted by Rule 2a-7. The Funds will also determine the
effective maturity of their
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investments, as well as their ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Funds
may change these operating policies to reflect changes in the laws and
regulations without the approval of their shareholders, unless such changes are
more permissive than the Funds' fundamental policies.
INVESTMENT LIMITATIONS
-------------------------------------------------------
THE FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS IN
ORDER TO LIMIT INVESTMENT RISKS.
-------------------------------------------------------
Many of the investment restrictions to which each Fund is subject may be changed
only by a majority vote of the outstanding shares of the Fund. You can find a
more detailed description of the following investment limitations, together with
other investment limitations that can be changed only with such a vote of
shareholders, in the Statement of Additional Information under "Investment
Limitations."
All of the Funds have the following common investment limitations. The Funds may
not:
- borrow money or issue senior securities, except, under certain
circumstances, a Fund may borrow from banks or enter into reverse repurchase
agreements for temporary purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing. The Fund may not purchase
securities while its borrowings (including reverse repurchase agreements)
are outstanding; or
- enter into repurchase agreements providing for settlement more than seven
days after notice, if such an investment, together with any other illiquid
securities in a Fund, exceeds 10% the Fund's total assets.
The Tax-Free Fund and the Money Market Fund have the following common investment
limitation. These Funds may not:
- invest more than 5% of the Fund's total assets in securities of one issuer
(other than obligations of the U.S. Government, its agencies or
instrumentalities), except that up to 25% of the value of the Fund's total
assets may be invested without regard to such 5% limitation.
The Tax-Free Fund may not:
- purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to obligations
issued by the State of New York or any of its authorities, agencies,
instrumentalities, or political subdivisions; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
domestic bank certificates of deposit and bankers' acceptances; or
repurchase agreements secured by any of the foregoing obligations; or
- invest less than 80% of its net assets in securities the interest on which
is exempt from federal regular income tax, except during temporary defensive
periods; AMT obligations are not considered securities the interest on which
is exempt from federal regular income tax.
The Treasury Fund may not:
- purchase securities other than direct obligations of the U.S. Treasury, such
as Treasury bills and notes, some of which may be subject to repurchase
agreements.
The Money Market Fund may not:
- purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit, bankers'
acceptances, and repurchase agreements secured by domestic bank instruments
or obligations of the U.S. Government, its agencies or instrumentalities.
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FUND MANAGEMENT,
DISTRIBUTION AND
ADMINISTRATION
BOARD OF DIRECTORS
-------------------------------------------------------
A BOARD OF DIRECTORS SUPERVISES THE FUNDS.
-------------------------------------------------------
The Corporation's Board of Directors are responsible for managing the business
affairs of the Funds and for exercising all the Funds' powers, except those
reserved for the Funds' shareholders.
INVESTMENT ADVISER
-------------------------------------------------------
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK") MAKES INVESTMENT
DECISIONS FOR THE FUNDS, ACTING UNDER THE DIRECTION OF THE BOARD OF
DIRECTORS.
-------------------------------------------------------
As investment adviser, M&T Bank continually conducts investment research and
supervision for the Funds and is responsible for all purchases and sales of the
securities in each Fund's portfolio. M&T Bank receives an annual fee from each
of the Funds for these services.
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 each Fund equal to an annual
rate of .50% of each Fund's average 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 Funds.
-------------------------------------------------------
M&T BANK MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
-------------------------------------------------------
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.
THE ADVISER'S BACKGROUND
-------------------------------------------------------
FOUNDED IN 1856, M&T BANK PROVIDES COMPREHENSIVE BANKING AND FINANCIAL
SERVICES.
-------------------------------------------------------
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
31, 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 Funds' investments are managed through the Trust & Investment
Services Division of M&T Bank. 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.
THE GLASS-STEAGALL ACT
-------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
-------------------------------------------------------
M&T Bank and certain of its affiliated and correspondent banks are subject to
the Glass-Steagall Act and the other statutes and regulations mentioned below.
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
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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 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.
DISTRIBUTION OF FUND SHARES
-------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
-------------------------------------------------------
Shares of the Funds are sold on a continuous basis by Federated Securities
Corp., as the principal distributor. 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.
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 and loan
associations) to provide certain 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 any Fund shares. The administrators
appointed could include affiliates of the adviser.
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 the adviser and not the Funds.
In addition, brokers, dealers, and administrators may receive additional
payments in the form of cash or promotional incentives based on the amount of
any Fund shares purchased by their clients or customers.
The distributor, M&T Bank, 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 Funds or as financial
assistance for providing substantial marketing, sales and operational support.
Compensation may also 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 Funds or their
shareholders, nor will it change the price paid by investors for the purchase of
Fund shares.
ADMINISTRATION OF THE FUNDS
-------------------------------------------------------
FEDERATED ADMINISTRATIVE SERVICES PROVIDES CERTAIN SERVICES.
-------------------------------------------------------
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
the Funds with certain administrative personnel and services necessary to
operate the Funds. Among these services are shareholder servicing and certain
legal and accounting services. Federated Administrative
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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 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year will be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
TRANSFER AND DIVIDEND
DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is the transfer agent for the shares of the Fund, and dividend
disbursing agent responsible for distributing dividends to the Fund's
shareholders.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is the custodian for
the securities and cash of the Fund.
LEGAL COUNSEL
Legal counsel is provided to the Funds by Houston, Houston & Donnelly,
Pittsburgh, PA and Dickstein, Shapiro & Morin, L.L.P., Washington, D.C.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young, Pittsburgh, PA.
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YOUR GUIDE
TO USING
THE FUNDS
HOW THE FUNDS VALUE
THEIR SHARES
-------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE FUND SHARE.
-------------------------------------------------------
Net asset value is calculated by adding up the value of all of a Fund's
securities and cash (its assets), subtracting all of its liabilities (including
all expenses payable or accrued by the Fund), and then dividing the result (net
assets) by the total number of Fund shares outstanding.
Each Fund attempts to maintain a stable net asset value of $1.00 per share
through its investment policies, which have been described previously, and
through its policies for valuing securities in its portfolio. Each Fund values
its portfolio securities based on their amortized cost. This method of valuation
assumes a stable rate of income from the day securities are purchased until they
mature, without taking into account actual changes in market value based on
interest rate changes. Prices of money market securities and other fixed income
securities typically move in the opposite direction of interest rates. That is,
prices generally increase when interest rates fall and decrease when interest
rates rise.
Under the amortized cost method of valuation used by the Funds, the value of the
Funds' assets will not change in response to fluctuating interest rates.
However, each Fund monitors the difference between the amortized cost value of
its assets and their actual market value, which can be expected to vary
inversely with changes in interest rates. Of course, the Funds cannot guarantee
that their net asset value will always remain at $1.00 per share.
WHAT FUND SHARES COST
-------------------------------------------------------
THERE IS NO SALES CHARGE TO BUY FUND SHARES.
-------------------------------------------------------
Shares of the Fund are sold at the next net asset value calculated after your
order is received (normally $1.00 per share). Each Fund's net asset value is
calculated at 12:00 p.m. Eastern time, 3:00 p.m. Eastern time and 4:00 p.m.
Eastern time, Monday through Friday, except on:
(i) days when the value of the securities in the Fund's portfolios do not
change sufficiently to materially affect the net asset value; or
(ii) days when no shares are offered for redemption by shareholders and no
orders to purchase shares are received; or
(iii) days on which the following holidays are observed: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' 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.
HOW TO BUY SHARES
-------------------------------------------------------
YOU CAN BUY FUND SHARES BY FEDERAL RESERVE WIRE, MAIL OR TRANSFER, AS
EXPLAINED BELOW.
-------------------------------------------------------
You can buy shares of the Funds on any business day, except on days when the New
York Stock Exchange or M&T Bank is closed, or on federal holidays when wire
transfers are restricted (Columbus Day, Veterans' Day, and Martin Luther King
Day). Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
OPENING AN ACCOUNT
To make an initial investment in the Funds, you must open an account by
completing the account application form. Information needed to open your account
may also be taken over the telephone. To apply by phone or get help in
completing the enclosed application, simply call an account representative at
M&T Bank or those affiliates of M&T Bank which make shares available, or M&T
Bank's Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone
842-4488). The Funds use this telephone number only to
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service shareholders of Vision Group of Funds, Inc. The Funds reserve the right
to reject any purchase request.
MINIMUM INITIAL INVESTMENT
-------------------------------------------------------
A $500 INITIAL INVESTMENT IS ALL THAT'S REQUIRED.
-------------------------------------------------------
The minimum initial investment in each Fund is $500, unless the investment is in
a retirement plan, in which case the minimum initial investment is $250.
Subsequent minimum investments must be in amounts of at least $25, including
retirement plans. In addition, the minimum initial and subsequent investment
amounts may be waived or lowered from time to time, such as for customers
participating in automatic investment services offered by M&T Bank.
BUYING SHARES BY WIRE
You can purchase shares of the Funds by Federal Reserve wire. This is referred
to as wiring federal funds, and it simply means that your bank sends money to
the Funds' bank through the Federal Reserve System. To purchase shares by
Federal Reserve wire, call M&T Bank's Mutual Fund Services before 11:00 a.m.
(Eastern time) to place your order. The order is considered immediately
received. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day.
BUYING SHARES BY MAIL
To buy shares of a Fund for the first time by mail, complete and sign the
account application form and mail it, together with your check made payable to
(Name of the 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 your payment by check has
been converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"),into federal funds. This is generally the next business
day after State Street Bank receives the check.
BUYING SHARES BY TRANSFER
To purchase shares of the Funds 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
11:00 a.m. (Eastern time). The money will be transferred from your M&T Bank
Demand Deposit Account to your Fund account that same day.
Shareholders who previously purchased shares
of the Funds through The Fairfield Group, Inc., the Fund's former distributor,
may continue to purchase, exchange, or redeem their shares by calling Federated
Securities Corp. at (800) 618-8573.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares of the Funds through different types of
customer accounts at M&T Bank and its affiliates. You should read this
prospectus together with any applicable agreement between you and the
institution to learn about the services provided, the fees charged for those
services, and any restrictions or limitations that may be imposed.
SYSTEMATIC INVESTMENT PROGRAM
-------------------------------------------------------
YOU CAN BUY SHARES CONVENIENTLY THROUGH
THE FUNDS' 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 bank
demand deposit account. The money may be withdrawn monthly or quarterly and
invested in Fund shares at the next net asset value calculated after your order
is received. To sign up for this program, please call M&T Bank's Mutual Fund
Services for an application.
DIVIDENDS
-------------------------------------------------------
YOU EARN DAILY DIVIDENDS.
-------------------------------------------------------
The Funds declare dividends daily and pay them monthly. Shares purchased by wire
before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earn-
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ing dividends on the day after the check is converted into federal funds.
Dividends are automatically reinvested in additional shares of a Fund on the
dates the dividends are paid unless you request cash payments on the account
application form or by contacting M&T Bank's Mutual Fund Services.
CAPITAL GAINS
If, for some extraordinary reason, a Fund realizes capital gains, those capital
gains could result in an increase in the Fund's dividends. Conversely, any
capital losses realized by a Fund could result in a decrease in its dividends.
In the unlikely event that a Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months. The Funds do not expect to
realize any capital gains or losses and, therefore, do not foresee paying any
"capital gains dividends," as defined in the Internal Revenue Code.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder. The Funds will not issue certificates for your
shares unless you make a written request to the Funds.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
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. You should note that an investment in the Tax-Free Fund
is generally not appropriate for retirement plans or IRA accounts.
HOW TO EXCHANGE SHARES
-------------------------------------------------------
IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN CONVENIENTLY EXCHANGE SHARES OF
ANY OF THE FUNDS FOR SHARES OF OTHER FUNDS IN THE CORPORATION THAT ARE
REGISTERED IN YOUR STATE AT NO CHARGE.
-------------------------------------------------------
All shareholders in any of the Funds are shareholders of Vision Group of Funds,
Inc. and have access to the other portfolios of the Corporation (referred to as
the "Participating Funds" and listed below under "Description of Fund Shares")
through an exchange program. You may exchange shares of a 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 fund, including those shares obtained
through the reinvestment of dividends, will not have to pay a sales charge again
on an exchange. Shares of funds with no sales charge acquired by direct purchase
or reinvestment of dividends on such shares may be exchanged for shares of other
Participating Funds 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 $500. This privilege is available to shareholders
resident in any state in which the fund shares being acquired may be sold. 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, you must receive a
copy of the current prospectus of the Participating Fund into which the exchange
is being made.
Once Federated Services Company 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 27 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.
Each 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.
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EXCHANGING SHARES BY TELEPHONE
-------------------------------------------------------
TO BE ELIGIBLE FOR TELEPHONE EXCHANGES, SELECT THAT OPTION WHEN YOU OPEN
YOUR ACCOUNT.
-------------------------------------------------------
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.
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 by 11:00 a.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 in 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 Funds, the Funds 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
-------------------------------------------------------
YOU CAN REDEEM FUND SHARES BY TELEPHONE, CHECK, OR MAIL. TO ENSURE YOUR
SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES EXPLAINED
BELOW.
-------------------------------------------------------
Each Fund redeems or repurchases your shares at the net asset value per share
next determined after the Fund receives your redemption request. You may only
redeem shares on days when the Funds compute their net asset value. You cannot
redeem shares on days when the New York Stock Exchange or M&T Bank is closed, or
on federal holidays when wire transfers are restricted (Columbus Day, Veterans'
Day, and Martin Luther King Day). While you may redeem various amounts by
telephone, check, or written request, you can close your account only by
writing.
TELEPHONE REDEMPTIONS
-------------------------------------------------------
TO QUALIFY FOR TELEPHONE REDEMPTIONS, CHOOSE THAT OPTION WHEN YOU OPEN YOUR
ACCOUNT.
-------------------------------------------------------
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 11:00 a.m. (Eastern time).
The proceeds will be wired that same day directly to your account at M&T Bank or
an affiliate or to another account you previously designated at a domestic
commercial bank account 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
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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.
If your redemption request is received after 11:00 a.m. (Eastern time), you will
be paid the Fund's daily dividend on those shares. However, the proceeds will
not be wired to your bank account until the following business day. If your
redemption request is received before 11:00 a.m. (Eastern time), the proceeds
will be wired the same day, but you will not receive that day's dividend.
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 exchange request by mail for next day delivery
to the Vision Group of Funds, Inc. at the address shown below.
Each 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 Funds, the Funds
may be liable for losses due to unauthorized or fraudulent telephone
instructions.
REDEEMING SHARES BY CHECK
At your request, Federated Services Company will establish a checking account
that allows you to redeem Fund shares by writing checks in amounts of $250 or
more. For more information, contact M&T Bank's Mutual Fund Services.
REDEEMING SHARES BY MAIL
You may also 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 a 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 Fund shares.
The signature guarantee must be provided by:
- a trust company or commercial bank whose deposits are insured by BIF, which
is administered by the FDIC;
- a savings bank or savings and loan association whose deposits are insured by
SAIF, which 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 Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
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future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their 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
-------------------------------------------------------
THE FUNDS' SYSTEMATIC WITHDRAWAL PROGRAM LETS YOU RECEIVE REGULAR AUTOMATIC
PAYMENTS OF A PREDETERMINED AMOUNT.
-------------------------------------------------------
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 bank demand deposit account. Fund shares are redeemed to provide monthly or
quarterly payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends and any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in a 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 on your
investment in the Fund.
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 Funds
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, each 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.
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TAX
INFORMATION
-------------------------------------------------------
THE FOLLOWING DISCUSSION ON TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE
CONSULT YOUR OWN TAX ADVISER FOR SPECIFIC TAX INFORMATION ABOUT YOUR
PARTICULAR SITUATION.
-------------------------------------------------------
Below is a general discussion of tax considerations for each of the Funds. No
attempt has been made to present a detailed explanation of the federal, state,
and local income tax treatment of a 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 Funds 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.
Each Fund will be treated as a separate entity for federal income purposes.
Income earned by each of the Funds, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
portfolios.
The Funds intend to qualify each year as a regulated investment company under
the Internal Revenue Code so that they are not required to pay federal income
taxes on the income and capital gains distributed to shareholders.
TAX-FREE FUND
-------------------------------------------------------
THE FUND EXPECTS MOST OF ITS INCOME TO BE
EXEMPT FROM FEDERAL REGULAR INCOME TAX.
-------------------------------------------------------
FEDERAL TAXES
Shareholders are not required to pay federal regular income tax on any dividends
received from the Fund that represent net interest received from tax-exempt
municipal securities (exempt-interest dividends). The Fund intends to invest its
assets so that most of the dividends it pays will be considered exempt-interest
dividends. Shareholders will be required to pay federal income tax on dividends
received from the Fund attributable to capital gains and net interest received
from taxable temporary investments, although the Fund anticipates that such
amounts will be limited.
However, exempt-interest dividends on certain private activity municipal
securities (previously discussed on page 16) may be included in calculating the
federal alternative minimum tax ("AMT") for individuals and corporations. The
AMT is a special federal tax that applies to taxpayers who claim certain large
regular income tax deductions, which are referred to as tax preference items.
Among these tax preference items is the income earned on certain private
activity municipal bonds issued after August 7, 1986. Individual taxpayers
compute the alternative minimum tax by adding back these tax preference items to
their regular taxable income, subtracting certain adjustments and applying a tax
rate of up to 28% of income subject to the AMT. You only pay the AMT if it
exceeds your federal regular income tax liability for the year.
The Fund may invest in all types of municipal securities, including private
activity municipals that may be subject to the AMT. To the extent the Fund
invests in AMT obligations, a portion of the Fund's dividends will be treated as
a tax preference item for shareholders potentially affected by the AMT. But this
is only meaningful if you yourself are subject to the AMT. Ask your own tax
adviser for more information.
NEW YORK TAXES
Under existing New York laws, shareholders will not be subject to New York State
or New York City personal income taxes on dividends to the extent that such
dividends qualify as "exempt interest dividends" under the Internal Revenue Code
of 1986, as amended, and represent interest income attributable to obligations
of the State of New York and its political subdivisions, as well as certain
other obligations, the interest on which is exempt from New York State and New
York City personal income taxes, such as, for example, certain obligations of
the Commonwealth of Puerto Rico. To the extent that distributions are derived
from other income, including long-term or short-term capital gains, such
distributions will not be
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exempt from New York State or New York City personal income tax.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York State and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of the
dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the same extent that they are exempt from the New York City
personal income tax.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
CORPORATE SHAREHOLDER INFORMATION
In the case of a corporate shareholder, all exempt-interest dividends paid by
the Fund are included in computing the shareholder's adjusted current earnings,
upon which is based a separate corporate preference item that may be subject to
the AMT. The corporate AMT tax rate is 20%.
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
Dividends paid by the Fund are not exempt from the New York State franchise tax
on corporations or the New York City general corporation tax.
THE TAX TREATMENT OF
TEMPORARY INVESTMENTS
Dividends paid by the Fund that are attributable to the net interest earned on
some temporary investments (previously discussed on page 16) and any realized
net short-term capital gains are taxed as ordinary income.
MONEY MARKET FUND AND
TREASURY FUND
FEDERAL INCOME TAXES
Unless shareholders are otherwise exempt from taxes, they are required to pay
federal income taxes on Fund dividends and other distributions received
(including capital gains distributions, if any).
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. (the Corporation) was organized as a Maryland
corporation on February 23, 1988, and the Funds commenced operations on June 1,
1988. The Corporation has authorized capital of 10 billion shares of common
stock with a par value of $.001 per share (referred to as capital stock). The
Corporation's Articles of Incorporation permit the Corporation to offer separate
series of shares in the Funds or other future portfolios. Currently, the
Corporation offers six 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 New York Tax-Free Fund, and Vision Growth and
Income Fund.
Each Fund share represents an equal proportionate interest in the Fund with
other shares of the same class and participates equally in the dividends and any
other distributions that are declared at the discretion of the Corporation's
Board of Directors.
VOTING RIGHTS AND OTHER INFORMATION
-------------------------------------------------------
EACH SHARE OF EACH FUND IS ENTITLED TO ONE VOTE IN DIRECTOR ELECTIONS AND
OTHER MATTERS SUBMITTED TO SHAREHOLDERS FOR VOTE.
-------------------------------------------------------
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 all
the Funds 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 June 4, 1994, Tice &
Co., Buffalo, New York, owned 85.6% of the voting securities of the Money Market
Fund; 93.5% of the voting securities of the Treasury Fund; and 82.1% of the
voting securities of the Tax-Free Fund, and, therefore, may, for certain
purposes, be deemed to control each Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As a result of an amendment to the Maryland General Corporation Law effective
July 1, 1987, the Funds are not required to hold annual shareholder meetings,
unless matters arise that require a vote of the shareholders under the
Investment
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Company Act of 1940, as amended. That law requires a vote of the shareholders to
approve changes in the Funds' investment advisory agreement, to replace the
Funds' 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 written 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 a 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 a Fund are charged with the direct expenses and liabilities
of that 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 each Fund's direct and allocable
liabilities at the time the expense or liability is incurred as well as each
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.
