[VISION LOGO]
PROSPECTUS
VISION GROUP OF FUNDS, INC.
PROSPECTUS DATED JUNE 30, 1996
Vision Group of Funds, Inc. is an open-end management investment company (a
mutual fund) that offers you a choice of seven separate investment portfolios
with distinct investment objectives and policies. This 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. THESE
SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL. BECAUSE
THE VISION NEW YORK TAX-FREE MONEY MARKET FUND MAY INVEST A SIGNIFICANT PORTION
OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, INVESTMENT IN THE VISION NEW
YORK TAX-FREE MONEY MARKET FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This 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 their respective
Statements of Additional Information dated June 30, 1996, which have also been
filed with the Securities and Exchange Commission ("SEC"). 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 a paper copy of this prospectus, if you have
received it electronically, 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. The Statements of Additional Information, material incorporated
by reference into this document, and other information regarding the Funds is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
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 Funds' Expenses 4
Financial Highlights 5
Some Basic Facts About the
Money Market and Money
Market Mutual Funds 7
How the Funds Show Performance 8
How the Funds Invest 9
Vision Money Market Fund 9
Vision Treasury Money Market Fund 11
Vision New York Tax-Free
Money Market Fund 12
Common Fund Investment Techniques,
Features and Limitations 17
Fund Management, Distribution and
Administration 20
Your Guide to Using the Funds 23
How the Funds Value Their Shares 23
What Fund Shares Cost 23
How to Buy Shares 23
How to Exchange Shares 25
How to Redeem Shares 27
Tax Information 30
Description of Fund Shares 31
Financial Statements 33
Report of Ernst & Young LLP,
Independent Auditors 46
Addresses 47
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 OF PRINCIPAL BY INVESTING IN
HIGH QUALITY MONEY MARKET INSTRUMENTS. (SEE PAGE 9
FOR DETAILS.)
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 11 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 12 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 "How the Funds Value Their Shares.")
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 "Your
Guide to Using the Funds.")
FUND MANAGEMENT
The Funds' investment adviser is M&T Bank, which makes investment decisions for
the Funds. M&T Bank is the principal banking subsidiary of First Empire State
Corporation, which also owns The East New York Savings Bank. (See "Advisers
Background.")
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 the prospectus discussing each Fund's investment
policies and their common investment techniques.
A SUMMARY OF THE FUNDS' EXPENSES
Every money market fund incurs expenses in conducting operations, managing
investments and providing service 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>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) NEW YORK
TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
<S> <C> <C> <C>
Management Fees (after waiver) (1) 0.39% 0.41% 0.12%
12b-1 Fees None None None
Other Expenses 0.19% 0.16% 0.36%
Total Fund Operating Expenses (2) 0.58% 0.57% 0.48%
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 21.
EXAMPLE:
You would pay the following expenses on a $1,000 investment,
assuming (A) a 5% annual return; and (B) redemption at the end
of each time period. The Funds charge no redemption fees.
1 YEAR......................................................... $ 6 $ 6 $ 5
3 YEARS........................................................ $19 $18 $15
5 YEARS........................................................ $32 $32 $27
10 YEARS....................................................... $73 $71 $60
</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 fees for the Vision Money Market Fund, Vision Treasury Money
Market Fund, and Vision New York Tax-Free Money Market Fund have been reduced to
reflect the voluntary waivers by the adviser. The adviser may terminate these
voluntary waivers at any time at its sole discretion. The maximum management fee
for each of the above funds is 0.50%.
(2) The Annual Fund Operating Expenses for the Vision Money Market Fund, Vision
Treasury Money Market Fund, and Vision New York Tax-Free Money Market Fund were
0.69%, 0.66%, and 0.86%, respectively, absent the voluntary waivers by the
adviser and administrator, for the year ended April 30, 1996.
VISION MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 46.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
NET ASSET SHAREHOLDERS
VALUE, NET FROM NET NET ASSET
YEAR ENDED BEGINNING OF INVESTMENT INVESTMENT VALUE, END OF TOTAL
APRIL 30, PERIOD INCOME INCOME PERIOD RETURN(B)
MONEY MARKET FUND
<S> <C> <C> <C> <C> <C>
1989(a) $ 1.00 0.07 (0.07) $ 1.00 7.52%
1990 $ 1.00 0.08 (0.08) $ 1.00 8.58%
1991 $ 1.00 0.07 (0.07) $ 1.00 7.21%
1992 $ 1.00 0.05 (0.05) $ 1.00 4.60%
1993 $ 1.00 0.03 (0.03) $ 1.00 3.21%
1994 $ 1.00 0.03 (0.03) $ 1.00 3.01%
1995 $ 1.00 0.05 (0.05) $ 1.00 4.77%
1996 $ 1.00 0.05 (0.05) $ 1.00 5.33%
<CAPTION>
TREASURY MONEY MARKET FUND
<S> <C> <C> <C> <C> <C>
1989(a) $ 1.00 0.07 (0.07) $ 1.00 7.08%
1990 $ 1.00 0.08 (0.08) $ 1.00 8.17%
1991 $ 1.00 0.07 (0.07) $ 1.00 6.96%
1992 $ 1.00 0.04 (0.04) $ 1.00 4.54%
1993 $ 1.00 0.03 (0.03) $ 1.00 3.05%
1994 $ 1.00 0.03 (0.03) $ 1.00 2.88%
1995 $ 1.00 0.04 (0.04) $ 1.00 4.57%
1996 $ 1.00 0.05 (0.05) $ 1.00 5.25%
<CAPTION>
NEW YORK TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C> <C> <C>
1989(a) $ 1.00 0.04 (0.04) $ 1.00 4.55%
1990 $ 1.00 0.05 (0.05) $ 1.00 5.24%
1991 $ 1.00 0.05 (0.05) $ 1.00 4.73%
1992 $ 1.00 0.03 (0.03) $ 1.00 2.99%
1993 $ 1.00 0.02 (0.02) $ 1.00 1.68%
1994 $ 1.00 0.02 (0.02) $ 1.00 1.88%
1995 $ 1.00 0.03 (0.03) $ 1.00 2.84%
1996 $ 1.00 0.03 (0.03) $ 1.00 3.20%
</TABLE>
(a) Reflects operations for the period from June 1, 1988 (date of initial
public offering) to April 30, 1989.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
VISION MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS--CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSETS,
NET END OF
YEAR ENDED INVESMENT EXPENSE WAIVER/ PERIOD (000
APRIL 30, EXPENSES INCOME REIMBURSEMENT(D) OMITTED)
MONEY MARKET FUND
<S> <C> <C> <C> <C>
1989(a) 0.74%(c) 8.00%(c) 0.29%(c) $ 84,668
1990 0.72% 8.19% 0.25% $ 121,227
1991 0.81% 6.99% 0.09% $ 86,973
1992 0.75% 4.40% 0.06% $ 143,670
1993 0.36% 3.13% 0.39% $ 226,298
1994 0.28% 2.98% 0.42% $ 266,626
1995 0.51% 4.80% 0.19% $ 431,316
1996 0.58% 5.19% 0.11% $ 489,229
<CAPTION>
TREASURY MONEY MARKET FUND
<S> <C> <C> <C> <C>
1989(a) 0.68%(c) 7.48%(c) 0.34%(c) $ 31,388
1990 0.86% 7.88% 0.25% $ 32,986
1991 0.75% 6.52% 0.06% $ 91,682
1992 0.75% 4.38% 0.04% $ 100,373
1993 0.40% 2.98% 0.39% $ 128,825
1994 0.31% 2.86% 0.43% $ 197,521
1995 0.51% 4.53% 0.19% $ 210,526
1996 0.57% 5.10% 0.09% $ 372,884
<CAPTION>
NEW YORK TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C> <C>
1989(a) 0.68%(c) 4.83%(c) 0.45%(c) $ 8,309
1990 0.83% 5.11% 0.65% $ 8,494
1991 0.69% 4.66% 0.87% $ 9,445
1992 0.95% 2.92% 0.65% $ 7,028
1993 0.71% 1.67% 0.63% $ 17,899
1994 0.41% 1.88% 0.58% $ 40,180
1995 0.40% 2.76% 0.52% $ 41,238
1996 0.48% 3.14% 0.38% $ 65,763
</TABLE>
(a) Reflects operations for the period from June 1, 1988 (date of initial
public offering) to April 30, 1989.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
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 each Fund's objective, 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, although there is no guarantee that they can do
so.
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 the investors within seven days.
HOW
THE FUNDS SHOW
PERFORMANCE
FROM TIME TO TIME, ADVERTISEMENTS FOR THE FUNDS MAY
REFER TO RATINGS, RANKINGS, AND OTHER INFORMATION IN
CERTAIN FINANCIAL PUBLICATIONS AND/OR COMPARE THE
FUNDS' 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, and
assuming that income is 100% tax exempt.
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 7.875%, assuming the tax-free yield is 3.5%, the investor would have to
receive 5.73% from a taxable investment to equal that tax-free yield (3.5%
divided by 1 - (.31 + .07875) = 5.73%).
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%).
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. 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 "Repurchase Agreements" 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.
In seeking to achieve its investment objective, the Fund must comply with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds. For a further discussion
of these requirements, see the "Regulatory Compliance" section in the Fund's
Statement of Additional Information. 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 Ratings Group ("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 Corporation's Board of Directors, variable rate
demand notes, and variable amount demand master notes (see pages 17 and 18
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 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 "When-Issued and Delayed Delivery
Transactions"). 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 Association, 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
"Repurchase Agreements").
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.
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. 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
"Repurchase Agreements" 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.
In seeking to achieve its investment objective, the Fund must comply with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds. For a further discussion
of these requirements, see the "Regulatory Compliance" section in the Fund's
Statement of Additional Information. 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.
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. THE FUND CANNOT GUARANTEE A STABLE
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. 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 federal regular income tax, as
well as New York State and New York City income taxes. New York municipal
securities are discussed in more detail below.
In seeking to achieve its investment objective, the Fund must comply with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds. For a further discussion
of these requirements, see the "Regulatory Compliance" section in the Fund's
Statement of Additional Information. 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 BELOW UNDER
"TYPES OF MUNICIPAL SECURITIES.".
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 discussed below under
"Temporary Investments."
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 exempt commercial paper.
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) or S&P
(AAA or AA), in the cases of bonds;
rated SP-1 by S&P or 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 or 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 to the above ratings by M&T Bank. M&T Bank uses
guidelines approved by the Corporation's Board of Directors to make these
quality determination.
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, counties, municipalities 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, counties, municipalities 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.
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 GOVERNMENT 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 GENERATE
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.
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 MUNICIPAL SECURITIES MAY BE SUBJECT
TO A SPECIAL FEDERAL 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 "Tax Information."
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.
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.
These transactions are arrangements in which the Funds purchase securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Funds 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. 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. Accordingly, the Funds
may pay more/less than the market value of the securities on the settlement
date.
As an operating policy, the Funds reserve the right to dispose of a commitment
prior to settlement if the adviser deems it appropriate to do so. In addition,
the Funds may enter into transactions to sell their purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may realize
short-term profits or losses upon the sale of such commitments.
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 Corporation's Board of
Directors.
VARIABLE RATE DEMAND NOTES
The Funds may purchase variable rate demand notes, which are long-term debt
instruments that have variable or floating interest rates and provide the Funds
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 Funds to demand the repurchase of the
security on not more than seven days' prior notice. Other notes only permit the
Funds tender the security at the time of each interest rate adjustment or at
other fixed intervals.
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.
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. Any bankruptcy, receivership, or default, or change in the credit
quality of the party providing the credit enhancement will adversely affect the
quality and marketability of the underlying security and could cause losses to
the Tax-Free Fund and the Money Market Fund and affect their share price. 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.
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 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.
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.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Funds and their portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Funds' shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Funds; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
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.
ADVISER'S BACKGROUND
FOUNDED IN 1856, M&T BANK PROVIDES COMPREHENSIVE
BANKING AND FINANCIAL SERVICES.
M&T Bank is the principal banking subsidiary of First Empire State Corporation,
a $12 billion bank holding company, as of December 31, 1995, headquartered in
Buffalo, New York. M&T Bank (consolidated) had $10.2 billion in assets, as of
December 31, 1995, has 121 offices throughout Western New York State and New
York's Southern Tier, 22 offices in the Hudson Valley region of New York State,
plus offices in New York City, Albany, Syracuse, and Nassau, The Bahamas. First
Empire State Corporation also owns The East New York Savings Bank, which, as of
December 31, 1995, has 16 offices throughout metropolitan New York City.
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, 1995, M&T Bank had $1.8
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 of December 31, 1995, M&T Bank managed over $884
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.
THE GLASS-STEAGALL ACT
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT
GENERALLY PROHIBITS BANKS FROM PUBLICLY UNDERWRITING
OR DISTRIBUTING CERTAIN SECURITIES.
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, or custodian to such an
investment company or from purchasing shares of such company as agent for and
upon the order of their customers.
Some entities providing services to the Funds are subject to such banking laws
and regulations. They believe that they may perform those services for the Funds
contemplated by any agreement entered into with the Funds without violating
those laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present or future statutes and regulations,
could prevent these entities from continuing to perform all or a part of the
above services. If this happens, the Corporation's Board of Directors would
consider alternative means of continuing available services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
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 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, A
SUBSIDIARY OF FEDERATED INVESTORS, PROVIDES THE FUNDS
WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUNDS.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as specified
below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC.
<C> <S>
.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 will be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
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
determined at 12:00 p.m. Eastern time, 3:00 p.m. Eastern time and at the close
of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange
Monday through Friday, except on: 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 holidays when wire transfers
are restricted (Columbus Day, Veterans' Day, and Martin Luther King Day). The
Fund reserves the right to reject any purchase request. Texas residents must
purchase 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 (such as
The East New York Savings Bank ("East New York")), 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 service shareholders of Vision Group of Funds,
Inc. You also may purchase shares of the Funds through any representative of M&T
Securities, Inc. ("M&T Securities") at M&T Bank and East New York locations, as
well as at separate M&T Securities locations, or by calling 1-800-724-5445. M&T
Securities (member NASD and SIPC) is a wholly-owned registered broker-dealer
subsidiary of M&T Bank. 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, NewYork 14240-4556
Current shareholders can purchase shares by mail by sending a check to the same
address. Orders by mail are considered received after payment by check has been
converted into federal funds. This is normally the next business day after the
check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the 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 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 Shareholder 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.
Federated Shareholder Services Company is a subsidiary of Federated Investors.
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, 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.
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 Participating 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 acquired by the reinvestment of dividends, will not have to pay a sales
charge again on an exchange, unless the Participating Fund imposes a higher
sales charge. When exchanging into and out of Participating Funds with different
sales charges, exchanges are made at net asset value, plus the difference
between the sales charge already paid and any sales charge of the Participating
Fund into which the shares are to be exchanged, if higher. Shares of
Participating Funds with no sales charge acquired by direct purchase may be
exchanged for shares of other Participating Funds with a sales charge at net
asset value plus the applicable sales charge. However, shares of Participating
Funds with no sales charge that were acquired by the reinvestment of dividends
will not be subject to a sales charge upon an exchange into shares of a
Participating Fund with a sales charge. Instead, such exchanges will be made at
net asset value.
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 Shareholder 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 "Signature Guarantees" below 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 at the number listed below.
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 Shareholder 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 Shareholder 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 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 Shareholder Services Company will establish a
checking account that allows you to redeem Fund shares by writing checks in
amounts of $250 or more. The ability to redeem shares by check may not be
available when establishing an account through certain financial institutions
(such as brokers). 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. 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 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
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.
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 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, such distributions will be subject to 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 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 seven 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, Vision Growth and
Income Fund, and Vision Capital Appreciation 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
requires that shareholders vote by class.) As of May 31, 1996, Tice & Co.,
Buffalo, New York, acting in various capacities for numerous accounts, was the
owner of record of 57.57% of the voting securities of the Money Market Fund,
86.86% of the voting securities of the Treasury Fund; and 60.30%, of the voting
securities of the Tax-Free 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 Funds are not required to hold annual shareholder meetings, unless matters
arise that require a vote of the shareholders under the Investment Company Act
of 1940. 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 Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a vote of
shareholders at a special meeting. The Corporation's 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.
VISION MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------------- --------------
*CORPORATE OBLIGATIONS--64.4%
- ------------------------------------------------------------------------------------------------------
BANKING--10.6%
---------------------------------------------------------------------------------------
$ 9,185,000 **Atlas Iron Processors Inc., 5.51%, 5/7/1996 $ 9,185,000
---------------------------------------------------------------------------------------
10,000,000 **Bank One Milwaukee, 5.31%, 5/1/1996 9,998,661
---------------------------------------------------------------------------------------
18,000,000 Commerzbank U.S. Finance, 5.24%, 6/13/1996 17,887,340
---------------------------------------------------------------------------------------
15,000,000 Toronto Dominion Holdings, 5.02%, 7/23/1996 14,826,392
--------------------------------------------------------------------------------------- --------------
Total 51,897,393
--------------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--4.0%
---------------------------------------------------------------------------------------
20,000,000 Ford Motor Credit Corp., 5.28%, 7/29/1996 19,738,933
--------------------------------------------------------------------------------------- --------------
FINANCE--COMMERCIAL--30.5%
---------------------------------------------------------------------------------------
20,000,000 American Express Credit Corp., 5.46%, 5/2/1996 19,996,967
---------------------------------------------------------------------------------------
16,000,000 BAT Capital Corp., 5.31%, 5/20/1996 15,955,160
---------------------------------------------------------------------------------------
15,000,000 Ciesco LP, 5.25%, 8/14/1996 14,770,313
---------------------------------------------------------------------------------------
22,000,000 Commercial Credit Co., 5.23%, 5/9/1996 21,974,431
---------------------------------------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.25%, 7/2/1996 9,909,583
---------------------------------------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.30%, 1/3/1997 9,998,718
---------------------------------------------------------------------------------------
22,000,000 John Deere Capital Corp., 5.05%, 5/6/1996 21,984,569
---------------------------------------------------------------------------------------
20,000,000 Pitney Bowes Credit Corp., 5.26%, 7/15/1996 19,780,833
---------------------------------------------------------------------------------------
15,000,000 Transamerica Finance Group, Inc., 4.80%, 8/21/1996 14,776,000
--------------------------------------------------------------------------------------- --------------
Total 149,146,574
--------------------------------------------------------------------------------------- --------------
FINANCE--RETAIL--8.1%
---------------------------------------------------------------------------------------
20,000,000 Beneficial Corp., 5.26%, 8/1/1996 19,731,155
---------------------------------------------------------------------------------------
20,007,000 **Associates Corporation of North America, 5.23%, 5/1/1996 20,007,000
--------------------------------------------------------------------------------------- --------------
Total 39,738,155
--------------------------------------------------------------------------------------- --------------
FOOD--4.1%
---------------------------------------------------------------------------------------
20,000,000 Sara Lee Corp., 5.235%, 6/27/1996 19,834,225
--------------------------------------------------------------------------------------- --------------
INSURANCE--4.0%
---------------------------------------------------------------------------------------
20,000,000 Prudential Funding Corp., 5.27%, 7/17/1996 19,774,561
--------------------------------------------------------------------------------------- --------------
OIL & OIL FINANCE--3.1%
---------------------------------------------------------------------------------------
15,000,000 Chevron Oil Finance Co., 5.27%, 5/1/1996 15,000,000
--------------------------------------------------------------------------------------- --------------
TOTAL CORPORATE OBLIGATIONS 315,129,841
--------------------------------------------------------------------------------------- --------------
</TABLE>
33
VISION MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT AGENCY--22.2%
- ------------------------------------------------------------------------------------------------------
$ 20,000,000 Federal Home Loan Bank, 5.25%, 1/7/1997 $ 19,267,917
---------------------------------------------------------------------------------------
25,000,000 Federal National Mortgage Association, 5.33%, 5/22/1996 24,922,271
---------------------------------------------------------------------------------------
25,000,000 Federal National Mortgage Association, 5.10%, 6/27/1996 24,798,125
---------------------------------------------------------------------------------------
20,000,000 Federal National Mortgage Association, 5.07%, 7/9/1996 19,805,650
---------------------------------------------------------------------------------------
15,000,000 Federal National Mortgage Association, 4.82%, 8/9/1996 14,799,167
---------------------------------------------------------------------------------------
5,000,000 Student Loan Marketing Association, 5.31%, 5/7/1996 5,000,000
--------------------------------------------------------------------------------------- --------------
TOTAL--U.S. GOVERNMENT AGENCY 108,593,130
--------------------------------------------------------------------------------------- --------------
U.S. TREASURY BILLS--7.7%
- ------------------------------------------------------------------------------------------------------
38,000,000 U.S. Treasury Bills, 5/2/1996-8/22/1996 37,752,371
--------------------------------------------------------------------------------------- --------------
***REPURCHASE AGREEMENT--5.9%
- ------------------------------------------------------------------------------------------------------
28,759,000 Lehman Brothers, Inc., 5.31%, dated 4/30/1996, due 5/1/1996 28,759,000
--------------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 490,234,342+
--------------------------------------------------------------------------------------- --------------
</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. Treasury
obligations based on market price 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
($489,229,414) at April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
VISION TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------------- --------------
U.S. TREASURY OBLIGATIONS--57.7%
- -----------------------------------------------------------------------------------------------------
$ 218,000,000 U.S. Treasury Bills, 5/02/1996-1/09/1997 $ 215,308,665
------------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--42.7%
- -----------------------------------------------------------------------------------------------------
89,000,000 J.P. Morgan Securities, 5.30%, dated 4/30/1996, due 5/01/1996 89,000,000
-------------------------------------------------------------------------------------
33,000,000 Nomura Securities International, Inc., 5.20%, dated 4/26/1996, due
5/01/1996 33,000,000
-------------------------------------------------------------------------------------
37,110,000 Lehman Brothers, Inc., 5.31%, dated 4/30/1996, due 5/01/1996 37,110,000
------------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 159,110,000
------------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 374,418,665+
------------------------------------------------------------------------------------- --------------
</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
($372,884,052) at April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
VISION NEW YORK TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
SHORT-TERM MUNICIPAL SECURITIES--99.6%
- ------------------------------------------------------------------------------------------
NEW YORK--95.0%
----------------------------------------------------------------------------
$ 1,300,000 Babylon, NY, (Series B) Weekly VRDNs, (Bank of Nova Scotia SPA) VMIG1 $ 1,300,000
----------------------------------------------------------------------------
1,000,000 Board Cooperative Educational Services, NY, RANs, 4.25%,
6/25/1996 NR 1,000,637
----------------------------------------------------------------------------
600,000 Broome County, NY, IDA Weekly VRDNs, (Bing Realty)/ (Meridian Bank LOC) VMIG1 600,000
----------------------------------------------------------------------------
2,850,000 Chautauqua County, NY, IDA Weekly VRDNs, (Key Bank LOC) A-1 2,850,000
----------------------------------------------------------------------------
2,500,000 Cortland County, NY, BANs, 3.90% 10/28/1996 NR 2,503,570
----------------------------------------------------------------------------
1,600,000 Erie County, NY, Water Authority (Series A) Weekly VRDNs (AMBAC Insured) VMIG1 1,600,000
----------------------------------------------------------------------------
300,000 Erie County, NY, Water Authority (Series B) Weekly VRDNs, (AMBAC Insured) VMIG1 300,000
----------------------------------------------------------------------------
1,000,000 Great Neck North, NY, Water Authority (Series A) Weekly VRDNs, (FGIC
Insured) VMIG1 1,000,000
----------------------------------------------------------------------------
1,000,000 New York, NY, (Series A-8) Weekly VRDNs, (Sanwa Bank LOC) VMIG1 1,000,000
----------------------------------------------------------------------------
500,000 New York, NY, (Series B-3) Daily VRDNs, (Sanwa Bank LOC) VMIG1 500,000
----------------------------------------------------------------------------
100,000 New York, NY, (Series B-4) Daily VRDNs, (Union Bank of Switzerland LOC) VMIG1 100,000
----------------------------------------------------------------------------
500,000 New York, NY, (Series B-4) Daily VRDNs, (Union Bank of Switzerland LOC) VMIG1 500,000
----------------------------------------------------------------------------
1,000,000 New York, NY, HDC (Series A) Weekly VRDNs, (Upper Fifth Ave.)/(Bankers Trust
Co. LOC) VMIG1 1,000,000
----------------------------------------------------------------------------
2,800,000 New York, NY, HDC (Series A) Weekly VRDNs, (East 96th Street)/(Mitsubishi
Ltd. LOC) VMIG1 2,800,000
----------------------------------------------------------------------------
2,300,000 New York, NY, HDC (Series A) Daily VRDNs, (E. 17th Street)/ (Chemical Bank
LOC) A-1 2,300,000
----------------------------------------------------------------------------
1,400,000 New York, NY, HDC (Series A) Weekly VRDNs, (Columbus Gardens)/(Citibank LOC) A-1+ 1,400,000
----------------------------------------------------------------------------
1,000,000 New York, NY, Water Financial Authority & Sewer System Revenue (Series A)
Daily VRDNs, (FGIC Insured) VMIG1 1,000,000
----------------------------------------------------------------------------
500,000 New York, NY, Water Financial Authority & Sewer System Revenue (Series C)
Daily VRDNs, (FGIC Insured) VMIG1 500,000
----------------------------------------------------------------------------
</TABLE>
VISION NEW YORK TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------
NEW YORK--CONTINUED
----------------------------------------------------------------------------
$ 1,950,000 New York, NY, IDA Weekly VRDNs, (Childrens Oncology Society)/(Barclays Bank
of New York LOC) A-1+ $ 1,950,000
----------------------------------------------------------------------------
1,700,000 New York, NY, Cultural Resource Revenue Bonds (Series B) Weekly VRDNs,
(American Museum of Natural History)/(MBIA Insured) VMIG1 1,700,000
----------------------------------------------------------------------------
325,000 New York State Dormitory Authority (Series B), 6.50% (State University),
5/1/1996 AAA 325,000
----------------------------------------------------------------------------
700,000 New York State Dormitory Authority (Series A), 6.40% (State University
Educational Facilities), 5/1/1996 AAA 700,000
----------------------------------------------------------------------------
1,099,000 New York State Dormitory Authority, 3.35% CP 5/2/1996 A-1 1,099,000
----------------------------------------------------------------------------
1,000,000 New York State Energy Research and Development Authority (Series A) Weekly
VRDNs, (Long Island Lighting Co.)/(Union Bank of Switzerland LOC) VMIG1 1,000,000
----------------------------------------------------------------------------
1,800,000 New York State Energy Research and Development Authority, Monthly VRDNs,
(Rochester Gas & Electric)/(Bank of New York LOC) P-1 1,800,000
----------------------------------------------------------------------------
500,000 New York State Energy Research & Development Authority, (Series A) Daily
VRDNs, (Niagara Mohawk Power Corp.)/ (Toronto Dominion Bank LOC) A-1+ 500,000
----------------------------------------------------------------------------
2,100,000 New York State Energy Research & Development Authority, (Series B) Daily
VRDNs, (Niagara Mohawk Power Corp.)/ (Toronto Dominion Bank LOC) Aa2 2,100,000
----------------------------------------------------------------------------
100,000 New York State Energy Research & Development Authority, (Series C) Daily
VRDNs, (Niagara Mohawk Power Corp.)/ (Canadian Imperial Bank LOC) P-1 100,000
----------------------------------------------------------------------------
1,600,000 New York State Energy Reserach & Development Authority, (Series D) Daily
VRDNs, (New York Electric & Gas)/(Union Bank of Switzerland LOC) VMIG1 1,600,000
----------------------------------------------------------------------------
1,900,000 New York State Environmental Facilities Corp., (Series A), 3.20% CP (General
Electric Co.)., 5/7/1996 P-1 1,900,000
----------------------------------------------------------------------------
1,800,000 New York State, HFA (Series A) Weekly VRDNs, (Sloan Kettering) A-1+ 1,800,000
----------------------------------------------------------------------------
800,000 New York State, HFA Weekly VRDNs, (Normandie Court)/ (Societe Generale LOC) VMIG1 800,000
----------------------------------------------------------------------------
3,000,000 New York State Local Government Assistance Corp., (Series E) Weekly VRDNs,
(Canadian Imperial Bank LOC) VMIG1 3,000,000
----------------------------------------------------------------------------
</TABLE>
VISION NEW YORK TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------
NEW YORK--CONTINUED
----------------------------------------------------------------------------
$ 1,500,000 New York State Medical Care Facility Financial Agency, (Series A) Weekly
VRDNs, (Chemical Bank LOC) VMIG1 $ 1,500,000
----------------------------------------------------------------------------
1,000,000 New York State Medical Care Facility Financial Agency, (Series II-A) Weekly
VRDNs, (Chemical Bank LOC) VMIG1 1,000,000
----------------------------------------------------------------------------
1,000,000 New York State Power Authority, 3.15% CP (General Purpose), 5/1/1996 P-1 1,000,000
----------------------------------------------------------------------------
570,000 New York State Power Authority, 3.25% (General Purpose),
9/1/1996 VMIG1 570,000
----------------------------------------------------------------------------
700,000 New York State Power Authority, 3.25% (General Purpose),
9/1/1996 VMIG1 700,000
----------------------------------------------------------------------------
2,200,000 New York State, (Series Q) 3.05% CP 5/13/1996 A-1 2,200,000
----------------------------------------------------------------------------
2,100,000 Niagara Falls, NY, Bridge Commission (Series A) Weekly VRDNs, (FGIC Insured) VMIG1 2,100,000
----------------------------------------------------------------------------
1,180,000 North Hempstead, NY, BANs (Series E), 4.125% 11/1/1996 NR 1,183,198
----------------------------------------------------------------------------
1,000,000 Oceanside, NY, School District, TANs, 4.00% 6/7/1996 NR 1,000,293
----------------------------------------------------------------------------
1,000,000 Onondaga County, NY, IDA (Series B) Monthly VRDNs, (Pass & Seymour,
Inc.)/(Banque National de Paris LOC) A-1 1,000,000
----------------------------------------------------------------------------
1,000,000 Port Authority of New York & New Jersey, (Series 3) Weekly VRDNs, (Deutsche
Bank LOC) VMIG1 1,000,000
----------------------------------------------------------------------------
1,720,000 Port Authority of New York & New Jersey, 3.10% CP, 5/7/1996 A-1+ 1,720,000
----------------------------------------------------------------------------
1,400,000 St. Lawrence County, NY, IDA Daily VRDNs, (Bank of Nova Scotia LOC) P-1 1,400,000
----------------------------------------------------------------------------
1,000,000 Suffolk County, NY, Water Authority, BANs Weekly VRDNs VMIG1 1,000,000
----------------------------------------------------------------------------
2,500,000 Yonkers, NY, IDA Weekly VRDNs, (AMBAC Insured) VMIG1 2,500,000
---------------------------------------------------------------------------- -------------
Total 62,501,698
---------------------------------------------------------------------------- -------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
PUERTO RICO--4.6%
----------------------------------------------------------------------------
3,000,000 Commonwealth of Puerto Rico Development Bank, 3.10% CP,
5/13/1996 A-1 3,000,000
---------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 65,501,698+
---------------------------------------------------------------------------- -------------
</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
($65,762,956) at April 30, 1996.
VISION NEW YORK TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
CP--Commercial Paper
FGIC--Financial Guaranty Insurance Company
HDC--Housing Development Corporation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
LOC(s)--Letter(s) of Credit
MBIA--Municipal Bond Investors Assurance
RANs--Revenue Anticipation Notes
SPA--Subordinated Purchase Agreements
TANs--Tax Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
VISION MONEY MARKET FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK
TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
<S> <C> <C> <C>
ASSETS:
- ----------------------------------------------------------
Investments in securities $ 461,475,342 $ 215,308,665 $ 65,501,698
- ----------------------------------------------------------
Investments in repurchase agreements 28,759,000 159,110,000 --
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Total investments, at amortized cost 490,234,342 374,418,665 65,501,698
- ----------------------------------------------------------
Cash -- 871 14,398
- ----------------------------------------------------------
Income receivable 338,843 51,943 356,231
- ----------------------------------------------------------
Receivable for capital stock sold 481,989 298,615 22,386
- ----------------------------------------------------------
Prepaid expenses 14,410 -- --
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Total assets 491,069,584 374,770,094 65,894,713
- ---------------------------------------------------------- ------------------ ------------------ ------------------
LIABILITIES:
- ----------------------------------------------------------
Income distribution payable 1,212,107 1,353,285 94,703
- ----------------------------------------------------------
Payable for capital stock redeemed 301,914 502,218 19,145
- ----------------------------------------------------------
Accrued expenses -- 30,539 17,909
- ----------------------------------------------------------
Payable to Adviser 326,149 -- --
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Total liabilities 1,840,170 1,886,042 131,757
- ---------------------------------------------------------- ------------------ ------------------ ------------------
NET ASSETS $ 489,229,414 $ 372,884,052 $ 65,762,956
- ---------------------------------------------------------- ------------------ ------------------ ------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS
PER SHARE $1.00 $1.00 $1.00
- ---------------------------------------------------------- ------------------ ------------------ ------------------
SHARES OUTSTANDING 489,229,414 372,884,052 65,762,956
- ---------------------------------------------------------- ------------------ ------------------ ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK
TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------
Interest $ 26,998,373 $ 19,291,339 $ 2,011,897
- ----------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------
Investment advisory fee 2,339,981 1,699,400 277,858
- ----------------------------------------------------------
Administrative personnel and services fees 531,676 384,262 62,956
- ----------------------------------------------------------
Custodian fees 75,920 40,058 18,660
- ----------------------------------------------------------
Transfer and dividend disbursing agent fees
and expenses 80,430 37,266 25,946
- ----------------------------------------------------------
Directors' fees 6,518 6,228 5,333
- ----------------------------------------------------------
Auditing fees 12,912 11,985 11,899
- ----------------------------------------------------------
Legal fees 5,553 5,521 5,603
- ----------------------------------------------------------
Portfolio accounting fees 81,501 52,783 34,513
- ----------------------------------------------------------
Capital stock registration costs 53,677 6,629 15,897
- ----------------------------------------------------------
Printing and postage 12,006 6,706 11,437
- ----------------------------------------------------------
Taxes 23,430 9,041 2,911
- ----------------------------------------------------------
Insurance premiums 14,043 5,673 4,148
- ----------------------------------------------------------
Miscellaneous 10,170 71 78
- ---------------------------------------------------------- ------------------ ------------------ ------------------
TOTAL EXPENSES 3,247,817 2,265,623 477,239
- ---------------------------------------------------------- ------------------ ------------------ ------------------
Deduct--
- ----------------------------------------------------------
Waiver of investment advisory fee 530,234 319,668 211,303
- ----------------------------------------------------------
Waiver of administrative personnel
and services fees 5,988 2,303 392
- ---------------------------------------------------------- ------------------ ------------------ ------------------
TOTAL WAIVERS 536,222 321,971 211,695
- ---------------------------------------------------------- ------------------ ------------------ ------------------
NET EXPENSES 2,711,595 1,943,652 265,544
- ---------------------------------------------------------- ------------------ ------------------ ------------------
NET INVESTMENT INCOME $ 24,286,778 $ 17,347,687 $ 1,746,353
- ---------------------------------------------------------- ------------------ ------------------ ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY NEW YORK TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
YEAR ENDED APRIL 30,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
- ------------------------------
OPERATIONS--
- ------------------------------
Net investment income $ 24,286,778 $ 15,706,276 $ 17,347,687 $ 10,129,125 $ 1,746,353 $ 1,218,875
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ------------------------------
Distributions from net
investment income (24,286,778) (15,706,276) (17,347,687) (10,129,125) (1,746,353) (1,218,875)
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------
Proceeds from sales of
shares 1,490,775,012 1,284,695,422 2,358,398,692 1,074,024,951 153,490,772 105,625,034
- ------------------------------
Net asset value of shares
issued to shareholders in
payment of distributions
declared 7,919,317 2,892,649 1,995,102 788,369 568,773 207,338
- ------------------------------
Cost of shares redeemed (1,440,781,276) (1,122,898,022) (2,198,036,127) (1,061,808,189) (129,534,647) (104,774,319)
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
Change in net assets from
capital stock transactions 57,913,053 164,690,049 162,357,667 13,005,131 24,524,898 1,058,053
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
Change in net assets 57,913,053 164,690,049 162,357,667 13,005,131 24,524,898 1,058,053
- ------------------------------
NET ASSETS:
- ------------------------------
Beginning of period 431,316,361 266,626,312 210,526,385 197,521,254 41,238,058 40,180,005
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
End of period $ 489,229,414 $ 431,316,361 $ 372,884,052 $ 210,526,385 $ 65,762,956 $ 41,238,058
- ------------------------------ -------------- -------------- -------------- -------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION MONEY MARKET FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Vision Group of Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The Corporation consists of six diversified
portfolios and one non-diversified portfolio (individually referred to as the
"Fund", or collectively as the "Funds"). The following diversified Funds are
presented herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
<S> <C>
Vision Money Market Fund ("Money Market") Seeks current income with liquidity and stability of
principal by investing in high quality money market
instruments.
Vision Treasury Money Market Fund ("Treasury Money Seeks current income with liquidity and stability of
Market") principal by investing in direct obligations of the
U.S. Treasury, such as Treasury bills and notes, and
repurchase agreements secured by these obligations.
Vision New York Tax-Free Money Market Fund ("New York Seeks as high a level of current interest income that
Tax-Free Money Market") is exempt from federal regular income tax as is
consistent with liquidity and relative stability of
principal.
</TABLE>
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.
(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. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds' use of the amortized cost method to value
their portfolio securities is in accordance with Rule 2a-7 under the Act.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The 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 the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Funds could receive less than the repurchase price on the sale of
collateral securities.
VISION MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At April 30, 1996, 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 $488,740,184, par value was $489,230; Treasury Money Market
aggregated $372,521,096, par value was $362,956; New York Tax-Free Money Market
aggregated $65,697,092, par value was $65,864. Transactions in capital stock
were as follows:
<TABLE>
<CAPTION>
NEW YORK TAX-FREE
MONEY MARKET TREASURY MONEY MARKET MONEY MARKET
YEAR ENDED APRIL 30,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,490,775,012 1,284,695,422 2,358,398,692 1,074,024,951 153,490,772 105,625,034
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared 7,919,317 2,892,649 1,995,102 788,369 568,773 207,338
- ---------------------------------
Shares redeemed (1,440,781,276) (1,122,898,022) (2,198,036,127) (1,061,808,189) (129,534,647) (104,774,319)
- --------------------------------- -------------- -------------- -------------- -------------- ------------ ------------
Net change resulting from
capital stock transactions 57,913,053 164,690,049 162,357,667 13,005,131 24,524,898 1,058,053
- --------------------------------- ------------- -------------- -------------- -------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Manufacturers and Traders Trust Company, the Funds'
investment adviser (the "Adviser"), receives for its services an anuual
investment advisory fee equal to 0.50% of each Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The fee paid to FAS 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.
VISION MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company,
serves as transfer and dividend disbursing agent for the Funds. The fee paid to
FServ is based on the size, type, and number of accounts and transactions made
by shareholders.
GENERAL--Certain of the Officers of the Corporation are Officers and Directors
or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since New York Tax-Free Money Market invests a substantial portion of its assets
in issuers located in one state, they will be more susceptible to factors
adversely affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit risk
associated with such factors, at April 30, 1996, 64.90% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of
various financial institutions and financial guaranty assurance agencies. The
value of investments insured by or supported (backed) by a letter of credit from
any one institution or agency did not exceed 7.30% of total investments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION GROUP OF FUNDS, INC.:
We have audited the accompanying statement of assets and liabilities of Vision
Money Market Fund, Vision Treasury Money Market Fund, and Vision New York
Tax-Free Money Market Fund (three of the portfolios of Vision Group of Funds,
Inc.), including the portfolios of investments, as of April 30, 1996, 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
financial highlights for each of the periods presented therein. 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 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 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, 1996, 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 financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios of Vision Group of Funds, Inc., as identified
above, at April 30, 1996, 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 financial highlights for each of the periods presented therein,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 14, 1996
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
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision
Money Market
Fund
---------------------------------------------
Vision
Treasury
Money Market
Fund
---------------------------------------------
Vision
New York Tax-Free
Money Market
Fund
---------------------------------------------
Prospectus dated
June 30, 1996
[LOGO OF VISION]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS
Since 1955 TRUST COMPANY
---------------------------------------
Investment Adviser
Federated Investors Tower A subsidiary of First Empire State
Pittsburgh, PA 15222-3779 Corporation
Federated Securities Corp.
is the distributor of the
fund and is subsidiary of
Federated Investors.
92830F307
92830F208
92830F109
1072302A (6/96) TR1072302A (6/96)
VISION MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus of
one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Money Market Fund (the "Fund") dated June 30, 1996.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 1996. This Statement of Additional Information is
incorporated into the Fund's prospectus by reference. To receive a copy
of the prospectus, or a paper copy of this Statement Additional
Information, if you have received it electronically, write to Vision
Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of
Additional Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1996
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 3
INVESTMENT OBJECTIVE AND POLICIES 3
Types of Investments 3
U.S. Government Obligations 3
When-Issued and Delayed Delivery Transactions 4
Reverse Repurchase Agreements 4
Credit Enhancement 5
INVESTMENT LIMITATIONS 5
Regulatory Compliance 9
VISION GROUP OF FUNDS, INC. MANAGEMENT 10
Fund Ownership 13
Directors' Compensation 14
Director Liability 14
INVESTMENT ADVISORY SERVICES 15
Adviser to the Fund 15
Advisory Fees 16
OTHER SERVICES 17
Administrative Services 17
Custodian and Portfolio Accountant 17
Transfer Agent and Dividend Disbursing Agent 18
Independent Auditors 18
BROKERAGE TRANSACTIONS 18
DESCRIPTION OF FUND SHARES 20
HOW TO BUY SHARES 22
Conversion to Federal Funds 22
Cash Sweep Program 22
DETERMINING NET ASSET VALUE 23
Use of the Amortized Cost Method 23
REDEEMING SHARES 25
TAX STATUS 26
The Fund's Tax Status 26
Shareholders' Tax Status 26
TOTAL RETURN 27
YIELD 27
EFFECTIVE YIELD 28
PERFORMANCE COMPARISONS 28
Economic and Market Information 30
GENERAL INFORMATION ABOUT THE 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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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:
o Farm Credit Banks;
o Student Loan Marketing Association;
o Federal Home Loan Mortgage Corporation;
o Federal Home Loan Banks; and
o Federal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or 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 on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 25%
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.