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--------------------------------------------------------------------------------
VISION MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
*CORPORATE OBLIGATIONS--80.3%
-----------------------------------------------------------------------------------
BANKING--16.1%
------------------------------------------------------------------
$10,000,000 ** Bank One Milwaukee, N.A., 4.04%, 3/22/95 $ 10,000,000
------------------------------------------------------------------
10,000,000 ** Huntington National Bank, 3.76%, 3/15/95 10,000,000
------------------------------------------------------------------
10,000,000 ** PHH Corp., 4.09%, 7/15/94 10,000,000
------------------------------------------------------------------
10,000,000 ** Society Bank, N.A., 3.76%, 3/16/95 10,000,000
------------------------------------------------------------------
3,000,000 Wachovia Bank, N.A., 4.70%, 10/31/94 3,016,667
------------
------------------------------------------------------------------
43,016,667
Total
------------
------------------------------------------------------------------
AEROSPACE/DEFENSE--1.9%
------------------------------------------------------------------
5,000,000 United Technologies Corp., 3.76%, 5/5/94 4,997,911
------------
------------------------------------------------------------------
DIVERSIFIED--3.7%
------------------------------------------------------------------
10,000,000 General Electric Capital Corp., 3.77%, 5/18/94 9,982,197
------------
------------------------------------------------------------------
ELECTRONIC EQUIPMENT--7.9%
------------------------------------------------------------------
10,000,000 Hewlett Packard Co., 3.58%, 5/11/94 9,990,056
------------------------------------------------------------------
11,000,000 Pitney Bowes, Inc., 3.78%, 6/9/94 10,954,955
------------
------------------------------------------------------------------
20,945,011
Total
------------
------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.3%
------------------------------------------------------------------
673,788 Premier Auto Trust, 3.21%, 9/2/94 673,788
------------
------------------------------------------------------------------
FINANCE--COMMERCIAL--7.1%
------------------------------------------------------------------
9,000,000 Transamerica Finance Corp., 3.82%, 5/23/94 8,978,990
------------------------------------------------------------------
10,000,000 CIESCO LP, 3.625%, 5/2/94 9,998,993
------------
------------------------------------------------------------------
18,977,983
Total
------------
------------------------------------------------------------------
FINANCE--RETAIL--13.5%
------------------------------------------------------------------
10,000,000 American General Finance Corp., 3.65%, 5/6/94 9,994,931
------------------------------------------------------------------
10,000,000 ** Associates Corporation of North America, 3.66%, 6/1/94 10,000,000
------------------------------------------------------------------
10,000,000 ** Beneficial Corp., 4.02%, 1/20/95 10,000,000
------------------------------------------------------------------
6,000,000 Norwest Financial Inc., 7.95%, 6/15/94 6,030,930
------------
------------------------------------------------------------------
36,025,861
Total
------------
------------------------------------------------------------------
FOOD & BEVERAGE--4.5%
------------------------------------------------------------------
12,000,000 PepsiCo., Inc., 3.65%--3.78%, 5/3/94--5/16/94 11,990,706
------------
------------------------------------------------------------------
INSURANCE--1.7%
------------------------------------------------------------------
4,500,000 AIG Funding, 3.77%, 5/2/94 4,499,529
------------
------------------------------------------------------------------
</TABLE>
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION MONEY MARKET FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
*CORPORATE OBLIGATIONS--CONTINUED
-----------------------------------------------------------------------------------
OIL & OIL FINANCE--7.5%
------------------------------------------------------------------
$10,000,000 Chevron Oil Finance Co., 3.77%, 5/16/94 $ 9,984,292
------------------------------------------------------------------
10,000,000 Texaco, Inc., 3.54%, 5/3/94 9,998,033
------------
------------------------------------------------------------------
19,982,325
Total
------------
------------------------------------------------------------------
PHARMACEUTICALS & HEALTHCARE--3.7%
------------------------------------------------------------------
10,000,000 Abbott Laboratories, 3.90%, 6/20/94 9,945,833
------------
------------------------------------------------------------------
RETAIL--2.2%
------------------------------------------------------------------
6,000,000 Wal Mart Stores, Inc., 3.60%, 5/5/94 5,997,600
------------
------------------------------------------------------------------
TOBACCO--6.4%
------------------------------------------------------------------
10,000,000 BAT Capital Corp., 3.80%, 5/24/94 9,975,722
------------------------------------------------------------------
7,000,000 Philip Morris Cos., Inc., 3.75%, 5/20/94 6,986,146
------------
------------------------------------------------------------------
16,961,868
Total
------------
------------------------------------------------------------------
UTILITIES--3.8%
------------------------------------------------------------------
10,000,000 Houston Lighting & Power Co., 3.75%, 5/2/94 9,998,958
------------
------------------------------------------------------------------
213,996,237
TOTAL CORPORATE OBLIGATIONS
------------
------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES--2.6%
-----------------------------------------------------------------------------------
3,500,000 Federal Home Loan Bank, 2.88%, 6/23/94 3,500,000
------------------------------------------------------------------
3,500,000 ** Student Loan Marketing Association, 4.12%, 5/14/96 3,500,000
------------
------------------------------------------------------------------
7,000,000
TOTAL U.S. GOVERNMENT AGENCIES
------------
------------------------------------------------------------------
U.S. TREASURY BILLS--9.3%
-----------------------------------------------------------------------------------
25,000,000 U.S. Treasury Bills, 3.11%--3.35%, 5/5/94--11/17/94 24,682,652
------------
------------------------------------------------------------------
REPURCHASE AGREEMENT--7.8%***
-----------------------------------------------------------------------------------
20,899,000 Kidder, Peabody & Co., Inc., 3.55%, dated 4/29/94, due 5/2/94 20,899,000
(Note 2B)
------------
------------------------------------------------------------------
$266,577,889+
TOTAL INVESTMENTS, AT AMORTIZED COST
------------
------------------------------------------------------------------
</TABLE>
* Each issue, with the exception of variable rate securities, shows the coupon
or rate of discount at the time of purchase, if applicable.
** Denotes variable rate securities which show current rate and next demand
date.
*** The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($266,626,312) at April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-----------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A and 2B) $266,577,889
-----------------------------------------------------------------------------------
Cash 207
-----------------------------------------------------------------------------------
Interest receivable 479,148
-----------------------------------------------------------------------------------
Receivable for capital stock sold 243,249
----------------------------------------------------------------------------------- ------------
Total assets 267,300,493
-----------------------------------------------------------------------------------
LIABILITIES:
-----------------------------------------------------------------------------------
Dividends payable $606,149
------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 4,200
------------------------------------------------------------------------
Payable for capital stock redeemed 13,076
------------------------------------------------------------------------
Accrued expenses 50,756
------------------------------------------------------------------------ --------
Total liabilities 674,181
----------------------------------------------------------------------------------- ------------
NET ASSETS for 266,626,312 shares of capital stock outstanding $266,626,312
----------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($266,626,312 / 266,626,312 shares of capital stock outstanding) $1.00
----------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
----------------------------------------------------------------------------------------
Interest income (Note 2C) $8,050,675
----------------------------------------------------------------------------------------
EXPENSES:
----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $1,232,714
--------------------------------------------------------------------------
Administrative personnel and services fee (Note 4) 336,753
--------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 69,614
--------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 26,096
--------------------------------------------------------------------------
Directors' fees 4,398
--------------------------------------------------------------------------
Auditing fees 14,792
--------------------------------------------------------------------------
Legal fees 6,641
--------------------------------------------------------------------------
Printing and postage 8,891
--------------------------------------------------------------------------
Capital stock registration costs 23,827
--------------------------------------------------------------------------
Taxes 13,617
--------------------------------------------------------------------------
Insurance premiums 8,494
--------------------------------------------------------------------------
Miscellaneous 4,616
-------------------------------------------------------------------------- ----------
Total expenses 1,750,453
--------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 1,051,041
-------------------------------------------------------------------------- ----------
Net expenses 699,412
---------------------------------------------------------------------------------------- ----------
Net investment income $7,351,263
---------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
-----------------------------------------------------------------
OPERATIONS--
-----------------------------------------------------------------
Net investment income $ 7,351,263 $ 5,335,879
----------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
-----------------------------------------------------------------
Dividends to shareholders from net investment income (7,351,263) (5,335,879)
----------------------------------------------------------------- ------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
-----------------------------------------------------------------
Net proceeds from sale of shares 934,500,299 671,143,439
-----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends in capital stock 601,535 375,925
-----------------------------------------------------------------
Cost of shares redeemed (894,773,379) (588,891,785)
----------------------------------------------------------------- ------------- -------------
Change in net assets from capital stock transactions 40,328,455 82,627,579
----------------------------------------------------------------- ------------- -------------
Change in net assets 40,328,455 82,627,579
-----------------------------------------------------------------
NET ASSETS:
-----------------------------------------------------------------
Beginning of period 226,297,857 143,670,278
----------------------------------------------------------------- ------------- -------------
End of period $ 266,626,312 $ 226,297,857
----------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--55.4%
-------------------------------------------------------------------------------------
$ 10,000,000 U.S. Treasury Note, 5.125%, 5/31/94 $ 10,012,197
-------------------------------------------------------------------
100,000,000 U.S. Treasury Bills, 5/5/94--11/17/94 99,339,166
------------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS 109,351,363
------------------------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--44.8%
-------------------------------------------------------------------------------------
43,507,000 Kidder, Peabody & Co., Inc., 3.55%, dated 4/29/94, due 5/2/94 43,507,000
-------------------------------------------------------------------
45,000,000 Nomura Securities International, Inc., 3.53%, dated 4/29/94, due
5/2/94 45,000,000
------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 88,507,000
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $197,858,363+
------------------------------------------------------------------- ------------
</TABLE>
* The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($197,521,254) at April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-----------------------------------------------------------------------------------
Investments in U.S. Treasury Obligations $109,351,363
--------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) 88,507,000
-------------------------------------------------------------------- ------------
Total investments, at amortized cost and value (Note 2A) $197,858,363
-----------------------------------------------------------------------------------
Cash 622
-----------------------------------------------------------------------------------
Interest receivable 231,416
-----------------------------------------------------------------------------------
Receivable for capital stock sold 26
----------------------------------------------------------------------------------- ------------
Total assets 198,090,427
-----------------------------------------------------------------------------------
LIABILITIES:
-----------------------------------------------------------------------------------
Dividends payable 468,221
--------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 7,572
--------------------------------------------------------------------
Accrued expenses 93,380
-------------------------------------------------------------------- ------------
Total liabilities 569,173
----------------------------------------------------------------------------------- ------------
NET ASSETS for 197,521,254 shares of capital stock outstanding $197,521,254
----------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($197,521,254 / 197,521,254 shares of capital stock outstanding) $1.00
----------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION TREASURY MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------------
Interest income (Note 2C) $6,013,300
-------------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 946,784
------------------------------------------------------------------------
Directors' fees 3,667
------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 258,317
------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 68,116
------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 26,073
------------------------------------------------------------------------
Capital stock registration costs 48,058
------------------------------------------------------------------------
Legal fees 7,500
------------------------------------------------------------------------
Insurance premiums 7,559
------------------------------------------------------------------------
Auditing fees 15,523
------------------------------------------------------------------------
Printing and postage 3,050
------------------------------------------------------------------------
Taxes 11,367
------------------------------------------------------------------------
Miscellaneous 5,951
------------------------------------------------------------------------ ----------
Total expenses 1,401,965
------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 807,916
------------------------------------------------------------------------ ----------
Net expenses 594,049
------------------------------------------------------------------------------------- ----------
Net investment income $5,419,251
------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
------------------------------------------------------------------
OPERATIONS--
------------------------------------------------------------------
Net investment income $ 5,419,251 $ 3,556,403
------------------------------------------------------------------ ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
------------------------------------------------------------------
Dividends to shareholders from net investment income (5,419,251) (3,556,403)
------------------------------------------------------------------ ------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
------------------------------------------------------------------
Net proceeds from sale of shares 844,659,542 566,436,755
------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends in capital stock 315,351 269,835
------------------------------------------------------------------
Cost of shares redeemed (776,278,876) (538,254,437)
------------------------------------------------------------------ ------------- -------------
Change in net assets from capital stock transactions 68,696,017 28,452,153
------------------------------------------------------------------ ------------- -------------
Change in net assets 68,696,017 28,452,153
------------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------------
Beginning of period 128,825,237 100,373,084
------------------------------------------------------------------ ------------- -------------
End of period $ 197,521,254 $ 128,825,237
------------------------------------------------------------------ ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
---------- ------------------------------------------------------------ --------- -----------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--99.6%
----------------------------------------------------------------------------
NEW YORK--98.4%
------------------------------------------------------------
$1,000,000 Board Cooperative Educational Services, NY, (Westchester
County), 2.75% RANs, 6/24/94 MIG-1 $ 1,000,512
------------------------------------------------------------
1,500,000 Board Cooperative Educational Services, NY, (Cattaroughs,
Allegheny, Erie and Wyoming Counties), 2.62% RANs, 6/30/94 NR 1,500,170
------------------------------------------------------------
650,000 Broome County, NY, IDA Weekly VRDNs, (Bing Realty)/
(Meridian Bank) VMIG1 650,000
------------------------------------------------------------
1,500,000 Clarence, NY, Central School District, 2.84% TANs, 6/27/94 NR 1,500,831
------------------------------------------------------------
1,500,000 Erie County, NY, Water Authority Weekly VRDNs, (Series
B)/(AMBAC Guaranteed) VMIG1 1,500,000
------------------------------------------------------------
475,000 Greece, NY, 2.76% BANs, 12/1/94 NR 475,436
------------------------------------------------------------
815,000 Metropolitan Transportation Authority, Commuter Facilities,
NY, 9.25%, (Series F), Pre-refunded to 7/1/94 AAA 843,604
------------------------------------------------------------
1,500,000 Mount Vernon, NY, City School District, 2.75% TANs, 5/16/94 NR 1,500,430
------------------------------------------------------------
1,200,000 Municipal Assistance Corporation, NY, 4.30%, (Series B),
7/15/94 MIG-1 1,204,183
------------------------------------------------------------
200,000 New York City, NY, Daily VRDNs, (Series C)/(Norinchukin Bank
LOC) VMIG1 200,000
------------------------------------------------------------
1,000,000 New York City, NY, Daily VRDNs, (FGIC Insured) VMIG1 1,000,000
------------------------------------------------------------
100,000 New York City, NY, Daily VRDNs, (Series B)/(Dai Ichi Kangyo
Bank, Ltd. LOC) VMIG1 100,000
------------------------------------------------------------
200,000 New York City, NY, Daily VRDNs, (Series B)/(Union Bank of
Switzerland LOC) VMIG1 200,000
------------------------------------------------------------
1,500,000 New York City Tourist Cultural Resources Weekly VRDNs,
(Museum of Natural History)/(MBIA Insured) AAA 1,500,000
------------------------------------------------------------
600,000 New York City, NY, HDC Weekly VRDNs, (Columbus
Gardens)/(Citibank LOC) A-1 600,000
------------------------------------------------------------
700,000 New York City, NY, HDC Daily VRDNs, (E. 17th Street)/
(Chemical Bank LOC) A-1 700,000
------------------------------------------------------------
1,000,000 New York City, NY, HDC Weekly VRDNs, (Upper Fifth Ave.)/
(Series 1989A)/(Bankers Trust Co. LOC) VMIG1 1,000,000
------------------------------------------------------------
1,200,000 New York City, NY, IDC Weekly VRDNs, (Ronald McDonald
House)/(Barclays Bank of New York LOC) A-1+ 1,200,000
------------------------------------------------------------
</TABLE>
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
---------- ------------------------------------------------------------ --------- -----------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
----------------------------------------------------------------------------
NEW YORK--CONTINUED
------------------------------------------------------------
$ 900,000 New York City, NY, Municipal Water Finance Authority Daily
VRDNs, (Series C)/(FGIC Insured) AAA $ 900,000
------------------------------------------------------------
500,000 New York City, NY, Municipal Water Finance Authority, 3.75%
BANs, 12/15/94 MIG-1 502,903
------------------------------------------------------------
1,550,000 New York State Dormitory Authority, Weekly VRDNs,
(Beverwyck, Inc.)/(Banque Paribas LOC) AA 1,550,000
------------------------------------------------------------
1,600,000 New York State Dormitory Authority, 2.50%, 5/5/94
(Sloan Kettering)/(Fuji Bank LOC) A-1 1,600,000
------------------------------------------------------------
250,000 New York State Dormitory Authority, 6.20%, 11/1/94
(Escrowed to Maturity) AAA 254,195
------------------------------------------------------------
600,000 New York State Dormitory Authority, 2.50%, 5/5/94 (Dai Ichi
Kangyo Bank, Ltd. LOC) A-1 600,000
------------------------------------------------------------
100,000 New York State Energy Research and Development Authority
Daily VRDNs, (Series B)/(Niagara Mohawk)/(Toronto Dominion
LOC) A-1 100,000
------------------------------------------------------------
500,000 New York State Energy Research and Development Authority
Daily VRDNs, (Series B)/(Niagara Mohawk)/(Toronto Dominion
LOC) A-1 500,000
------------------------------------------------------------
600,000 New York State Energy Research and Development Authority
Daily VRDNs, (Series C)/(Niagara Mohawk)/(Canadian Imperial
Bank of Commerce LOC) A-1 600,000
------------------------------------------------------------
1,700,000 New York State Energy Research and Development Authority
Monthly VRDNs, (Rochester Gas & Electric Co.)/(Bank of
New York LOC) P-1 1,700,000
------------------------------------------------------------
1,000,000 New York State Energy Research and Development Authority,
2.80%, 12/1/94, (New York State Electric & Gas)/(Union Bank
of Switzerland LOC) AAA 1,000,282
------------------------------------------------------------
1,600,000 New York State Environmental Facilities Corp., 2.35%,
5/5/94, (General Electric) AAA 1,600,000
------------------------------------------------------------
500,000 New York State Environmental Research Corp. Daily VRDNs,
(Union Bank of Switzerland LOC) A-1+ 500,000
------------------------------------------------------------
1,900,000 New York State HFA, Weekly VRDNs, (Normandie Court)/(Society
Generale LOC) VMIG1 1,900,000
------------------------------------------------------------
1,100,000 New York State HFA, Weekly VRDNs, (Sloan Kettering)/
(Morgan Guaranty Trust Co. of New York LOC) A-1+ 1,100,000
------------------------------------------------------------
</TABLE>
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
---------- ------------------------------------------------------------ --------- -----------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
----------------------------------------------------------------------------
NEW YORK--CONTINUED
------------------------------------------------------------
$1,000,000 New York State Mortgage Finance Agency, 2.80%, 6/1/94,
(Series 31-C)/(Mandatory Tender 6/1/94) VMIG1 $ 1,000,000
------------------------------------------------------------
1,600,000 New York State Power Authority, 2.75%, 9/1/94 VMIG1 1,600,000
------------------------------------------------------------
1,000,000 Niagara Falls Bridge Commission, Weekly VRDNs, (Series
A)/(FGIA Insured) AAA 1,000,000
------------------------------------------------------------
540,000 Port Authority of New York & New Jersey, 2.25%, 5/2/94 A-1 540,000
------------------------------------------------------------
500,000 Port Authority of New York & New Jersey, Weekly VRDNs,
(Deutsche Bank LOC) VMIG1 500,000
------------------------------------------------------------
400,000 Port Authority of New York & New Jersey, Weekly VRDNs,
(Deutsche Bank LOC) VMIG1 400,000
------------------------------------------------------------
917,000 Rensselaer County, NY, 3.05% BANs, 5/27/94 NR 917,000
------------------------------------------------------------
500,000 Seneca County, NY, IDA, Weekly VRDNs, (New York Chiropractic
College)/(Barclays Bank PLC LOC) A-1+ 500,000
------------------------------------------------------------
1,000,000 St. Lawerence County, NY, IDA Daily VRDNs, (Bank of Nova
Scotia LOC) P-1 1,000,000
------------------------------------------------------------
1,000,000 Suffolk County, NY, 2.70% TANs, 8/16/94 (Mitsubishi Bank
LOC) MIG1 1,001,887
------------------------------------------------------------ -----------
Total 39,541,433
------------------------------------------------------------ -----------
PUERTO RICO--1.2%
------------------------------------------------------------
500,000 Puerto Rico, 3.00% TRANs, (Series A), 7/29/94 MIG1 500,496
------------------------------------------------------------ -----------
TOTAL INVESTMENTS, AT AMORTIZED COST $40,041,929+
------------------------------------------------------------ -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($40,180,005) at April 30, 1994.
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
--------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Insurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
HDC -- Housing Development Corporation
HFA -- Housing Finance Agency
IDA -- Industrial Development Authority
IDC -- Industrial Development Corporation
LOC(s) -- Letter(s) of Credit
MBIA -- Municipal Bond Investors Assurance
VRDNs -- Variable Rate Demand Notes
RANs -- Revenue Anticipation Notes
TANs -- Tax Anticipation Notes
BANs -- Bond Anticipation Notes
TRANs -- Tax and Revenue Anticipation Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $40,041,929
------------------------------------------------------------------------------------
Cash 6,255
------------------------------------------------------------------------------------
Interest receivable 252,335
------------------------------------------------------------------------------------
Receivable for capital stock sold 25
------------------------------------------------------------------------------------ -----------
Total assets 40,300,544
------------------------------------------------------------------------------------
LIABILITIES:
------------------------------------------------------------------------------------
Dividends payable $57,787
--------------------------------------------------------------------------
Payable for capital stock redeemed 12,821
--------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 4,672
--------------------------------------------------------------------------
Accrued expenses 45,259
-------------------------------------------------------------------------- -------
Total liabilities 120,539
------------------------------------------------------------------------------------ -----------
NET ASSETS for 40,180,005 shares of capital stock outstanding $40,180,005
------------------------------------------------------------------------------------ -----------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($40,180,005 / 40,180,005 shares of capital stock outstanding) $1.00
------------------------------------------------------------------------------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
-----------------------------------------------------------------------------------------
Interest income (Note 2C) $791,436
-----------------------------------------------------------------------------------------
EXPENSES:
-----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $172,553
-----------------------------------------------------------------------------
Directors' fees 669
-----------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 47,023
-----------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 53,520
-----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 24,965
-----------------------------------------------------------------------------
Capital stock registration costs 19,054
-----------------------------------------------------------------------------
Legal fees 6,876
-----------------------------------------------------------------------------
Insurance premiums 5,506
-----------------------------------------------------------------------------
Auditing fees 7,425
-----------------------------------------------------------------------------
Printing and postage 5,922
-----------------------------------------------------------------------------
Taxes 1,052
-----------------------------------------------------------------------------
Miscellaneous 1,875
----------------------------------------------------------------------------- --------
Total expenses 346,440
-----------------------------------------------------------------------------
Deduct--
-----------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $172,553
------------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 4) 31,058 203,611
------------------------------------------------------------------ -------- --------
Net expenses 142,829
----------------------------------------------------------------------------------------- --------
Net investment income $648,607
----------------------------------------------------------------------------------------- --------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
-------------------------------------------------------------------
OPERATIONS--
-------------------------------------------------------------------
Net investment income $ 648,607 $ 191,421
------------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
-------------------------------------------------------------------
Dividends to shareholders from net investment income (648,607) (191,421)
------------------------------------------------------------------- ------------ ------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
-------------------------------------------------------------------
Net proceeds from sale of shares 86,490,364 40,288,497
-------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends
in capital stock 52,595 37,930
-------------------------------------------------------------------
Cost of shares redeemed (64,261,755) (29,455,207)
------------------------------------------------------------------- ------------ ------------
Change in net assets from capital stock transactions 22,281,204 10,871,220
------------------------------------------------------------------- ------------ ------------
Change in net assets 22,281,204 10,871,220
-------------------------------------------------------------------
NET ASSETS:
-------------------------------------------------------------------
Beginning of period 17,898,801 7,027,581
------------------------------------------------------------------- ------------ ------------
End of period $ 40,180,005 $ 17,898,801
------------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
\
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VISION GROUP OF FUNDS, INC.
COMBINED 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 Money Market, the
Treasury Money Market and the New York Tax-Free Money Market Funds. 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 Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Funds' use of amortized cost method to value their portfolio
securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Funds 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
Funds 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.
These Funds will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Funds' 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, these Funds could receive less than the repurchase price
on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code, as
amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is each 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 for Treasury Money Market and Money Market and substantially all
of its tax-exempt income for New York Tax-Free Fund. Accordingly, no provisions for federal
tax are necessary.
</TABLE>
\
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--------------------------------------------------------------------------------
VISION GROUP OF FUNDS, INC.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in when-issued or
delayed delivery transactions. The Funds record when-issued securities on the trade date and
maintain 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. CONCENTRATION OF RISK--Since the New York Tax-Free Money Market invests a substantial
portion of its assets in issuers located in one state, it will be more susceptible to
factors adversely affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the credit risk associated with such factors, at
April 30, 1994, 57.3% of the securities in the portfolio of investments were backed by
letters of credit or bond insurance of various financial institutions and financial guaranty
assurance agencies. The aggregate percentages by financial institutions and agencies ranged
from 0.5% to 4.7% of total investments.
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 with respect to each Fund. Capital paid-in for Money Market
aggregated $266,359,686, par value was $266,626; Treasury Money Market
aggregated $197,321,444, par value was $199,810; New York Tax-Free Money Market
aggregated $40,139,725, par value was $40,280. Transactions in capital stock
were as follows:
<TABLE>
<CAPTION>
TREASURY NEW YORK TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
--------------------------- --------------------------- -------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------
Shares sold 934,500,299 671,143,439 844,659,542 566,436,755 86,490,364 40,288,497
--------------------------------------
Shares issued to shareholders in
payment of dividends declared 601,535 375,925 315,351 269,835 52,595 37,930
--------------------------------------
Shares redeemed (894,773,379) (588,891,785) (776,278,876) (538,254,437) (64,261,755) (29,455,207)
-------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------
Net change resulting from capital
stock transactions 40,328,455 82,627,579 68,696,017 28,452,153 22,281,204 10,871,220
-------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--M&T Bank, the Funds' investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .50 of 1%
of each Fund's average daily net assets. Adviser may voluntarily choose to waive
a portion of its fees and reimburse certain operating expenses of each Fund.
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Funds. The
fee is based on the size, type and number of accounts and transactions made by
shareholders.
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
\
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--------------------------------------------------------------------------------
VISION GROUP OF FUNDS, INC.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION GROUP OF FUNDS, INC.:
We have audited the accompanying statements of assets and liabilities of Vision
Group of Funds, Inc., (comprised of Vision Money Market Fund, Vision Treasury
Money Market Fund and Vision New York Tax-Free Money Markey Fund), including the
portfolios of investments, as of April 30, 1994, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the six years in the period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits 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 the 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 and brokers. 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 the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Vision Group of Funds, Inc., as
identified above, at April 30, 1994, the results of their operations for the
year then ended, the changes in their net assets for each of the two years in
the period then ended, and the financial highlights for each of the six years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
June 3, 1994
\
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1790
Boston, Massachusetts 02105-9849
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
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
INDEPENDENT AUDITORS
Ernst & Young
One Oxford Centre
Pittsburgh, Pennsylvania 15219
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Vision
Money Market
Fund
---------------------------------------------
Vision
Treasury
Money Market
Fund
---------------------------------------------
Vision
New York Tax-Free
Money Market
Fund
---------------------------------------------
Prospectus dated
June 30, 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
1072302A (6/94)
VISION MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the Prospectus of
the Vision Money Market Fund dated June 30, 1994, into which this Statement is
incorporated by reference. This Statement is not a Prospectus itself. To receive
a copy of the Prospectus, write or call the Vision Money Market Fund.
P.O. BOX 4556
BUFFALO, NEW YORK 14240-4556
Statement dated June 30, 1994
MANUFACTURERS AND TRADERS
TRUST COMPANY
----------------------------------------------------
Investment Adviser
A subsidiary of First Empire State Corporation
Federated Securities Corp. is distributor of the Fund.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------
Types of Investments 1
U.S. Government Obligations 1
When-Issued and Delayed
Delivery Transactions 1
Reverse Repurchase Agreements 1
Investment Limitations 2
VISION GROUP OF FUNDS, INC. MANAGEMENT 3
---------------------------------------------------------------
Officers and Directors 3
Fund Ownership 4
Director Liability 4
INVESTMENT ADVISORY SERVICES 4
---------------------------------------------------------------
Adviser to the Fund 4
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
---------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 5
---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
---------------------------------------------------------------
DESCRIPTION OF FUND SHARES 6
---------------------------------------------------------------
PURCHASING SHARES 7
---------------------------------------------------------------
Administrative Arrangements 7
Conversion to Federal Funds 7
Cash Sweep Program 7
DETERMINING NET ASSET VALUE 7
---------------------------------------------------------------
Use of the Amortized Cost Method 7
REDEEMING SHARES 8
---------------------------------------------------------------
TAX STATUS 8
---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 9
YIELD 9
---------------------------------------------------------------
EFFECTIVE YIELD 9
---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
---------------------------------------------------------------
APPENDIX 11
---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
--------------------------------------------------------------------------------
Vision Money Market Fund (the "Fund") is a portfolio of 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 AND POLICIES
--------------------------------------------------------------------------------
The Fund's investment objective is to seek current income with liquidity and
stability of principal by investing in high-quality money market instruments.
TYPES OF INVESTMENTS
The Fund invests in money market instruments which mature in 397 days or less
and which include, but are not limited to, commercial paper and variable amount
demand master notes, bank instruments, U.S. government obligations, and
repurchase agreements.
The instruments of banks and savings and loans that are members of the Federal
Deposit Insurance Corporation, such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances, are not necessarily
guaranteed by those organizations.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations 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;
- Student Loan Marketing Association;
- Federal Home Loan Mortgage Corporation;
- Federal Home Loan Banks; and
- Federal National Mortgage Association.
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. 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 prices.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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.
No fees or other 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 at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
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. The
Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
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 securities are
marked to market daily and maintained until the transaction is settled.
The above investment objective and policies cannot be changed without approval
of a majority of the outstanding shares of the Fund.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, or participate on a joint or joint and several basis in any
securities trading account.
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the terms described in the
Prospectus. The Fund does not anticipate entering into reverse repurchase
agreements in excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any securities, except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of its borrowings.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts (including
futures contracts), real estate, oil, gas, or mineral exploration or
development programs, except that it may purchase marketable securities
of companies engaged in such activities.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not make loans except that the Fund may purchase or hold
debt instruments, including repurchase agreements, in accordance with its
investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase securities issued by any one issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, 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, except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets
in any one industry. Utilities, however, will be divided according to
their services; for example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry.
Wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing
activities of their parents. In addition, the Fund may invest more than
25% 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, or instruments secured by these money
market instruments (i.e., repurchase agreements).
--------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
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 or Directors of the Corporation or the Fund's investment adviser
owning beneficially more than one-half of 1% of the issuer's securities
together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total assets
in the securities of issuers which have records of less than three years
of continuous operation, including the operation of any predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising control
or management.
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. 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. Accordingly, the Fund has undertaken to limit its investment in
new issuers, as defined above, to not more than 5% of its total assets.
The Fund did not borrow money in excess of 5% of the value of its net assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
VISION GROUP OF FUNDS, INC. MANAGEMENT
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations
and present positions, including any affiliation with Manufacturers and Traders
Trust Company, 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>
--------------------------------------------------------------------------------------------------------------------------------
Randall I. Benderson Director Senior Vice President and Chief Operating Officer, Benderson Development
570 Delaware Avenue Company, Inc.
Buffalo, NY
--------------------------------------------------------------------------------------------------------------------------------
Joseph J. Castiglia Director President and Chief Executive Officer, Pratt & Lambert, Inc.
75 Tonawanda Avenue
Buffalo, NY
--------------------------------------------------------------------------------------------------------------------------------
Daniel R. Gernatt, Jr. Director President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
Richardson & Taylor Hollow President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Roads Sand & Gravel, Inc.
Collins, NY
--------------------------------------------------------------------------------------------------------------------------------
George K. Hambleton, Jr. Director President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
670 Young Street
Tonawanda, NY
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors Tower and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Pittsburgh, PA Research; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Vice President and
Treasurer of certain investment companies organized or advised by Federated
Investors and its affiliates (Federated Funds); Trustee or Director of some
of the Federated Funds.
--------------------------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President and Director, Private Label Management, Federated Investors; formerly Vice
Federated Investors Tower Assistant Treasurer President, Product Management, MNC Financial, Inc., formerly Vice President
Pittsburgh, PA and Director of Investor Relations, MNC Financial Inc.
--------------------------------------------------------------------------------------------------------------------------------
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 June 4, 1994, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund: Tice & Co., Buffalo, New York, owned
approximately 228,998,326 shares (85.6%).
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
--------------------------------------------------------------------------------
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company ("M&T Bank") pursuant to an investment advisory agreement
dated April 25, 1988. The advisory services provided and the expenses assumed by
M&T Bank, as well as the advisory fees payable to it, are described in the
Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with its performance under the advisory agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of M&T Bank in the performance of its
duties, or from reckless disregard by it of its 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 advisory agreement between the Fund and M&T Bank
will 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 Prospectus),
and by a majority of the Directors who are not parties to the advisory agreement
or interested persons (as defined in the Investment Company Act of 1940) of any
party to the advisory agreement, by vote cast in person at a meeting called for
such purpose. The 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, or by M&T Bank. The advisory agreement also
terminates automatically in the event of its assignment, as defined in the
Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory fee
as described in the Prospectus.
During the fiscal years ended April 30, 1994, 1993 and 1992, the Fund's adviser
earned $1,232,714, $853,619, and $543,186, respectively, which were reduced by
$1,051,041, $666,870, and $60,233, respectively, because of undertakings to
limit the Fund's expenses. All advisory fees were computed on the same basis as
in the advisory contract described in the Prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
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, the adviser 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 the adviser will be limited, in any single fiscal
year, 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.
For the fiscal years ended April 30, 1994, 1993, and 1992, Federated
Administrative Services earned $336,753, $248,511, and $162,717, respectively.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
--------------------------------------------------------------------------------
Federated Services Company serves as transfer agent for shares of the Fund and
dividend disbursing agent responsible for distributing dividends to the Fund's
shareholders. Prior to March 31, 1994, State Street Bank and Trust Company
served in this capacity. There were no changes in the transfer agency fees
charged as a result of this change.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
Pursuant to the Fund's advisory agreement, M&T Bank 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 are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid and
asking price. While M&T Bank generally seeks competitive spreads or commissions,
the 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, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser 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. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser. This information is in addition to and not in lieu of services required
to be performed by M&T Bank and does not reduce the advisory fees payable to M&T
Bank by the Fund. Such information may be useful to 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 M&T Bank in carrying out its 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.
The adviser 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 its Trust and Investment
Services Division independently of its Commercial Department. The Fund's
advisory agreement provides that, in making investment recommendations for the
Fund, Trust and Investment Services Division personnel 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 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. 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 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 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.
The Fund does not intend to seek profits through short-term trading. The Fund's
annual portfolio turnover will be relatively high but portfolio turnover is not
expected to have a material effect on the net income of the Fund.
DESCRIPTION OF FUND SHARES
--------------------------------------------------------------------------------
The Corporation's Articles of Incorporation authorize the Board of Directors to
issue up to ten billion full and fractional shares of Common Stock, of which six
billion shares have been classified into six classes of one billion shares each.
Four billion shares remain unclassified at this time. Shares of Classes A, B, C,
D, E, and F 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, Vision New York Tax-Free Fund, and Vision
Growth and Income Fund, respectively.
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 of Directors 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 the 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
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 also 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's 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).
PURCHASING SHARES
--------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days 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 "Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
For the fiscal year ended April 30, 1994 the distributor did not pay any fees to
brokers and dealers for distribution and administrative services and to
administrators for administrative services. The administrative services may
include, but are not limited to, providing office space, equipment, telephone
facilities, and various personnel, including clerical, supervisory, and
computer, as is necessary or beneficial to establish and maintain shareholders'
accounts and records, process purchase and redemption transactions, process
automatic investments of client account cash balances, answer routine client
inquiries regarding the Fund, assist clients in changing dividend options,
account designations, and addresses, and providing such other services as the
Fund may reasonably request.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. M&T Bank and Federated
Services Company act as the shareholders' agents in depositing checks and
converting them to federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future. For
participating accounts, cash accumulations in demand deposit accounts with M&T
Bank would be automatically invested in shares of the Fund on a day selected by
M&T Bank and its customer, or when the demand deposit account reaches a
predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read together
with any agreement between the customer and the depository institution
with regard to the services to be provided, the fees to be charged for
those services, and any restrictions and limitations that would be
imposed. Beneficial ownership of Fund shares held by M&T Bank and other
institutional investors on behalf of their customers would be recorded by
the institutions and reflected in the regular account statements provided
by institutions to their customers.
DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the Prospectus.
USE OF THE AMORTIZED COST METHOD
The Directors have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
--------------------------------------------------------------------------------
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940.
Under the Rule, the Directors must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. Under the Rule, the Fund
is permitted to purchase instruments which are subject to demand features or
standby commitments. As defined by the Rule, a demand feature entitles the Fund
to receive the principal amount of the instrument from the issuer or a third
party on (1) no more than 30 days' notice or (2) at specified intervals not
exceeding 397 days on no more than 30 days' notice. A standby commitment
entitles the Fund to achieve same day settlement and to receive an exercise
price equal to the amortized cost of the underlying instrument plus accrued
interest at the time of exercise.
MONITORING PROCEDURES
The Directors' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Directors will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Directors will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Directors, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Directors must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
It is the Fund's usual practice to hold portfolio securities to maturity and
realize par, unless the investment adviser determines that sale or other
disposition is appropriate in light of the Fund's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING 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 "Redeeming Shares."
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, the 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 taxes on dividends received as cash
or additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
Net income for dividend purposes includes (i) interest and dividends accrued and
discount earned on the Fund's assets (including both original issue and market
discount), less (ii) amortization of any premium and accrued expenses directly
attributable to the Fund, and the general expenses (e.g. legal, accounting and
Directors' fees)
of the Corporation prorated to the Fund on the basis of its relative net assets.
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 for
some extraordinary reason the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
YIELD
--------------------------------------------------------------------------------
The Fund's yield for the seven-day period ended April 30, 1994 was 3.26%. The
Fund calculates its yield daily, based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
- determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
--------------------------------------------------------------------------------
The Fund's effective yield for the seven-day period ended April 30, 1994 was
3.31%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in Fund expenses; and
- the relative amount of Fund cash flow.
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 income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instrument funds" category in advertising and sales literature.
--------------------------------------------------------------------------------
- BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks and
thrift institution money market deposit accounts. The rates published in the
index are an average of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
- DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds.
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.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
--------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely 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 RATING DEFINITIONS
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 of funds employed.
- Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) 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, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
F-1--VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance for 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 as for
issues assigned F-1+ and F-1 ratings.
0072403B (6/94)
VISION TREASURY MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the Prospectus of
the Vision Treasury Money Market Fund dated June 30, 1994, into which this
Statement is incorporated by reference. This Statement is not a Prospectus
itself. To receive a copy of the Prospectus, write or call the Vision Treasury
Money Market Fund.
P.O. BOX 4556
BUFFALO, NEW YORK 14240-4556
Statement dated June 30, 1994
MANUFACTURERS AND TRADERS
TRUST COMPANY
----------------------------------------------------
Investment Adviser
A subsidiary of First Empire State Corporation
Federated Securities Corp. is distributor of the Fund.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------
Types of Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
When-Issued and Delayed
Delivery Transactions 1
Investment Limitations 1
VISION GROUP OF FUNDS, INC. MANAGEMENT 3
---------------------------------------------------------------
Officers and Directors 3
Fund Ownership 3
Director Liability 3
INVESTMENT ADVISORY SERVICES 4
---------------------------------------------------------------
Adviser to the Fund 4
Advisory Fees 4
ADMINISTRATIVE SERVICES 4
---------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 5
---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
---------------------------------------------------------------
DESCRIPTION OF FUND SHARES 6
---------------------------------------------------------------
PURCHASING SHARES 6
---------------------------------------------------------------
Administrative Arrangements 6
Conversion to Federal Funds 6
Cash Sweep Program 6
DETERMINING NET ASSET VALUE 7
---------------------------------------------------------------
Use of the Amortized Cost Method 7
REDEEMING SHARES 8
---------------------------------------------------------------
TAX STATUS 8
---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
---------------------------------------------------------------
EFFECTIVE YIELD 9
---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
--------------------------------------------------------------------------------
Vision Treasury Money Market Fund (the "Fund") is a portfolio of 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 AND POLICIES
--------------------------------------------------------------------------------
The Fund's investment objective is to seek current income with liquidity and
stability of principal by investing in direct obligations of the U.S. Treasury
with remaining maturities of 397 days or less.
TYPES OF INVESTMENTS
The Fund invests in direct obligations of the U.S. Treasury, such as bills,
notes, and bonds, and repurchase agreements collateralized by U.S. Treasury
obligations, which mature in 397 days or less.
"U.S. Treasury Obligations" refers to evidences of indebtedness issued by the
United States that are fully
guaranteed as to principal and interest by the United States, maturing in one
year or less from the date of
acquisition or purchased pursuant to repurchase agreements that provide for
repurchase by the seller within
one year from the date of acquisition.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements as described in the Prospectus.
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 securities are
marked to market daily and maintained until the transaction is settled.
The above investment objective and policies cannot be changed without approval
of a majority of the outstanding shares of the Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase short-term U.S. government obligations 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.
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
prices.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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.
No fees or other 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 at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
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. The
Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, or participate on a joint or joint and several basis in any
securities trading account.
--------------------------------------------------------------------------------
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the terms described in the
Prospectus. The Fund does not anticipate entering into reverse repurchase
agreements in excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any securities, except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of its borrowings.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts (including
futures contracts), real estate, oil, gas, or mineral exploration or
development programs, except that the purchase of marketable securities
of companies engaged in such activities is not hereby precluded.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not make loans except that the Fund may purchase or hold
debt instruments, including repurchase agreements, in accordance with its
investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
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 or Directors of the Corporation or the Fund's investment adviser
owning beneficially more than one-half of 1% of the issuer's securities
together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total assets
in the securities of issuers which have records of less than three years
of continuous operation, including the operation of any predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising control
or management.
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 did not borrow money in excess of 5% of the value of its net assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
VISION GROUP OF FUNDS, INC. MANAGEMENT
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations
and present positions, including any affiliation with Manufacturers and Traders
Trust Company, 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>
---------------------------------------------------------------------------------------------------------------
Randall I. Benderson Director Senior Vice President and Chief Operating
570 Delaware Avenue Officer, Benderson Development Company, Inc.
Buffalo, NY
---------------------------------------------------------------------------------------------------------------
Joseph J. Castiglia Director President and Chief Executive Officer, Pratt &
75 Tonawanda Avenue Lambert, Inc.
Buffalo, NY
---------------------------------------------------------------------------------------------------------------
Daniel R. Gernatt, Jr. Director President and CFO of Gernatt Asphalt Products,
Richardson & Taylor Hollow Roads Inc.; Executive Vice President, Dan Gernatt
Collins, NY Gravel Products, Inc.; Vice President,
Countryside Sand & Gravel, Inc.
---------------------------------------------------------------------------------------------------------------
George K. Hambleton, Jr. Director President, Brand Name Sales, Inc.; President,
670 Young Street Hambleton & Carr, Inc.
Tonawanda, NY
---------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President Vice President, Treasurer and Trustee,
Federated Investors Tower and Treasurer Federated Investors; Vice President and
Pittsburgh, PA Treasurer, Federated Advisers, Federated
Management, and Federated Research; Executive
Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and
Director, Federated Administrative Services;
Vice President and Treasurer of certain
investment companies organized or advised by
Federated Investors and its affiliates
(Federated Funds); Trustee or Director of some
of the Federated Funds.
---------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President and Director, Private Label Management, Federated
Federated Investors Tower Assistant Treasurer Investors; formerly Vice President, Product
Pittsburgh, PA Management, MNC Financial, Inc.; formerly Vice
President and Director of Investor Relations,
MNC Financial Inc.
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Joseph M. Huber Secretary Corporate Counsel, Federated Investors.
Federated Investors Tower
Pittsburgh, PA
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</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 June 4, 1994, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund: Tice & Co., Buffalo, New York, owned
approximately 199,508,643 shares (93.5%).
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
--------------------------------------------------------------------------------
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company ("M&T Bank"), pursuant to an investment advisory agreement
dated April 25, 1988. The advisory services provided and the expenses assumed by
M&T Bank, as well as the advisory fees payable to it, are described in the
Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with its performance under the advisory agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of M&T Bank in the performance of its
duties, or from reckless disregard by it of its 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 advisory agreement between the Fund and M&T Bank
will 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 Prospectus), and by a
majority of the directors who are not parties to the advisory agreement or
interested persons (as defined in the Investment Company Act of 1940) of any
party to the advisory agreement, by vote cast in person at a meeting called for
such purpose. The advisory agreement is terminable at any time on 60 days'
written notice without penalty by the directors, by vote of a majority of the
outstanding shares of the Fund, or by M&T Bank. The advisory agreement also
terminates automatically in the event of its assignment, as defined in the
Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory fee
as described in the Prospectus. During the fiscal years ended April 30, 1994,
1993 and 1992, the Fund's adviser earned $946,784, $597,031 and $477,593, which
was reduced by $807,916, $463,365 and $44,545, respectively, because of
undertakings to limit the Fund's expenses. All advisory fees were computed on
the same basis as in the advisory contract described in the Prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
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, the adviser 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 the adviser will
be limited, in any single fiscal year, 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.
For the fiscal years ended April 30, 1994, 1993 and 1992, Federated
Administrative Services earned $258,317, $173,852 and $143,093, respectively.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
--------------------------------------------------------------------------------
Federated Services Company serves as transfer agent for shares of the Fund and
dividend disbursing agent responsible for distributing dividends to the Fund's
shareholders. Prior to March 31, 1994, State Street Bank and Trust Company
served in this capacity. There were no changes in the transfer agency fees
charged as a result of this change.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
Pursuant to the Fund's advisory agreement, M&T Bank 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 are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid and
asking price. While M&T Bank generally seeks competitive spreads or commissions,
the 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, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser 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. The adviser makes
decisions on portfolio transactions and selects brokers and dealers, subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser. This information is in addition to and not in lieu of services required
to be performed by M&T Bank and does not reduce the advisory fees payable to M&T
Bank by the Fund. Such information may be useful to 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 M&T Bank in carrying
out its 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.
The adviser 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 its Trust and Investment
Services Division independently of its Commercial Department. The Fund's
advisory agreement provides that, in making investment recommendations for the
Fund, Trust and Investment Services Division personnel 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 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. 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 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 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.
The Fund does not intend to seek profits through short-term trading. The Fund's
annual portfolio turnover will be relatively high, but portfolio turnover is not
expected to have a material effect on the net income of the Fund.
DESCRIPTION OF FUND SHARES
--------------------------------------------------------------------------------
The Corporation's Articles of Incorporation authorize the Board of Directors to
issue up to ten billion full and fractional shares of Common Stock, of which six
billion shares have been classified into six classes of one billion shares each.
Four billion shares remain unclassified at this time. Shares of Classes A, B, C,
D, E, and F 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, Vision New York Tax-Free Fund, and Vision
Growth and Income Fund, respectively.
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 of Directors 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 the 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
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 also 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's 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).
PURCHASING SHARES
--------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days 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 "Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
For the fiscal year ended April 30, 1994, the distributor did not pay any fees
to brokers and dealers for distribution and administrative services and to
administrators for administrative services. The administrative services may
include, but are not limited to, providing office space, equipment, telephone
facilities, and various personnel, including clerical, supervisory, and
computer, as is necessary or beneficial to establish and maintain shareholders'
accounts and records, process purchase and redemption transactions, process
automatic investments of client account cash balances, answer routine client
inquiries regarding the Fund, assist clients in changing dividend options,
account designations, and addresses, and providing such other services as the
Fund may reasonably request.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. M&T Bank and Federated
Services Company act as the shareholders' agent in depositing checks and
converting them to federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future. For
participating accounts, cash accumulations in demand deposit accounts with M&T
Bank would be automatically invested in shares of the Fund on a day selected by
M&T Bank and its customer, or when the demand deposit account reaches a
predetermined dollar amount (e.g., $5,000).
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PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read together
with any agreement between the customer and the depository institution
with regard to the services to be provided, the fees to be charged for
those services, and any restrictions and limitations that would be
imposed. Beneficial ownership of Fund shares held by M&T Bank and other
institutional investors on behalf of their customers would be recorded by
the institutions and reflected in the regular account statements provided
by institutions to their customers.
DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the Prospectus.
USE OF THE AMORTIZED COST METHOD
The Directors have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Directors must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Directors' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Directors will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Directors will take any steps they
consider appropriate (redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences
between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Directors, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Directors must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
It is the Fund's usual practice to hold portfolio securities to maturity and
realize par, unless the investment adviser determines that sale or other
disposition is appropriate in light of the Fund's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
--------------------------------------------------------------------------------
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING 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 "Redeeming Shares."
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, the 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. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
Net income for dividend purposes includes (i) interest and dividends accrued and
discount earned on the Fund's assets (including both original issue and market
discount), less (ii) amortization of any premium and accrued expenses directly
attributable to the Fund, and the general expenses (e.g. legal, accounting and
directors' fees)
of the Corporation prorated to the Fund on the basis of its relative net assets.
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 for
some extraordinary reason the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
YIELD
--------------------------------------------------------------------------------
The Fund's yield for the seven-day period ended April 30, 1994 was 3.08%. The
Fund calculates its yield daily, based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
- determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
--------------------------------------------------------------------------------
The Fund's effective yield for the seven-day period ended April 30, 1994 was
3.13%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in Fund expenses; and
- the relative amount of Fund cash flow.
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 income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instrument funds" category in advertising and sales literature.
- SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S. Treasury
maturing in 30 days.
- BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks and
thrift institution money market deposit accounts. The rates published in the
index are an average of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
- DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds.
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.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
0072404B (6/94)
VISION NEW YORK TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the Prospectus of
the Vision New York Tax-Free Money Market Fund dated June 30, 1994, into which
this Statement is incorporated by reference. This Statement is not a Prospectus
itself. To receive a copy of the Prospectus, write or call the Vision New York
Tax-Free Money Market Fund.
P.O. BOX 4556
BUFFALO, NEW YORK 14240-4556
Statement dated June 30, 1994
MANUFACTURERS AND TRADERS
TRUST COMPANY
----------------------------------------------------
Investment Adviser
A subsidiary of First Empire State Corporation
Federated Securities Corp. is distributor of the Fund.
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------
Types of Investments 1
Municipal Security Issues 1
Types of Acceptable Investments 2
Temporary Investments 2
When-Issued and Delayed
Delivery Transactions 2
Investment Limitations 3
VISION GROUP OF FUNDS, INC. MANAGEMENT 5
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Officers and Directors 5
Fund Ownership 5
Director Liability 6
INVESTMENT ADVISORY SERVICES 6
---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 6
ADMINISTRATIVE SERVICES 7
---------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 7
---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
---------------------------------------------------------------
DESCRIPTION OF FUND SHARES 8
---------------------------------------------------------------
PURCHASING SHARES 8
---------------------------------------------------------------
Administrative Arrangements 8
Conversion to Federal Funds 9
Cash Sweep Program 9
DETERMINING NET ASSET VALUE 9
---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
---------------------------------------------------------------
TAX STATUS 10
---------------------------------------------------------------
The Fund's Tax Status 10
Shareholders' Tax Status 10
New York Issues 10
YIELD 11
---------------------------------------------------------------
TAX-EQUIVALENT YIELD 11
---------------------------------------------------------------
Tax-Equivalency Table 12
EFFECTIVE YIELD 12
---------------------------------------------------------------
PERFORMANCE COMPARISONS 12
---------------------------------------------------------------
APPENDIX 14
---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
--------------------------------------------------------------------------------
Vision New York Tax-Free Money Market Fund (the "Fund") is a portfolio of 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 AND POLICIES
--------------------------------------------------------------------------------
The Fund's investment objective is to seek as high a level of current interest
income that is exempt from federal regular income tax as is consistent with
liquidity and stability of principal by investing in high-quality tax-exempt
obligations with remaining maturities of 397 days or less.
TYPES OF INVESTMENTS
The Fund invests substantially all its assets in high-quality tax-exempt
obligations having remaining maturities of 397 days or less. While the Fund may
also invest in short-term taxable obligations, under normal conditions at least
80% of the Fund's net assets will be invested in obligations exempt from federal
regular income tax.
Subject to the Fund's investment objective and policies stated above, the Fund
will attempt to invest its assets, to the extent practicable, in tax-exempt
obligations issued by the State of New York and its political subdivisions ("New
York municipal securities"). The Fund intends to invest, under normal
circumstances, at least 80% of its net assets in New York municipal securities.
To the extent dividends paid by the Fund are derived from interest on New York
municipal securities, they will be exempt from both federal regular income tax
and New York State and New York City income tax.
MUNICIPAL SECURITY ISSUES
Municipal securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. Industrial development bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term municipal securities if the interest paid thereon
is exempt from federal regular income tax.
There are, of course, variations in the quality of municipal securities both
within a particular classification and between classifications, and the yields
on municipal securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
Investors Service Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
described in the Prospectus and the Appendix to this Statement of Additional
Information represent their opinions as to the quality of municipal securities.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality, and municipal securities with the same maturity, interest
rate and rating may have different yields while municipal securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by the Fund, an issue of municipal securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. Manufacturers and Traders Trust Company ("M&T Bank"),
the investment adviser to the Fund, will consider such an event in determining
whether the Fund should continue to hold the obligation.
The payment of principal and interest on most municipal securities purchased by
the Fund will depend upon the ability of the issuers to meet their obligations.
An issuer's obligations under its municipal securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal securities may be materially
adversely affected by litigation or other conditions. For purposes of this
Statement of Additional Information and the Fund's Prospectus, the District of
Columbia, each state, each of their political subdivisions, agencies,
instrumentalities and authorities and each multi-state agency of which a state
is a member is considered to be an "issuer." Further, the nongovernmental user
of facilities financed by industrial development bonds is considered to be an
"issuer." With respect to those municipal securities that are supported by a
bank guarantee or other credit facility, the bank or other institution (or
governmental agency) providing the guarantee or credit facility may also be
considered to be an "issuer" in connection with the guarantee or facility.
Among other types of municipal securities, the Fund may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in
--------------------------------------------------------------------------------
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Fund may invest in other types of tax-exempt
instruments, such as municipal bonds and industrial development bonds, provided
they have remaining maturities of 397 days or less at the time of purchase.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of New York municipal securities are:
- tax-exempt project notes issued by the U.S. Department of Housing and Urban
Development to provide financing for housing, redevelopment, and urban
renewal;
- municipal notes and tax-exempt commercial paper;
- serial bonds sold with a series of maturity dates;
- tax anticipation notes sold to finance working capital needs of municipalities
in anticipation of receiving taxes at a later date;
- bond anticipation notes sold in anticipation of the issuance of longer-term
bonds in the future;
- revenue anticipation notes sold in expectation of receipt of federal income
available under the Federal Revenue Sharing Program; and
- pre-refunded municipal bonds refundable at a later date.
TEMPORARY INVESTMENTS
As stated in the Prospectus, the Fund may invest a portion of its assets on a
temporary basis for temporary purposes in short-term taxable money market
instruments ("Temporary Investments"). Temporary Investments in which the Fund
may invest include instruments within the classes listed below. Although the
Fund has retained the flexibility of investing up to 20% of its total assets in
these Temporary Investments during non-defensive periods (and greater amounts
during temporary defensive periods), the Fund anticipates that it would not
invest more than 5% of its net assets in any one of the following classes of
Temporary Investments.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations 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;
- Student Loan Marketing Association;
- Federal Home Loan Banks;
- Federal Home Loan Mortgage Corporation; and
- Federal National Mortgage Association.
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. 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 prices.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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.
No fees or other 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 at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
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. The Fund may engage in these transactions to an extent that would
cause the segregation of an amount up to 20% of the total value of its assets.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
The Fund may invest in certificates of deposit of domestic branches of
U.S. commercial banks which are members of the Federal Reserve System or
the deposits of which are insured by the Federal Deposit Insurance
Corporation having total assets at the time of purchase in excess of $1
billion, and bankers' acceptances guaranteed by domestic branches of U.S.
commercial banks having total assets at the time of purchase in excess of
$1 billion.
COMMERCIAL PAPER
The Fund may invest in commercial paper rated at the time of purchase
"A-2" or better by S&P or "Prime-2" or better by Moody's or, if not
rated, found by M&T Bank to be of comparable quality pursuant to
guidelines approved by the Board of Directors. See the "Appendix" of this
Statement of Additional Information for a description of these ratings.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements as described in the
Prospectus.
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
securities are marked to market daily and maintained until the
transaction is settled.
The above investment objective and policies cannot be changed without approval
of a majority of the outstanding shares of the Fund.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
INVESTING IN EXEMPT-INTEREST OBLIGATIONS
The Fund will not invest less than 80% of its net assets in securities
the interest on which is exempt from federal regular income tax, except
during temporary defensive periods. AMT obligations are not counted as
securities the interest on which is exempt from federal regular income
tax.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, or participate on a joint or joint and several basis in any
securities trading account.
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the terms described herein. The
Fund does not anticipate entering into reverse repurchase agreements in
excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of its borrowing. The Fund will not purchase
securities while its borrowings (including reverse repurchase agreements)
are outstanding.
--------------------------------------------------------------------------------
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts (including
futures contracts), real estate, oil, gas, or mineral exploration or
development programs, except that it may purchase marketable securities
of companies engaged in such activities.
UNDERWRITING
The Fund will not underwrite securities.
LENDING CASH OR SECURITIES
The Fund will not make loans, except that it may purchase or hold debt
instruments, including repurchase agreements, in accordance with its
investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase securities issued by any one issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, 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, except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets
in issuers in the same industry.
However, the Fund may invest more than 25% of the value of its total
assets in obligations issued by any state, territory, or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, 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, or instruments secured by these money market
instruments (i.e., repurchase agreements).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
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 or Directors of the Corporation or the Fund's investment adviser
owning beneficially more than one-half of 1% of the issuer's securities
together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total assets
in the securities of issuers which have records of less than three years
of continuous operation, including the operation of any predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising control
or management.
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. 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. Accordingly,
the Fund has undertaken to limit its investment in new issuers, as defined
above, to not more than 5% of its total assets.
The Fund did not borrow money in excess of 5% of the value of its net assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
VISION GROUP OF FUNDS, INC. MANAGEMENT
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations
and present positions, including any affiliation with Manufacturers and Traders
Trust Company, Federated Investors, Federated Securities Corp., Federated
Services Company, and Federated Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
Randall I. Benderson Director Senior Vice President and Chief Operating
570 Delaware Avenue Officer, Benderson Development Company, Inc.
Buffalo, New York
---------------------------------------------------------------------------------------------------------------
Joseph J. Castiglia Director President and Chief Executive Officer, Pratt &
75 Tonawanda Avenue Lambert, Inc.
Buffalo, NY
---------------------------------------------------------------------------------------------------------------
Daniel R. Gernatt, Jr. Director President and CFO of Gernatt Asphalt Products,
Richardson & Taylor Hollow Roads Inc.; Executive Vice President, Dan Gernatt
Collins, NY Gravel Products, Inc.; Vice President,
Countryside Sand & Gravel, Inc.
---------------------------------------------------------------------------------------------------------------
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 Tower Treasurer Federated Investors; Vice President and
Pittsburgh, PA Treasurer, Federated Advisers, Federated
Management, and Federated Research; Executive
Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and
Director, Federated Administrative Services;
Vice President and Treasurer of certain
investment companies organized or advised by
Federated Investors and its affiliates
(Federated Funds); Trustee or Director of some
of the Federated Funds.
---------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President and Director, Private Label Management, Federated
Federated Investors Tower Assistant Treasurer Investors; formerly Vice President, Product
Pittsburgh, PA Management, MNC Financial, Inc.; formerly Vice
President and Director of Investor Relations,
MNC Financial Inc.
---------------------------------------------------------------------------------------------------------------
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 June 4, 1994, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Tice & Co., Buffalo, New York, owned
approximately 36,045,939 shares (82.1%); and Georgetown Park Apartments,
Rochester, New York, owned approximately 2,545,211 shares (5.8%).
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
--------------------------------------------------------------------------------
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company ("M&T Bank"), pursuant to an investment advisory agreement
dated April 25, 1988. The advisory services provided and the expenses assumed by
M&T Bank, as well as the advisory fees payable to it, are described in the
Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with its performance under the advisory agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of M&T Bank in the performance of its
duties, or from reckless disregard by it of its 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 advisory agreement between the Fund and M&T Bank
will 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 Prospectus), and by a
majority of the Directors who are not parties to the advisory agreement or
interested persons (as defined in the Investment Company Act of 1940) of any
party to the advisory agreement, by vote cast in person at a meeting called for
such purpose. The advisory agreement is terminable at any time on 60 days'
written notice without penalty by the Directors, by vote of a majority of the
outstanding shares of the Fund, or by M&T Bank. The advisory agreement also
terminates automatically in the event of its assignment, as defined in the
Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory fee
as described in the Prospectus.
During the fiscal years ended April 30, 1994, 1993, and 1992, the Fund's adviser
earned $172,553, $57,095 and $41,328, respectively, all of which was voluntarily
waived.
STATE EXPENSE LIMITATIONS
The adviser 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, the adviser 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 the adviser will be limited, in any single fiscal
year, 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.
For the fiscal years ended April 30, 1994, 1993 and 1992, Federated
Administrative Services earned $47,023, $16,625 and $12,387, respectively, of
which $31,058, $15,638 and $12,387, respectively, were voluntarily waived.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
--------------------------------------------------------------------------------
Federated Services Company serves as transfer agent for shares of the Fund and
dividend disbursing agent responsible for distributing dividends to the Fund's
shareholders. Prior to March 31, 1994, State Street Bank and Trust Company
served in this capacity. There were no changes in the transfer agency fees
charged as a result of this change.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
Pursuant to the Fund's advisory agreement, M&T Bank 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 are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid and
asking price. While M&T Bank generally seeks competitive spreads or commissions,
the 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, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser 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. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser. This information is in addition to and not in lieu of services required
to be performed by M&T Bank and does not reduce the advisory fees payable to M&T
Bank by the Fund. Such information may be useful to 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 M&T Bank in carrying
out its 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.
The adviser 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 its Trust and Investment
Services Division independently of its Commercial Department.
The Fund's advisory agreement provides that, in making investment
recommendations for the Fund, Trust and Investment Services Division personnel
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 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. 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 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 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.
The Fund does not intend to seek profits through short-term trading. The Fund's
annual portfolio turnover will be relatively high but portfolio turnover is not
expected to have a material effect on the net income of the Fund.
DESCRIPTION OF FUND SHARES
--------------------------------------------------------------------------------
The Corporation's Articles of Incorporation authorize the Board of Directors to
issue up to ten billion full and fractional shares of Common Stock, of which six
billion shares have been classified into six classes of one billion shares each.
Classes A, B, C, D, E, and F 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, Vision New York Tax-Free
Fund, and Vision Growth and Income Fund, respectively. Four billion shares
remain unclassified at this time.
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 of Directors 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 the 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
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 also 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's 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).
PURCHASING SHARES
--------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days 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 "Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
For the fiscal year ended April 30, 1994, the distributor did not pay any fees
to brokers and dealers for distribution and administrative services and to
administrators for administrative services. The administrative services may
include, but are not limited to, providing office space, equipment, telephone
facilities, and various personnel, including clerical, supervisory, and
computer, as is necessary or beneficial to establish and maintain shareholders'
accounts and records, process purchase and redemption transactions, process
automatic investments of client account cash balances, answer routine client
inquiries regarding the Fund, assist clients in changing dividend options,
account designations, and addresses, and providing such other services as the
Fund may reasonably request.
--------------------------------------------------------------------------------
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. M&T Bank and State Street Bank
act as the shareholders' agents in depositing checks and converting them to
federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future. For
participating accounts, cash accumulations in demand deposit accounts with M&T
Bank would be automatically invested in shares of the Fund on a day selected by
M&T Bank and its customer, or when the demand deposit account reaches a
predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read together
with any agreement between the customer and the depository institution
with regard to the services to be provided, the fees to be charged for
those services, and any restrictions and limitations that would be
imposed. Beneficial ownership of Fund shares held by M&T Bank and other
institutional investors on behalf of their customers would be recorded by
the institutions and reflected in the regular account statements provided
by institutions to their customers.
DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the Prospectus.
USE OF THE AMORTIZED COST METHOD
The Directors have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Directors must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Directors' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Directors will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Directors will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Directors, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in the Rule. If
the instruments are not rated, the Directors must determine that they are
of comparable quality. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per share. In addition, no instrument with a remaining maturity of
more than 397 days can be purchased by the Fund.
--------------------------------------------------------------------------------
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible. For the treatment of variable rate municipal
securities with demand features, refer to "Variable Rate Demand Notes" in
the Prospectus.
It is the Fund's usual practice to hold portfolio securities to maturity and
realize par, unless the investment adviser determines that sale or other
disposition is appropriate in light of the Fund's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING 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 "Redeeming Shares."
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, the 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
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations. These dividends (to the extent
taxable), and any short-term capital gains, are taxable as ordinary income.
Net income for dividend purposes includes (i) interest and dividends accrued and
discount earned on the Fund's assets (including both original issue and market
discount), less (ii) amortization of any premium and accrued expenses directly
attributable to the Fund, and the general expenses (e.g. legal, accounting and
directors' fees) of the Corporation prorated to the Fund on the basis of its
relative net assets.
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 for
some extraordinary reason the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
NEW YORK ISSUES
New York State and New York City do not impose personal income taxes on interest
received from New York municipal securities (or municipal securities issued by a
possession of the United States). New York State and New York City personal
income taxes do not apply to interest paid as dividends to shareholders to the
extent such interest is derived from New York (and U.S. possession) municipal
securities. Thus, New York State and New York City personal income taxes are not
applicable to the portion of tax-exempt interest dividends paid to shareholders
by the Fund that represent the same percentage of tax-exempt interest dividends
paid by the Fund that the Fund's interest on New York (and U.S. possession)
municipal securities represents with respect to the total amount of tax-exempt
interest earned by the Fund. Dividends paid by the Fund not derived from
interest on New York (or U.S. possession) municipal securities are not exempt
for New York State and New York City tax purposes, even though such dividends
may be exempt for federal tax purposes. In addition, distributions of capital
gains, if any, are not exempt from New York State or New York City income taxes.
Interest on indebtedness incurred or continued to
--------------------------------------------------------------------------------
purchase or carry Fund shares is non-deductible for New York State and New York
City income tax purposes in the same proportion that dividends from the shares
are exempt from such taxes.
The maximum rate under the New York State personal income tax is scheduled to be
7.59375% for 1994. This maximum rate is scheduled to decrease to 7% for single
taxpayers, and 7.125% for married filing joint taxpayers after 1994. The maximum
rate under the New York City Personal Income Tax (including surcharges) is 4.46%
for 1994. This maximum rate is scheduled to remain in effect through 1994.
YIELD
--------------------------------------------------------------------------------
The Fund's yield for the seven-day period ended April 30, 1994 was 2.31%. The
Fund calculates its yield daily, based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
- determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
--------------------------------------------------------------------------------
The Fund's tax-equivalent yield for the seven-day period ended April 30, 1994
was 3.59%.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 28% federal tax rate and the regular personal
income tax rate imposed by New York and assuming that its income is 100%
tax-exempt.
--------------------------------------------------------------------------------
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income taxes*, and is often free
from state and local taxes as well. As the table below indicates a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF NEW YORK
COMBINED FEDERAL AND STATE INCOME TAX BRACKET
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Tax Bracket: Federal 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State 22.594% 35.594% 38.594% 43.594% 47.194%
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Joint Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
---------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
---------------------------------------------------------------------------------------------------------------------
1.50% 1.94% 2.33% 2.44% 2.66% 2.84%
2.00 2.58 3.11 3.26 3.55 3.79
2.50 3.23 3.88 4.07 4.43 4.73
3.00 3.88 4.66 4.89 5.32 5.68
3.50 4.52 5.43 5.70 6.20 6.63
4.00 5.17 6.21 6.51 7.09 7.57
4.50 5.81 6.99 7.33 7.98 8.52
5.00 6.46 7.76 8.14 8.86 9.47
5.50 7.11 8.54 8.96 9.75 10.42
6.00 7.75 9.32 9.77 10.64 11.36
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
EFFECTIVE YIELD
--------------------------------------------------------------------------------
The Fund's effective yield for the seven-day period ended April 30, 1994 was
2.33%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in Fund expenses; and
- the relative amount of Fund cash flow.
--------------------------------------------------------------------------------
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 income dividends and capital gains distributions, if any.
- BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks and
thrift institution money market deposit accounts. The rates published in the
index are an average of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
- DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds.
From time to time, the Fund will quote its Lipper ranking in the "money market
instrument funds" category in advertising and sales literature. Investors may
use such a reporting service in addition to the Fund's prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing Fund performance to any reporting service, factors such as composition
of the reporting service and prevailing market conditions should be considered
in assessing the significance of such comparisons.
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.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
--------------------------------------------------------------------------------
RATINGS
MUNICIPAL BONDS:
The following summarizes the two highest ratings used by Standard & Poor's
Corporation ("S&P") for bonds:
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.
To provide more detailed indications of credit quality, the "AA" rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's Investors
Service, Inc. ("Moody's") for bonds:
AAA--Bonds that 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 that 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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated AA.
The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category.
MUNICIPAL NOTES:
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
sign (+) designation.
The following summarizes the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-1/VMIG-1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
The following summarizes the highest short-term tax-exempt note rating assigned
by Fitch Investors Service, Inc. ("Fitch"):
FIN-1--Notes regarded as having the strongest degree of assurance for timely
payment.
COMMERCIAL PAPER
Commercial paper ratings of S&P are current assessments of the likelihood of
timely payment of debts having original maturities of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus sign (+) designation.
The following summarizes Moody's highest commercial paper rating:
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; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
The following summarizes Fitch's highest commercial paper rating:
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+".
0072405B (6/94)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROSPECTUS
VISION NEW YORK TAX-FREE FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 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 Vision New York Tax-Free Fund (the "Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund. Please read the prospectus
before you invest and keep it for future reference.
You can find additional facts about the Fund in the Combined Statement of
Additional Information dated June 30, 1994, which has also been filed with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. To obtain a free copy of the Combined 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) 836-2211 (716) 842-4488
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Synopsis 3
A Summary of the Fund's Expenses 4
Financial Highlights 5
How the Fund Invests 6
Fund Management, Distribution
and Administration 13
Your Guide to Using the Fund 16
How the Fund Values Its Shares 16
What Fund Shares Cost 16
How To Buy Shares 18
How to Exchange Shares 19
How to Redeem Shares 20
Tax Information 22
Description of Fund Shares 23
How the Fund Shows Performance 24
Financial Statements 25
Report of Ernst & Young,
Independent Auditors 35
Addresses 36
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 discusses Vision New York Tax-Free Fund.
-------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
(THE "FUND") SEEKS CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAX
AND THE PERSONAL INCOME TAXES IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
-------------------------------------------------------
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, which
may be waived or lowered from time to time. (See pages 16 to 22.)
FUND MANAGEMENT
The Fund's investment adviser is Manufacturers and Traders Trust Company ("M&T
Bank"), which 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 page 13.)
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
Contingent Deferred Sales Charge (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 FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.51%
12b-1 Fee(2).......................................................................... 0.00%
Other Expenses (after reimbursements)(3).............................................. 0.34%
Shareholder Servicing Fee(2)............................................. 0.00%
Total Fund Operating Expenses................................................ 0.85%
</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 its 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 0.48% absent the voluntary
reimbursement of certain other expenses by the adviser. The adviser can
terminate this voluntary reimbursement at any time at its sole discretion.
The Annual Fund Operating Expenses were 0.00% for the fiscal year ending 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 1.18% absent the voluntary
waiver 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 13. Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------------------------------------------------------------------------- ------ --------
<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.......................................... $ 53 $ 71
</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 NEW YORK TAX-FREE FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
35.
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30,
1994*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------
Net investment income 0.20
----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.39)
---------------------------------------------------------------------------- -------------
Total from investment operations (0.19)
---------------------------------------------------------------------------- -------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.20)
---------------------------------------------------------------------------- -------------
NET ASSET VALUE, END OF PERIOD $9.61
---------------------------------------------------------------------------- -------------
TOTAL RETURN** (1.22)%
----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------
Expenses 0.00%(a)
----------------------------------------------------------------------------
Net investment income 4.79%(a)
----------------------------------------------------------------------------
Expense waiver/reimbursement(b) 1.78%(a)
----------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $25,225
----------------------------------------------------------------------------
Portfolio turnover rate 21%
----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 22, 1993 (date of initial
public investment) to April 30, 1994.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This 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)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal income tax and the personal income taxes imposed by the
state of New York and New York municipalities and is consistent with the
preservation of capital. The investment objective of the Fund cannot be changed
without approval of its 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.
Interest income of the Fund that is exempt from the income taxes described above
retains its exempt status when distributed to the Fund's shareholders. Income
distributed by the Fund may not necessarily be exempt from state or municipal
taxes in states other than New York.