CREDIT ENHANCEMENT
The Fund typically evaluates 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"), rather than
the issuer. However, credit-enhanced securities will not be treated as
having been issued by the credit enhancer for diversification purposes,
unless the Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer.
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.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and 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 Fund were
created.
The SEC has subsequently 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 Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments"). 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 Fund will follow applicable regulations in determining whether a
security rated by NRSROs can be treated as being in the twohighest short-
term rating categories.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Services Company; formerly Attorney, Morrison
& Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of May 31,1996, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Tice and Co., Buffalo, New York, owned
approximately 294,806,421 shares (57.57%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM
CORPORATION CORPORATION * #
Randall I. Benderson,
Director $9,500
Joseph J. Castiglia,
Director $10,000
Daniel R. Gernatt, Jr.,
Director $10,000
George K. Hambleton, Jr.,
Director $10,000
*Information is furnished for the fiscal year ended April 30, 1996. The
Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is
comprised of seven portfolios.
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,
1996, 1995, and 1994, the Fund's adviser earned $2,339,981, $1,635,164 and
$1,232,714, respectively, which were reduced by $530,234, $618,151 and
$1,051,041, 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.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1996,
1995 and 1994, Federated Administrative Services earned $531,676, $415,548,
and $336,753, respectively, of which $5,988, $0 and $0, respectively, were
waived
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund and
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Fund's registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 and 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. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
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.
For the fiscal years ended April 30, 1996, 1995 and 1994, the Fund paid no
commissions on brokerage transactions.
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 seven billion shares have been classified into seven
classes of one billion shares each. Threebillion shares remain unclassified
at this time. Shares of Classes A, B, C, D, E, F and G 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, Vision Growth
and Income Fund, and Vision Capital Appreciation 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).
HOW TO BUY 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 "How to Buy Shares."
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 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.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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.
TOTAL RETURN
The Fund's average annual total return for the one-year and five-year
periods ended April 30, 1996, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1996, was 5.33%, 4.18% and 5.57%,
respectively.
The average annual total return for the shares 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,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1996, was 4.85%.
The Fund calculates its yield daily, based upon the seven days ending on
the day of the calculation, called the "base period." This yield is
computed by:
o determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original
one share and all dividends declared on the original and any purchased
shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with 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, 1996,
was 4.96%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in Fund expenses; and
o 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:
o 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.
o 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.
o 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, 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.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
92830F3
07
VISION TREASURY MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus of
one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Treasury Money Market Fund (the "Fund") dated June 30, 1996.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 1996. This Statement of Additional Information is
incorporated into the Fund's prospectus by reference. To receive a copy
of the prospectus, or a paper copy of this Statement of Additional
Information, if you have received it electronically, write to Vision
Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of
Additional Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1996
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 3
INVESTMENT OBJECTIVE AND POLICIES 3
Types of Investments 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
Credit Enhancement 4
When-Issued and Delayed Delivery Transactions 4
INVESTMENT LIMITATIONS 5
Regulatory Compliance 7
VISION GROUP OF FUNDS, INC. MANAGEMENT 8
Fund Ownership 12
Directors' Compensation 12
Director Liability 13
INVESTMENT ADVISORY SERVICES 14
Adviser to the Fund 14
Advisory Fees 15
OTHER SERVICES 16
Administrative Services 16
Custodian and Portfolio Accountant 16
Transfer Agent and Dividend Disbursing Agent 16
Independent Auditors 16
BROKERAGE TRANSACTIONS 17
DESCRIPTION OF FUND SHARES 19
HOW TO BUY SHARES 21
Conversion to Federal Funds 21
Cash Sweep Program 21
DETERMINING NET ASSET VALUE 22
Use of the Amortized Cost Method 22
REDEEMING SHARES 24
TAX STATUS 24
The Fund's Tax Status 24
Shareholders' Tax Status 25
TOTAL RETURN 25
YIELD 26
EFFECTIVE YIELD 27
PERFORMANCE COMPARISONS 27
Economic and Market Information 29
GENERAL INFORMATION ABOUT THE 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.
CREDIT ENHANCEMENT
The Fund typically evaluates 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"), rather than
the issuer. However, credit-enhanced securities will not be treated as
having been issued by the credit enhancer for diversification purposes,
unless the Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or 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 the purpose of acquiring portfolio securities. 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 on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
has been settled. The Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation
of more than 25% 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.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and 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 Fund were
created.
The SEC has subsequently 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 Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments"). The Fund will follow
applicable regulations in determining whether a security rated by
nationally recognized statistical rating organizations ("NRSROs") can be
treated as being in the highest short-term rating category.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as itsability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Services Company; formerly Attorney, Morrison
& Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of May 31,1996, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: Tice and Co., Buffalo, New York, owned
approximately 351,839,166 shares (86.86%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
CORPORATION CORPORATION * #
Randall I. Benderson,
Director $9,500
Joseph J. Castiglia,
Director $10,000
Daniel R. Gernatt, Jr.,
Director $10,000
George K. Hambleton, Jr.,
Director $10,000
*Information is furnished for the fiscal year ended April 30, 1996. The
Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is
comprised of seven portfolios.
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,
1996, 1995, and 1994, the Fund's adviser earned $1,699,400, $1,120,095 and
$946,784, respectively, which was reduced by $319,668, $418,701 and
$807,916, 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.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1996,
1995, and 1994, Federated Administrative Services earned $384,262, $285,906
and $258,317, respectively, of which $2,303, $0 and $0, respectively, were
waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund and
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Fund's registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 and 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. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
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.
For the fiscal years ended April 30, 1996, 1995 and 1994, the Fund paid no
commissions on brokerage transactions.
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 seven billion shares have been classified into seven
classes of one billion shares each. Threebillion shares remain unclassified
at this time. Shares of Classes A, B, C, D, E, F, and G 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, Vision Growth
and Income Fund, andVision Capital Appreciation 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).
HOW TO BUY 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 "How to Buy Shares."
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 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.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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.
TOTAL RETURN
The Fund's average annual total return for the one-year and five-year
periods ended April 30, 1996, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1996, was 5.25%, 4.05% and 5.35%,
respectively.
The average annual total return for the shares 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,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1996, was 4.71%.
The Fund calculates its yield daily, based upon the seven days ending on
the day of the calculation, called the "base period." This yield is
computed by:
o determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original
one share and all dividends declared on the original and any purchased
shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with 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, 1996,
was 4.82%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in Fund expenses; and
o 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:
o 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.
o 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.
o 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.
o 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, 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.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
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 relates to the prospectus of
one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision New York Tax-Free Money Market Fund (the "Fund") dated June 30,
1996.
This Statement of Additional Information is not a prospectus itself,
92830F109
G01716-04 (6/96)
but should be read in conjunction with the Fund's current prospectus
dated June 30, 1996. This Statement of Additional Information is
incorporated into the Fund's prospectus by reference. To receive a copy
of the prospectus, or a paper copy of this Statement of Additional
Information, if you have received it electronically, write to Vision
Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of
Additional Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1996
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 4
INVESTMENT OBJECTIVE AND POLICIES 4
Types of Investments 4
Municipal Security Issues 5
Types of Acceptable Investments 7
Temporary Investments 7
Credit Enhancement 10
New York Investment Risks 3
INVESTMENT LIMITATIONS 5
Regulatory Compliance 17
VISION GROUP OF FUNDS, INC. MANAGEMENT18
Fund Ownership 22
Directors' Compensation 23
Director Liability 24
INVESTMENT ADVISORY SERVICES 24
Adviser to the Fund 24
Advisory Fees 25
OTHER SERVICES 26
Administrative Services 26
Custodian and Portfolio Accountant 26
Transfer Agent and Dividend Disbursing
Agent 27
Independent Auditors 27
BROKERAGE TRANSACTIONS 27
DESCRIPTION OF FUND SHARES 29
HOW TO BUY SHARES 31
Conversion to Federal Funds 31
Cash Sweep Program 32
DETERMINING NET ASSET VALUE 32
Use of the Amortized Cost Method 33
REDEEMING SHARES 35
TAX STATUS 35
The Fund's Tax Status 35
Shareholders' Tax Status 35
TOTAL RETURN 36
YIELD 36
TAX-EQUIVALENT YIELD 37
Tax-Equivalency Table 38
EFFECTIVE YIELD 39
PERFORMANCE COMPARISONS 40
Economic and Market Information 42
APPENDIX 42
GENERAL INFORMATION ABOUT THE 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 Ratings Group ("S&P") described in the Prospectus
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 and the requirements of
Rule 2a-7 under the Investment Company Act of 1940 in determining whether
the Fund will 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:
o tax exempt project notes issued by the U.S. Department of Housing and
Urban Development to provide financing for housing, redevelopment, and
urban renewal;
o municipal notes and tax-exempt commercial paper;
o serial bonds sold with a series of maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold in anticipation of the issuance of
longer-term
bonds in the future;
o revenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program; and
o 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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe 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:
oFarm Credit Banks;
oStudent Loan Marketing Association;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation; and
oFederal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or 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 on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 25% 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.
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.
CREDIT ENHANCEMENT
The Fund typically evaluates 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"), rather than
the issuer. However, credit-enhanced securities will not be treated as
having been issued by the credit enhancer for diversification purposes,
unless the Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York (the "State") issuers which
result in the Fund's performance being subject to risks associated with the
overall conditions present within the State. The following information is a
general summary of the State's financial condition and a brief summary of
the prevailing economic conditions. This information is based on various
sources that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs,
education and Medicare expenditures have been the areas of largest growth
while prudent program cuts and increases in revenues through service fees
has enabled the State's budget to remain within balance for the last few
years. The State also benefits from a high level of per capita income that
is well above the national average and from significant amounts of
international trade. While the State still has a large accumulated deficit
as a percentage of its overall budget, the fiscal performance in recent
years has demonstrated a changed political environment that has resulted in
realistic revenue and expenditure projections to achieve financially
favorable results. The 1996 budget included a multi-year personal income
tax rate cut and emphasized cost control. The original budget proposal for
1997 assumes significant spending reductions will balance against the
effects of a weak economy. The budget, for the fiscal year which began
April 1, 1996, had not been approved as of June 28, 1996.
New York's economy is large and diverse. While several upstate counties
benefit from agriculture, manufacturing and high technology industries, New
York City nonetheless still dominates the State's economy through its
international importance in economic sectors such as advertising, finance,
and banking. The State's economy has been slow to recover after the late
1980's recession that resulted in the loss of over 400,000 jobs in the New
York City metropolitan area alone. Any major changes to the financial
condition of New York City would ultimately have an affect on the State.
Obligations of issuers within the State are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights of and remedies
of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by the U.S. Congress, state
legislators, or referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon enforcement of such
obligations, or upon the ability of the State or its political subdivisions
to levy taxes. There is also the possibility that, as a result of
litigation or other conditions (including delays in adopting budgets), the
power or ability of any issuer to pay, when due, the principal of and
interest on its municipal securities may be materially affected.
A substantial principal amount of bonds issued by various State agencies
and authorities are either guaranteed by the State or supported by the
State through lease-purchase arrangements, or other contractual or moral
obligation provisions. Moral obligation commitments by the State 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 the
authorities and agencies to meet their obligations could result in defaults
on such obligations. If a default were to occur, it would likely have a
significant adverse impact on the market price of obligations of the State
and its authorities and agencies. In recent years, the State has had to
appropriate large amounts of funds to enable State agencies to meet their
financial obligations and, in some cases, prevent default. Additional
assistance is expected to be required in current and future fiscal years
since certain localities and authorities continue to experience financial
difficulties.
To the extent State agencies and local governments 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. This financial situation could
result not only in defaults of State and agency obligations but also
impairment of the marketability of securities issued by the State, its
agencies and local governments.
The overall financial condition of the state can also be illustrated by
changes to its debt ratings. During the period in which the state
experienced financial difficulties, its general obligation long-term debt
ratings as determined by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group decreased from A1 and A, respectively, to A and A-,
which are the current ratings as of June 28, 1996.
The Fund's concentration in municipal 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, its counties, and its municipalities.
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.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and 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 Fund were
created.
The SEC has subsequently 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 Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments") 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 Fund will follow applicable regulations in determining whether a
security rated by NRSROs can be treated as being in the two highest short-
term rating categories.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Services Company; formerly Attorney, Morrison
& Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of May 31,1996, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Tice and Co., Buffalo, New York, owned
approximately 40,957,417 shares (60.30%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
CORPORATION CORPORATION * #
Randall I. Benderson,
Director $9,500
Joseph J. Castiglia,
Director $10,000
Daniel R. Gernatt, Jr.,
Director $10,000
George K. Hambleton, Jr.,
Director $10,000
*Information is furnished for the fiscal year ended April 30, 1996. The
Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is
comprised of seven portfolios.
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,
1996, 1995, and 1994, the Fund's adviser earned $277,858, $218,054 and
$172,553, respectively, of which $211,303, $198,560 and $172,553,
respectively, were 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.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1996,
1995 and 1994, Federated Administrative Services earned $62,956, $55,419
and $47,023, respectively, of which $392, $31,013 and $31,058,
respectively, were voluntarily waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund and
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Fund's registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 and 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. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
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.
For the fiscal years ended April 30, 1996, 1995 and 1994, the Fund paid no
commissions on brokerage transactions.
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 seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Classes A, B, C, D, E, F and G 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, Vision Growth
and Income Fund, and Vision Capital Appreciation 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).
HOW TO BUY 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 "How to Buy Shares."
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.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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.
TOTAL RETURN
The Fund's average annual total return for the one-year and five-year
periods ended April 30, 1996, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1996, was 3.20%, 2.52% and 3.42%,
respectively.
The average annual total return for the shares 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,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1996, 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:
o determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original
one share and all dividends declared on the original and any purchased
shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with 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,
1996, was 5.02%.
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 1996
STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 22.125% 35.125% 38.125% 43.125% 46.725%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.93% 2.31% 2.42% 2.64% 2.82%
2.00% 2.57% 3.08% 3.23% 3.52% 3.75%
2.50% 3.21% 3.85% 4.04% 4.40% 4.69%
3.00% 3.85% 4.62% 4.85% 5.27% 5.63%
3.50% 4.49% 5.39% 5.66% 6.15% 6.57%
4.00% 5.14% 6.17% 6.46% 7.03% 7.51%
4.50% 5.78% 6.94% 7.27% 7.91% 8.45%
5.00% 6.42% 7.71% 8.08% 8.79% 9.39%
5.50% 7.06% 8.48% 8.89% 9.67% 10.32%
6.00% 7.70% 9.25% 9.70% 10.55% 11.26%
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 Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
EFFECTIVE YIELD
The Fund's effective yield for the seven-day period ended April 30, 1996,
was 3.32%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in Fund expenses; and
o 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:
o 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.
o 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.
o 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, 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.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
APPENDIX
STANDARD & POOR'S RATINGS GROUP 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 o 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 RATINGS GROUP 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 RATINGS GROUP 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.
[VISION LOGO]
PROSPECTUS
VISION NEW YORK TAX-FREE FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1996
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven separate
investment portfolios with distinct investment objectives and policies. This
prospectus relates to one of the seven porfoltios, Vision New York Tax-Free Fund
(the "Fund").
92830F208
G01716-03 (6/96)
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 Statement of Additional
Information June 30, 1996, which has also been filed with the Securities and
Exchange Commission ("SEC"). The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. To
obtain a free copy of the Statement of Additional Information, or a paper copy
of this prospectus, if you have received it electronically, or make other
inquiries about the Fund, simply call or write Vision Group of Funds, Inc. at
the telephone number or address below. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
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 14
Your Guide to Using the Fund 17
How the Fund Values Its Shares 17
What Fund Shares Cost 17
How To Buy Shares 20
How to Exchange Shares 21
How to Redeem Shares 23
Tax Information 24
Description of Fund Shares 26
How the Fund Shows Performance 27
Financial Statements 28
Report of Ernst & Young LLP, Independent
Auditors 38
Addresses 39
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in seven 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
MUNICIPALITIES AND IS CONSISTENT WITH THE
PRESERVATION OF CAPITAL. (SEE "HOW THE FUND
INVESTS.")
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 "Your Guide to Using the
Fund".)
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 principal
banking subsidiary of First Empire State Corporation, which also owns The East
New York Savings Bank. (See "Advisers Background".)
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
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)..................................................................... 0.39%
12b-1 Fee (2)......................................................................................... 0.00%
Other Expenses (after waiver) (3)..................................................................... 0.65%
Shareholder Servicing Fee (2)......................................................... 0.00%
Total Fund Operating Expenses (4)........................................................... 1.04%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver 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, 1997. 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 were reduced to reflect the voluntary waiver of the
administrative services fee. The administrator may terminate this voluntary
waiver at any time at its sole discretion. Other expenses would have been
0.68% absent the voluntary waiver by the administrator.
(4) The Total Fund Operating Expenses would have been 1.38% absent the
voluntary waivers of the management fee and administrative services.
The table above can help you understand the various costs and expenses that
a shareholder in the Fund will bear, either directly or indirectly. For
more complete descriptions of the various costs and expenses see the
section "Fund Management, Distribution and Administration" on page 14.
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales load.
The Fund charges no redemption fees.......................... $ 55 $ 77 $ 100 $ 166
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 38.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C>
-------------------------------
<CAPTION>
1996 1995 1994(A)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.67 $ 9.61 $ 10.00
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.46 0.46 0.20
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.23 0.06 (0.39)
- ---------------------------------------------------------------------------- --------- --------- ---------
Total from investment operations 0.69 0.52 (0.19)
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions from net investment income (0.46) (0.46) (0.20)
- ---------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.67 $ 9.61
- ---------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN (B) 7.18% 5.58% (1.22%)
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses 1.04% 0.40% 0.00%(c)
- ----------------------------------------------------------------------------
Net investment income 4.60% 4.80% 4.79%(c)
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (d) .34% 1.12% 1.78%(c)
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $32,621 $27,346 $25,225
- ----------------------------------------------------------------------------
Portfolio turnover 113% 51% 21%
- ----------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from September 22, 1993 (date of initial
public investment) to
April 30, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge,
if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended April 30, 1996, which can be obtained
free of charge.
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 CONDI-
TIONS, 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 Ratings Group ("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
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 whether
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 outstanding 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.
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, counties,
municipalities 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, counties, municipalities 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 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 seller's failure to
complete these transactions 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 prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities, which
may include restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment 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 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
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.
There is the risk that, when lending portfolio securities, the securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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 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 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 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 bet 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 Corporation's 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.
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.
Both the Corporation and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Corporation's Board
of Directors, and could result in severe penalties.
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 principal banking subsidiary of First Empire State Corporation,
a $12 billion bank holding company, as of December 31, 1995, headquartered in
Buffalo, New York. M&T Bank (consolidated) had $10.2 billion in assets, as of
December 31, 1995, has 121 offices throughout Western New York State and New
York's Southern Tier, 22 offices in the Hudson Valley region of New York State,
plus offices in New York City, Albany, Syracuse, and Nassau, The Bahamas. First
Empire State Corporation also owns The East New York Saving Bank, which, as of
December 31, 1995, has 16 offices throughout metropolitan New York City.
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, 1995, M&T Bank had $1.8
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 of December 31, 1995, M&T Bank managed over $884
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 served as the Fund's portfolio manager from August 1994
through February 1995. Since the Fund's inception, Mr. Truesdell was also
responsible for overseeing the Fund's management, and has supervised the Fund's
investment decisions. Mr. Truesdell oversees investment activities of M&T Bank's
money market and fixed income products, and the money market funds in the Vision
Group of 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. Thomas R. Pierce has been the Fund's portfolio manager since March 1995. Mr.
Pierce joined M&T Bank in January 1995 as Vice President from Merit Investment
Advisors where he acted as Director of Fixed Income Product and Trading since
1993. For the period from 1987 to 1993, Mr. Pierce served as Fixed Income
Manager at ANB Investment Management Company, where he directed the management
of $3.5 billion of active and passive fixed income portfolios. Mr. Pierce holds
an A.B. in Economics from Washington University, and is an M.B.A. candidate at
the University of Chicago.
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-1 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, 1997.
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 and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, or custodian to such an
investment company or from purchasing shares of such company as agent for and
upon the order of their customers.
Some entities providing services to the Fund are subject to such banking laws
and regulations. They believe that they may perform those services for the Fund
contemplated by any agreement entered into with the Fund without violating those
laws or regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present or future statutes and regultaions,
could prevent these entities from continuing to perform all or part of the above
services. If this happens, the Corporation's Board of Directors would consider
alternative means of continuing available services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurences.
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 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.
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 certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as specified
below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC.
<C> <S>
.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.
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>
DEALER
SALES CHARGE CONCESSION
AS SALES CHARGE AS A
A PERCENTAGE AS A PERCENTAGE
OF PUBLIC PERCENTAGE OF PUBLIC
AMOUNT OF OFFERING OF NET AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than
$100,000........ 4.50% 4.71% 4.00%
$100,000 but less
than $250,000... 3.75% 3.90% 3.25%
$250,000 but less
than $500,000... 3.00% 3.09% 2.75%
$500,000 but less
than $1
million......... 2.00% 2.04% 1.75%
$1 million or
more............ 0.00% 0.00% 0.00%
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected;
(ii) days during which no shares are tendered
for redemption 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-
type 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
$1 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 also 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.