INVESTMENT POLICIES
-------------------------------------------------------
THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SECURITIES, THE INTEREST OF WHICH IS EXEMPT FROM FEDERAL INCOME TAX AND
PERSONAL INCOME TAXES IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
MUNICIPALITIES. THE FUND INVESTS IN THESE SECURITIES TO EARN INCOME
CONSISTENT WITH THE PRESERVATION OF CAPITAL. UNDER NORMAL MARKET
CONDITIONS, AT LEAST 80% OF THE FUND'S NET ASSETS WILL BE INVESTED IN
SECURITIES THAT PAY INTEREST EXEMPT FROM FEDERAL INCOME TAX. THIS POLICY
MAY NOT BE CHANGED WITHOUT APPROVAL OF SHAREHOLDERS. FOR PURPOSES OF THIS
POLICY, THE TAX-FREE INTEREST MUST NOT BE A PREFERENCE ITEM FOR PURPOSES OF
COMPUTING THE FEDERAL ALTERNATIVE MINIMUM TAX. UNDER NORMAL MARKET
CONDITIONS, AT LEAST 65% OF THE VALUE OF THE FUND'S TOTAL ASSETS WILL BE
INVESTED IN OBLIGATIONS ISSUED BY OR ON BEHALF OF THE STATE OF NEW YORK,
ITS POLITICAL SUBDIVISIONS OR AGENCIES THE INTEREST OF WHICH IS EXEMPT FROM
THE PERSONAL INCOME TAX IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
MUNICIPALITIES. UNLESS INDICATED OTHERWISE, THIS POLICY AND OTHER
INVESTMENT POLICIES OF THE FUND MAY BE CHANGED BY THE DIRECTORS WITHOUT
APPROVAL OF SHAREHOLDERS. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL
CHANGES IN THESE POLICIES BECOME EFFECTIVE.
-------------------------------------------------------
ACCEPTABLE INVESTMENTS
The Fund's investments include:
- obligations issued by or on behalf of the state of New York, its political
subdivisions, or agencies ("New York municipal securities");
- debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and
- participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Corporation or the opinion
of the investment adviser to the Fund, exempt from both federal income tax
and the personal income tax imposed by the state of New York and New York
municipalities.
The Fund also may invest in municipal leases, variable amount demand master
notes, temporary investments and certain other investments as well as engage in
certain investment techniques as noted below.
MATURITY
The maturity of debt securities may be considered long (10 plus years),
intermediate (3 to 10 years), or short-term (3 years or less). The proportion
invested by the Fund in each category can be expected to vary depending upon the
evaluation of market patterns and trends by the adviser. However, the Fund
anticipates that, under normal circumstances, at least 65% of its total assets
will be invested in fixed income securities having maturities of greater than
one year.
NEW YORK MUNICIPAL SECURITIES
New York municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New York municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increase local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue " bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
MORAL OBLIGATION BONDS
Moral obligation bonds are normally issued by special purpose authorities. If an
issuer of a moral obligation bond is unable to meet its interest and principal
payments from current revenues, it may draw on a reserve fund. The state or
municipality that created the issuer has given a moral pledge to appropriate
funds to replenish the reserve fund. But that pledge is only a moral commitment,
not a legal obligation of the state or municipality.
RATING CHARACTERISTICS
The Fund may buy municipal securities which, at the time of purchase, are
investment grade. For example, investment grade bonds are those that are rated
Aaa, Aa, A, or Baa by Moody's Investors Services, Inc. ("Moody's"), or AAA, AA,
A, or BBB by Standard & Poor's Corporation ("S&P") or by Fitch Investors
Service, Inc. ("Fitch"). In certain cases, the Fund's adviser may purchase
securities which are unrated if it determines that they are of comparable
quality to the investment grade securities described above. If any security
purchased by the Fund is subsequently downgraded below investment grade, the
Fund is not required to sell or otherwise dispose of the security, but may
consider doing so. It should be noted that bonds receiving the lowest of the
four investment grade ratings listed above (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 make principal and interest
payments on such bonds than higher rated bonds. A description of the rating
categories is contained in the Appendix to the Combined Statement of Additional
Information.
PARTICIPATION INTERESTS
The Fund may purchase participation interests from financial institutions such
as commercial banks, savings and loan associations, and insurance companies.
These participation interests give the Fund an undivided interest in New York
municipal securities. The financial institutions from which the Fund purchases
participation interests frequently provide or secure irrevocable letters of
credit or guarantees to assure that the participation interests are of high
quality. The Board of Directors of the Corporation or, pursuant to delegated
authority, the Fund's adviser, will determine that participation interests meet
the prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES
Some of the municipal securities which the Fund purchases may have variable
interest rates. Variable interest rates are ordinarily based on a published
interest rate, interest rate index or a similar standard, such as the 91-day
U.S. Treasury bill rate. Many variable rate municipal securities are subject to
payment of principal on demand by the Fund in not more than seven days. All
variable rate municipal securities will meet the quality standards described
above. The Fund's adviser has been instructed by the Corporation's Board of
Directors to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund, on the
basis of published financial information and reports of the rating agencies and
other analytical services.
MUNICIPAL LEASES
The Fund may purchase municipal leases, which are obligations issued by state
and local governments or authorities to finance the acquisition of equipment and
facilities and some may be illiquid. They may take the form of a lease, an
installment purchase contract, a conditional sales contract or a participation
certificate on any of the above.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Fund is able to purchase variable amount demand master notes. Variable
amount demand master notes represent a borrowing arrangement between an issuer
(borrower) and an institutional lender such as the Fund (lender). These notes
are payable upon demand. The lender typically has the right to increase the
amount under the note at any time up to the full amount provided by the note
agreement. Both the lender and the borrower have the right to reduce the amount
of outstand-
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ing indebtedness at any time. In some instances, however, the lender and the
borrower may agree that the amount of outstanding indebtedness remain fixed.
Variable amount demand master notes provide that the interest rate on the amount
outstanding varies depending upon a stated short-term interest rate index.
AMT OBLIGATIONS
As noted earlier, the Fund has a policy of investing at least 80% of its net
assets in securities that pay interest exempt from federal income tax. Interest
on certain private activity municipal bonds issued after August 7, 1986 is a tax
preference item for purposes of computing the federal alternative minimum tax
("AMT"), although interest on these bonds is not subject to federal income tax.
These bonds are referred to as AMT bonds or AMT obligations. The Fund does not
consider these AMT obligations tax-exempt for purposes of determining its
compliance with this investment policy and the Fund will, therefore, limit AMT
obligations to 20% of net assets under normal market conditions.
TEMPORARY INVESTMENTS
As noted above, under normal circumstances, the Fund invests its assets so that
at least 80% of its net assets are exempt from federal income tax and at least
65% of its total assets are invested in securities the interest on which is
exempt from the personal income taxes imposed by the state of New York and New
York municipalities. From time to time, when the Fund's adviser determines that
market conditions call for a temporary defensive posture, the Fund may invest in
short-term non-New York municipal tax-exempt obligations or taxable temporary
investments. These temporary investments include: obligations issued by or on
behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; money market
instruments; commercial paper; certificates of deposit, bankers' acceptances or
other instruments issued by a U.S. branch of a domestic bank, or savings and
loan association with capital, surplus, and undivided profits in excess of $1
billion at the time of purchase; shares of other investment companies;
repurchase agreements; and reverse repurchase agreements. Although the Fund is
permitted to make taxable, temporary investments, there is no current intention
of generating income subject to federal income tax or personal income taxes
imposed by the state of New York or New York municipalities.
MUNICIPAL BOND INSURANCE
The Fund may purchase municipal securities covered by insurance which guarantees
the timely payment of principal at maturity and interest on such securities.
These insured municipal securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Fund (the "Policies").
The Fund will obtain municipal bond insurance when purchasing municipal
securities which would not otherwise meet the Fund's quality standards. The Fund
may also obtain municipal bond insurance when, in the opinion of the Fund's
investment adviser, such insurance would benefit the Fund, for example, through
improvement of portfolio quality or increased liquidity of certain securities.
The Fund's investment adviser anticipates that not more than 50% of the Fund's
net assets will be invested in municipal securities which are insured.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.
The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are then due and owing at the time of sale.
The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would expect to receive net proceeds from the sale of those securities,
after deducting the cost of such permanent insurance and related fees,
significantly in excess of the proceeds it would expect to receive if such
municipal securities were sold without insurance.
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Payments received from municipal bond insurers may not be tax-exempt income to
shareholders of the Fund.
INVESTMENT RISKS
Yields on New York municipal securities depend on a variety of factors,
including, but not limited to: the general conditions of the short-term
municipal note market and the municipal bond market; the size of the particular
offering; the maturity of the obligations; and the rating of the issue. Further,
any adverse economic conditions or developments affecting the State or City of
New York could impact the Fund's portfolio. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of New York municipal securities and participation interests, or the guarantors
of either, to meet their obligations for the payment of interest and principal
when due. Investing in New York municipal securities which meet the Fund's
quality standards may not be possible if the State and City of New York do not
maintain their current credit ratings. An expanded discussion of the current
economic risks associated with the purchase of New York municipal securities is
contained in the Combined Statement of Additional Information.
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, it 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 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 objective 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 considered to be illiquid, to 15% of
its net assets.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term 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.
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
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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.
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.
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 enter into loan arrangements only with broker/dealers,
banks, or other institutions which the Fund's adviser has determined are credit-
worthy 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.
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.
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 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 may also 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 the Fund's adviser.
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
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Fund realizes a gain in the amount of the premium it received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial 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 require 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.
The Fund may also write call options and purchase put options on financial
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 perfectly 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, the Fund's
investment adviser 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 the investment adviser 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under limited
circumstances. This transaction is similar to borrowing cash.
DIVERSIFICATION
The Fund is a "non-diversified" investment company under the Investment Company
Act of 1940 and intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986. In order to do so, with respect to 50% of its
total assets, the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government obligations). The balance
of the Fund's assets is not subject to this limitation. However, under the
Internal Revenue Code of 1986, as amended, a regulated investment company at the
close of each quarter of the taxable year may not hold more than 25% of its
assets in securities of any one issuer (other than U.S. government securities or
the securities of other regulated investment companies). Thus, the Fund may
invest up to 25% of its total assets in the securities of any two issuers. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio of securities because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market values of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.
DEBT CONSIDERATION
In the debt market, 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 obliga-
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tions 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 the Fund's adviser. The
Fund's adviser 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.
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.
The above investment limitation 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
-------------------------------------------------------
INVESTMENT DECISIONS FOR THE FUND ARE MADE BY M&T BANK, SUBJECT TO
DIRECTION BY THE DIRECTORS.
-------------------------------------------------------
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
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 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.
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
31, 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 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.
Mr. Robert J. Truesdell oversees investment activities of M&T Bank's money
market and fixed income products, including the money market funds in the Vision
Group of Funds, Inc. and the Vision Fiduciary Funds, Inc. Mr. Truesdell joined
M&T Bank as Vice President and Fixed Income Manager in 1988. In addition to the
Vision money market funds, he also manages individual investment management
accounts. Mr. Truesdell holds an M.B.A. in accounting from S.U.N.Y. at Buffalo.
Mr. Mark S. Evanco is the Fund's portfolio manager. Mr. Evanco joined M&T Bank
in August, 1993 and has been managing the Fund since its inception. Mr. Evanco
was a portfolio manager at Keycorp, Albany, New York from 1991 to 1993. For the
period from 1987 to 1991, Mr. Evanco managed the New York State municipal
portfolio and acted as the funding manager in the Funds Management Division of
Key Bank of Western New York. Mr. Evanco holds a B.S. in Business Administration
from S.U.N.Y. at Buffalo, and is currently working towards an M.B.A. at Canisius
College.
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DISTRIBUTION OF FUND SHARES
-------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
-------------------------------------------------------
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 its
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
The Fund has adopted a Shareholder Services Plan, which is administered by
Federated Administrative Services. Under the Plan, M&T Bank may act as a
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 l% of the Fund's average daily net assets for which the
Shareholder Servicing Agent provides services. 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.
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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 any Fund shares. The administrators appointed could
include affiliates of the adviser.
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 the adviser 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>
ADMINISTRATIVE AGGREGATE DAILY NET ASSETS
FEE OF VISION GROUP OF FUNDS, INC.
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750
million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
TRANSFER AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is the transfer agent for the shares of the Fund, and dividend
disbursing agent responsible for distributing dividends to the Fund's
shareholders.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is the custodian for
the securities and cash of the Fund.
LEGAL COUNSEL
Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh,
Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., 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, the adviser 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, which may be waived or
lowered from time to time. 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% 4.71%
$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, 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 operational support.
Compensation may also 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
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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 16, 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.
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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 a 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
TRANS-
FERS 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
1-800-618-8573.
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, 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 New York Tax-Free 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 your payment by check has
been converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), into federal funds.
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This is generally the next business day after State Street Bank receives the
check.
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 dividends daily and pays them monthly. 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.
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. Monthly confirmations are sent to shareholders of the Fund to
report dividends paid during the month.
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" AND LISTED BELOW UNDER "DESCRIPTION OF FUND
SHARES") 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 Funds with a sales charge and Funds without a
sales charge, shareholders who have paid a sales charge once upon purchasing
shares of any Fund, including those shares obtained through the reinvestment of
dividends, will not have to pay a sales charge again on an exchange. Shares of
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 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
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signature. Please see page 21 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.
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 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
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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, 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
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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 CONSID-
ERATIONS FOR THE FUND. NO ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED
EXPLANATION OF THE FEDERAL, STATE, AND LOCAL 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 TAXES
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest received from tax-exempt
municipal securities (exempt-interest dividends). The Fund intends to invest its
assets so that most of the dividends it pays will be considered exempt-interest
dividends. Shareholders will be required to pay federal income tax on dividends
received from the Fund attributable to capital gains and net interest received
from taxable temporary investments, although the Fund anticipates that such
amounts will be limited.
However, exempt-interest dividends on certain private activity municipal
securities (previously discussed on page 8) may be included in calculating the
federal alternative minimum tax ("AMT") for individuals and corporations. The
AMT is a special federal tax that applies to taxpayers who claim certain large
income tax deductions, which are referred to as tax preference items. To the
extent the Fund invests in AMT obligations, a portion of the Fund's dividends
will be treated as a tax preference item for shareholders potentially affected
by the AMT. But this is only meaningful if you yourself are subject to the AMT.
Ask your own tax adviser for more information.
NEW YORK TAXES
Under existing New York laws, shareholders will not be subject to New York State
or New York City personal income taxes on dividends to the extent that such
dividends qualify as "exempt interest dividends" under the Internal Revenue Code
of 1986, as amended, and represent interest income attributable to obligations
of the State of New York and its political subdivisions, as well as certain
other obligations, the interest on which is exempt from New York State and New
York City personal income taxes, such as, for example, certain obligations of
the Commonwealth of Puerto Rico. To the extent that distributions are derived
from other income, including long-term or short-term capital gains, such
distributions will not be exempt from New York State or New York City personal
income tax.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York State and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of
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the dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the same extent that they are exempt from the New York City
personal income tax.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
CORPORATE SHAREHOLDER INFORMATION
In the case of a corporate shareholder, all exempt-interest dividends paid by
the Fund are included in computing the shareholder's adjusted current earnings,
upon which is based a separate corporate preference item that may be subject to
the AMT. The corporate AMT tax rate is 20%.
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
Dividends paid by the Fund are not exempt from the New York State franchise tax
on corporations or the New York City general corporation tax.
THE TAX TREATMENT OF TEMPORARY INVESTMENTS
Dividends paid by the Fund that are attributable to the net interest earned on
some temporary investments (previously discussed on page 8) and any realized net
short-term capital gains are taxed as ordinary income.
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 New York Tax-Free Fund and Vision
Growth and Income 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.)
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 agreement, 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 written 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
financial publications 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, tax-equivalent 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.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield.
However, it is adjusted to show the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a specific tax rate, and assuming
that income is 100% tax exempt.
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 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 NEW YORK TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
---------- ---------------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--97.6%
------------------------------------------------------------------------------
$ 175,000 Albany County, NY, 4.80% Refunding Notes (FGIC Insured),
10/1/2002 AAA $ 171,316
----------------------------------------------------------------
300,000 Amherst, NY, 4.625% Public Improvement Notes (FGIC Insured),
3/1/2003 AAA 283,203
----------------------------------------------------------------
500,000 Babylon, NY, 4.40% Waste Facility (FGIC Insured), 8/1/2003 AAA 463,225
----------------------------------------------------------------
50,000 Brookhaven, NY, 4.30% Public Improvement Refunding Notes,
6/15/2001 AAA 47,488
----------------------------------------------------------------
130,000 Brookhaven, NY, 4.70% Public Improvement Refunding Notes, (MBIA
Insured), 6/15/2004 AAA 122,383
----------------------------------------------------------------
655,000 Buffalo, NY, Sewer Authority, 4.90% Refunding Notes, (MBIA
Insured), 4/1/2006 A- 615,477
----------------------------------------------------------------
50,000 Floral Park, Bellerose, NY, 5.90% Notes (AMBAC Insured),
7/1/2008 AAA 50,910
----------------------------------------------------------------
390,000 Guilderland, NY, 4.90% Central School District Notes (FGIC
Insured), 6/15/2002 AAA 383,819
----------------------------------------------------------------
230,000 Guilderland, NY, 4.90% Central School District Notes (FGIC
Insured), 6/15/2003 AAA 224,043
----------------------------------------------------------------
225,000 Hempstead Town, NY, 6.30% Variable Purpose Notes (Series C),
2/15/2001 AAA 241,119
----------------------------------------------------------------
100,000 Hyde Park, NY, 5.20% Fire and Water District Notes, 12/15/2008 AAA 94,224
----------------------------------------------------------------
1,500,000 Jamestown, NY, Housing Authority, 6.125% Mortgage Revenue Notes,
7/1/2010 A- 1,440,510
----------------------------------------------------------------
50,000 Liberty, NY, 6.30% Central School District Notes (Series
B)/(MBIA Insured), 10/15/2006 AAA 53,760
----------------------------------------------------------------
695,000 Metropolitan Transportation Authority, NY, 4.85% Computer
Facility Notes (Series 7), 7/1/2001 BBB 664,170
----------------------------------------------------------------
170,000 Monroe County, NY, 4.95% Water Authority Revenue Notes (Series
B), 8/1/2007 AA 156,599
----------------------------------------------------------------
125,000 Municipal Assistance Corp., NY, 5.00% Notes (Series C), 7/1/2005 A 119,323
----------------------------------------------------------------
350,000 Nassau County, NY, 5.00% General Improvement Notes, (Series N)/
(FGIC Insured), 3/1/2006 AAA 328,227
----------------------------------------------------------------
65,000 Nassau County, NY, 5.00% General Improvement Notes, (Series J),
10/1/2007 AAA 60,826
----------------------------------------------------------------
450,000 New Castle, NY, 4.40% Refunding Notes, 6/1/2005 AA 404,780
----------------------------------------------------------------
200,000 New York City, NY, 4.80% Notes (Series C), 10/1/2000 A- 192,572
----------------------------------------------------------------
500,000 New York City, NY, 5.25% GO Notes (Series G), 8/1/2003 A- 476,040
----------------------------------------------------------------
500,000 New York City, NY, 5.70% Notes (Series H), 8/1/2003 A- 492,550
----------------------------------------------------------------
250,000 New York City, NY, 5.375% Notes (Series C), 10/1/2005 A- 235,323
----------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
---------- ---------------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
------------------------------------------------------------------------------
$ 500,000 New York City, NY, Municipal Water Finance Authority, 5.10%
Water & Sewer Notes (Series A), 6/15/98 A- $ 506,460
----------------------------------------------------------------
1,000,000 New York City, NY, Municipal Water Finance Authority, 5.75%
Notes (Series 94)/(MBIA Insured), 6/15/2020 AAA 937,150
----------------------------------------------------------------
600,000 New York City, NY, Water Finance Authority, 4.75% Notes (Series
B), 6/15/2001 A- 580,584
----------------------------------------------------------------
400,000 New York City, NY, Water Finance Authority, 4.875% Notes (Series
B), 6/15/2002 A- 385,144
----------------------------------------------------------------
125,000 New York State, 6.00% Notes, 9/15/2005 A- 129,982
----------------------------------------------------------------
100,000 New York State, 4.70% Notes, 6/15/99 A- 98,829
----------------------------------------------------------------
600,000 New York State Dormitory Authority, 5.10% State Educational
Facilities Notes (Series C), 5/15/98 BBB+ 602,946
----------------------------------------------------------------
100,000 New York State Dormitory Authority, 6.90% State Educational
Facilities Notes (Series A), 5/15/99 BBB+ 106,215
----------------------------------------------------------------
300,000 New York State Dormitory Authority, 5.00% Notes
(Rochester-Strong Memorial Hospital), 7/1/2002 A+ 293,097
----------------------------------------------------------------
1,000,000 New York State Dormitory Authority, 5.50% Refunding Notes
(Series 1993A)/(MBIA Insured), 7/1/2002 AAA 1,024,360
----------------------------------------------------------------
500,000 New York State Dormitory Authority, 4.80% Refunding Notes
(Series A)/(MBIA Insured), 7/1/2005 AAA 468,650
----------------------------------------------------------------
500,000 New York State Dormitory Authority, 4.80% Refunding Notes
(Series B)/(MBIA Insured), 7/1/2005 AAA 468,650
----------------------------------------------------------------
430,000 New York State Dormitory Authority, 4.60% Notes (Rochester
Institute of Technology)/(FGIC Insured), 7/1/2003 AAA 399,448
----------------------------------------------------------------
350,000 New York State Dormitory Authority, 5.50% State University
Educational Facilities Notes(Series A), 5/15/2007 BBB+ 338,901
----------------------------------------------------------------
1,000,000 New York State Environmental Facility, 5.875% Pollution Control
Revenue Notes, 6/15/2014 A- 950,710
----------------------------------------------------------------
1,000,000 New York State Environmental Quality, 4.75% Notes, 12/15/2003 A- 948,030
----------------------------------------------------------------
50,000 New York State HFA, 6.70% Notes, 11/1/95 BBB- 51,057
----------------------------------------------------------------
175,000 New York State HFA, 8.00% Health Facilities Notes (Series A),
11/1/2004 AAA 208,323
----------------------------------------------------------------
200,000 New York State Local Government Assistance Corp., 5.25% Notes
(Series C), 4/1/2007 A 185,278
----------------------------------------------------------------
60,000 New York State Mortgage Agency, 4.80% Homeowner Mortgage Notes
(Series 31A), 10/1/2006 A2 53,949
----------------------------------------------------------------
100,000 New York State Medical Care Facilities Finance Agency, 4.50%
Mental Health Services Notes (Series D), 2/15/99 BBB+ 96,687
----------------------------------------------------------------
300,000 New York State Medical Care Facilities Finance Agency, 4.80%
Mental Health Services Notes (Series E), 2/15/2001 BBB+ 286,149
----------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
---------- ---------------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
------------------------------------------------------------------------------
$ 500,000 New York State Medical Care Facilities Finance Agency, 5.00%
Mental Health Services Notes (Series F), 8/15/2001 BBB+ $ 482,785
----------------------------------------------------------------
1,010,000 New York State Medical Care Facilities Finance Agency, 5.50%
Notes (Series A)/(Presbyterian Hospital), 8/15/2024 AA 896,274
----------------------------------------------------------------
300,000 New York State Project Finance Agency, 4.85% Notes (HUD Section
236)/(Series A), 11/1/2005 AAA 279,174
----------------------------------------------------------------
400,000 New York State Power Authority, 4.90% General Purpose Revenue
Refunding Notes (Series CC), 1/1/2006 AA- 372,960
----------------------------------------------------------------
60,000 New York State Power Authority, 5.00% General Purpose Revenue
Refunding Notes (Series CC), 1/1/2008 AA- 55,081
----------------------------------------------------------------
100,000 New York State Thruway Authority, 5.20% Local Highway and Bridge
Notes, 4/1/2004 BBB 95,215
----------------------------------------------------------------
600,000 New York State Urban Development Correctional Facility, 4.60%
Refunding Notes (Series A), 1/1/99 BBB 576,732
----------------------------------------------------------------
810,000 North Hempstead, NY, 5.90% Refunding Notes (Series B), 4/1/2004 AA- 854,121
----------------------------------------------------------------
250,000 North Hempstead, NY, 4.90% Public Improvement Notes (Series C)/
(FGIC Insured), 8/1/2005 AAA 237,112
----------------------------------------------------------------
255,000 North Shore Central School District, 4.90% Notes (New York Glen
Head), 6/15/2007 A1 233,435
----------------------------------------------------------------
300,000 Port Authority of New York and New Jersey, 5.80% Notes (Series
83), 10/15/2003 AA- 313,308
----------------------------------------------------------------
50,000 Port Authority of New York and New Jersey, 4.60% Notes (Series
86), 7/1/2002 AA- 47,381
----------------------------------------------------------------
500,000 Rochester, NY, 4.625% Notes (Series A)/(AMBAC Insured), 8/15/97 AAA 503,690
----------------------------------------------------------------
75,000 Southampton Town, NY, 4.625% Notes (Series A), 9/15/2000 A1 72,977
----------------------------------------------------------------
225,000 Sweet Home, NY, 4.75% Central School District Notes (Amherst &
Tonawanda)/(AMBAC Insured), 1/15/2005 AAA 209,387
----------------------------------------------------------------
275,000 Tonawanda Town, NY, 4.20% UT Bank Qualified Notes, 3/1/2003 A 256,248
----------------------------------------------------------------
225,000 Tonawanda Town, NY, 4.75% UT Bank Qualified Notes, 3/1/2006 A 205,130
----------------------------------------------------------------
1,000,000 Triborough, NY, Bridge & Tunnel Authority, 4.40% General Purpose
Revenue Refunding Notes, 1/1/2002 A+ 934,210
----------------------------------------------------------------
350,000 Wallkill, NY, 4.85% UT Bank Qualified Notes, 9/15/2002 BAA 338,366
----------------------------------------------------------------
255,000 Webster, NY, Central School District, 4.70% Notes (Series
II)/(FGIC Insured), 6/15/2002 AAA 245,476
----------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
---------- ---------------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
------------------------------------------------------------------------------
$ 450,000 West Seneca, NY, 4.90% UT Bank Qualified Notes, 4/1/2001 A $ 461,124
----------------------------------------------------------------
200,000 West Seneca, NY, 4.90% UT Bank Qualified Notes (Series 1994)/
(MBIA Insured), 4/1/2002 AAA 200,904
----------------------------------------------------------------
345,000 Westchester County, NY, 4.30% Notes (Series B), 12/15/2006 AAA 301,913
---------------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $25,765,809) $24,615,489+
---------------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
+ The cost of investments for federal tax purposes amounts to $25,765,809. The
net unrealized depreciation on a federal tax basis amounts to $1,150,320,
which is comprised of $6,429 appreciation and $1,156,749 depreciation at April
30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($25,225,177) at April 30, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligations
HFA -- Housing Finance Authority
HUD -- Housing and Urban Development
MBIA -- Municipal Bond Investors Assurance
UT -- Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $25,765,809) $24,615,489
------------------------------------------------------------------------------------
Cash 43,499
------------------------------------------------------------------------------------
Interest receivable 379,803
------------------------------------------------------------------------------------
Receivable for capital stock sold 275,191
------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 10,558
------------------------------------------------------------------------------------ -----------
Total assets 25,324,540
------------------------------------------------------------------------------------
LIABILITIES:
------------------------------------------------------------------------------------
Payable for investments purchased $52,371
--------------------------------------------------------------------------
Dividends payable 9,671
--------------------------------------------------------------------------
Payable to investment adviser (Note 4) 14,166
--------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 8,455
--------------------------------------------------------------------------
Accrued expenses 14,700 99,363
-------------------------------------------------------------------------- ------- -----------
NET ASSETS FOR 2,625,065 shares of capital stock outstanding $25,225,177
------------------------------------------------------------------------------------ -----------
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------
Paid-in capital $26,511,284
------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,150,320)
------------------------------------------------------------------------------------
Accumulated net realized loss on investments (135,787)
------------------------------------------------------------------------------------ -----------
Total Net Assets $25,225,177
------------------------------------------------------------------------------------ -----------
NET ASSET VALUE and Redemption Price per Share
($25,225,177 / 2,625,065 shares of capital stock outstanding) $9.61
------------------------------------------------------------------------------------ -----------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $9.61)* $10.06
------------------------------------------------------------------------------------ -----------
</TABLE>
* See "What Fund Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 22, 1993 (DATE OF INITIAL PUBLIC INVESTMENT)
TO APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
--------------------------------------------------------------------------------------
Interest income (Note 2B) $ 417,017
--------------------------------------------------------------------------------------
EXPENSES:
--------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 60,928
--------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 30,213
--------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 44,838
--------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 13,970
--------------------------------------------------------------------------
Directors' fees 587
--------------------------------------------------------------------------
Legal fees 2,119
--------------------------------------------------------------------------
Printing and postage 1,052
--------------------------------------------------------------------------
Miscellaneous 1,111
-------------------------------------------------------------------------- --------
Total expenses 154,818
--------------------------------------------------------------------------
Deduct--
--------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $60,928
----------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 4) 18,384
----------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 75,506 154,818
---------------------------------------------------------------- ------- --------
Net expenses --
-------------------------------------------------------------------------------------- -----------
Net investment income 417,017
-------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
--------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (135,787)
--------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (1,150,320)
-------------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (1,286,107)
-------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (869,090)
-------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE 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 $ 417,017
--------------------------------------------------------------------------------
Net realized gain (loss) on investments ($0 as computed for federal tax
purposes) (135,787)
--------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (1,150,320)
-------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations (869,090)
-------------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
--------------------------------------------------------------------------------
Dividends to shareholders from net investment income (417,017)
-------------------------------------------------------------------------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
--------------------------------------------------------------------------------
Net proceeds from sale of shares 27,334,685
--------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 370,751
--------------------------------------------------------------------------------
Cost of shares redeemed (1,194,152)
-------------------------------------------------------------------------------- -------------
Change in net assets resulting from capital stock transactions 26,511,284
-------------------------------------------------------------------------------- -------------
Change in net assets 25,225,177
--------------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------------
Beginning of period --
-------------------------------------------------------------------------------- -------------
End of period $25,225,177
-------------------------------------------------------------------------------- -------------
</TABLE>
* For the period from September 22, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE 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: 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 New York Tax-Free
Fund (the "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--Municipal bonds are valued by an independent pricing service taking
into consideration yield, liquidity, risk, credit, quality, coupon, maturity, type of issue,
and any other factors or market data it deems relevant in determining valuations for normal
institutional size trading units of debt securities. The independent pricing service does
not rely exclusively on quoted prices. Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be stated at amortized cost, which
approximates value.
B. INVESTMENT INCOME, EXPENSE AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code, as
amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL INCOME 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 tax-exempt income. Accordingly, no provisions for federal tax are
necessary. Additionally, net capital losses of $135,787 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.
D. 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 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 basis
are marked to market daily and begin earning interest on the settlement date.
E. 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.
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION NEW YORK TAX-FREE FUND
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
F. CONCENTRATION OF RISK--Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely affecting issuers of
that state, than would be a comparable general tax-exempt mutual fund. In order to reduce
the credit risk associated with such factors, at April 30, 1994, 30.0% of the securities in
the portfolio of investments were backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The aggregate percentages
by financial institutions and agencies ranged from 3.1% to 15.8% of total investments.
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. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
------------------------------------------------------------------------------- ----------------
<S> <C>
Shares sold 2,708,627
-------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 37,524
-------------------------------------------------------------------------------
Shares redeemed (121,086)
------------------------------------------------------------------------------- ----------------
Net change resulting from capital stock transactions 2,625,065
------------------------------------------------------------------------------- ----------------
</TABLE>
* For the period from September 22, 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. Adviser may voluntarily choose to waive
a portion of its fee and reimburse certain operating expenses of the Fund.
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its 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 daily net assets of the Corporation for the period.
FAS may voluntarily choose to waive a portion of its fee.
DISTRIBUTION AND SERVICES 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 period ended April 30, 1994.
Under the terms of a shareholder services agreement between FAS and 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 period 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 NEW YORK TAX-FREE FUND
--------------------------------------------------------------------------------
ORGANIZATIONAL EXPENSES--Organizational expenses ($27,242) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following August 16, 1993 (date the Fund first
became effective). For the period ended April 30, 1994, the Fund paid $1,111,
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 ended April 30, 1994 were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------
PURCHASES $28,990,739
----------------------------------------------------------------------------------- -----------
SALES $ 3,071,595
----------------------------------------------------------------------------------- -----------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION NEW YORK TAX-FREE FUND:
We have audited the accompanying statement of assets and liabilities of Vision
New York Tax-Free Fund, (a portfolio of Vision Group of Funds, Inc.) 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
for the period from September 22, 1993 to April 30, 1994. 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 the securities owned as of April 30, 1994,
by correspondence with the custodian and brokers. 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 audit provides 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
New York Tax-Free Fund of Vision Group Funds, Inc. at April 30, 1994, and the
results of its operations, the changes in its net assets, and the financial
highlights for the period from September 22, 1993 to April 30, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
June 3, 1994
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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
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, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
INDEPENDENT AUDITORS
Ernst & Young
One Oxford Centre
Pittsburgh, Pennsylvania 15219
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Vision
New York Tax-Free
Fund
---------------------------------------------
Prospectus dated
June 30, 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
3081706A (6/94)
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PROSPECTUS
VISION U.S. GOVERNMENT SECURITIES FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 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 Vision U.S. Government Securities Fund (the "Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund. Please read the prospectus
before you invest and keep it for future reference.
You can find additional facts about the Fund in the Combined Statement of
Additional Information dated June 30, 1994, which has also been filed with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. To obtain a free copy of the Combined 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) 836-2211 (716) 842-4488
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TABLE OF CONTENTS
Synopsis 3
A Summary of the Fund's Expenses 4
Financial Highlights 5
How the Fund Invests 6
Fund Management, Distribution
and Administration 13
Your Guide to Using the Fund 16
How the Fund Values Its Shares 16
What Fund Shares Cost 16
How To Buy Shares 18
How to Exchange Shares 20
How to Redeem Shares 21
Tax Information 23
Description of Fund Shares 23
How the Fund Shows Performance 24
Financial Statements 25
Report of Ernst & Young, Independent Auditors 32
Addresses 33
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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 discusses Vision U.S. Government Securities Fund.
-------------------------------------------------------
VISION U.S. GOVERNMENT
SECURITIES FUND
(THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH SEEKS CURRENT INCOME. THE
FUND INVESTS IN A DIVERSIFIED PORTFOLIO CONSISTING PRIMARILY OF SECURITIES
THAT ARE GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES. CAPITAL APPRECIATION IS A
SECONDARY INVESTMENT CONSIDERATION.
(SEE PAGE 6 FOR DETAILS.)
-------------------------------------------------------
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
16 to 23.)
FUND MANAGEMENT
The Fund's investment adviser is M&T Bank, which 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 page 13.)
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>
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
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.48%
12b-1 Fee(2)......................................................................... 0.00%
Other Expenses (after reimbursement)(3).............................................. 0.38%
Shareholder Servicing Fee(2)............................................... 0.00%
Total Fund Operating Expenses............................................... 0.86%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The advisor can terminate this voluntary waiver
at any time at its 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 0.55% absent the voluntary
reimbursement of certain other expenses by the adviser. The adviser can
terminate this voluntary reimbursement at any time at its 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 1.25% absent the voluntary
waiver 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 13. Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------------------------------------------------------------------------- ------ --------
<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.......................................... $ 53 $ 71
</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.
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VISION U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
32.
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30,
1994*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------------------------------------------------------------------
INCOME FROM NET INVESTMENT OPERATIONS
----------------------------------------------------------------------------
Net investment income 0.34
----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.75)
---------------------------------------------------------------------------- -------------
Total from investment operations (0.41)
---------------------------------------------------------------------------- -------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.34)
---------------------------------------------------------------------------- -------------
NET ASSET VALUE, END OF PERIOD $ 9.25
---------------------------------------------------------------------------- ---------
TOTAL RETURN** (4.23) %
----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------
Expenses 0.00%(a)
----------------------------------------------------------------------------
Net investment income 6.11%(a)
----------------------------------------------------------------------------
Expense waiver/reimbursement(b) 1.86%(a)
----------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $24,468
----------------------------------------------------------------------------
Portfolio turnover rate 320%
----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 22, 1993 (date of initial
public investment) to April 30, 1994.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(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 funds 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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HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income. The investment objective
cannot be changed without approval of its 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
-------------------------------------------------------
THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING, UNDER NORMAL MARKET
CIRCUMSTANCES, AT LEAST 65% OF ITS TOTAL ASSETS IN A DIVERSIFIED PORTFOLIO
CONSISTING OF SECURITIES THAT ARE GUARANTEED AS TO PAYMENT OF PRINCIPAL AND
INTEREST BY THE U.S. GOVERNMENT OR ITS AGENCIES OR INSTRUMENTALITIES ("U.S.
GOVERNMENT SECURITIES"). CAPITAL APPRECIATION IS A SECONDARY INVESTMENT
CONSIDERATION. THE FUND ANTICIPATES THAT MOST OF ITS ASSETS WILL BE
INVESTED IN FIXED INCOME SECURITIES HAVING MATURITIES GREATER THAN ONE
YEAR. CERTAIN MORTGAGE-BACKED SECURITIES, INCLUDING ARMS, AND CMOS (AS
DEFINED BELOW), ARE INCLUDED WITHIN THE DEFINITION OF GOVERNMENT
SECURITIES. DEPENDING UPON MARKET CONDITIONS, THE FUND MAY INVEST A
SUBSTANTIAL PORTION OF ITS ASSETS IN MORTGAGE-BACKED SECURITIES. FOR A
DESCRIPTION OF THESE SECURITIES, SEE BELOW.
-------------------------------------------------------
ACCEPTABLE INVESTMENTS
The Fund's investments include:
- U.S. Government Securities (see below);
- mortgage-backed securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property (see below);
- asset-backed securities that are similar to mortgage-backed securities, but
have underlying assets that are not mortgage loans or interests in mortgage
loans (see below);
- domestic issues of corporate debt obligations, including demand master
notes, rated at the time of purchase Aaa, Aa, or A by Moody's Investors
Service, Inc. ("Moody's"), or AAA, AA, or A by Standard & Poor's Corporation
("S&P") or by Fitch Investors Service, Inc. ("Fitch"), or, if unrated, of
comparable quality as determined by the Fund's adviser;
- commercial paper that at the time of purchase is rated not less than P-1,
A-1, or F-1 by Moody's, S&P, or Fitch, respectively, or, if unrated, of
comparable quality as determined by the Fund's adviser;
- time and savings deposits (including certificates of deposit) in commercial
or savings banks;
- bankers' acceptances;
- repurchase agreements collateralized by high quality, liquid investments;
and
- money market instruments.
In addition, the Fund may purchase the investments and engage in the investment
techniques described below.
U.S. GOVERNMENT SECURITIES
The U.S. Government Securities in which the Fund invests 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
Government National Mortgage Association ("Ginnie Mae"), Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation
("Freddie Mac"), The Student Loan Marketing Association ("Sallie Mae"),
Federal Land Banks, Farmers Home Administration, Federal Home Loan Banks,
Federal Farm Credit Banks, and Housing and Urban Development.
Mortgage-backed securities, including ARMS and CMOs (as defined below), are
securities which can be issued by the U.S. government, its agencies or
instrumentalities.
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
--------------------------------------------------------------------------------
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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 the Ginnie Mae,
the Fannie Mae, and the 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; (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; and (iv) privately issued securities which are 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.
The privately issued mortgage-backed securities provide for a periodic payment
consisting of both interest and/or principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
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
("CMOS")
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
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recognized statistical rating organization ("NRSRO") or are of comparable
quality as determined by the Fund's adviser, and which may be:
(a) 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; (b) 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 (c) collateralized by pools of
mortgages without a 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
three rating categories by an NRSRO, including, but not limited to, interests 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, it 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 prepayments 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
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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.
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 three rating
categories or, if the obligations are unrated, they will be of comparable
quality as determined by the Fund's adviser.
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 interest 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.
Downgraded securities will be evaluated on a case by case basis by the adviser.
The adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold.
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, it 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
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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 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 objective 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 considered to be illiquid, to 15% of
its net assets.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term 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.
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 load 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.
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.
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 enter into loan arrangements only with broker/dealers,
banks, or other institutions which the Fund's adviser 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.
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
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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.
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 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 may also 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 the Fund's adviser.
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 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 require 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.
The Fund may also write call options and purchase put options on financial
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 perfectly 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, the Fund's
investment adviser could be incorrect in its expectations
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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 the investment adviser 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under limited
circumstances. This transaction is similar to borrowing cash.
DIVERSIFICATION
The Fund is a "diversified" investment company. Under the Investment Company Act
of 1940 and the Internal Revenue Code of 1986, this means that with respect to
75% of its total assets, the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. government obligations).
The balance of the Fund's assets is not subject to this limitation. However,
under the Internal Revenue Code of 1986, as amended, a regulated investment
company at the close of each quarter of the taxable year may not hold more than
25% of its assets in securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies). Thus, the
Fund may invest up to 25% of its total assets in the securities of any one
issuer.
DEBT CONSIDERATION
In the debt market, 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 the Fund's investment
adviser. The Fund's investment adviser 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.
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.
- with respect to 75% of the value of its total assets, invest more than 5% 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
-------------------------------------------------------
INVESTMENT DECISIONS FOR THE FUND ARE MADE BY M&T BANK, SUBJECT TO
DIRECTION BY THE DIRECTORS.
-------------------------------------------------------
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
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 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.
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
31, 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 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.
Mr. Robert J. Truesdell oversees investment activities of M&T Bank's money
market and fixed income products, including the money market funds in the Vision
Group of Funds, Inc. and the Vision Fiduciary Funds, Inc. Mr. Truesdell joined
M&T Bank as Vice President and Fixed Income Manager in 1988. In addition to the
Vision money market funds, he also manages individual investment management
accounts. Mr. Truesdell holds an M.B.A. in accounting from S.U.N.Y. at Buffalo.
Mr. Mark S. Evanco is the Fund's portfolio manager. Mr. Evanco joined M&T Bank
in August, 1993 and has been managing the Fund since its inception. Mr. Evanco
was a portfolio manager at Keycorp, Albany, New York from 1991 to 1993. For the
period from 1987 to 1991, Mr. Evanco managed the New York State municipal
portfolio and acted as the funding manager in the Funds Management Division of
Key Bank of Western New York. Mr. Evanco holds a B.S. in Business Administration
from S.U.N.Y. at Buffalo, and is currently working towards an M.B.A. at Canisius
College.
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DISTRIBUTION OF FUND SHARES
-------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
-------------------------------------------------------
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 its
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
The Fund has adopted a Shareholder Services Plan, which is administered by
Federated Administrative Services. Under the Plan, M&T Bank may act as a
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 l% of the Fund's average daily net assets for which the
Shareholder Servicing Agent provides services. 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.
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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 any Fund shares. The administrators appointed could
include affiliates of the adviser.
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 the adviser 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% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
TRANSFER AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is the transfer agent for the shares of the Fund, and dividend
disbursing agent responsible for distributing dividends to the Fund's
shareholders.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is the custodian for
the securities and cash of the Fund.
LEGAL COUNSEL
Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh,
Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., 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, the adviser 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. The
minimum initial investment may be waived or lowered from time to time.
Subsequent investments must be in amounts of at least $25, including retirement
plans. 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
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their client or customer in an amount of $2 million or more.
The distributor, M&T Bank, 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 operational support.
Compensation may also 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 16, 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%.
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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 a 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
1-800-618-8573.
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, 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 U.S. Government Securities 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 your payment by check has
been converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), into federal funds. This is generally the next business
day after State Street Bank receives the check.
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 dividends daily and pays them monthly. 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 funds 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. Monthly confirmations are sent to shareholders of the Fund to
report dividends paid during the month.
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" AND LISTED BELOW UNDER "DESCRIPTION OF FUND
SHARES") 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 22 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.
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 FEDERAL,
STATE, AND LOCAL 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 New York Tax-Free Fund and Vision
Growth and Income 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 June 4, 1994, Tice
& Co., Buffalo, New York, owned 30.4% 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 agreement, 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 written 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
financial publications 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 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 U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ---------------------------------------------------------------------- -----------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--96.8%
-------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES--61.2%
----------------------------------------------------------------------
$1,000,000 Federal Home Loan Mortgage Corp. REMIC, 6.85%, Series 1466--PH,
12/15/2019 $ 970,070
----------------------------------------------------------------------
3,000,000 Federal Home Loan Mortgage Corp. REMIC, 5.75%, Series 1601--PE,
1/15/2006 2,799,660
----------------------------------------------------------------------
3,915,000 Federal Home Loan Mortgage Corp. REMIC, 5.75%, Series 1689--E,
4/15/2019 3,636,174
----------------------------------------------------------------------
2,000,000 Federal National Mortgage Association REMIC, 6.50%, Series 92--169J,
3/25/2021 1,910,400
----------------------------------------------------------------------
5,000,000 Federal National Mortgage Association REMIC, 6.50%, Series 93--135PE,
2/25/2007 4,723,438
----------------------------------------------------------------------
1,000,000 Federal National Mortgage Association REMIC, 5.75%, Series 93--170E,
8/25/2006 932,190
---------------------------------------------------------------------- -----------
Total U.S. Government Agencies 14,971,932
---------------------------------------------------------------------- -----------
U.S. TREASURY NOTES--14.7%
----------------------------------------------------------------------
3,850,000 5.50%--5.75%, 2/28/99--8/15/2003 3,584,814
---------------------------------------------------------------------- -----------
U.S. TREASURY BONDS--6.9%
----------------------------------------------------------------------
1,950,000 6.25%, 8/15/2023 1,699,308
---------------------------------------------------------------------- -----------
COLLATERALIZED MORTGAGE OBLIGATIONS--14.0%
----------------------------------------------------------------------
2,533,000 Prudential Home Mortgage Securities Co., 7.00%, Series 93--38A5,
9/25/2023 2,434,998
----------------------------------------------------------------------
1,000,000 Residential Funding Mortgage Securities Inc., 7.00%, Series 93--S30A6,
8/25/2023 985,910
---------------------------------------------------------------------- -----------
Total Collateralized Mortgage Obligations 3,420,908
---------------------------------------------------------------------- -----------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $24,594,572) 23,676,962
---------------------------------------------------------------------- -----------
*REPURCHASE AGREEMENT--2.5%
-------------------------------------------------------------------------------------------
600,000 State Street Bank and Trust Co., 3.00%, dated 4/29/94, due 5/2/94
(at amortized cost) (Note 2B) 600,000
---------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $25,194,572) $24,276,962+
---------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $25,196,884. The
unrealized depreciation of investments on a federal tax basis amounts to
$919,922, at April 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($24,467,517) at
April 30, 1994.