Shares of the Fund may also be purchased, subject to applicable law and
regulation from time to time, at net asset value, without a sales charge, by
employees of clients of the Trust & Investment Services and Commercial Lending
Divisions of M&T Bank within an automatic deduction program. 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.
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
OR ANNUITIES
Investors may purchase shares of the Fund at net asset value, without a sales
charge, with the proceeds from either: (i) the redemption of shares of a mutual
fund which was sold with a sales charge or commission; or (ii) fixed or variable
rate annuities. 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 under "What Fund Shares Cost," 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 the rate imposed on a
$110,000 investment, not the rate imposed on a $40,000 investment.
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 imposed on each purchase would be reduced to the sales charge rate in
effect for a $110,000 investment in the respectve fund.
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 (such as The East New York Savings Bank ("East New York")), 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. ("M&T Securities") at M&T Bank and East New York locations, as
well as at separate M&T Securities locations, or by calling 1-800-724-5445. M&T
Securities (member NASD and SIPC) is a wholly-owned registered broker-dealer
subsidiary of M&T Bank.
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 or any representative of M&T
Securities 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 payment by check has been
converted into federal funds. This is normally the next business day after the
check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account, you
must maintain a checking or NOW deposit account at M&T Bank or any of its
affiliate banks. To place an order, call M&T Bank's Mutual Fund Services or any
representative of M&T Securities 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 Shareholder 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. Federated Shareholder
Services Company is a subsidiary of Federated Investors.
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 "PAR-
TICIPATING 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 acquired by the reinvestment of dividends, will not have to pay a sales
charge again on an exchange, unless the Participating Fund imposes a higher
sales charge. When exchanging into and out of Participating Funds with different
sales charges, exchanges are made at net asset value, plus the difference
between the sales charge already paid and any sales charge of the Participating
Fund into which the shares are to be exchanged, if higher. Shares of
Participating Funds with no sales charge acquired by direct purchase may be
exchanged for shares of other Participating Funds with a sales charge at net
asset value plus the applicable sales charge. However, shares of Participating
Funds with no sales charge that were acquired by the reinvestment of dividends
will not be subject to a sales charge upon an exchange into shares of a
Participating Fund with a sales charge. Instead, such exchanges will be made at
net asset value.
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 signature. Please see the
"Signature Guarantees" section later in this prospectus 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 Shareholder
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 Shareholder 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 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 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 subject
to a sales charge, it may not be advisable for shareholders to be purchasing
shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the Fund may
redeem your shares and send you the proceeds if your account balance falls below
a minimum value of $250 due to shareholder redemptions. Shareholders who make
large or frequent withdrawals may be particularly vulnerable to this involuntary
redemption process. However, before shares are redeemed to close an account, the
shareholder will be notified in writing and given 30 days to purchase additional
shares to meet the minimum balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate to
do so in light of the Fund's responsibilities under the Investment Company Act
of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS
FOR THE FUND. NO ATTEMPT HAS BEEN MADE TO PRESENT A
DETAILED EXPLANATION OF THE INCOME TAX TREATMENT OF
THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS
NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING.
The tax consequences discussed here apply whether you receive dividends in cash
or reinvest them in additional shares. The Fund will send you tax information
annually regarding the federal income tax consequences of distributions made
during the year. You should definitely consult your own tax adviser about any
state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax purposes.
income earned by the Fund, including any capital gains or losses realized, is
not combined with income earned on the Corporation's other Portfolios.
The Fund intends to qualify each year as a regulated investment company under
the Internal Revenue Code so that it is not required to pay federal income taxes
on the income and capital gains distributed to shareholders.
FEDERAL 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 may be included in calculating the federal alternative minimum tax
("AMT") for individuals and corporations (previously discussed in the "AMT
Obligations" section). 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, such distributions will be subject to 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 in the "Temporary Investments"
section) 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 seven 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, Vision
Growth and Income Fund and Vision Capital Appreciation 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 Corporation'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
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. 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 Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a vote of
shareholders at a special meeting. The Corporation's 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's 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. 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 7.875%, assuming the tax-free yield is 3.5%, the
investor would have to receive 5.73% from a taxable investment to equal that
tax-free yield (3.5% divided by 1 - (.31 + .07875 = 5.73%).
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
LONG-TERM MUNICIPAL SECURITIES--98.1%
- ------------------------------------------------------------------------------------------
$ 50,000 Amherst, NY, GO UT Bonds, 4.625% (Public Improvements)/ (FGIC Insured),
3/1/2003 AAA $ 49,607
----------------------------------------------------------------------------
100,000 Canandaigua, NY, City School District, GO UT Bonds, 5.00% (AMBAC Insured),
6/1/2009 AAA 96,140
----------------------------------------------------------------------------
50,000 Chautauqua County, NY, GO UT Bonds, 6.40% (FGIC Insured), 9/15/2004 AAA 55,167
----------------------------------------------------------------------------
50,000 Cheektowaga-Maryvale, NY, Union Free School District, GO UT Bonds, 6.625%
(FGIC Insured), 6/15/2008 AAA 56,466
----------------------------------------------------------------------------
50,000 Cheektowaga, NY, GO UT Bonds, (Series A), 6.55%, 10/15/2008 A 54,878
----------------------------------------------------------------------------
25,000 Cheektowaga, NY, GO UT Bonds, 5.65%, 8/15/2005 A 25,856
----------------------------------------------------------------------------
50,000 Chemung County, NY, GO UT Bonds, 6.80% (AMBAC Insured), 7/15/2006 AAA 56,630
----------------------------------------------------------------------------
50,000 Churchville Chili, NY, Central School District, GO UT Bonds, 5.50%,
6/15/2009 AAA 50,627
----------------------------------------------------------------------------
100,000 Dutchess County, NY, GO UT Bonds, 8.50%, 7/15/2007 Aa1 128,097
----------------------------------------------------------------------------
55,000 Evans & Brant, NY, Central School District, GO UT Bonds, 6.85% (MBIA
Insured), 6/15/2009 AAA 62,957
----------------------------------------------------------------------------
70,000 General Brown Central School District, GO UT Bonds, 5.70% (MBIA Insured),
6/15/2014 AAA 69,285
----------------------------------------------------------------------------
50,000 Greece, NY, Central School District, GO UT Bonds, 6.00% (FGIC Insured),
6/15/2004 AAA 53,734
----------------------------------------------------------------------------
100,000 Hamburg, NY, Central School District, GO UT Bonds, 6.10% (AMBAC Insured),
5/15/2004 AAA 108,067
----------------------------------------------------------------------------
1,300,000 Housing, NY, Refunded Corporate Revenue Bonds, 5.00%,
11/1/2013 AA 1,148,745
----------------------------------------------------------------------------
25,000 Ithaca, NY, GO UT Bonds, 6.40%, 4/1/2009 Aa 27,242
----------------------------------------------------------------------------
50,000 Ithaca Town, NY, 6.80%, 5/15/2003 Aa 55,942
----------------------------------------------------------------------------
1,400,000 Jamestown, NY, Housing Authority Mortgage Revenue Bonds, 6.125% (Bradmar
Village Project)/(HUD Section 8 Insured),
7/1/2010 A- 1,386,154
----------------------------------------------------------------------------
30,000 Kenmore, NY, GO UT Bonds, 5.20% (AMBAC Insured),
2/15/2010 AAA 29,223
----------------------------------------------------------------------------
</TABLE>
VISION NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------
$ 100,000 Lancaster Town, NY, GO UT Bonds, 5.70% (MBIA Insured),
6/1/2009 AAA $ 103,192
----------------------------------------------------------------------------
1,000,000 Metropolitan Transportation Authority, NY, Refunding Revenue Bonds (Series
M), 6.00% (AMBAC Insured), 7/1/2014 AAA 1,010,080
----------------------------------------------------------------------------
50,000 New Paltz, NY, Central School District, 6.00% (AMBAC Insured), 6/15/2008 AAA 53,677
----------------------------------------------------------------------------
250,000 New York, NY, GO UT Bonds, (Series B), 6.10%, 8/15/2005 BBB+ 253,867
----------------------------------------------------------------------------
505,000 New York, NY, GO UT Bonds, (Series A), 6.25%, 8/1/2009 BBB+ 500,238
----------------------------------------------------------------------------
500,000 New York, NY, City Industrial Development Agency Revenue Bonds, 6.00%
(Terminal One Group Association), 1/1/2015 A 487,095
----------------------------------------------------------------------------
340,000 New York State, GO UT Bonds, 6.30%, 9/15/2012 A 352,607
----------------------------------------------------------------------------
20,000 New York State Dormitory Authority Revenue Bonds, (Series D), 5.00%
(University of Rochester), 7/1/2005 AAA 20,050
----------------------------------------------------------------------------
1,200,000 New York State Dormitory Authority Revenue Bonds, (Series F), 5.00% (City
University), 7/1/2020 BBB 997,860
----------------------------------------------------------------------------
845,000 New York State Dormitory Authority Revenue Bonds, (Series A), 5.40% (Upstate
Community Colleges), 7/1/2009 BBB- 812,290
----------------------------------------------------------------------------
1,000,000 New York State Dormitory Authority Revenue Bonds, (Series A), 5.50% (State
University Educational Facilities), 5/15/2013 BBB+ 934,420
----------------------------------------------------------------------------
1,200,000 New York State Dormitory Authority Revenue Bonds, 5.75% (Department of
Health), 7/1/2006 BBB 1,209,084
----------------------------------------------------------------------------
675,000 New York State Dormitory Authority Revenue Bonds, (Series A), 5.75% (Upstate
Community Colleges), 7/1/2008 BBB- 659,941
----------------------------------------------------------------------------
1,000,000 New York State Dormitory Authority Revenue Bonds, 5.90% (Univ. Rochester
Strong Memorial Hospital)/ (GO of Univ. Insured), 7/1/2017 A1 980,380
----------------------------------------------------------------------------
100,000 New York State Dormitory Authority Revenue Bonds, 6.00% (Colgate
University)/(MBIA GO of Univ. Insured), 7/1/2016 AAA 103,134
----------------------------------------------------------------------------
1,300,000 New York State Energy Research & Development Authority, PCR Bonds, (Series
A), 5.95% (New York State Electric & Gas Corp.), 12/1/2027 BBB 1,197,833
----------------------------------------------------------------------------
900,000 New York State Energy Research & Developement, Western New York Nuclear
Service Center, 5.50%, 4/1/2006 BBB 867,978
----------------------------------------------------------------------------
1,000,000 New York State HFA, (Series A), 6.25%, 9/15/2010 BBB 1,005,570
----------------------------------------------------------------------------
</TABLE>
VISION NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------
$ 1,000,000 New York State Local Government Assistance Corp., GO Revenue Refunding Bonds
(Series E), 6.00% (GO of Corp. Insured), 4/1/2014 A $ 1,021,490
----------------------------------------------------------------------------
1,400,000 New York State Medical Care Facilities Finance Agency Revenue Bonds, (Series
B), 6.00%, (Hospital and Nursing Home Imps.)/(FHA 242 Insured), Buffalo
General Hospital, 8/15/2014 AAA 1,377,726
----------------------------------------------------------------------------
1,000,000 New York State Medical Care Facilities Finance Agency Revenue Bonds, (Series
D), 6.35%, (Hospital and Nursing Home Imps.)/(FHA 242 Insured), Millard
Filmore Hospital, 2/15/2012 AA 1,054,600
----------------------------------------------------------------------------
1,300,000 New York State Medical Care Facilities Finance Agency Revenue Bonds, (Series
A), 6.375% (FHA 242 Insured), Hospital for Special Surgery, 8/15/2024 AA 1,317,459
----------------------------------------------------------------------------
2,500,000 New York State Mortgage Agency, Revenue Bonds (Series 33), 5.40%, 10/1/2017 Aa 2,328,875
----------------------------------------------------------------------------
955,000 New York State Power Authority, General Purpose Revenue Bonds (Series Y),
6.75%, 1/1/2018 AA- 1,028,344
----------------------------------------------------------------------------
1,000,000 New York State Thruway Authority, Local Highway and Bridge Bonds (Series A),
5.50% (MBIA Insured), 4/1/2015 AAA 957,460
----------------------------------------------------------------------------
1,000,000 New York State Urban Development Corp. Correctional Facility, Refunding
Bonds (Series A), 5.50%, 1/1/2009 BBB 955,550
----------------------------------------------------------------------------
1,500,000 New York State Urban Development Corp., State Facilities Revenue Bonds,
5.60%, 4/1/2015 BBB 1,407,615
----------------------------------------------------------------------------
75,000 Newburgh, NY, GO UT Bonds, 6.40%, 4/15/2008 A1 82,034
----------------------------------------------------------------------------
175,000 Niagara County, NY, GO UT Bonds, 7.10% (MBIA Insured),
2/15/2010 AAA 203,075
----------------------------------------------------------------------------
250,000 Niagara Falls, NY, Bridge Commission Revenue Bonds, 5.25% (FGIC Insured),
10/1/2015 AAA 232,852
----------------------------------------------------------------------------
50,000 North Tonawanda City, NY, GO UT Bonds, 6.05% (FGIC Insured), 10/1/2006 AAA 53,738
----------------------------------------------------------------------------
1,115,000 Oneonta, NY, Housing Development Refunding Revenue Bonds (Series A), 5.45%
(MBIA FHA 221 D 3 Insured), 7/1/2022 AAA 1,022,098
----------------------------------------------------------------------------
2,000,000 Onondaga County, NY, IDA Revenue Bonds, 5.75% (Bristol-Meyers Squibb),
3/1/2024 AAA 1,951,840
----------------------------------------------------------------------------
20,000 Sweet Home Central School District, NY, GO UT Bonds, 5.60% (AMBAC Insured),
1/15/2008 AAA 20,550
----------------------------------------------------------------------------
</TABLE>
VISION NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------ ---------------------------------------------------------------------------- ---------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------
$ 250,000 Triborough Bridge & Tunnel Authority, NY, General Purpose Revenue Bonds
(Series Y), 6.00% (GO of Auth. Insured),
1/1/2012 A+ $ 260,717
----------------------------------------------------------------------------
50,000 Webster, NY, Central School District, 4.70% (FGIC Insured),
6/15/2002 AAA 50,116
----------------------------------------------------------------------------
1,500,000 Westchester County, NY, IDA Resource Recovery Revenue Bonds (Series A),
5.75% (Resco Co.)/(AMBAC Insured), 7/1/2009 AAA 1,523,520
----------------------------------------------------------------------------
65,000 Williamsville, NY, Central School District, GO UT Bonds, 6.50% (MBIA
Insured), 12/1/2010 AAA 71,795
---------------------------------------------------------------------------- -------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $32,112,858) 31,985,567
---------------------------------------------------------------------------- -------------
SHORT-TERM MUNICIPAL SECURITIES--0.3%
- ------------------------------------------------------------------------------------------
100,000 New York, NY, GO UT Bonds, Monthly VRDN (Series B), (FGIC Insured) (at
amortized cost) VMIG1 100,000
---------------------------------------------------------------------------- -------------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $32,212,858) $ 32,085,567+
---------------------------------------------------------------------------- -------------
</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 $32,212,858. The
net unrealized depreciation on a federal tax basis amounts to $127,291 which
is comprised of $197,402 appreciation and $324,693 depreciation at April 30,
1996.
Note: The categories of investments are shown as a percentage of net assets
($32,620,807) at April 30, 1996.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
GO--General Obligations
HFA--Housing Finance Authority
HUD--Housing & Urban Development
IDA--Industrial Development Authority
MBIA--Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
UT--Unlimited Tax
VRDN--Variable Rate Demand Note
(See Notes which are an integral part of the Financial Statements)
VISION NEW YORK TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost and value
(identified and tax cost $32,212,858) $ 32,085,567
- -------------------------------------------------------------------------------------------------------
Income receivable 492,900
- -------------------------------------------------------------------------------------------------------
Receivable for investments sold 100,289
- -------------------------------------------------------------------------------------------------------
Receivable for capital stock sold 94,458
- -------------------------------------------------------------------------------------------------------
Deferred expenses 6,258
- ------------------------------------------------------------------------------------------------------- -------------
Total assets 32,779,472
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------------
Income distribution payable $ 37,106
- -------------------------------------------------------------------------------------------
Payable for capital stock redeemed 21,059
- -------------------------------------------------------------------------------------------
Accrued expenses 100,500
- ------------------------------------------------------------------------------------------- ----------
Total liabilities 158,665
- ------------------------------------------------------------------------------------------------------- -------------
NET ASSETS FOR 3,293,509 SHARES OUTSTANDING 32,620,807
- ------------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------------------------------
Paid in capital 33,141,317
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (127,291)
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (393,219)
- ------------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 32,620,807
- ------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share ($32,620,807 / 3,293,509 shares outstanding)
$ 9.90
- ------------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/95.50 of $9.90)* $10.37
- ------------------------------------------------------------------------------------------------------- -------------
</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
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $ 1,686,251
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 209,254
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 50,001
- --------------------------------------------------------------------------------------------
Custodian fees 24,282
- --------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 31,390
- --------------------------------------------------------------------------------------------
Directors' fees 4,218
- --------------------------------------------------------------------------------------------
Auditing fees 12,057
- --------------------------------------------------------------------------------------------
Legal fees 6,610
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 37,990
- --------------------------------------------------------------------------------------------
Capital stock registration costs 14,220
- --------------------------------------------------------------------------------------------
Printing and postage 8,414
- --------------------------------------------------------------------------------------------
Taxes 3,154
- --------------------------------------------------------------------------------------------
Insurance premiums 4,348
- --------------------------------------------------------------------------------------------
Miscellaneous 5,917
- -------------------------------------------------------------------------------------------- ----------
Total expenses 411,855
- --------------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 91,153
- ---------------------------------------------------------------------------------
Waiver of administrative personnel and services fee 10,672
- --------------------------------------------------------------------------------- ---------
Total waivers 101,825
- -------------------------------------------------------------------------------------------- ----------
Net expenses 310,030
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income 1,376,221
- -------------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 143,963
- --------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) of investments 445,203
- -------------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 589,166
- -------------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 1,965,387
- -------------------------------------------------------------------------------------------------------- ------------
</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>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------------
Net investment income $ 1,376,221 $ 1,232,715
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($3,553 net loss and $389,666 net loss,
respectively, as computed for federal tax purposes) 143,963 (398,183)
- --------------------------------------------------------------------------------------
Net change in unrealized (depreciation) of investments 445,203 577,826
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 1,965,387 1,412,358
- -------------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------------------
Distributions from net investment income (1,379,433) (1,232,715)
- -------------------------------------------------------------------------------------- ------------- -------------
CAPITAL STOCK TRANSACTIONS--
- --------------------------------------------------------------------------------------
Proceeds from sale of shares 10,446,768 10,308,652
- --------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 1,072,509 1,015,067
- --------------------------------------------------------------------------------------
Cost of shares redeemed (6,830,896) (9,382,067)
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from capital stock transactions 4,688,381 1,941,652
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets 5,274,335 2,121,295
- --------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------
Beginning of period 27,346,472 25,225,177
- -------------------------------------------------------------------------------------- ------------- -------------
End of period (including undistributed net investment income
of $0 and $3,212, respectively) $ 32,620,807 $ 27,346,472
- -------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION NEW YORK TAX-FREE FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Vision Group of Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of seven portfolios. The
financial statements included herein are only those of Vision New York Tax-Free
Fund (the "Fund"), a non-diversified portfolio. The Fund seeks current income
consistent with the preservation of capital which is exempt from federal income
tax and the personal income taxes imposed by the State and City of New York. 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.
(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. These
policies are in conformity with generally accepted accounting principles.
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 the
pricing service deems relevant. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At April 30, 1996, The Fund, for federal tax purposes, had a capital loss
carryforward of $393,219, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $389,666
2004 $3,553
</TABLE>
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
delivery basis are marked to market daily and begin earning interest on the
settlement date.
VISION NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
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 its 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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amount of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At April 30, 1996, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
Shares sold 1,040,591 1,082,499
- -------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 106,562 107,204
- -------------------------------------------------------------------------------------------
Shares redeemed (681,796) (986,616)
- ------------------------------------------------------------------------------------------- ---------- ----------
Net change resulting from capital stock transactions 465,357 203,087
- ------------------------------------------------------------------------------------------- ---------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Manufacturers and Traders Trust Company, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive a portion or all of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS 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 SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. 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 0.25% of the average daily net assets of the Fund, annually, to
reimburse FSC. The Fund did not pay or accrue distribution expenses during the
fiscal year ended April 30, 1996.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company,
serves as transfer and dividend disbursing agent for the Fund for which it
receives a fee. The fee paid to FServ 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 of $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 became
effective). For the year ended April 30, 1996, the Fund paid $4,948 pursuant to
this agreement.
GENERAL--Certain Officers 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
year ended April 30, 1996, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 37,959,004
- ------------------------------------------------------------------------------------------------------- -------------
SALES $ 33,016,317
- ------------------------------------------------------------------------------------------------------- -------------
</TABLE>
(6) CONCENTRATION OF RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, they will be more susceptible to factors adversely affecting issuers
of that state than would a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
April 30, 1996, 42.20% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies.
REPORT OF ERNST & YOUNG LLP, 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, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and financial highlights for each
of the periods presented therein. 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 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 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, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Vision
New York Tax-Free Fund of Vision Group of Funds, Inc. at April 30, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the periods presented therein, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 14, 1996
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
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision
New York Tax-Free
Fund
---------------------------------------------
Prospectus dated
June 30, 1996
[VISION LOGO]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS
TRUST COMPANY
---------------------------------------
Federated Investors Tower Investment Adviser
Pittsburgh, PA 15222-3779 A subsidiary of First Empire State
Corporation
Federated Securities Corp. is
the distributor of the fund
and is a subsidiary of
Federated Investors.
92830F505
3081706A (6/96)
TR3081706A (6/96)
[VISION LOGO]
PROSPECTUS
VISION U.S. GOVERNMENT SECURITIES FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1996
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven separate
investment portfolios with distinct investment objectives and policies. This
prospectus relates to one of the seven portfolios, 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 Statement of Additional
Information dated June 30, 1996, which has also been filed with the Securities
and Exchange Commission ("SEC"). The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. To
obtain a free copy of the Statement of Additional Information, or a paper copy
of this prospectus, if you have received it electronically, or make other
inquiries about the Fund, simply call or write Vision Group of Funds, Inc. at
the telephone number or address below. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
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 14
Your Guide to Using the Fund 17
How the Fund Values Its Shares 17
What Fund Shares Cost 17
How to Buy Shares 20
How to Exchange Shares 21
How to Redeem Shares 23
Tax Information 25
Description of Fund Shares 25
How the Fund Shows Performance 26
Financial Statements 27
Report of Ernst & Young LLP, 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 seven 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 "HOW THE
FUND INVESTS.")
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 "Your
Guide to Using the Fund.")
FUND MANAGEMENT
The Fund's investment adviser is M&T Bank, which makes investment decisions for
the Fund. M&T Bank is the principal banking subsidiary of First Empire State
Corporation, which also owns The East New York Savings Bank. (See "Adviser's
Background.")
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 OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)..................................................................... 0.55%
12b-1 Fee (2)......................................................................................... 0.00%
Other Expenses (after expense reimbursement) (3)...................................................... 0.61%
Shareholder Servicing Fee (2)......................................................... 0.00%
Total Fund Operating Expenses (4)........................................................... 1.16%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver 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-1 fees or
shareholder servicing fees during the fiscal year ending April 30, 1997. If
the Fund were paying or accruing 12b-1 fees or shareholder servicing fees,
the Fund would be able to pay up to 0.25% of its average daily net assets
for 12b-1 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 were 0.63% absent the voluntary waiver of administrative
services fee by the administrator. The administrator can terminate this
voluntary waiver at any time at its sole discretion.
(4) The Annual Fund Operating Expenses were 1.33% absent the voluntary waivers
by the adviser and administrator.
The table above can help you understand the various costs and expenses that
a shareholder in the Fund will bear, either directly or indirectly. For
more complete descriptions of the various costs and expenses, see the
section "Fund Management, Distribution and Administration" on page 14.
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; (2)
redemption at the end of each time period; and (3)
payment of the maximum sales load. The Fund charges no
redemption fees....................................... $ 56 $ 80 $ 106 $ 180
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
VISION U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
REFERENCE IS MADE TO THE REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ON
PAGE 35.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C>
1996 1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.09 $ 9.25 $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.52 0.56 0.34
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.22 (0.16) (0.75)
- ----------------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.74 0.40 (0.41)
- ----------------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Distributions from net investment income (0.52) (0.56) (0.34)
- ----------------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.31 $ 9.09 $ 9.25
- ----------------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 8.10% 4.59% (4.23%)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 1.16% 0.43% 0.00%(c)
- -----------------------------------------------------------------------------------------
Net investment income 5.41% 6.20% 6.11%(c)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.17% 1.01% 1.86%(c)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $34,292 $29,573 $24,468
- -----------------------------------------------------------------------------------------
Portfolio turnover 132% 78% 320 %
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from September 22, 1993 (date of initial
public investment) to April 30, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended April 30, 1996, which can be obtained
free of charge.
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 DEFINI-
TION OF "U.S. 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 Ratings Group ("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"); the
Farm Credit System including the National Bank for Cooperatives and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan 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 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 four basic
types of mortgage-backed securities that the Fund may purchase: (i) those issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as Ginnie Mae, Fannie Mae, and Freddie Mac; (ii) those
issued by private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; (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. See "Asset-Backed Securities" below for a description of risks.
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.
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 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 securities (including ARMs, CMOs, and REMICs) 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 prepayment risks
because the underlying mortgage loans or the collateral supporting asset-backed
securities may be prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities tend to increase during periods of declining mortgage
interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on mortgage-backed securities
are also affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages. Although
asset-backed securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain of the factors that
affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities. Furthermore if mortgage-backed securities 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
mortgage-backed securities 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.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
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 of an NRSRO or, if the obligations are unrated, they will be of
comparable quality as determined by the Fund's adviser. If any security
purchased by the Fund is subsequently downgraded, securities will be evaluated
on a case by case basis by the Fund's adviser. The Fund's adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the rating categories is contained
in the Appendix to the Fund's Statement of Additional Information.
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 seller's failure to
complete these transactions 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 prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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.
There is the risk that, when lending portfolio securities, the securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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 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 "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. 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 Corporation's 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.
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.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Corporation's Board
of Directors and could result in severe penalties.
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 principal banking subsidiary of First Empire State Corporation,
a $12 billion bank holding company, as of December 31, 1995, headquartered in
Buffalo, New York. M&T Bank (consolidated) had $10.2 billion in assets, as of
December 31, 1995, has 121 offices throughout Western New York State and New
York's Southern Tier, 22 offices in the Hudson Valley region of New York State,
plus offices in New York City, Albany, Syracuse, and Nassau, The Bahamas. First
Empire State Corporation also owns The East New York Savings Bank, which, as of
December 31, 1995, has 16 offices throughout metropolitan New York City.
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, 1995, M&T Bank had $1.8
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 of December 31, 1995, M&T Bank managed over $884
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 served as the Fund's portfolio manager from August 1994
through February 1995. Since the Fund's inception, Mr. Truesdell was also
responsible for overseeing the Fund's management, and has supervised the Fund's
investment decisions. Mr. Truesdell oversees investment activities of M&T Bank's
money market and fixed income products, and the money market funds in the Vision
Group of 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. Thomas R. Pierce has been the Fund's portfolio manager since March 1995. Mr.
Pierce joined M&T Bank in January 1995 as Vice President from Merit Investment
Advisors where he acted as Director of Fixed Income Product and Trading since
1993. For the period from 1987 to 1993, Mr. Pierce served as Fixed Income
Manager at ANB Investment Management Company, where he directed the management
of $3.5 billion of active and passive fixed income portfolios. Mr. Pierce holds
an A.B. in Economics from Washington University and is an M.B.A. candidate at
the University of Chicago.
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-1 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, 1997.
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 and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, or custodian to such an
investment company or from purchasing shares of such company as agent for and
upon the order of their customers.
Some entities providing services to the Fund are subject to such banking laws
and regulations.
They believe that they may perform those services for the Fund contemplated by
any agreement entered into with the Fund without violating those laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
these entities from continuing to perform all or a part of the above services.
If this happens, the Corporation's Board of Directors would consider alternative
means of continuing available services. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
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 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 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.
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 certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as specified
below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC.
<C> <S>
.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.
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>
DEALER
SALES CHARGE SALES CHARGE CONCESSION
AS AS A AS A
A PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than
$100,000........... 4.50% 4.71% 4.00%
$100,000 but less
than $250,000...... 3.75% 3.90% 3.25%
$250,000 but less
than $500,000...... 3.00% 3.09% 2.75%
$500,000 but less
than $1 million.... 2.00% 2.04% 1.75%
$1 million or
more............... 0.00% 0.00% 0.00%
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected;
(ii) days during which 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-
type 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 pur-
chases 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 $1 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.
Shares of the Fund may also be purchased, subject to applicable law and
regulation from time to time, at net asset value, without a sales charge, by
employees of clients of the Trust & Investment Services and Commercial Lending
Divisions of M&T Bank within an automatic deduction program. 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.
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 OR ANNUITIES
Investors may purchase shares of the Fund at net asset value, without a sales
charge, with the proceeds from either: (i) the redemption of shares of a mutual
fund which was sold with a sales charge or commission; or (ii) fixed or variable
rate annuities. 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 under "What Fund Shares Cost," 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 the rate imposed on a
$110,000 investment, not the rate imposed on a $40,000 investment.
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 imposed on each purchase would be reduced to the sales charge rate in
effect for a $110,000 investment in the respective fund.
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 (such as The East New York Savings Bank ("East New York")), 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. ("M&T Securities") at M&T Bank and East New York locations, as
well as at separate M&T Securities locations, or by calling 1-800-724-5445. M&T
Securities (member NASD and SIPC) is a wholly-owned registered broker-dealer
subsidiary of M&T Bank.
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 or any representative of M&T
Securities 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 payment by check has been
converted into federal funds. This is normally the next business day after the
check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account, you
must maintain a checking or NOW deposit account at M&T Bank or any of its
affiliate banks. To place an order, call M&T Bank's Mutual Fund Services or any
representative of M&T Securities 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, contact the Fund and consult a tax adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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. Federated Shareholder
Services Company is a subsidiary of Federated Investors.
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 "PAR-
TICIPATING 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 acquired by the reinvestment of dividends, will not have to pay a sales
charge again on an exchange, unless the Participating Fund imposes a higher
sales charge. When exchanging into and out of Participating Funds with different
sales charges, exchanges are made at net asset value, plus the difference
between the sales charge already paid and any sales charge of the Participating
Fund into which the shares are to be exchanged, if higher. Shares of
Participating Funds with no sales charge acquired by direct purchase may be
exchanged for shares of other Participating Funds with a sales charge at net
asset value plus the applicable sales charge. However, shares of Participating
Funds with no sales charge that were acquired by the reinvestment of dividends
will not be subject to a sales charge upon an exchange into shares of a
Participating Fund with a sales charge. Instead, such exchanges will be made at
net asset value.
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 the
"Signature Guarantees" section later in this prospectus 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 Shareholder
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 diffficulty 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 Shareholder Services Company, and the shares will be deposited
into your account before the exchange is made.
Shareholders requesting the telephone ex-
change 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 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 subject
to a sales charge, it may not be 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 seven 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, Vision
Growth and Income Fund and Vision Capital Appreciation 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 Corporation'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
requires that shareholders vote by class.) As of May 31, 1996, Tice & Co.,
Buffalo, New York, acting in various capacities for numerous accounts, was the
owner of record of 35.07% 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. 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 Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a vote of
shareholders at a special meeting. The Corporation's 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's 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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------------- -------------
LONG-TERM OBLIGATIONS--98.5%
- -------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES--2.9%
-----------------------------------------------------------------------------------------
$ 1,000,000 Green Tree Financial Corp., 1995-D, Class A2, 6.25%, 9/15/2025
(IDENTIFIED COST, $999,063) $ 987,500
----------------------------------------------------------------------------------------- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS--22.8%
-----------------------------------------------------------------------------------------
1,050,000 FHLMC Series 1646, Class H REMIC, 6.25%, 9/15/2022 1,000,314
-----------------------------------------------------------------------------------------
1,000,000 FHLMC Series 1706, Class H REMIC, 6.50%, 6/15/2023 950,600
-----------------------------------------------------------------------------------------
5,605,000 FNMA Series 1994-22, Class C REMIC, 5.00%, 12/25/2023 4,937,445
-----------------------------------------------------------------------------------------
1,000,000 FNMA Series 1993-97, Class E REMIC, 5.00%, 5/25/2023 941,210
----------------------------------------------------------------------------------------- -------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST, $8,126,545) 7,829,569
----------------------------------------------------------------------------------------- -------------
PASS-THROUGH MORTGAGE BACKED SECURITIES--23.3%
-----------------------------------------------------------------------------------------
1,293,289 FHLMC, 6.00%, 1/1/2026 1,182,532
-----------------------------------------------------------------------------------------
3,913,227 FHLMC, 6.00%, 2/1/2026 3,578,098
-----------------------------------------------------------------------------------------
1,534,126 FHLMC, 6.00%, 3/1/2026 1,402,743
-----------------------------------------------------------------------------------------
1,992,685 FNMA, 6.00%, 1/1/2026 1,817,049
----------------------------------------------------------------------------------------- -------------
TOTAL PASS-THROUGH MORTGAGE BACKED SECURITIES (IDENTIFIED COST, $8,259,182) 7,980,422
----------------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--33.8%
-----------------------------------------------------------------------------------------
1,300,000 6.50%, 4/30/99 1,310,231
-----------------------------------------------------------------------------------------
7,450,000 6.75%, 5/31/99 7,554,896
-----------------------------------------------------------------------------------------
2,700,000 6.75%, 6/30/99 2,738,772
----------------------------------------------------------------------------------------- -------------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST, $11,650,141) 11,603,899
----------------------------------------------------------------------------------------- -------------
U.S. TREASURY BONDS--15.7%
-----------------------------------------------------------------------------------------
2,250,000 11.75%, 11/15/2014 3,187,395
-----------------------------------------------------------------------------------------
1,000,000 8.75%, 8/15/2020 1,190,790
-----------------------------------------------------------------------------------------
1,000,000 7.125%, 2/15/2023 1,006,300
----------------------------------------------------------------------------------------- -------------
TOTAL U.S. TREASURY BONDS (IDENTIFIED COST, $5,564,688) 5,384,485
----------------------------------------------------------------------------------------- -------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $34,599,619) 33,785,875
----------------------------------------------------------------------------------------- -------------
MUTUAL FUND SHARES--0.3%
- -------------------------------------------------------------------------------------------------------
105,338 Seven Seas Money Market Fund (at net asset value) 105,338
----------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $34,704,957) $ 33,891,213+
----------------------------------------------------------------------------------------- -------------
</TABLE>
VISION U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
+The cost of investments for federal tax purposes amounts to $34,704,957. The
net unrealized depreciation of investments on a federal tax basis amounts to
$813,744, which is comprised of $16,928 appreciation and $830,672 depreciation
at April 30, 1996.
The following abbreviations are used in this portfolio:
FHLMC--Federal Home Loan Mortgage Corp.
FNMA--Federal National Mortgage Association
REMIC--Real Estate Mortgage Investment Conduit
Note: The categories of investments are shown as a percentage of net assets
($34,291,699) at April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
VISION U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost and value (identified and tax cost $34,704,957)
$ 33,891,213
- -------------------------------------------------------------------------------------------------------
Income receivable 513,787
- -------------------------------------------------------------------------------------------------------
Receivable for capital stock sold 40,437
- -------------------------------------------------------------------------------------------------------
Deferred expenses 6,091
- ------------------------------------------------------------------------------------------------------- -------------
Total assets 34,451,528
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------------
Income distribution payable $ 73,826
- --------------------------------------------------------------------------------------------
Payable for capital stock redeemed 67,602
- --------------------------------------------------------------------------------------------
Accrued expenses 18,401
- -------------------------------------------------------------------------------------------- ---------
Total liabilities 159,829
- ------------------------------------------------------------------------------------------------------- -------------
Net Assets for 3,682,667 shares outstanding $ 34,291,699
- ------------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $ 35,392,525
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (813,744)
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (311,495)
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 24,413
- ------------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 34,291,699
- ------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share ($34,291,699 / 3,682,667 shares outstanding)
$9.31
- ------------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/95.50 of $9.31)* $9.75
- ------------------------------------------------------------------------------------------------------- -------------
</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
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $ 2,130,119
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 227,041
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 49,999
- --------------------------------------------------------------------------------------------
Custodian fees 22,509
- --------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 40,860
- --------------------------------------------------------------------------------------------
Directors' fees 5,333
- --------------------------------------------------------------------------------------------
Auditing fees 13,399
- --------------------------------------------------------------------------------------------
Legal fees 6,599
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 37,251
- --------------------------------------------------------------------------------------------
Capital stock registration costs 9,017
- --------------------------------------------------------------------------------------------
Printing and postage 11,000
- --------------------------------------------------------------------------------------------
Insurance premiums 4,330
- --------------------------------------------------------------------------------------------
Miscellaneous 5,600
- -------------------------------------------------------------------------------------------- ----------
Total expenses 432,938
- --------------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 48,652
- ---------------------------------------------------------------------------------
Waiver of administrative personnel and services fee 9,295
- --------------------------------------------------------------------------------- ---------
Total waivers 57,947
- -------------------------------------------------------------------------------------------- ----------
Net expenses 374,991
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income 1,755,128
- -------------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 354,242
- --------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) of investments 238,052
- -------------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 592,294
- -------------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 2,347,422
- -------------------------------------------------------------------------------------------------------- ------------
</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>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------------
Net investment income $ 1,755,128 $ 1,706,372
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investments transactions ($0 net gain and $582,574 net
loss, respectively, as computed for federal tax purposes) 354,242 (263,316)
- --------------------------------------------------------------------------------------
Net change in unrealized (depreciation) of investments 238,052 (134,186)
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 2,347,422 1,308,870
- -------------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------------------
Distributions from net investment income (1,755,128) (1,706,372)
- -------------------------------------------------------------------------------------- ------------- -------------
CAPITAL STOCK TRANSACTIONS--
- --------------------------------------------------------------------------------------
Net proceeds from sale of shares 7,520,520 9,446,746
- --------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 926,773 932,736
- --------------------------------------------------------------------------------------
Cost of shares redeemed (4,321,294) (4,876,091)
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from capital stock transactions 4,125,999 5,503,391
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets 4,718,293 5,105,889
- --------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------
Beginning of period 29,573,406 24,467,517
- -------------------------------------------------------------------------------------- ------------- -------------
End of period (Including undistributed net investment income of $24,413) $ 34,291,699 $ 29,573,406
- -------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION U.S. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Vision Group of Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of seven portfolios. The
financial statements included herein are only those of Vision U.S. Government
Securities Fund (the "Fund"), a diversified portfolio which seeks current
income. 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.
(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. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Listed corporate bonds and other
fixed-income and asset-backed securities, unlisted securities, and short-
term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining maturites
of sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Directors (the
"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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At April 30, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $311,493, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to
VISION U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2003.
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
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 its 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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At April 30, 1996, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
Shares sold 788,355 1,052,919
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 97,196 104,428
- ------------------------------------------------------------------------------------------
Shares redeemed (455,199) (550,862)
- ------------------------------------------------------------------------------------------ --------- ----------
Net change resulting from capital stock transactions 430,352 606,485
- ------------------------------------------------------------------------------------------ --------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Manufacturers and Traders Trust Company, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive a portion or all of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS 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 SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. 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 0.25% of the average daily net assets of the Fund, annually, to
reimburse FSC. The Fund did not pay or accrue distribution expenses during the
fiscal year ended April 30, 1996.
VISION U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company,
serves as transfer and dividend disbursing agent for the Fund for which it
receives a fee. The fee paid to FServ is based on the size, type, and number of
accounts and transactions made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses of $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 became
effective). For the year ended April 30, 1996, the Fund paid $3,868 pursuant to
this agreement.
GENERAL--Certain of the Officers 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
year ended April 30, 1996, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 48,164,142
- ------------------------------------------------------------------------------------------------------- -------------
SALES $ 40,797,187
- ------------------------------------------------------------------------------------------------------- -------------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION U.S. GOVERNMENT SECURITIES FUND:
We have audited the accompanying statement of assets and liabilities of Vision
U.S. Government Securities Fund (a portfolio of Vision Group of Funds, Inc.),
including the portfolio of investments, as of April 30, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period the ended, and financial
highlights for each of the periods presented therein. 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 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 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, 1996, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Vision
U.S. Government Securities Fund of Vision Group of Funds, Inc., at April 30,
1996, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and financial
highlights for each of the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 14, 1996
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
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision
U.S. Government
Securities
Fund
---------------------------------------------
Prospectus dated
June 30, 1996
[VISION LOGO]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS
TRUST COMPANY
---------------------------------------
Federated Investors Tower Investment Adviser
Pittsburgh, PA 15222-3779 A subsidiary of First Empire State
Corporation
Federated Securities Corp.
is the distributor of the
fund and is a subsidiary
of Federated Investors.
92830F406
3081707A (6/96)
TR3081707A (6/96)
VISION U.S. GOVERNMENT SECURITIES FUND
VISION NEW YORK TAX-FREE FUND
(PORTFOLIOS OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This 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, 1996.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the respective Fund's current
prospectus dated June 30, 1996. This d Statement of Additional
Information is incorporated into each respective Fund's prospectus by
reference. To receive a copy of the prospectus for either Fund, or a
paper copy of this Statement of Additional Information, if you have
received it electronically, write to Vision Group of Funds, Inc., P.O.