The following abbreviations are used in this portfolio:
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B)
(identified cost $25,194,572; tax cost $25,196,884) $24,276,962
------------------------------------------------------------------------------------
Cash 71,326
------------------------------------------------------------------------------------
Receivable for investments sold 9,617,205
------------------------------------------------------------------------------------
Interest receivable 165,591
------------------------------------------------------------------------------------
Receivable for capital stock sold 150,570
------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 9,179
------------------------------------------------------------------------------------ -----------
Total assets 34,290,833
------------------------------------------------------------------------------------ -----------
LIABILITIES:
------------------------------------------------------------------------------------
Payable for investments purchased $9,730,683
-----------------------------------------------------------------------
Dividends payable 52,935
-----------------------------------------------------------------------
Payable to investment adviser (Note 4) 13,645
-----------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 8,184
-----------------------------------------------------------------------
Payable for capital stock redeemed 1,000
-----------------------------------------------------------------------
Accrued expenses 16,869
----------------------------------------------------------------------- ----------
Total liabilities 9,823,316
------------------------------------------------------------------------------------ -----------
NET ASSETS FOR 2,645,830 shares of capital stock outstanding $24,467,517
------------------------------------------------------------------------------------ -----------
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------
Paid-in capital $25,763,135
------------------------------------------------------------------------------------
Net unrealized depreciation of investments (917,610)
------------------------------------------------------------------------------------
Accumulated net realized loss on investments (378,008)
------------------------------------------------------------------------------------ -----------
Total $24,467,517
------------------------------------------------------------------------------------ -----------
NET ASSET VALUE and Redemption Price per Share
($24,467,517 / 2,645,830 shares of capital stock outstanding) $9.25
------------------------------------------------------------------------------------ -----------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share
(100/95.5 of $9.25)* $9.69
------------------------------------------------------------------------------------ -----------
</TABLE>
* See "What Fund Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 22, 1993 (DATE OF INITIAL PUBLIC INVESTMENT)
TO APRIL 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
--------------------------------------------------------------------------------------
Interest income (Note 2C) $ 483,777
--------------------------------------------------------------------------------------
EXPENSES:
--------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 55,416
--------------------------------------------------------------------------
Directors' fees 1,175
--------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 30,276
--------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 40,269
--------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 13,710
--------------------------------------------------------------------------
Legal fees 2,119
--------------------------------------------------------------------------
Printing and postage 3,265
--------------------------------------------------------------------------
Miscellaneous 1,152
-------------------------------------------------------------------------- --------
Total expenses 147,382
--------------------------------------------------------------------------
Deduct--
--------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $55,416
----------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 4) 19,425
----------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 72,541 147,382
---------------------------------------------------------------- ------- --------
Net expenses 0
-------------------------------------------------------------------------------------- -----------
Net investment income 483,777
-------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
--------------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (378,008)
--------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (917,610)
-------------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (1,295,618)
-------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (811,841)
-------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES 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 $ 483,777
--------------------------------------------------------------------------------
Net realized loss on investments ($2,149 net gain as computed for federal income
tax purposes) (Note 2D) (378,008)
--------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (917,610)
-------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations (811,841)
-------------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
--------------------------------------------------------------------------------
Dividends to shareholders from net investment income (483,777)
-------------------------------------------------------------------------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
--------------------------------------------------------------------------------
Net proceeds from sales of shares 26,070,345
--------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
in capital stock 348,822
--------------------------------------------------------------------------------
Cost of shares redeemed (656,032)
-------------------------------------------------------------------------------- -------------
Change in net assets from capital stock transactions 25,763,135
-------------------------------------------------------------------------------- -------------
Change in net assets 24,467,517
--------------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------------
Beginning of period --
-------------------------------------------------------------------------------- -------------
End of period $24,467,517
-------------------------------------------------------------------------------- -------------
</TABLE>
* For the period from September 22, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES 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: 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 U.S. Government
Securities Fund (the "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--U.S. government obligations are generally valued at the mean between
the over-the-counter bid and asked prices as furnished by an independent pricing service.
Short-term securities with remaining maturities of sixty days or less at the time of
purchase may be stated at amortized cost, which approximates 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, EXPENSE AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code, as
amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL INCOME 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 $377,844 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.
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------
<TABLE>
<C> <S>
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 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 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. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
--------------------------------------------------------------------------- ----------------
<S> <C>
Shares sold 2,678,740
---------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 36,313
---------------------------------------------------------------------------
Shares redeemed (69,223)
--------------------------------------------------------------------------- ----------------
Net change resulting from capital stock transactions 2,645,830
--------------------------------------------------------------------------- ----------------
</TABLE>
* For the period from September 22, 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. Adviser may voluntarily choose to waive
a portion of its fee and reimburse certain operating expenses of the Fund.
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its 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 SERVICES 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 period ended April 30, 1994.
Under the terms of a shareholder services agreement between FAS and 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 period ended April 30,
1994.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VISION U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------
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.
ORGANIZATIONAL EXPENSES--Organizational Expenses ($21,313) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following August 16, 1993 (date the Fund first
became effective). For the period ended April 30, 1994, the Fund paid $1,111,
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 ended April 30, 1994, were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------
PURCHASES $65,990,644
----------------------------------------------------------------------------------- -----------
SALES $41,018,064
----------------------------------------------------------------------------------- -----------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION U.S. GOVERNMENT SECURITIES FUND:
We have audited the accompanying statements of assets and liabilities of Vision
U.S. Government Securities Fund, (a portfolio of Vision Group of Funds)
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 the period from September 22, 1993 to April 30, 1994. 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 and brokers. 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 audit provides 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
U.S. Government Securities Fund, (a portfolio of Vision Group of Funds), at
April 30, 1994, the results of its operations, the changes in its net assets and
the financial highlights for the period from September 22, 1993 to April 30,
1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
June 3, 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
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, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
INDEPENDENT AUDITORS
Ernst & Young
One Oxford Centre
Pittsburgh, Pennsylvania 15219
[THIS PAGE INTENTIONALLY LEFT BLANK]
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[THIS PAGE INTENTIONALLY LEFT BLANK]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Vision
U.S. Government
Securities
Fund
---------------------------------------------
Prospectus dated
June 30, 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
3081707A (6/94)
VISION GROUP OF FUNDS, INC.
VISION U.S. GOVERNMENT SECURITIES FUND
VISION NEW YORK TAX-FREE FUND
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates to the prospectuses of
two portfolios of the Vision Group of Funds, Inc., referred to as the Vision
U.S. Government Securities Fund and the Vision New York Tax-Free Fund
(collectively, the "Funds" or individually, a "Fund") dated June 30, 1994.
This Statement is not a prospectus itself, but should be read in conjunction
with the respective Fund's current prospectus dated June 30, 1994. This Combined
Statement of Additional Information is incorporated into each respective Fund's
prospectus by reference. To receive a copy of the prospectus for either Fund,
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 Combined Statement of
Additional Information for future reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated June 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUNDS 1
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
----------------------------------------------------------------
Types of Acceptable Investments and Techniques 1
Temporary Investments 8
Portfolio Turnover 10
Investment Limitations 10
New York Investment Risks 12
MANAGEMENT OF VISION GROUP OF FUNDS, INC. 14
----------------------------------------------------------------
Officers and Directors 14
Fund Ownership 14
Director Liability 14
INVESTMENT ADVISORY SERVICES 15
----------------------------------------------------------------
Adviser to the Fund 15
Advisory Fees 15
ADMINISTRATIVE SERVICES 15
----------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 15
----------------------------------------------------------------
BROKERAGE TRANSACTIONS 16
----------------------------------------------------------------
DESCRIPTION OF FUND SHARES 16
----------------------------------------------------------------
PURCHASING FUND SHARES 17
----------------------------------------------------------------
Conversion to Federal Funds 17
DETERMINING MARKET VALUE OF SECURITIES 17
----------------------------------------------------------------
REDEEMING FUND SHARES 17
----------------------------------------------------------------
DETERMINING NET ASSET VALUE 18
----------------------------------------------------------------
TAX STATUS 18
----------------------------------------------------------------
The Funds' Tax Status 18
TOTAL RETURN 19
----------------------------------------------------------------
YIELD 19
----------------------------------------------------------------
TAX-EQUIVALENT YIELD 20
----------------------------------------------------------------
Tax-Equivalency Table 20
PERFORMANCE COMPARISONS 20
----------------------------------------------------------------
APPENDIX 23
----------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUNDS
--------------------------------------------------------------------------------
The Funds are portfolios 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 AND POLICIES
--------------------------------------------------------------------------------
The investment objective of Vision U.S. Government Securities Fund (the
"Government Fund") is to provide current income. Capital appreciation is a
secondary investment consideration of the Government Fund. The investment
objective of the Government Fund cannot be changed without approval of its
shareholders. Current income includes, in general, discount earned on U.S.
Treasury bills and agency discount notes, interest earned on all other U.S.
government securities, and short-term capital gains.
The investment objective of Vision New York Tax-Free Fund (the "Tax-Free Fund")
is to provide current income which is exempt from federal income tax and
personal income taxes imposed by the state of New York and New York
municipalities and is consistent with the preservation of capital. The
investment objective of the Tax-Free Fund cannot be changed without approval of
its shareholders.
TYPES OF ACCEPTABLE INVESTMENTS AND TECHNIQUES
MUNICIPAL SECURITY ISSUES
The Tax-Free Fund may invest in municipal securities. Municipal securities
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities. Industrial development bonds that are issued by or on behalf of
public authorities to finance various privately-operated facilities are included
within the term municipal securities if the interest paid thereon is exempt from
federal income tax.
There are, of course, variations in the quality of municipal securities both
within a particular classification and between classifications, and the yields
on municipal securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
Investors Service Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"), and
Standard & Poor's Corporation ("S&P") described in the Prospectus and the
Appendix to this Statement of Additional Information represent their opinions as
the quality of municipal securities. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and municipal
securities with the same maturity, interest rate and rating may have different
yields while municipal securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by the
Tax-Free Fund, an issue of municipal securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Tax-Free Fund. Manufacturers and Traders Trust Company ("M&T Bank"), the
investment adviser to the Tax-Free Fund, will consider such an event in
determining whether the Tax-Free Fund should continue to hold the obligations.
The payment of principal and interest on most municipal securities purchased by
the Tax-Free Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its municipal securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal securities may be
materially adversely affected by litigation or other conditions. For purposes of
this Statement of Addition Information and the Tax-Free Fund's Prospectus, the
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is considered to be an "issuer." Further, the
nongovernmental user of facilities financed by industrial development bonds is
considered to be an "issuer." With respect to those municipal securities that
are supported by a bank guarantee, insurance policy or other credit facility,
the bank or other institution (or governmental agency) providing the guarantee,
insurance or credit facility may also be considered to be an "issuer" in
connection with the guarantee, insurance or facility.
Among other types of municipal securities, the Tax-Free Fund may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Tax-Free Fund may invest
in other types of tax-exempt instruments, such as municipal bonds and industrial
development bonds.
--------------------------------------------------------------------------------
Examples of New York municipal securities which the Tax-Free Fund may purchase
include:
- governmental lease certificates of participation issued by state or municipal
authorities where payment is secured by installment payments for equipment,
buildings, or other facilities being leased by the state or municipality.
Government lease certificates purchased by the Fund will not contain
nonappropriation clauses;
- municipal notes and tax-exempt commercial paper;
- serial bonds sold with a series of maturity dates;
- tax anticipation notes sold to finance working capital needs of municipalities
in anticipation of receiving taxes;
- bond anticipation notes sold in anticipation of the issuance of long-term
bonds;
- revenue anticipation notes sold in expectation of receipt of federal income
available under the Federal Revenue Sharing Program;
- pre-refunded municipal bonds whose timely payment of interest and principal is
ensured by an escrow of U.S. government obligations; and
- general obligation bonds.
VARIABLE-RATE MUNICIPAL SECURITIES
The Tax-Free Fund may purchase variable-rate municipal securities.
Variable-interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable-rate municipal
securities than for fixed-income obligations. Many municipal securities
with variable-interest rates purchased by the Tax-Free Fund are subject
to repayment of principal (usually within seven days) on the Tax-Free
Fund's demand. The terms of these variable-rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
PARTICIPATION INTERESTS
The Tax-Free Fund may purchase municipal securities in the form of
participation interests. The financial institutions from which the
Tax-Free Fund purchases participation interests frequently provide or
secure from another financial institution irrevocable letters of credit
or guarantees and give the Tax-Free Fund the right to demand payment of
the principal amounts of the participation interests plus accrued
interest on short notice (usually within seven days).
MUNICIPAL LEASES
The Tax-Free Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional interests
in lease payments by a governmental or non-profit entity. The lease
payments and other rights under the lease provide for and secure the
payments on the certificates. Lease obligations may be limited by
municipal charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic appropriation.
If the entity does not appropriate funds for future lease payments, the
entity cannot be compelled to make such payments. Furthermore, a lease
may provide that the certificate trustee cannot accelerate lease
obligations upon default. The trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment.
When determining whether municipal leases purchased by the Tax-Free Fund
will be classified as a liquid or an illiquid security, the Board of
Directors has directed the Tax-Free Fund's adviser to consider certain
factors such as: the frequency of trades and quotes for the security; the
volatility of quotations and trade prices for the security; the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; dealer undertaking to make a market in the
security; the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer); the rating of the
security and the financial condition and prospects of the issuer of the
security; whether the lease can be terminated by the lessee; the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and
prospects); the likelihood that the lessee will discontinue appropriating
funding for the lease property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of
nonappropriation"); any credit enhancement or legal recourse provided
upon an event of nonappropriation or other termination of the lease; and
such other factors as may be relevant to the Tax-Free Fund's ability to
dispose of the security.
--------------------------------------------------------------------------------
ILLIQUID AND RESTRICTED SECURITIES
Each of the Funds 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
Funds believe 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, a Fund's investment
adviser must consider the following factors in determining the liquidity of
restricted securities and, with respect to the Tax-Free Fund, municipal lease
securities; (1) the frequency of trades and quotes for the security; (2) the
volatility of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of potential
purchasers; (4) dealer undertakings to make a market in the security; (5) the
nature of the security and the nature of the marketplace trades; (6) the rating
of the security and the financial condition and prospects of the issuer of the
security; and (7) such other factors as may be relevant to a Fund's ability to
dispose of the security. In the case of a municipal lease security, the Tax-Free
Fund's adviser must also consider the following additional factors: (a) whether
the lease can be terminated by the lessee; (b) the potential recovery, if any,
from a sale of the leased property upon termination of the lease; (c) the
lessee's general credit strength; (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to its operations; and (e) any credit enhancement
or legal recourse provided upon an event of nonappropriation or other
termination of the lease.
The Funds 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
Funds, who agree that they are 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 Funds 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 Funds believe 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 Funds intend,
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 a Fund's investment adviser, as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Funds intend to not subject such
paper to the limitation applicable to restricted securities.
CORPORATE DEBT SECURITIES
Each of the Funds may invest in corporate debt securities. Corporate debt
securities 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 securities, 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
Each of the Funds may invest in zero coupon bonds, which are debt securities
issued at a discount to their face amount that 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. 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
their qualification as regulated investment companies and avoid liability of
federal income taxes, the Funds will be required to distribute income accrued
from zero coupon bonds which each Fund owns,
--------------------------------------------------------------------------------
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities which the Government 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 Government
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 Government 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 Government 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 Government 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
Government Fund invests to be shorter than the maturities stated in the
underlying mortgages.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Funds lend portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to a 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 Funds 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
Funds do 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.
INSURANCE ON MUNICIPAL SECURITIES
The Tax-Free Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC
Indemnity Corporation ("AMBAC"), and Financial Guaranty Insurance Company
("FGIC"), or any other municipal bond insurer which is rated Aaa by Moody's or
AAA by S&P. Each Policy guarantees the timely payment of principal and interest
on those municipal securities it insures. The Policies will have the same
general characteristics and features. A municipal security will be eligible for
coverage if it meets certain requirements set forth in a Policy. In the event
interest or principal on an insured municipal security is not paid when due, the
insurer covering the security will be obligated under its Policy to make such
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payment not later than 30 days after it has been notified by the Tax-Free Fund
that such non-payment has occurred. The insurance feature reduces financial
risk, but the cost thereof and the restrictions on investments imposed by the
guidelines in the insurance policies reduce the yield to shareholders.
MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on securities
insured by their Policies so long as such securities remain in the Fund's
portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any reason
except failure to pay premiums when due. MBIA, AMBAC, and FGIC will reserve the
right at any time upon 90 days' written notice to the Tax-Free Fund to refuse to
insure any additional municipal securities purchased by the Tax-Free Fund after
the effective date of such notice. The Board of Directors will reserve the right
to terminate any of the Policies if it determines that the benefits to the
Tax-Free Fund of having its portfolio insured under such Policy are not
justified by the expense involved.
Additionally, the Board of Directors reserve the right to enter into contracts
with insurance carriers other than MBIA, AMBAC, or FGIC if such carriers are
rated AAA by S & P or Aaa by Moody's.
Under the Policies, municipal bond insurers unconditionally guarantee to the
Tax-Free Fund the timely payment of principal and interest on the insured
municipal securities when and as such payments shall become due but shall not be
paid by the issuer, except that in the event of any acceleration of the due date
of the principal by reason of mandatory or optional redemption (other than
acceleration by reason of mandatory sinking fund payments), default or
otherwise, the payments guaranteed will be made in such amounts and at such
times as payments of principal would have been due had there not been such
acceleration. The municipal bond insurers will be responsible for such payments
less any amounts received by the Tax-Free Fund from any trustee for the
municipal bond issuers or from any other source. The Policies do not guarantee
payment on an accelerated basis, the payment of any redemption premium, the
value for the shares of the Tax-Free Fund, or payments of any tender purchase
price upon the tender of the municipal securities. The Policies also do not
insure against nonpayment of principal of or interest on the securities
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for the securities. However, with respect to small
issue industrial development municipal bonds and pollution control revenue
municipal bonds covered by the Policies, the municipal bond insurers guarantee
the full and complete payments required to be made by or on behalf of an issuer
of such municipal securities if there occurs any change in the tax-exempt status
of interest on such municipal securities, including principal, interest or
premium payments, if any, as and when required to be made by or on behalf of the
issuer pursuant to the terms of such municipal securities. A "when-issued"
municipal security will be covered under the Policies upon the settlement date
of the issuer of such "when-issued" municipal security. In determining whether
to insure municipal securities held by the Tax-Free Fund, each municipal bond
insurer has applied its own standard, which corresponds generally to the
standards it has established for determining the insurability of new issues of
municipal securities. This insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions imposed under the
Policies will reduce the yield to shareholders of the Tax-Free Fund.
If a Policy terminates as to municipal securities sold by the Tax-Free Fund on
the date of sale, in which event municipal bond insurers will be liable only for
those payments of principal and interest that are then due and owing, the
provision for insurance will not enhance the marketability of securities held by
the Tax-Free Fund, whether or not the securities are in default or subject to
significant risk of default, unless the option to obtain permanent insurance is
exercised. On the other hand, since Issuer-Obtained Insurance will remain in
effect as long as the insured municipal securities are outstanding, such
insurance may enhance the marketability of municipal securities covered thereby,
but the exact effect, if any, on marketability cannot be estimated. The Tax-Free
Fund generally intends to retain any securities that are in default or subject
to significant risk of default and to place a value on the insurance, which
ordinarily will be the difference between the market value of the defaulted
security and the market value of similar securities of minimum investment grade
(i.e., rated "Baa" by Moody's or "BBB" by S&P) that are not in default. To the
extent that the Tax-Free Fund holds defaulted securities, it may be limited in
its ability to manage its investment and to purchase other municipal securities.
Except as described above with respect to securities that are in default or
subject to significant risk of default, the Tax-Free Fund will not place any
value on the insurance in valuing the municipal securities that it holds.
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned
by AEtna Casualty & Surety, Credit Local deFrance CAECL, and the public.
The investors of MBIA, Inc., are not obligated to pay the obligations of
MBIA. MBIA, domiciled in New York, is regulated by the New York State
Insurance Department and licensed to do business in various states. The
address of MBIA is 113 King Street, Armonk, New York, 10504, and its
telephone number is (914) 273-4545. As of June 1, 1994, S&P has rated the
claims-paying ability of MBIA "AAA."
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AMBAC INDEMNITY CORPORATION.
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned by
the public. Copies of certain statutorily required filings of AMBAC can
be obtained from AMBAC. The address of AMBAC's administrative offices is
One State Street Plaza, 17th Floor, New York, New York 10004, and its
telephone number is (212) 668-0340. As of June 1, 1994, S&P has rated the
claims-paying ability of AMBAC "AAA."
FINANCIAL GUARANTY INSURANCE COMPANY.
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding company.
FGIC Corporation is wholly-owned by General Electric Capital Corporation,
with the other 1% ownership coming from the Sumitomo Marine & Fire
Insurance Company Ltd. The investors of FGIC Corporation are not
obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is subject to regulation by the state of New York
Insurance Department and is licensed to do business in various states.
The address of Financial Guaranty is 115 Broadway, New York, New York
10006, and its telephone number is (212) 312-3000. As of June 1, 1994,
S&P has rated the claims-paying ability of Financial Guaranty "AAA."
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum the present values of the cash flows. When the Government Fund invests in
mortgage pass-through securities, its duration will be calculated in a manner
which requires assumptions to be made regarding future principal prepayments. A
more complete description of this calculation is available upon request from the
Government Fund.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Funds, each of the Funds 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 Funds may also write covered call options on portfolio
securities to attempt to increase current income.
Each 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. Each Fund currently does not
intend to invest more than 5% of its total assets in options transactions.
FUTURES CONTRACTS
The Funds 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 Funds 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, price moves 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, a 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" (agree to purchase
securities in the future at a predetermined price) to hedge against a
decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, a 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
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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 a 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 Funds are also required to deposit
and maintain margin when they write call options on futures contracts.
Each Fund will comply with the following restrictions when purchasing and
selling futures contracts. First, a Fund will not participate in futures
transactions if the sum of its initial margin deposits on open contracts
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, a Fund will not enter into these contracts
for speculative purposes. Third, since a 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, each 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 each Fund will submit to the CFTC special calls for
information, none of the Funds will register as a commodities pool
operator.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Funds may purchase listed put options on financial futures contracts.
The Funds would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. 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
Funds will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Funds upon the
sale of the second option will be large enough to offset both the premium
paid by the Funds for the original option plus the decrease in value of
the hedged securities.
Alternatively, a 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 FUTURES CONTRACTS
In addition to purchasing put options on futures, a Fund may write listed
call options on financial futures contracts to hedge its portfolio
against an increase in market interest rates. When a 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 of the option if the
option is exercised. As market interest rates rise, 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 one of the Funds, 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.
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A 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 Funds may purchase put options on portfolio securities to protect
against price movements in particular securities in their portfolios. A
put option gives a 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 Funds may purchase these put options as long
as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
A 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, a Fund has the
obligation upon exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. A 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. The call
options which a Fund writes and sells must be listed on a recognized options
exchange. Writing of call options by a 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 Funds 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.
RISKS
When the Funds use 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 perfectly with the prices of the securities
in a 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, a Fund's adviser could be incorrect in its
expectations about the direction or extent of market factors such as
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 a Fund's
adviser will consider liquidity before entering into these 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. A 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, each 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 a 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.
TEMPORARY INVESTMENTS
As stated in the Tax-Free Fund's prospectus, the Tax-Free Fund may invest a
portion of its assets on a temporary basis for temporary purposes in short-term
taxable money market instruments ("Temporary Investments"). Temporary
Investments in which the Tax-Free Fund may invest include instruments within the
classes listed below. Although the Tax-Free Fund has retained the flexibility of
investing up to 20% of its total assets in these Temporary Investments during
non-defensive periods (and greater amounts during temporary defensive periods),
the Tax-Free Fund anticipates that it would not invest more than 5% of its net
assets in any one of the following classes of temporary investments.
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U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Funds 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.