Box 4556, Buffalo, NY 14240-4556, or call (800) 836-2211 or (716) 842-
4488. Please retain this Statement of Additional Information for future
reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1996
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUNDS 4
INVESTMENT OBJECTIVE AND POLICIES 4
Types of Acceptable Investments and Techniques 4
Municipal Security Issues 4
Illiquid and Restricted Securities 9
Corporate Debt Securities 11
Ratings 12
Zero Coupon Bonds 13
Privately Issued Mortgage-Related Securities 13
Resets of Interest 13
Caps and Floors 14
Lending of Portfolio Securities 15
Insurance on Municipal Securities 16
Duration 20
Futures and Options Transactions 20
Temporary Investments 27
U.S. Government Obligations 28
Money Market Instruments 28
When-Issued And Delayed Delivery Transactions 29
Repurchase Agreements 30
Reverse Repurchase Agreements 30
Portfolio Turnover 31
INVESTMENT LIMITATIONS 32
New York Investment Risks 11
VISION GROUP OF FUNDS, INC. MANAGEMENT 41
Fund Ownership 44
Directors' Compensation 45
Director Liability 46
INVESTMENT ADVISORY SERVICES 46
Adviser to the Fund 46
Advisory Fees 47
OTHER SERVICES 49
Administrative Services 49
Custodian and Portfolio Accountant 49
Transfer Agent and Dividend Disbursing Agent 49
Independent Auditors 49
BROKERAGE TRANSACTIONS 50
DESCRIPTION OF FUND SHARES 52
HOW TO BUY SHARES 54
Conversion to Federal Funds 54
DETERMINING MARKET VALUE OF SECURITIES 54
REDEEMING FUND SHARES 55
Redemption in Kind 55
DETERMINING NET ASSET VALUE 56
TAX STATUS 56
The Funds' Tax Status 56
Shareholders' Tax Status 56
TOTAL RETURN 57
YIELD 58
TAX-EQUIVALENT YIELD 58
Tax-Equivalency Table 59
PERFORMANCE COMPARISONS 60
Economic and Market Information 65
APPENDIX 66
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 Ratings Group
("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:
o 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;
o municipal notes and tax-exempt commercial paper;
o serial bonds sold with a series of maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
o bond anticipation notes sold in anticipation of the issuance of long-
term bonds;
o revenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program;
o pre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations; and
o 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.
RATINGS
The corporate debt obligations in which the Government Fund may invest will
be rated at the time of purchase in the top three rating categories of a
nationally recognized statistical rating organization, or if unrated, of
comparable quality as determined by the Fund's adviser. If any security
purchased by the Fund is subsequently downgraded, securities will be
evaluated on a case by case basis by the Government Fund's adviser. The
Government Fund's adviser will determine whether or not the security
continues to be an acceptable investment. If not, the security will be
sold. The lowest category of investment grade securities (e.g., Baa or BBB)
have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to pay
principal and interest payments on such obligations than higher rated
obligations. A description of the rating categories is contained in this
Statement of Additional Information. (See "Appendix").
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 Government
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 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. MBIA insures municipal bonds. The address
of MBIA is 113 King Street, Armonk, New York, 10504, and its telephone
number is (914) 273-4545. As of May 5, 1996, S&P has rated the claims-
paying ability of MBIA "AAA."
AMBAC INDEMNITY CORPORATION.
AMBAC Indemnity Corporation ("AMBAC") is a wholly-owned subsidiary of
AMBAC, Inc., a financial holding company which is owned by the public.
AMBAC provides financial guarantee insurance, investment and financial
products and health care information services. The Company provides
services to both public and private customers throughout the United
States. The address of AMBAC's administrative offices is One State
Street Plaza, New York, New York 10004, and its telephone number is
(212) 668-0340. As of May 5, 1996, 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. Financial Guaranty insures municipal bonds and certain
non-municipal structured debt obligations. The address of Financial
Guaranty is 175 Water St., New York, New York 10038-4972, and its
telephone number is (800) 352-0001. As of May 5, 1996, 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 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.
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 listed classes. 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 classes of
temporary investments.
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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:
o Farm Credit Banks;
o The Student Loan Marketing Association;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation; and
o Federal National Mortgage Association.
MONEY MARKET INSTRUMENTS
The Funds may invest in money market instruments such as:
o 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;
o 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 (see Appendix for a description of the basis of those
ratings);
o 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
o bankers' acceptances.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Funds. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Funds sufficient to make payment for the securities to be purchased are
segregated on the Funds' records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value 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
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. For the fiscal
years ended April 30, 1996 and 1995, the Tax-Free Fund's and Government
Fund's portfolio turnover rates were 113% and 51%, and 132% and 78%,
respectively. The Tax-Free Fund's higher rate of portfolio turnover during
the last fiscal year can be attributed to the unexpected, higher volatility
of interest rates and the repositioning of the Tax-Free Fund by a new
portfolio manager. The Government Fund's higher rate of portfolio turnover
during the last fiscal year can be attributed to the unexpected, higher
volatility of interest rates. Despite this higher portfolio turnover rate
for the Tax-Free Fund and Government Fund during the last fiscal year, the
adviser does not anticipate that the annual portfolio turnover rate for
either Fund will generally 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, 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, each
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 Funds' 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.
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.
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 1.00% 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 Tax-Free Fund invests in obligations of New York (the "State") issuers
which result in the Tax-Free Fund's performance being subject to risks
associated with the overall conditions present within the State. The
following information is a general summary of the State's financial
condition and a brief summary of the prevailing economic conditions. This
information is based on various sources that are believed to be reliable
but should not be considered as a complete description of all relevant
information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs,
education and Medicare expenditures have been the areas of largest growth
while prudent program cuts and increases in revenues through service fees
has enabled the State's budget to remain within balance for the last few
years. The State also benefits from a high level of per capita income that
is well above the national average and from significant amounts of
international trade. While the State still has a large accumulated deficit
as a percentage of its overall budget, the fiscal performance in recent
years has demonstrated a changed political environment that has resulted in
realistic revenue and expenditure projections to achieve financially
favorable results. The 1996 budget included a multi-year personal income
tax rate cut and emphasized cost control. The original budget proposal for
1997 assumes significant spending reductions will balance against the
effects of a weak economy. The budget, for the fiscal year which began
April 1, 1996, had not been approved as of June 28, 1996.
New York's economy is large and diverse. While several upstate counties
benefit from agriculture, manufacturing and high technology industries, New
York City nonetheless still dominates the State's economy through its
international importance in economic sectors such as advertising, finance,
and banking. The State's economy has been slow to recover after the late
1980's recession that resulted in the loss of over 400,000 jobs in the New
York City metropolitan area alone. Any major changes to the financial
condition of New York City would ultimately have an affect on the State.
Obligations of issuers within the State are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights of and remedies
of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by the U.S. Congress, state
legislators, or referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon enforcement of such
obligations, or upon the ability of the State or its political subdivisions
to levy taxes. There is also the possibility that, as a result of
litigation or other conditions (including delays in adopting budgets), the
power or ability of any issuer to pay, when due, the principal of and
interest on its municipal securities may be materially affected.
A substantial principal amount of bonds issued by various State agencies
and authorities are either guaranteed by the State or supported by the
State through lease-purchase arrangements, or other contractual or moral
obligation provisions. Moral obligation commitments by the State 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 the
authorities and agencies to meet their obligations could result in defaults
on such obligations. If a default were to occur, it would likely have a
significant adverse impact on the market price of obligations of the State
and its authorities and agencies. In recent years, the State has had to
appropriate large amounts of funds to enable State agencies to meet their
financial obligations and, in some cases, prevent default. Additional
assistance is expected to be required in current and future fiscal years
since certain localities and authorities continue to experience financial
difficulties.
To the extent State agencies and local governments 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. This financial situation could
result not only in defaults of State and agency obligations but also
impairment of the marketability of securities issued by the State, its
agencies and local governments.
The overall financial condition of the state can also be illustrated by
changes to its debt ratings. During the period in which the state
experienced financial difficulties, its general obligation long-term debt
ratings as determined by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group decreased from A1 and A, respectively, to A and A-,
which are the current ratings as of June 28, 1996.
The Tax-Free Fund's concentration in municipal 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, its counties, and its municipalities.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Services Company; formerly Attorney, Morrison
& Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of May 31,1996, the following shareholders of record owned 5% or more of
the outstanding shares of the Government Fund: Tice and Co., Buffalo, New
York, owned approximately 1,293,219 shares (35.07%); and Reho & Co.,
Buffalo, New York, owned approximately 596,196 shares (16.17%).
As of May 31,1996, the following shareholder of record owned 5% or more of
the Tax-Free Fund: Tice and Co., Buffalo, New York, owned approximately
281,703 shares (8.83%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
CORPORATION CORPORATION*#
Randall I. Benderson,
Director $9,500
Joseph J. Castiglia,
Director $10,000
Daniel R. Gernatt, Jr.,
Director $10,000
George K. Hambleton, Jr.,
Director $10,000
*Information is furnished for the fiscal year ended April 30, 1996. The
Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is
comprised of seven portfolios.
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 fiscal years ended April 30, 1996 and 1995, for the Tax-Free Fund
and the Government Fund, M&T Bank earned advisory fees of $209,254 and
$179,621 and $227,041 and $192,549, respectively, of which $91,153 and
$161,296 and $48,652 and $166,425, respectively, were voluntarily waived.
For the period from September 22, 1993 (date of initial public investment)
to April 30, 1994, for the Tax-Free Fund and the Government Fund, M&T Bank
earned advisory fees of $60,928 and $55,416, respectively, all of which
were waived.
In addition, for the fiscal years ended April 30, 1996 and 1995, for the
Tax-Free Fund and the Government Fund, M&T Bank reimbursed $0 and $109,458
and $0 and $97,631, respectively, of other operating expenses; and for the
period from September 22, 1993 (date of initial public investment) to April
30, 1994, for the Tax-Free Fund and the Government Fund, 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.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the respective Prospectus. For the fiscal years ended April
30, 1996 and 1995, the Tax-Free Fund and Government Fund incurred costs for
administrative services of $50,001 and $50,000 and $49,999 and $50,000,
respectively, of which $10,672 and $17,273 and $9,295 and $14,920,
respectively, were voluntarily waived. 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.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Funds and
provides certain accounting and recordkeeping services with respect to the
Funds' portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Funds' registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 guidelines established by the
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 and 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. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship 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.
Although investment decisions for the Funds are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Funds may make may also be made by those other accounts. When the Funds
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Funds or the size of the position
obtained or disposed of by the Funds. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Funds.
For the fiscal years ended April 30, 1996 and 1995, and for the period from
September 22, 1993 (date of initial public investment) to April 30, 1994,
the Tax-Free Fund and Government Fund paid no brokerage commissions on
brokerage transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to 10 billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F, and G 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, Vision Growth
and Income Fund, and Vision Capital Appreciation 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 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).
HOW TO BUY 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 "How to
Buy Shares."
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 State
Street Bank act as the shareholders' agents 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:
o for bond and other fixed income securities, as determined by an
independent pricing service; or
o 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
o 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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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.
TOTAL RETURN
The Tax-Free Fund's average annual total return for the one-year period
ended April 30, 1996, and for the period from September 22, 1993 (date of
initial public investment) to April 30, 1996, was 2.31% and 2.54%,
respectively. The Government Fund's average annual total return for the
one-year period ended April 30, 1996, and for the period from September 22,
1993 (date of initial public investment) to April 30, 1996, was 3.22% and
1.30%, respectively.
The average annual total return for the shares 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,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The yield for the Tax-Free Fund and Government Fund for the thirty-day
period ended April 30, 1996, was 4.61% and 5.00%, 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, 1996, was 7.11%. 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 35.125%.
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 1996
STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 22.125% 35.125% 38.125% 43.125% 46.725%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.93% 2.31% 2.42% 2.64% 2.82%
2.00% 2.57% 3.08% 3.23% 3.52% 3.75%
2.50% 3.21% 3.85% 4.04% 4.40% 4.69%
3.00% 3.85% 4.62% 4.85% 5.27% 5.63%
3.50% 4.49% 5.39% 5.66% 6.15% 6.57%
4.00% 5.14% 6.17% 6.46% 7.03% 7.51%
4.50% 5.78% 6.94% 7.27% 7.91% 8.45%
5.00% 6.42% 7.71% 8.08% 8.79% 9.39%
5.50% 7.06% 8.48% 8.89% 9.67% 10.32%
6.00% 7.70% 9.25% 9.70% 10.55% 11.26%
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 Tax-Free Fund.
*Some portion of the Tax-Free Fund's income may be subject to the
federal alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The performance of shares of the Funds depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in a Fund's expenses; and
o 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:
o 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)
o 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)
o 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)
o 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 Farm Credit System, including the National Bank
for Cooperatives and Banks for Cooperatives; 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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.
o 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, 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.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Funds' portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
APPENDIX
STANDARD & POOR'S RATINGS GROUP 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 o 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 RATINGS GROUP 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 RATINGS GROUP 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.
[VISION LOGO]
PROSPECTUS
VISION GROWTH AND INCOME FUND
92830F406
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1996
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven separate
investment portfolios with distinct investment objectives and policies. This
prospectus relates to one of the seven portfolios, Vision Growth and Income Fund
("Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY, ARE NOT ENDORSED OR GUARANTEED BY
MANUFACTURERS AND TRADERS TRUST COMPANY, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THESE SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
This prospectus gives you information about the Fund, and can help you decide if
the Fund is a suitable investment for you. Please read the prospectus before you
invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of Additional
Information dated June 30, 1996, which has also been filed with the Securities
and Exchange Commission ("SEC"). The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. To
obtain a free copy of the Statement of Additional Information, or a paper copy
of this prospectus, if you have received it electronically, or make other
inquiries about the Fund, simply call or write Vision Group of Funds, Inc. at
the telephone number or address below. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
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 15
Your Guide to Using the Fund 19
How the Fund Values Its Shares 19
What Fund Shares Cost 19
How to Buy Shares 22
How to Exchange Shares 23
How to Redeem Shares 25
Tax Information 27
Description of Fund Shares 27
How the Fund Shows Performance 28
Financial Statements 29
Report of Ernst & Young LLP, Independent
Auditors 39
Addresses 40
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in seven separate, professionally managed
portfolios. This prospectus describes the Vision Growth and Income Fund.
VISION GROWTH AND INCOME FUND
(THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH SEEKS
LONG-TERM GROWTH OF CAPITAL AND INCOME. THE FUND
PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING IN A
DIVERSIFIED PORTFOLIO CONSISTING PRIMARILY OF EQUITY
SECURITIES (E.G., COMMON STOCK, CONVERTIBLE
SECURITIES), ALTHOUGH IT MAY ALSO INVEST IN DEBT
SECURITIES (E.G., BONDS, NOTES). (SEE "HOW THE FUND
INVESTS.")
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 "Your
Guide to Using the Fund.")
FUND MANAGEMENT
The Fund's investment adviser is Manufacturers and Traders Trust Company ("M&T
Bank"), and the Fund's sub-adviser is Harbor Capital Management Company, Inc.
("Harbor"). Subject to supervision and review of M&T Bank and the Directors of
the Corporation, Harbor makes investment decisions for the Fund. M&T Bank is the
principal banking subsidiary of First Empire State Corporation, which also owns
The East New York Savings Bank. (See "Investment Adviser and Sub-Adviser.")
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).............................................................. 5.50%
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 OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee..................................................................................... 0.70%
12b-1 Fee (1)...................................................................................... 0.00%
Other Expenses..................................................................................... 0.46%
Shareholder Servicing Fee (1)...................................................... 0.00%
Total Fund Operating Expenses............................................................ 1.16%
</TABLE>
(1) The Fund has no present intention of paying or accruing 12b-1 fees or
shareholder servicing fees during the fiscal year ending April 30, 1997. If
the Fund were paying or accruing 12b-1 fees or shareholder servicing fees,
the Fund would be able to pay up to 0.25% of its average daily net assets
for 12b-1 fees and up to 0.25% of its average daily net assets for
shareholder servicing fees. See "Fund Management, Distribution and
Administration."
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 15. Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; (2) redemption at the end of each
time period; and (3) payment of the maximum sales load. The Fund
charges no redemption fees...................................... $ 66 $ 90 $ 115 $ 188
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
VISION GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 39.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C>
1996 1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.35 $ 9.93 $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.13 0.21 0.07
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.98 0.43 (0.08)
- ---------------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 3.11 0.64 (0.01)
- ---------------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Distributions from net investment income (0.11) (0.22) (0.06)
- ---------------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.35 $ 10.35 $ 9.93
- ---------------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 30.18% 6.61% (0.12%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.16% 0.47% 0.00%(c)
- ----------------------------------------------------------------------------------------
Net investment income 1.09% 2.16% 2.24%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.00% 0.96% 2.15%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $65,119 $39,358 $22,944
- ----------------------------------------------------------------------------------------
Portfolio turnover 77% 79% 27 %
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from November 29, 1993 (date of initial
public investment) to April 30, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended April 30, 1996, which can be obtained
free of charge.
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of capital
and income. This investment objective cannot be changed without approval of the
Fund's shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
<TABLE>
<S> <C>
THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY CATEGORIZED AS "SEASONED" OR "WELL-ESTABLISHED"
INVESTING IN A DIVERSIFIED PORTFOLIO CONSISTING COMPANIES, ALTHOUGH COMPANIES WITH LESS-ESTABLISHED
PRIMARILY OF EQUITY SECURITIES (E.G., COMMON STOCK, OPERATING HISTORIES MAY BE CHOSEN FOR INVESTMENT IF THEY
CONVERTIBLE SECURITIES) AND DEBT SECURITIES (E.G., HAVE GROWTH ELEMENTS AND PRESENT OPPORTUNITIES FOR
BONDS, NOTES). HARBOR WILL SELECT EQUITY SECURITIES INCOME.
TO ACHIEVE GROWTH AND WILL SELECT FIXED INCOME, CON- UNDER NORMAL MARKET CONDITIONS, AT
VERTIBLE SECURITIES AND OTHER INTEREST-PAYING DEBT LEAST 65% OF THE VALUE OF THE FUND'S TOTAL ASSETS WILL
SECURITIES TO OBTAIN INCOME. HOWEVER, EITHER CATEGORY BE INVESTED IN EQUITY AND DEBT SECURITIES THAT ARE
OF EQUITY OR DEBT SECURITIES MAY BE PURCHASED FOR EXPECTED TO PRODUCE GROWTH OF CAPITAL AND/OR INCOME.
GROWTH OF CAPITAL AND/OR INCOME. HARBOR WILL INVEST HOWEVER, AS A MATTER OF OPERATING POLICY, HARBOR INTENDS
IN COMPANIES ON THE BASIS OF TRADITIONAL RESEARCH TO INVEST AT LEAST 65% OF THE FUND'S TOTAL ASSETS IN
TECHNIQUES, INCLUDING ASSESSMENT OF THE COMPANIES' EQUITY SECURITIES THAT ARE EXPECTED TO PRODUCE GROWTH OF
EARNINGS AND DIVIDEND CAPITAL AND/OR INCOME. UNLESS INDICATED OTHERWISE, THIS
GROWTH PROSPECTS, SOUND MANAGEMENT TECHNIQUES, POLICY AND THE OTHER INVESTMENT POLICIES OF THE FUND MAY
ABILITY TO FINANCE EXPECTED GROWTH, AND ON THE BASIS BE CHANGED BY THE DIRECTORS WITHOUT APPROVAL OF
OF A COMPANY'S UNDERVALUATION RELATIVE TO OTHER SHAREHOLDERS. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY
COMPANIES IN THE SAME INDUSTRY. THESE COMPANIES MAY MATERIAL CHANGES IN THESE POLICIES BECOME EFFECTIVE.
BE
</TABLE>
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
.common or preferred stocks of U.S. companies which are either listed on the
New York or American Stock Exchange or traded in the over-the-counter markets
and are considered by Harbor to have an established market;
.convertible securities (see below);
.investments in American Depository Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market. The
Fund may not invest more than 25% of its total assets in ADRs. In addition,
the Fund may invest up to 20% of its total assets in other securities of
foreign issuers ("Non-ADRs") (see page 11);
.domestic issues of corporate debt obligations (including convertible bonds
and debentures) rated, at the time of purchase, investment grade (e.g., Baa
or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher by
Standard and Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") or, if unrated, of comparable quality as determined by Harbor;
.U.S. government securities (see page 8);
.mortgage-backed securities (see page 9);
.asset-backed securities (see pages 10 to 11);
.money market instruments, including commercial paper that, at the time of
purchase, are rated not less than P-1, A-1 or F-1, by Moody's, S&P or Fitch,
respectively, or, if unrated, are of comparable quality as determined by
Harbor, time and savings deposits (including certificates of deposit) in
commercial or savings banks, and bankers' acceptances; and
.warrants.
In addition, the Fund may purchase the investments and engage in the investment
techniques described below. For additional information about the investments and
investment techniques, please refer to the Statement of Additional Information.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock when, in the opinion of Harbor, the investment characteristics of
the underlying common shares will assist the Fund in achieving its investment
objectives. Otherwise the Fund may hold or trade convertible securities. In
selecting convertible securities for the Fund, Harbor evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Harbor considers numerous factors, including the economic
and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations, including corporate bonds,
notes, and debentures, which may have floating or fixed rates of interest. These
obligations will be rated at the time of purchase in the top four rating
categories (investment grade). If the obligations are unrated, they will be of
comparable quality as determined by Harbor. If any security purchased by the
Fund is subsequently downgraded, securities will be evaluated on a case by case
basis by Harbor. Harbor will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. The lowest
category of investment grade securities (e.g., Baa or BBB) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest
payments on such obligations than higher rated obligations. A description of the
rating categories is contained in the Appendix to the Fund's Statement of
Additional Information.
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.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on a published interest rate or interest rate
index. Many variable rate demand notes allow the Fund to demand the repurchase
of the security on not more than seven days' prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which are debt securities issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities which include:
.direct obligations of the U.S. Treasury such as U.S. Treasury bills, notes,
and bonds; and
.obligations of U.S. government agencies or instrumentalities such as the Farm
Credit System, including the National Bank for Cooperatives and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks; The
Student Loan Marketing Association ("Sallie Mae"); Government National
Mortgage Association ("Ginnie Mae"); Federal Home Loan Mortgage Corporation
("Freddie Mac"); Housing and Urban Development; and Federal National Mortgage
Association ("Fannie Mae").
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Ginnie Mae participation certificates, are backed by
the full faith and credit of the U.S. Treasury. No assurances can be given that
the U.S. government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These instrumentalities
are supported by:
.the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
.the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
.the credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities which are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities that the Fund may purchase: (i) those issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as Ginnie Mae, Fannie Mae, and Freddie Mac; (ii) those
issued by private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement. See "Asset-Backed Securities" below for
a description of risks.
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 or Veterans Administration,
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.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac certificates, but may be
collateralized by whole loans or private pass-through securities.
The Fund will only invest in CMOs which, at the time of purchase, are rated AAA
by a nationally recognized statistical rating organization ("NRSRO") or are of
comparable quality as determined by Harbor, and which may be: (i)
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or (iii) collateralized by pools
of mortgages without a U.S. government guarantee as to payment of principal and
interest, but which have some form of credit enhancement.
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages. Once
REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interest." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. The Fund may invest
in asset-backed securities which, at the time of purchase, are rated in the top
four rating categories (investment grade ) by a NRSRO, including, but not
limited to, 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 securities (including ARMs, CMOs, and REMICs) and asset-backed
securities generally pay back principal and interest over the life of the
security. At the time the Fund reinvests the payments and any unscheduled
prepayments of principal received, the Fund may receive a rate of interest which
is actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-backed and asset-backed securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or the collateral
supporting asset-backed securities may be prepaid without penalty or premium.
Prepayment risks on mortgage-backed securities tend to increase during periods
of declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities. Furthermore, if mortgage-backed securities 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 mortgage-backed securities 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.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in U.S. dollar-denominated and foreign currency denominated
securities of foreign issuers. There may be certain risks associated with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, currency fluctuations, less uniformity in
accounting and reporting requirements, higher transaction costs and the
possibility that there will be less information on such securities and their
issuers available to the public. In addition, there are restrictions on foreign
investments in other jurisdictions and there tends to be difficulty in obtaining
judgments from abroad and affecting repatriation of capital invested abroad.
Delays could occur in settlement of foreign transactions, which could adversely
affect shareholder equity. Foreign securities may be subject to foreign taxes,
which reduce yield, and may be less marketable than comparable United States
securities. To the extent that securities purchased by the Fund are denominated
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value; the value of any interest earned,
gains and losses realized on the sale of securities; and net investment income
and capital gain, if any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of the
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
the Fund's assets in that currency will decrease. As a matter of practice, the
Fund will not invest in the securities of a foreign issuer if any risk
identified above appears to Harbor to be substantial.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell U.S.
government securities or other high quality, liquid securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions 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 prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities, which
may include restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objectives and
policies, but which are subject to restriction on resale under federal
securities laws. To the extent these securities are deemed to be illiquid, the
Fund will limit its purchases, together with other securities not determined by
the Directors to be liquid, to 15% of its net assets.
INVESTING IN SECURITIES OF
OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies. The Fund
will limit its investment in other investment companies to not more than 3% of
the total outstanding voting stock of any investment company, will invest no
more than 5% of its total assets in any one investment company, and will invest
no more than 10% of its total assets in investment companies in general. In
order to comply with certain state restrictions, the Fund will limit its
investment in securities of other open-end investment companies to those with
sales loads of less than 1.00% of the offering price of such securities. The
Fund will purchase securities of closed-end investment companies only in open
market transactions involving only customary brokers' commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. While it is a policy to
waive advisory fees on Fund assets invested in securities of other open-end
investment companies, it should be noted that investment companies incur certain
expenses such as custodian and transfer agency fees and, therefore, any
investment by the Fund in shares of another investment company would be subject
to such duplicate expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis or both up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which Harbor has determined are creditworthy under
guidelines established by the Corporation's Board of Directors and will receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the value of the securities loaned.
There is the risk that, when lending portfolio securities, the securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not own is
sold in anticipation of a decline in its price. If the decline occurs, shares
equal in number to those sold short can be purchased at the lower price. If the
price increases, the higher price must be paid. The purchased shares are then
returned to the original lender. Risk arises because no loss limit can be placed
on the transaction. When the Fund enters into a short sale, assets that are
equal to the market price of the securities sold short or any lesser price at
which the Fund can obtain such securities, are segregated on the Fund's records
and maintained until the Fund meets its obligations under the short sale.
The Fund will not sell securities short unless (1) it owns, or has a right to
acquire, an equal amount of such securities, or (2) it has segregated an amount
of its other liquid assets equal to the lesser of the market value of the
securities sold short or the amount required to acquire such securities. The
segregated amount will not exceed 20% of the Fund's net assets. While in a short
position, the Fund will retain the securities, rights, or segregated assets.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against fluctuations in value. The Fund may also write put and call options on
all or any portion of its portfolio securities to generate income for the Fund.
The Fund will write put and call options on securities either held in its
portfolio or for which the Fund has the right to obtain without payment of
further consideration or for which it has segregated cash in the amount of any
additional consideration. The Fund also may purchase call options on securities
to protect against price movements in particular securities which the Fund
intends to purchase. A call option gives the Fund, in return for a premium, the
right (but not the obligation) to buy the underlying security from the seller at
a pre-determined price.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on certain portfolio securities held by the Fund are not traded on
an exchange. The Fund purchases and writes options only with investment dealers
and other financial institutions (such as commercial banks or broker/dealers)
deemed creditworthy by Harbor.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
If the Fund does not exercise an option it has purchased, then the Fund loses in
value the price it paid for the option premium. If the Fund writes (sells) an
option which is subsequently exercised, the premium received by the Fund from
the option purchaser may not exceed the increase (in the case of a call option)
or decrease (in the case of a put option ) in the value of the securities
underlying the option, in which case the difference represents a loss for the
Fund. However, if the option expires without being exercised, the Fund realizes
a gain in the amount of the premium it received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial and stock index futures contracts to
attempt to hedge all or a portion of its portfolio against changes in interest
rates or economic market conditions. Financial futures contracts generally
require the delivery of particular debt instruments at a certain time in the
future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract, and the buyer agrees to take delivery of
the instrument at the specified future time. Stock index futures contracts
generally involve cash settlement rather than delivery of the stocks comprising
the index.
The Fund may also write call options and purchase put options on financial or
stock index futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of selling a futures contract
at a fixed price at any time during a specified period if the option is
exercised. Conversely, as purchaser of a put option on a futures contract, the
Fund is entitled (but not obligated) to sell a futures contract at the fixed
price during the life of the option.
Generally, the Fund may not purchase or sell futures contracts or related
options if immediately thereafter the sum of the amount of margin deposits on
the Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the Fund
purchases futures contracts, an amount of cash and cash equivalents equal to the
underlying commodity value of the futures contracts (less any related margin
deposits) will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS
When the Fund uses futures and options on futures as hedging devices, there is
a risk that the prices of the securities subject to the futures contracts may
not correlate with the prices of the securities in the Fund's portfolio. This
may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, Harbor could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In these events, the Fund may lose money on
the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although Harbor will consider liquidity
before entering into options transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any particular
futures contract or option at any particular time. The Fund's ability to
establish and close out futures and options positions depends on this secondary
market.
WARRANTS
The Fund has no present intent to invest more than 5% of its net assets in
warrants.
INVESTMENT RISKS
As with other mutual funds that invest in equity securities, the Fund is subject
to market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time, and the United States equity market
tends to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease.
With respect to the debt obligations which the Fund may purchase, their prices
move inversely to interest rates. A decline in market interest rates results in
a rise in the market prices of outstanding debt obligations. Conversely, an
increase in market interest rates results in a decline in market prices of
outstanding debt obligations. In either case, the amount of change in market
prices of debt obligations in response to changes in market interest rates
generally depends on the maturity of the debt obligations: the debt obligations
with the longest maturities will experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset value,
will fluctuate due to changes in economic conditions and other market factors
such as interest rates which are beyond the control of Harbor. Harbor could be
incorrect in its expectations about the direction or extent of these market
factors. Although debt obligations with longer maturities offer potentially
greater returns, they have greater exposure to market price fluctuation.
Consequently, to the extent the Fund is significantly invested in debt
obligations with longer maturities, there is a greater possibility of
fluctuation in the Fund's net asset value. However, Harbor will attempt to
minimize the fluctuation of the Fund's net asset value by predicting the
direction of interest rates.
INVESTMENT LIMITATIONS
The Fund will not:
.borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may borrow up to one-third of
the value of its total assets and pledge up to 15% of the value of its total
assets to secure such borrowings; and
.with respect to 75% of the value of its total assets, invest more than 5% of
its total assets in securities of one issuer other than cash, cash items, or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by
such securities, or acquire more than 10% of the voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Corporation's 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.
FUND MANAGEMENT,
DISTRIBUTION AND
ADMINISTRATION
BOARD OF DIRECTORS
THE FUND IS MANAGED BY A BOARD OF DIRECTORS.
The Directors are responsible for managing the business affairs for the Fund and
for exercising all the Fund's powers except those reserved for the shareholders.
INVESTMENT ADVISER AND
SUB-ADVISER
THE FUND IS MANAGED BY M&T BANK, PURSUANT TO AN
INVESTMENT ADVISORY AGREEMENT (THE "INVESTMENT
ADVISORY AGREEMENT") WITH THE CORPORATION. M&T BANK,
IN TURN, HAS ENTERED INTO A SUB-ADVISORY CONTRACT
(THE "SUB-ADVISORY CONTRACT") WITH HARBOR AND THE
CORPORATION.
It is M&T Bank's responsibility to select, subject to review and approval by the
Corporation's Board of Directors, a sub-adviser for the Fund that has
distinguished itself in its area of expertise in asset management and to review
the sub-adviser's continued performance.
Subject to the supervision and direction of the Corporation's Board of
Directors, M&T Bank provides investment management evaluation services
principally by performing initial due diligence on Harbor and thereafter
monitoring Harbor's performance through quantitative and qualitative analysis,
as well as periodic in-
person, telephonic and written consultations with Harbor. In evaluating Harbor,
M&T Bank considers, among other factors, Harbor's level of expertise; relative
performance and consistency of performance over a minimum period of time; level
of adherence to investment discipline or philosophy; personnel, facilities and
financial strength; and quality of service and client communications. M&T Bank
has responsibility for communicating performance expectations and evaluations to
Harbor and ultimately recommending to the Corporation's Board of Directors
whether Harbor's contract should be renewed, modified, or terminated. M&T Bank
provides written reports to the Board of Directors regarding the results of its
evaluation and monitoring functions. M&T Bank is also responsible for conducting
all operations of the Fund, except those operations contracted to Harbor, the
custodian, the transfer agent, and the administrator. Although Harbor's
activities are subject to oversight by the Corporation's Board of Directors and
the officers of the Corporation, neither the Board of Directors, the officers,
nor M&T Bank evaluates the investment merits of Harbor's individual security
selections. Harbor has complete discretion to purchase, manage and sell
portfolio securities for the Fund subject to the Fund's investment objective,
policies and limitations.
The Corporation, M&T Bank and Harbor have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes of the Corporation and
M&T Bank: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased or
sold, or being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Harbor's code also imposes many of
these restrictions. Violations of the codes are subject to review by the
Corporation's Board of Directors, and could result in severe penalties.
ADVISORY AND SUB-ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as investment
adviser, M&T Bank is entitled to receive a fee from the Fund, equal to an
annual rate of .70% of the Fund's average daily net assets. This fee is
computed daily and paid monthly. M&T Bank has agreed to pay all expenses it
incurs in connection with its advisory activities, other than the cost of
securities (including any brokerage commissions) purchased for the Fund. From
time to time, M&T Bank may voluntarily waive all or a portion of its advisory
fees in order to help the Fund maintain a competitive expense ratio or to meet
state limitations on expense ratios.
M&T Bank shall pay to Harbor, as compensation for Harbor's services, 0.50% per
annum of the Fund's average daily net assets up to $100 million and 0.40% of
such assets in excess thereof. This fee is computed daily and paid monthly. From
time to time, Harbor may voluntarily waive all or a portion of its fee charged
to M&T Bank, and may terminate any such voluntary waiver at any time in its sole
discretion.
ADVISER'S BACKGROUND
M&T Bank is the principal banking subsidiary of First Empire State Corporation,
a $12 billion bank holding company, as of December 31, 1995, headquartered in
Buffalo, New York. M&T Bank (consolidated) had $10.2 billion in assets, as of
December 31, 1995, has 121 offices throughout Western New York State and New
York's Southern Tier, 22 offices in the Hudson Valley region of New York State,
plus offices in New York City, Albany, Syracuse, and Nassau, The Bahamas. First
Empire State Corporation also owns The East New York Savings Bank, which, as of
December 31, 1995, has 16 offices throughout metropolitan New York City.
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, 1995, M&T Bank had $1.8
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 of December 31, 1995, M&T Bank managed over $884
million in assets of the Corporation's money market funds. As part of its
regular banking operations, M&T Bank may make loans to public companies. Thus,
it may be possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of M&T Bank. The lending
relationship will not be a factor in the selection of securities.
SUB-ADVISER'S BACKGROUND
Harbor Capital Management Company, Inc., 125 High Street, Boston, Massachusetts
02110-2701, is an investment management firm which has been providing counsel to
both individuals and institutions, including endowment funds, foundations and
pension and profit-sharing trusts since 1979. As of March 31, 1996, Harbor
Capital Management had $4.3 billion in assets under management. Harbor has
served as investment adviser to Keystone Precious Metals Holdings, Inc., an
open-end management investment company, since Harbor's inception in 1979.
PORTFOLIO MANAGEMENT TEAM
The Fund is managed by two persons, Alan S. Fields and William S. Peck, CFA, who
have been involved in managing the Fund since its inception.
Alan S. Fields joined Harbor in 1979 as Managing Director. In 1993, Alan S.
Fields assumed the position of Chairman, Executive Committee & Managing
Director, Harbor Capital Management Co., Inc. Mr. Fields obtained his A.B. and
M.B.A. from the University of North Carolina.
William S. Peck, CFA joined Harbor in 1987 as Vice President & Portfolio
Manager. In 1995, he was promoted to Managing Director and in 1996, he was
promoted to Chief Operating Officer and member of the Executive Committee. Mr.
Peck came to Harbor from Gardner & Preston Moss where he served as Assistant
Vice President, Portfolio Manager and Research Analyst. Mr. Peck received his
B.A. from Yale University, M.A. from Middlebury College and his M.B.A. from
Boston University.
DISTRIBUTION OF FUND SHARES
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-1 promulgated under the Investment Company Act of 1940, the Fund may
pay to the distributor an amount computed at an annual rate of 0.25% of the
Fund's average daily net assets to finance any activity which is principally
intended to result in the sale of shares subject to the Plan. The distributor
may from time to time and for such periods as it deems appropriate, voluntarily
reduce its 12b-1 compensation under the Plan to the extent the expenses
attributable to shares of the Fund exceed such lower expense limitation as the
distributor may, by notice to the Corporation, voluntarily declare to be
effective. The Fund has no present intention of paying or accruing 12b-1 fees
during the fiscal year ending April 30, 1997.
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 and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, or custodian to such an
investment company or from purchasing shares of such company as agent for and
upon the order of their customers.
Some entities providing services to the Fund are subject to such banking laws
and regulations. They believe that they may perform those services for the Fund
contemplated by any agreement entered into with the Fund without violating those
laws or regulations. Changes in either federal or state statutes and regulations
relating to the permissable activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
these entities from continuing to perform all or a part of the above services.
If this happens, the Corporation's Board of Directors would consider alternative
means of continuing available services. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
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 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.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings banks)
to provide administrative services that are not provided by Federated
Administrative Services (see below). These administrative services include
distributing prospectuses and other information, providing accounting assistance
and shareholder communications, or otherwise facilitating shareholder purchases
and redemptions (sales) of Fund shares. The administrators appointed could
include affiliates of the advisers.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. If the distributor pays any fees for these services, the fees will be
reimbursed by one of the advisers and not the Fund.
ADMINISTRATION OF THE FUND
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF
FEDERATED INVESTORS, PROVIDES THE FUND WITH CERTAIN
ADMINISTRATIVE PERSONNEL AND SERVICES NECESSARY TO
OPERATE THE FUND.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as specified
below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC.
<C> <S>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any year shall be at least $50,000 for
the Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, Harbor looks for prompt execution of the order at a favorable
price. In working with dealers, Harbor will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, Harbor may give consideration to those firms
which have sold or are selling shares of the Fund and other funds distributed by
Federated Securities Corp. Harbor makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Corporation's Board of
Directors and M&T Bank.
YOUR GUIDE
TO USING
THE FUND
HOW THE FUND VALUES
ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE FLUCTUATES.
The net asset value for the Fund's shares is determined by adding the market
value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund and dividing the remainder by the total number of the
Fund's shares outstanding.
MINIMUM INITIAL INVESTMENT
The minimum initial investment in the Fund is $500, unless the investment is in
a retirement plan, in which case the minimum initial investment is $250.
Subsequent investments must be in amounts of at least $25. In addition, the
minimum initial and subsequent investment amounts may be waived or lowered from
time to time, such as for customers participating in the automatic investment
services described below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE CONCESSION
AS SALES CHARGE AS A
A PERCENTAGE AS A PERCENTAGE
OF PUBLIC PERCENTAGE OF PUBLIC
AMOUNT OF OFFERING OF NET AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than
$50,000......... 5.50% 5.82% 5.00%
$50,000 but less
than $100,000... 4.25% 4.44% 3.75%
$100,000 but less
than $250,000... 3.25% 3.36% 2.75%
$250,000 but less
than $500,000... 2.25% 2.30% 2.00%
$500,000 but less
than $1
million......... 2.00% 2.04% 1.75%
$1 million or
more............ 0.00% 0.00% 0.00%
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected;
(ii) days during which no shares are tendered
for redemption 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-type 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 $1 million or more.
The distributor, M&T Bank, Harbor, or affiliates thereof, at their own expense
and out of their own assets, may also provide other compensation to financial
institutions in connection with sales of shares of the Fund or as financial
assistance for providing substantial marketing, sales and operational support.
Compensation may include, but is not limited to, financial assistance to
financial institutions in connection with conferences, sales, or training
programs for their employees, seminars for the public, advertising or sales
campaigns, or other special events. In some instances, this compensation may be
predicated upon the amount of shares sold and/or upon the type and nature of
sales or operational support they furnish. Dealers may not use sales of the
Corporation's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
other compensation shall be paid for by the Corporation, the Fund, or its
shareholders, nor will it change the price paid by investors for the purchase of
Fund shares.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased, subject to applicable law and regulation
from time to time, at net asset value, without a sales charge, by the following
investors, their spouses and their immediate relatives: (i) current and retired
employees and directors of M&T Bank, The East New York Savings Bank, First
Empire State Corporation and their subsidiaries; (ii) current and former
Directors of the Corporation; (iii) clients of the Trust & Investment Services
Division of M&T Bank; (iv) employees (including registered representatives) of a
dealer which has a selling group agreement with the Fund's distributor and
consents to such purchases; (v) current and retired employees of any sub-adviser
to the Vision Group of Funds, Inc.; and (vi) investors referred by any
sub-adviser to the Vision Group of Funds, Inc. Immediate relatives include
grandparents, parents, siblings, children, and grandchildren of a qualified
investor, and the spouse of any immediate relative.
Shares of the Fund may also be purchased, subject to applicable law and
regulation from time to time, at net asset value, without a sales charge, by
employees of clients of the Trust & Investment Services and Commercial Lending
Divisions of M&T Bank within an automatic deduction program. 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.
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
OR ANNUITIES
Investors may purchase shares of the Fund at net asset value, without a sales
charge, with the proceeds from either: (i) the redemption of shares of a mutual
fund which was sold with a sales charge or commission; or (ii) fixed or variable
rate annuities. 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 under "What Fund Shares Cost," 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 the rate imposed on a
$110,000 investment, not the rate imposed on a $40,000 investment.
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 $50,000 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
5.50% of the total amount intended to be purchased in escrow (in shares of the
Fund) until such purchase is completed.