MONEY MARKET INSTRUMENTS
The Funds 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-2 by S&P,
Prime-2 by Moody's, or F-2 by Fitch, or if not rated are determined to be of
comparable quality by the Funds' investment adviser;
- 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Funds purchase 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 Funds.
The adviser 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 Funds' assets.
REPURCHASE AGREEMENTS
The Funds 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
Funds 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 Funds or their
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 a 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 Funds believe that under the regular procedures
normally in effect for custody of the Funds' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds may
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are found by a Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of Directors.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, a 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 Funds to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse
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repurchase agreements does not ensure that the Funds will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a 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.
PORTFOLIO TURNOVER
The Funds 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
a Fund's investment objective. Securities in its portfolio will be sold whenever
a Fund's investment adviser 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. During the period from the Funds' effective date,
August 16, 1993, to April 30, 1994, the Tax-Free Fund's and Government Fund's
portfolio turnover rates were 21% and 320%, respectively. The Government Fund's
high portfolio turnover rate is attributed to the unexpected, substantial
increase in market interest rates. Generally, a high portfolio turnover rate
results in increased transaction costs and higher taxes paid by a Fund's
shareholders. Despite this higher portfolio turnover rate for the Government
Fund, the adviser does not anticipate that the annual portfolio turnover rate
for either Fund will exceed 100% under normal market conditions.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short nor purchase any securities
on margin, except as described below and other than in connection with
buying financial futures contracts, put options on financial futures, and
put options on portfolio securities, 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 Funds of initial or variation margin in connection
with financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
The Funds will not sell securities short unless either Fund (1) owns, or has a
right to acquire, an equal amount of such securities, or (2) has segregated an
amount of its other 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 25% of the respective Fund's net assets. While
in a short position, a Fund will retain the securities, rights, or segregated
assets.
To comply with registration requirements in certain states, a Fund (1) will
limit short sales of securities of any class of any one issuer to 25% 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 Funds hold or have a right to acquire without the
payment of further consideration. (If state requirements change, these
restrictions may be revised without shareholder notification.)
Each 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 Funds will not issue senior securities except that the Funds may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of their net assets, including the amounts
borrowed. The Funds 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 Funds to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Funds will not purchase any securities while
borrowings (including reverse repurchase agreements) in excess of 5% of
their respective total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Funds 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 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 activities or the
purchase of securities on a when-issued basis.
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UNDERWRITING
The Funds 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 their
investment objectives, policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate including limited
partnership interests although they 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 Funds will not lend any of their assets except portfolio securities,
the market value of which does not exceed one-third of the value of the
Funds' respective total assets. This shall not prevent the Funds 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 Funds' investment objectives, policies, and limitations.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Funds may purchase and sell
futures contracts and related options.
CONCENTRATION OF INVESTMENTS
Neither the Government Fund nor the Tax-Free Fund will invest 25% or more
of the value of its total assets in any one industry, except that the
Government Fund, and, for temporary defensive purposes, the Tax-Free
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.
In addition, the Tax-Free Fund may invest more than 25% of the value of
its total assets in obligations issued by any state, territory, or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Government 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. Also, the Fund will
not acquire more than 10% of the outstanding voting securities of any one
issuer.
INVESTING IN EXEMPT-INTEREST OBLIGATIONS
The Tax-Free Fund will not invest less than 80% of its net assets in
securities the interest on which is exempt from federal income tax,
except during temporary defensive periods. AMT obligations are not
counted as securities the interest on which is exempt from federal income
tax.
The above investment limitations 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.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
None of the Funds will purchase or retain the securities of any issuer if
the Officers and Directors of the Corporation or the Fund's investment
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 Funds will not invest more than 15% of their 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.
11
--------------------------------------------------------------------------------
INVESTING IN NEW ISSUERS
None of the Funds will 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 Funds 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
Each 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.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN PUT OPTIONS
The Funds will not purchase put options on securities unless the
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 Funds will not write call options on securities unless the 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.
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. None of the Funds has any 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 a Fund's shares in certain states, a Fund may make
commitments more restrictive than the investment limitations described above. In
this regard, to comply with certain state restrictions, the Funds will not
invest more than 10% of their respective 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. In addition, the Funds will limit investments in the securities
of other investment companies to those with sales loads not not exceeding l.00%
of the offering price of such securities. (If state restrictions change, these
restrictions may be revised without shareholder approval or notification.)
For purposes of its policies and limitations, the Funds consider 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."
NEW YORK INVESTMENT RISKS
The following information as to certain New York risk factors is given to
investors in view of the Tax-Free Fund's policy of concentrating its investments
in New York issuers. As noted in the Tax-Free Fund's Prospectus, at least 65% of
the Fund's total assets will ordinarily be invested in New York State, municipal
and public authority debt obligations, the interest from which is exempt from
New York State income tax and New York City personal income taxes ("New York
State Municipal Securities"). The Tax-Free Fund is, therefore, susceptible to
political, economic or regulatory factors affecting New York State and its
political subdivisions. As a result, the value of the Tax-Free Fund's shares may
fluctuate more widely than the value of shares of a portfolio investment in
securities relating to a number of different states. The following information
provides only a brief summary of the complex factors affecting the financial
situation in New York State (the "State") and does not purport to be a complete
description. Additional information may be obtained from official statements and
prospectuses issued by, and other information reported by the State and, by its
various public bodies and by other entities located within the State, in
connection with the issuance of their respective securities.
A substantial principal amount of bonds issued by various municipalities,
agencies and authorities are either guaranteed by the State through
lease-purchase arrangements, other contractual obligations or moral obligation
provisions, which impose no immediate financial obligations on the State and
require appropriations by the legislature before any payments can be made.
Failure of the State to appropriate necessary amounts or to take other action to
permit such municipalities, agencies and authorities to meet their obligations
could result in their default. If a default were to occur, it
--------------------------------------------------------------------------------
would be likely to have a significant adverse impact on the market price of
obligations of the State and its municipalities, agencies and authorities. While
debt service is normally paid out of revenues generated by projects of such
issuers, the State has had to appropriate large amounts of funds in recent years
to enable such municipalities, agencies and authorities to meet their financial
obligations and in some cases, prevent default. Additional assistance is
expected to be required in the current and in the future fiscal years since
certain localities and authorities continue to experience financial
difficulties.
To the extent that such municipalities, agencies and authorities require State
assistance to meet their financial obligations, the ability of the State of New
York to meet its own obligations as they become due or to obtain additional
financing could be adversely affected and any reduction in such assistance and
subsidies by the State could adversely affect the ability of such issuers to
meet their debt obligations. Any reduction in the actual or perceived ability of
any issuer of New York State Municipal Securities to meet its obligations
(including a reduction in the rating of its outstanding securities) would be
likely to adversely affect the market value and marketability of its obligations
and could adversely affect the values of New York Municipal Securities as well.
The State of New York has experienced fiscal problems for several years as a
result of negligible growth, increased human service needs and the lingering
recession that hit the State harder than others. Though the State enjoyed good
growth throughout the early to mid-1980's, unemployment has risen drastically
and over 250,000 jobs have been lost in the past four years. The State's economy
is highly developed with a large emphasis in service, trade, financial services,
and real estate. While very diverse, extensive job losses in each of these areas
has placed a burden on the State to maintain employment, company development and
a stable tax base.
After five consecutive years of operating deficits, the State ended fiscal 1993
and 1994 with a small operating surplus. However, fiscal reforms are still
needed to produce recurring balance. The State has a large accumulated deficit
that is approximately 20% of the 1994 budgeted revenues of the General Fund. The
overall wealth of the State's population as reflected by the per capita income
offers a positive credit enhancement and is among the highest in the nation. The
debt per capita, though, is also among the highest and poses a large burden on
its residents.
The State has for many years had a very high state and local tax burden. The
burden of state and local taxation, in combination with the many other causes of
regional economic dislocation, has contributed to the decisions of some
businesses and individuals to relocate outside, or not relocate within, the
State. The current high level of taxes limits the ability of New York State, New
York City and other municipalities to impose higher taxes in the event of future
difficulties. In addition, constitutional challenges to State laws have limited
the amount of taxes which political subdivisions can impose on real property,
which may have an adverse effect on the ability of issuers to pay obligations
supported by such taxes. A variety of additional court actions have been brought
against the State and certain agencies and municipalities relating to financing,
amount of real estate tax, use of tax revenues and other matters, which could
adversely affect the ability of the State or such agencies or municipalities to
pay their obligations.
Both the State and New York City (the "City") face potential economic problems
which could seriously affect the ability of both the State and the City to meet
their respective financial obligations. The City has had to face greater
competition from other major cities and the State economy has grown more slowly
than that of the nation as a whole, in part, as a result of national and
international trends beyond the control of either the City or the State.
The importance of New York City to the State's economy is also an important
consideration since it represents a significant portion of the overall economy
of the State. The City has struggled to maintain fiscal stability and has
performed adequately in contrast to the difficult economic conditions in the New
York/New Jersey metropolitan area. Any major changes to the financial condition
of the City would ultimately have an effect on the State.
Beginning in early 1975, New York State, New York City and other State entities
faced serious financial difficulties which jeopardized the credit standing and
impaired the borrowing abilities of such entities and contributed to higher
interest rates on, and lower market prices for, debt obligations issued by them.
A recurrence of such financial difficulties or failure of certain financial
recovery programs could result in defaults or declines in the market values of
various New York obligations in which the Fund may invest. The overall financial
condition of the State can also be illustrated by the changes of its debt
ratings. During the last several years during which the State experienced its
financial difficulties, its general obligation long-term debt ratings as
determined by Moody's declined from A1 to A in 1990 while S&P downgraded the
State's debt from A to A-- in early 1992. The State has the second lowest
long-term debt rating among those states with outstanding general obligation
ratings. As a result, there may be special risks inherent in the Fund's
concentration of investments in New York Municipal Securities. The Fund's
concentration in securities issued by the State and its political subdivisions
provides a greater level of risk than a fund which is diversified across
numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
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, 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,
570 Delaware Avenue Benderson Development Company, Inc.
Buffalo, NY
-----------------------------------------------------------------------------------------------------------------
Joseph J. Castiglia Director President and Chief Executive Officer, Pratt & Lambert,
75 Tonawanda Avenue Inc.
Buffalo, NY
-----------------------------------------------------------------------------------------------------------------
Daniel R. Gernatt, Jr. Director President and CFO of Gernatt Asphalt Products, Inc.;
Richardson & Taylor Executive Vice President, Dan Gernatt Gravel Products,
Hollow Roads Inc.; Vice President, Countryside Sand & Gravel, Inc.
Collins, NY
-----------------------------------------------------------------------------------------------------------------
George K. Hambleton, Jr. Director President, Brand Name Sales, Inc.; President, Hambleton &
670 Young Street Carr, Inc.
Tonawanda, NY
-----------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President and Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors Treasurer Vice President and Treasurer, Federated Advisers, Federated
Tower Management, and Federated Research; Executive Vice
Pittsburgh, PA President, Treasurer, and Director, Federated 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 or
Director of some of the Federated Funds.
-----------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President Director, Private Label Management, Federated Investors;
Federated Investors and Assistant formerly Vice President, Product Management, MNC Financial,
Tower Treasurer Inc.; formerly Vice President, and Director of Investor
Pittsburgh, PA Relations,
MNC Financial Inc.
-----------------------------------------------------------------------------------------------------------------
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 June 4, 1994, the following shareholders of record owned 5% or more of the
Government Fund: Tice & Co., Buffalo, New York, owned approximately 847,180
shares (30.4%); and Reho & Co., Buffalo, New York, owned approximately 561,947
shares (20.2%).
As of June 4, 1994, the following shareholders of record owned 5% or more of the
Tax-Free Fund: Warehouse Distributors Inc., Tonawanda, New York, owned
approximately 198,592 shares (7.3%); and Clay E. Buzzard and Rita M. Buzzard,
Tonawanda, New York, owned approximately 200,566 shares (7.4%).
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
--------------------------------------------------------------------------------
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company ("M&T Bank"). The advisory services provided and the
expenses assumed by M&T Bank, as well as the advisory fees payable to it, are
described in the Funds' Prospectus.
The investment advisory agreement provides that M&T Bank shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Funds in
connection with its performance under the advisory agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of M&T Bank in the performance of its
duties, or from reckless disregard by it of its 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 advisory agreement between a Fund and M&T Bank
will 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 a Fund (as defined in the Prospectus), and by a
majority of the Directors who are not parties to the advisory agreement or
interested persons (as defined in the Investment Company Act of 1940) of any
party to the advisory agreement, by vote cast in person at a meeting called for
such purpose. The 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 a Fund, or by M&T Bank. The advisory agreement also
terminates automatically in the event of its assignment, as defined in the
Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory fee
as described in the Prospectus.
For the period from September 22, 1993 (date of initial public investment) to
April 30, 1994, for the Tax-Free Fund and Government Fund, M&T Bank earned
advisory fees of $60,928 and $55,416, respectively, all of which were waived.
In addition, M&T Bank reimbursed $75,506 and $72,541, respectively, of other
operating expenses.
STATE EXPENSE LIMITATIONS
The adviser 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 a 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, the adviser will reimburse the
Fund for its expenses over the limitation. If a 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 the adviser 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 Funds for the fees set forth in the
Prospectus.
For the period from September 22, 1993 (date of initial public investment) to
April 30, 1994 the Tax-Free Fund and Government Fund incurred costs for
administrative services of $30,213 and $30,276, respectively, of which $18,384
and $19,425, respectively, were voluntarily waived.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
--------------------------------------------------------------------------------
Federated Services Company serves as transfer agent for shares of the Fund and
dividend disbursing agent responsible for distributing dividends to the Fund's
shareholders. Prior to March 31, 1994, State Street Bank and Trust Company
served in this capacity. There were no changes in the transfer agency fees
charged as a result of this change.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
Pursuant to the Funds' advisory agreement, M&T Bank 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 Funds 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 M&T Bank 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, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser 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. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
adviser. This information is in addition to and not in lieu of services required
to be performed by M&T Bank and does not reduce the advisory fees payable to M&T
Bank by the Funds. Such information may be useful to M&T Bank in serving both
the Funds and other clients, and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to M&T Bank in
carrying out its obligations to the Funds. 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.
The adviser 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 Funds 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 Funds, M&T Bank has
agreed to maintain its policy and practice of conducting its Trust and
Investment Services Division independently of its Commercial Department.
The Funds' advisory agreement provides that, in making investment
recommendations for the Funds, Trust and Investment Services Division personnel
will not inquire or take into consideration whether the issuer of securities
proposed for purchase or sale by the Funds is a customer of the Commercial
Department 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 Funds.
Investment decisions for the Funds are made independently from those for any
other investment portfolios or accounts managed by M&T Bank. Such other
portfolios or accounts may also invest in the same securities as the Funds. When
a purchase or sale of the same security is made at substantially the same time
on behalf of the Funds 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 believes to be equitable to the Funds and such other
portfolio or account. In some instances, this investment procedure may adversely
affect the price paid or received by the Funds or the size of the position
obtained or sold by the Funds. To the extent permitted by law, M&T Bank may
aggregate the securities to be sold or purchased for the Funds with those to be
sold or purchased for other portfolios or accounts in order to obtain the best
execution.
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 six
billion shares have been classified into six classes of one billion shares each.
Four billion shares remain unclassified at this time. Shares of Classes A, B, C
and F Common Stock represent interests in the other portfolios offered by the
Corporation. Shares of Classes D and E Common Stock represent interests in the
Funds.
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 a Fund's separate Prospectus and this Statement of
Additional Information, the Funds' shares will be fully paid and non-assessable.
In the event of a liquidation or dissolution of the Corporation, shares of the
Funds are entitled to receive the assets available for distribution belonging to
the respective Funds, 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 Funds and the Corporation's other portfolios
(voting together without regard to class).
PURCHASING FUND SHARES
--------------------------------------------------------------------------------
Shares of the Funds 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 procedures for purchasing shares of the Funds are
explained in the Fund's respective prospectus under "Investing in the Funds."
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. M&T Bank and Federated
Services Company act as the shareholders' agent in depositing checks and
converting them to federal funds.
DETERMINING MARKET VALUE OF SECURITIES
--------------------------------------------------------------------------------
The market value of the Funds' portfolio securities are determined as follows:
- for bond and other fixed income securities, as determined by an independent
pricing service; or
- 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 Funds will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Directors determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
--------------------------------------------------------------------------------
The Funds redeem shares at the next computed net asset value after a Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
--------------------------------------------------------------------------------
REDEMPTION IN KIND
Although the Funds intend to redeem shares in cash, they reserve the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from a 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 Funds are described in the prospectus.
TAX STATUS
--------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect 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
No portion of any income dividend paid by the Funds is eligible for the
dividends received deduction available to corporations. These dividends (to the
extent taxable), and any short-term capital gains, are taxable as ordinary
income.
Net income for dividend purposes includes (1) interest and dividends accrued and
discount earned on a Fund's assets (including both original issue and market
discount), less (2) amortization of any premium and accrued expenses directly
attributable to such Fund, and the general expenses (e.g. legal, accounting and
directors' fees) of the Corporation prorated to each Fund on the basis of its
relative net assets.
CAPITAL GAINS
Capital gains experienced by a Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If for
some extraordinary reason a Fund realizes net long-term capital gains, it
will distribute them at least once every 12 months.
NEW YORK ISSUES
New York State and New York City do not impose personal income taxes on interest
received from New York municipal securities (or municipal securities issued by a
possession of the United States). New York State and New York City personal
income taxes do not apply to interest paid as dividends to shareholders to the
extent such interest is derived from New York (and U.S. possession) municipal
securities. Thus, New York State and New York City personal income taxes are not
applicable to the portion of tax-exempt interest dividends paid to shareholders
by the Tax-Free Fund that represent the same percentage of tax-exempt interest
dividends paid by the Tax-Free Fund that the Tax-Free Fund's interest on New
York (and U.S. possession) municipal securities represents with respect to the
total amount of tax-exempt interest earned by the Tax-Free Fund. Dividends paid
by the Tax-Free Fund not derived from interest on New York (or U.S. possession)
municipal securities are not exempt for New York State and New York City tax
purposes, even though such dividends may be exempt for federal tax purposes. In
addition, distributions of capital gains, if any, are not exempt from New York
State or New York City income taxes. Interest on indebtedness incurred or
continued to purchase or carry Tax-Free Fund shares is non-deductible for New
York State and New York City income tax purposes in the same proportion that
dividends from the shares are exempt from such taxes.
--------------------------------------------------------------------------------
The maximum rate under the New York State personal income tax is scheduled to be
7.59375% for 1994. This maximum rate is scheduled to decrease to 7% for single
taxpayers, and 7.125% for married filing joint taxpayers after 1994. The maximum
rate under the New York City Personal Income Tax (including surcharges) is 4.46%
for 1994. This maximum rate is scheduled to remain in effect through 1994.
TOTAL RETURN
--------------------------------------------------------------------------------
The Tax-Free Fund's cumulative total return from September 22, 1993 (date of
initial public investment) to April 30, 1994 was (5.65)%. The Government Fund's
cumulative total return from September 22, 1993 (date of initial public
investment) to April 30, 1994 was (8.53)%. Cumulative total return reflects each
Funds' total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load. The Funds'
total return is representative of only eight months of fund activity since the
Funds' effective date.
YIELD
--------------------------------------------------------------------------------
The yield for the Tax-Free Fund and Government Fund for the thirty-day period
ended April 30, 1994 was 5.07% and 6.35%, respectively.
The yield for the Funds 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 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.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
--------------------------------------------------------------------------------
The tax-equivalent yield for the Tax-Free Fund for the thirty-day period ended
April 30, 1994 was 7.87%. The tax-equivalent yield of the Tax-Free Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that the Fund would have had to earn to equal its actual yield, assuming a
combined federal and state marginal tax rate of 35.594%.
TAX-EQUIVALENCY TABLE
The Tax-Free Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Tax-Free
Fund's portfolio generally remains free from federal income tax,* and often is
free from state and local taxes as well. As the table below indicates, a
"tax-free" investment is an attractive choice for investors, particularly in
times of narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF NEW YORK
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Tax Bracket:
Federal 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal
and State 22.594% 35.594% 38.594% 43.594% 47.194%
--------------------------------------------------------------------------------------------------------------
Joint Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
--------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT**
--------------------------------------------------------------------------------------------------------------
1.50% 1.94% 2.33% 2.44% 2.66% 2.84%
2.00 2.58 3.11 3.26 3.55 3.79
2.50 3.23 3.88 4.07 4.43 4.73
3.00 3.88 4.66 4.89 5.32 5.68
3.50 4.52 5.43 5.70 6.20 6.63
4.00 5.17 6.21 6.51 7.09 7.57
4.50 5.81 6.99 7.33 7.98 8.52
5.00 6.46 7.76 8.14 8.86 9.47
5.50 7.11 8.54 8.96 9.75 10.42
6.00 7.75 9.32 9.77 10.64 11.36
--------------------------------------------------------------------------------------------------------------
</TABLE>
The above chart is for illustrative purposes only and is accurate as of the date
of this Statement of Additional Information. It is not an indication of past or
future performance of the Tax-Free Fund.
*Some portions of the Tax-Free Fund's income may be subject to the federal
alternative minimum tax and state and local taxes. As of the date of the
prospectus, the federal alternative minimum tax rates are: up to 28% for
noncorporate taxpayers and 20% for corporate taxpayers.
**The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid
on comparable taxable investments were not used to increase federal
deductions.
PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------
The performance of shares of the Funds 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 Funds' performances fluctuate 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 each 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 Funds use 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 Government Fund and the Tax-Free Fund will quote their
Lipper rankings in the "General U.S. Government Funds" and the "New York
Municipal Bond Funds" categories, respectively, in advertising and sales
literature. (Both Funds)
- LEHMAN BROTHERS GOVERNMENT (LT) INDEX is an index composed of bonds issued by
the U.S. government or its agencies which have at least $1 million outstanding
in principal and which have maturities of ten years or longer. Index figures
are total return figures calculated monthly. (Government Fund)
- 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 months, twelve months,
and ten year periods, and year-to-date. (Government Fund)
- 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. (Government Fund)
- 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). (Government
Fund)
- 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).
(Government Fund)
- 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. (Government Fund)
- 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. (Government Fund)
- THE SALOMON BROTHERS TOTAL RATE-OF-RETURN INDEX for mortgage pass-through
securities reflects the entire mortgage pass-through market and reflects their
special characteristics. The index represents data aggregated by mortgage pool
and coupon within a given sector. A market-weighted portfolio is constructed
considering all newly created pools and coupons. (Government Fund)
- THE MERRILL LYNCH TAXABLE BOND INDICES include U.S. Treasury and agency issues
and were designed to keep pace with structural changes in the fixed income
market. The performance indicators capture all rating changes, new issues, and
any structural changes of the entire market. (Government Fund)
- 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. (Government Fund)
--------------------------------------------------------------------------------
- LEHMAN BROTHERS NEW YORK TAX-EXEMPT INDEX is a total return performance
benchmark for the New York long-term, investment grade, tax-exempt bond
market. Returns and attributes for this index are calculated semi-monthly
using approximately 22,000 municipal bonds classified as general obligation
bonds (state and local), revenue bonds (excluding insured revenue bonds),
insured bonds (includes all bond insurers with Aaa/AAA ratings), and
prerefunded bonds.
- 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. Advertisements may quote performance information which does not reflect
the effect of the sales load.
From time to time as it deems appropriate, each 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 Funds are not insured. Unlike money market funds, which attempt to
maintain a stable net asset value, the net asset value of the Funds' shares
fluctuates.
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 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.
--------------------------------------------------------------------------------
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
sign (+) 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
broad based 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 as the
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 extremely 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; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) 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.
3081707B (6/94)