The 5.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period, unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time right
to reinvest, within 90 days, the redemption proceeds in the Fund at the
next-determined net asset value without any sales charge. M&T Bank's Mutual Fund
Services or the distributor must be notified by the shareholder in writing or by
the shareholder's financial institution of the reinvestment in order to
eliminate the sales charge. If the shareholder redeems his or her shares in the
Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Vision
Group of Funds, Inc., the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $70,000 in one of the funds with
a sales charge, and $40,000 in another fund with a sales charge, the sales
charge imposed on each purchase would be reduced to the sales charge rate in
effect for a $110,000 investment in the respective fund.
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, (such as The East New York Savings Bank ("East New York")), 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. ("M&T Securities") at M&T Bank and East New York locations, as
well as at separate M&T Securities locations, or by calling 1-800-724-5445. M&T
Securities (member NASD and SIPC) is a wholly-owned registered broker-dealer
subsidiary of M&T Bank.
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 or any representative of M&T
Securities before 4:00 p.m. (Eastern time) to place your order. The order is
considered immediately received, provided payment by federal funds is received
before 3:00 p.m. (Eastern time) the next business day.
BUYING SHARES BY MAIL
To buy shares of the Fund for the first time by mail, complete and sign an
account application form and mail it, together with a check made payable to
"Vision Growth and Income Fund" in an amount of $500 or more, to the address
below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York, 14240-4556
Current shareholders can purchase shares by mail by sending a check to the same
address. Orders by mail are considered received after payment by check has been
converted into federal funds. This is normally the next business day after the
check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account, you
must maintain a checking or NOW deposit account at M&T Bank or any of its
affiliate banks. To place an order, call M&T Bank's Mutual Fund Services or any
representative of M&T Securities before 4:00 p.m. (Eastem time). The money will
be transferred from your checking or NOW deposit account to your Fund account by
the next business day and your purchase of shares will be effected on the day
the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about the
services provided, the fees charged for those services, and any restrictions
and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a regular
basis in amounts of $25 or more through automatic deductions from your checking
or NOW deposit account. The money may be withdrawn periodically and invested in
Fund shares at the next net asset value calculated after your order is received
plus any applicable sales charge. To sign up for this program, please call M&T
Bank's Mutual Fund Services for an application.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays dividends quarterly. Capital gains realized by the
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains will be automatically reinvested in additional shares of the Fund
on payment dates at the ex-dividend date's net asset value without a sales
charge, unless payments are requested by writing to the Fund or M&T Bank's
Mutual Fund Services. Dividends and capital gains can also be reinvested in
shares of any other fund comprising the Vision Group of Funds, Inc., subject to
any applicable investment requirements.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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. Federated Shareholder
Services Company is a subsidiary of Federated Investors.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Confirmations are sent to shareholders of the Fund to report
dividends paid during the quarter.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS
OF VISION GROUP OF FUNDS, INC. AND HAVE ACCESS TO THE
OTHER FUNDS IN THE CORPORATION (REFERRED TO AS "PAR-
TICIPATING FUNDS") THROUGH AN EXCHANGE PROGRAM. YOU
MAY EXCHANGE SHARES OF THE FUND FOR SHARES OF OTHER
PARTICIPATING FUNDS AT NET ASSET VALUE, PLUS ANY
APPLICABLE SALES CHARGE.
When exchanging into and out of Participating Funds with a sales charge and
Participating Funds without a sales charge, shareholders who have paid a sales
charge once upon purchasing shares of any Participating Fund, including those
shares acquired by the reinvestment of dividends, will not have to pay a sales
charge again on an exchange, unless the Participating Fund imposes a higher
sales charge. When exchanging into and out of Participating Funds with different
sales charges, exchanges are made at net asset value, plus the difference
between the sales charge already paid and any sales charge of the Participating
Fund into which the shares are to be exchanged, if higher. Shares of
Participating Funds with no sales charge acquired by direct purchase may be
exchanged for shares of other Participating Funds with a sales charge at net
asset value plus the applicable sales charge. However, shares of Participating
Funds with no sales charge that were acquired by the reinvestment of dividends
will not be subject to a sales charge upon an exchange into shares of a
Participating Fund with a sales charge. Instead, such exchanges will be made at
net asset value.
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 the
"Signature Guarantees" section later in this prospectus for more information
about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a short
or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege at any
time. Shareholders will be notified prior to any modification or termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services at the number listed below.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's Mutual
Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-4488). To sign
up for telephone exchanges, you must select the telephone exchange option on the
new account application. It is recommended that you request this privilege on
your initial application. If you do not and later wish to take advantage of
telephone exchanges, you may call M&T Bank's Mutual Fund Services for
authorization forms.
You can only exchange shares by telephone between fund accounts with identical
shareholder registrations (names, addresses, and taxpayer identification
numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated Shareholder
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 Shareholder 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. (Eastem 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 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 subject
to sales charge, it may not be advisable for shareholders to be purchasing
shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the Fund may
redeem your shares and send you the proceeds if your account balance falls below
a minimum value of $250 due to shareholder redemptions. Shareholders who make
large or frequent withdrawals may be particularly vulnerable to this involuntary
redemption process. However, before shares are redeemed to close an account, the
shareholder will be notified in writing and given 30 days to purchase additional
shares to meet the minimum balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate to
do so in light of the Fund's responsibilities under the Investment Company Act
of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS
FOR THE FUND. NO ATTEMPT HAS BEEN MADE TO PRESENT A
DETAILED EXPLANATION OF THE INCOME TAX TREATMENT OF
THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS
NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING.
The tax consequences discussed here apply whether you receive dividends in cash
or reinvest them in additional shares. The Fund will send you tax information
annually regarding the federal income tax consequences of distributions made
during the year. You should definitely consult your own tax adviser about any
state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax purposes.
Income eamed 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 seven available portfolios: Vision Money Market Fund,
Vision Treasury Money Market Fund, Vision New York Tax-Free Money Market Fund,
Vision U.S. Government Securities Fund, Vision Growth & Income Fund, Vision New
York Tax-Free Fund and Vision Capital Appreciation 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 Corporation'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
requires that shareholders vote by class.) As of May 31, 1996, Tice & Co.,
Buffalo, New York, acting in various capacities for numerous accounts, was the
owner of record of 41.71% 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. That law requires a vote of the shareholders to approve changes in the
Fund's investment advisory agreements, to replace the Fund's independent
certified public accountants and, under certain circumstances, to elect members
to the Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a vote of
shareholders at a special meeting. The Corporation's 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices. The Fund may advertise its performance in
terms of yield and total return, as defined below. Of course, yield and total
return figures are based on past results and are not an indication of future
performance.
YIELD
The yield of the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
TOTAL RETURN
The average annual total return of the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
VISION GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ---------- ------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--94.2%
- -------------------------------------------------------------------------------------------------------
AUTOMOBILE--3.2%
-------------------------------------------------------------------------------------------
20,000 Chrysler Corp. $ 1,255,000
-------------------------------------------------------------------------------------------
18,000 Honda Motor Company, Ltd. 814,500
------------------------------------------------------------------------------------------- -------------
Total 2,069,500
------------------------------------------------------------------------------------------- -------------
BANKING--6.3%
-------------------------------------------------------------------------------------------
36,000 Chase Manhattan Corp. 2,479,500
-------------------------------------------------------------------------------------------
21,000 Citicorp 1,653,750
------------------------------------------------------------------------------------------- -------------
Total 4,133,250
------------------------------------------------------------------------------------------- -------------
BROADCASTING--1.6%
-------------------------------------------------------------------------------------------
25,000 *Viacom, Inc. (non-voting) 1,025,000
------------------------------------------------------------------------------------------- -------------
CHEMICALS--3.2%
-------------------------------------------------------------------------------------------
20,600 Hercules, Inc. 1,246,300
-------------------------------------------------------------------------------------------
22,000 Praxair, Inc. 849,750
------------------------------------------------------------------------------------------- -------------
Total 2,096,050
------------------------------------------------------------------------------------------- -------------
CONSUMER GOODS-RETAIL--3.7%
-------------------------------------------------------------------------------------------
24,000 Home Depot, Inc. 1,137,000
-------------------------------------------------------------------------------------------
49,414 Mattel, Inc. 1,284,757
------------------------------------------------------------------------------------------- -------------
Total 2,421,757
------------------------------------------------------------------------------------------- -------------
DEFENSE--3.9%
-------------------------------------------------------------------------------------------
16,000 Boeing Co. 1,314,000
-------------------------------------------------------------------------------------------
19,500 General Dynamics Corp. 1,230,938
------------------------------------------------------------------------------------------- -------------
Total 2,544,938
------------------------------------------------------------------------------------------- -------------
DRUGS--6.2%
-------------------------------------------------------------------------------------------
17,500 Bristol-Myers Squibb Co. 1,439,375
-------------------------------------------------------------------------------------------
16,000 Johnson & Johnson 1,480,000
-------------------------------------------------------------------------------------------
16,000 Pfizer, Inc. 1,102,000
------------------------------------------------------------------------------------------- -------------
Total 4,021,375
------------------------------------------------------------------------------------------- -------------
ELECTRONICS--2.3%
-------------------------------------------------------------------------------------------
19,000 General Electric Co. 1,472,500
------------------------------------------------------------------------------------------- -------------
ENERGY--3.6%
-------------------------------------------------------------------------------------------
7,000 Atlantic Richfield Company 824,250
-------------------------------------------------------------------------------------------
4,500 Royal Dutch Petroleum Co., ADR 644,625
-------------------------------------------------------------------------------------------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ---------- ------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------------
ENERGY--CONTINUED
-------------------------------------------------------------------------------------------
10,000 Texaco, Inc. $ 855,000
------------------------------------------------------------------------------------------- -------------
Total 2,323,875
------------------------------------------------------------------------------------------- -------------
ENTERTAINMENT--2.3%
-------------------------------------------------------------------------------------------
24,000 Walt Disney Co. 1,488,000
------------------------------------------------------------------------------------------- -------------
FOOD AND BEVERAGE--1.4%
-------------------------------------------------------------------------------------------
11,000 Coca Cola Co. 896,500
------------------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--5.2%
-------------------------------------------------------------------------------------------
13,000 Georgia-Pacific Corp. 1,010,750
-------------------------------------------------------------------------------------------
19,000 Kimberly-Clark Corp. 1,379,875
-------------------------------------------------------------------------------------------
18,000 Mead Corp. 1,001,250
------------------------------------------------------------------------------------------- -------------
Total 3,391,875
------------------------------------------------------------------------------------------- -------------
HEALTH CARE--1.8%
-------------------------------------------------------------------------------------------
20,000 United Healthcare Corp. 1,170,000
------------------------------------------------------------------------------------------- -------------
INDUSTRIAL PRODUCTS--1.9%
-------------------------------------------------------------------------------------------
20,000 *Thermo Electron Corp. 1,232,500
------------------------------------------------------------------------------------------- -------------
INSURANCE--4.4%
-------------------------------------------------------------------------------------------
29,800 Allmerica Financial Corp. 774,800
-------------------------------------------------------------------------------------------
11,500 American International Group, Inc. 1,050,813
-------------------------------------------------------------------------------------------
40,000 GCR Holdings, Ltd. 1,020,000
------------------------------------------------------------------------------------------- -------------
Total 2,845,613
------------------------------------------------------------------------------------------- -------------
MANUFACTURING--3.3%
-------------------------------------------------------------------------------------------
13,000 Eastman Kodak Co. 994,500
-------------------------------------------------------------------------------------------
11,000 Harsco Corp. 757,625
-------------------------------------------------------------------------------------------
6,000 Illinois Tool Works, Inc. 403,500
------------------------------------------------------------------------------------------- -------------
Total 2,155,625
------------------------------------------------------------------------------------------- -------------
MINING--1.0%
-------------------------------------------------------------------------------------------
17,000 Euro-Nevada Mining Corp. 636,798
------------------------------------------------------------------------------------------- -------------
MORTGAGE--2.2%
-------------------------------------------------------------------------------------------
48,000 Federal National Mortgage Association 1,470,000
------------------------------------------------------------------------------------------- -------------
OIL & GAS--5.9%
-------------------------------------------------------------------------------------------
40,000 Enron Corp. 1,610,000
-------------------------------------------------------------------------------------------
17,500 *Triton Energy Corp. 962,500
-------------------------------------------------------------------------------------------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ---------- ------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------------
OIL & GAS--CONTINUED
-------------------------------------------------------------------------------------------
40,000 Unocal Corp. $ 1,285,000
------------------------------------------------------------------------------------------- -------------
Total 3,857,500
------------------------------------------------------------------------------------------- -------------
PACKAGING--1.5%
-------------------------------------------------------------------------------------------
21,000 Crown Cork and Seal 989,625
------------------------------------------------------------------------------------------- -------------
REAL ESTATE--5.7%
-------------------------------------------------------------------------------------------
33,000 Beacon Properties Corp. 845,625
-------------------------------------------------------------------------------------------
29,000 Equity Residential Properties Trust 935,250
-------------------------------------------------------------------------------------------
48,000 Nationwide Health Properties, Inc. 954,000
-------------------------------------------------------------------------------------------
29,000 Post Properties, Inc. 975,125
------------------------------------------------------------------------------------------- -------------
Total 3,710,000
------------------------------------------------------------------------------------------- -------------
TECHNOLOGY--11.3%
-------------------------------------------------------------------------------------------
15,000 *BMC Software, Inc. 913,125
-------------------------------------------------------------------------------------------
16,000 *Cisco Systems, Inc. 830,000
-------------------------------------------------------------------------------------------
12,000 *Computer Sciences Corp. 888,000
-------------------------------------------------------------------------------------------
17,000 International Business Machine 1,827,500
-------------------------------------------------------------------------------------------
8,000 Hewlett Packard Co. 847,000
-------------------------------------------------------------------------------------------
18,000 *Microsoft Corp. 2,040,750
------------------------------------------------------------------------------------------- -------------
Total 7,346,375
------------------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS--8.7%
-------------------------------------------------------------------------------------------
15,000 Ameritech Corp. 875,625
-------------------------------------------------------------------------------------------
13,000 A T & T Corp. 796,250
-------------------------------------------------------------------------------------------
33,000 Ericsson (LM) Telephone Co., ADR 672,375
-------------------------------------------------------------------------------------------
27,000 GTE Corp. 1,171,125
-------------------------------------------------------------------------------------------
20,000 *Lucent Technologies, Inc. 702,500
-------------------------------------------------------------------------------------------
16,000 Motorola, Inc. 980,000
-------------------------------------------------------------------------------------------
13,500 Nokia Corp., ADR 491,062
------------------------------------------------------------------------------------------- -------------
Total 5,688,937
------------------------------------------------------------------------------------------- -------------
TEXTILES--1.5%
-------------------------------------------------------------------------------------------
36,000 Warnaco Group Inc. 945,000
------------------------------------------------------------------------------------------- -------------
WHOLESALE--2.1%
-------------------------------------------------------------------------------------------
24,100 Alco Standard Corp. 1,394,787
------------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $50,221,132) 61,327,380
------------------------------------------------------------------------------------------- -------------
</TABLE>
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ---------- ------------------------------------------------------------------------------------------- -------------
CONVERTIBLE PREFERRED STOCKS--3.9%
- -------------------------------------------------------------------------------------------------------
FINANCIAL--3.6%
-------------------------------------------------------------------------------------------
12,000 Morgan Stanley Group, Inc. $ 640,500
-------------------------------------------------------------------------------------------
10,000 Sunamerica, Inc. 727,500
-------------------------------------------------------------------------------------------
11,000 Travelers, Inc. 929,500
------------------------------------------------------------------------------------------- -------------
Total 2,297,500
------------------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS--0.3%
-------------------------------------------------------------------------------------------
4,000 *Telecomunicacoes Brasileiras, ADR 216,500
------------------------------------------------------------------------------------------- -------------
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST, $2,207,184) 2,514,000
------------------------------------------------------------------------------------------- -------------
MONEY MARKET MUTUAL FUND SHARES--1.4%
- -------------------------------------------------------------------------------------------------------
914,386 Seven Seas Money Market Fund (at net asset value) 914,386
------------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $53,342,702) $ 64,755,766+
------------------------------------------------------------------------------------------- -------------
</TABLE>
* Non-income producing.
+ The cost of investments for federal tax purposes amounts to $53,559,485. The
net unrealized appreciation of investments on a federal tax basis amounts to
$11,196,281 which is comprised of $11,446,954 appreciation and $250,673
depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($65,118,668) at
April 30, 1996.
The following abbreviation is used in this portfolio:
ADR--American Depositary Receipts
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost and value
(identified cost $53,342,702, tax cost $53,559,485) $ 64,755,766
- ---------------------------------------------------------------------------------------------------------
Cash 20,900
- ---------------------------------------------------------------------------------------------------------
Income receivable 117,267
- ---------------------------------------------------------------------------------------------------------
Receivable for capital stock sold 224,515
- ---------------------------------------------------------------------------------------------------------
Deferred expenses 5,792
- --------------------------------------------------------------------------------------------------------- -------------
Total assets 65,124,240
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------------
Accrued expenses 5,572
- --------------------------------------------------------------------------------------------------------- -------------
Net Assets for 4,879,536 shares outstanding $ 65,118,668
- --------------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------
Paid-in capital $ 52,074,329
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 11,413,064
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 1,544,770
- ---------------------------------------------------------------------------------------------------------
Undistributed net investment income 86,505
- --------------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 65,118,668
- --------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share ($65,118,668 / 4,879,536 shares outstanding)
$13.35
- --------------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/95.50 of $13.35)* $13.98
- --------------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Fund Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------------
Dividends $ 1,053,110
- ----------------------------------------------------------------------------------------------------------
Interest 96,275
- ---------------------------------------------------------------------------------------------------------- -------------
Total investment income 1,149,385
- ----------------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------
Investment advisory fee $ 358,050
- ----------------------------------------------------------------------------------------------
Administrative personnel and services fee 58,037
- ----------------------------------------------------------------------------------------------
Custodian fees 31,136
- ----------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 38,137
- ----------------------------------------------------------------------------------------------
Directors' fees 6,228
- ----------------------------------------------------------------------------------------------
Auditing fees 11,985
- ----------------------------------------------------------------------------------------------
Legal fees 5,581
- ----------------------------------------------------------------------------------------------
Portfolio accounting fees 39,901
- ----------------------------------------------------------------------------------------------
Capital stock registration costs 17,327
- ----------------------------------------------------------------------------------------------
Printing and postage 16,449
- ----------------------------------------------------------------------------------------------
Taxes 3,588
- ----------------------------------------------------------------------------------------------
Insurance premiums 4,040
- ----------------------------------------------------------------------------------------------
Miscellaneous 3,601
- ---------------------------------------------------------------------------------------------- ----------
Total expenses 594,060
- ----------------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 541
- ---------------------------------------------------------------------------------------------- ----------
Net expenses 593,519
- ---------------------------------------------------------------------------------------------------------- -------------
Net investment income 555,866
- ---------------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------------
Net realized gain on investments 3,963,102
- ----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 8,253,407
- ---------------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments 12,216,509
- ---------------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 12,772,375
- ---------------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------------
Net investment income $ 555,866 $ 664,314
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($1,761,551 net gain and $654,754 net loss,
respectively, as computed for federal tax purposes) 3,963,102 (2,190,917)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 8,253,407 3,816,948
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 12,772,375 2,290,345
- -------------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------------------
Distributions from net investment income (473,581) (680,851)
- -------------------------------------------------------------------------------------- ------------- -------------
CAPITAL STOCK TRANSACTIONS--
- --------------------------------------------------------------------------------------
Proceeds from sale of shares 17,414,577 16,862,460
- --------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 243,366 368,130
- --------------------------------------------------------------------------------------
Cost of shares redeemed (4,195,783) (2,426,603)
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from capital stock transactions 13,462,160 14,803,987
- -------------------------------------------------------------------------------------- ------------- -------------
Change in net assets 25,760,954 16,413,481
- --------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------
Beginning of period 39,357,714 22,944,233
- -------------------------------------------------------------------------------------- ------------- -------------
End of period (including undistributed net investment income
of $86,505 and $4,220, respectively) $ 65,118,668 $ 39,357,714
- -------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VISION GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Vision Group of Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of seven portfolios. The
financial statements included herein are only those of Vision Growth and Income
Fund (the "Fund"), a diversified portfolio which seeks long-term growth of
capital and income. 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.
(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. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the prices provided by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Directors (the
"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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
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
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
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.
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 its 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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At April 30, 1996, there were 1,000,000,000 shares of $0.001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
Shares sold 1,412,452 1,698,381
- -------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 19,938 37,166
- -------------------------------------------------------------------------------------------
Shares redeemed (353,723) (245,491)
- ------------------------------------------------------------------------------------------- ---------- ----------
Net change resulting from capital stock transactions 1,078,667 1,490,056
- ------------------------------------------------------------------------------------------- ---------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Manufacturers and Traders Trust Company, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70% of the Fund's average daily net assets.
The Adviser has entered into a sub-advisory contract with Harbor Capital
Management Company, Inc. (the "Sub-Adviser). The Adviser shall pay Sub-Adviser
up to 0.50% of the Fund's average daily net assets up to $100 million and 0.40%
of such assets in excess thereof. The Adviser and Sub-Adviser may voluntarily
choose to waive a portion or all of their fees. The Adviser and Sub-Adviser can
modify or terminate this voluntary waiver at any time at their sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS 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 SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. 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 0.25% of the average daily net assets of the Fund, annually, to
compensate FSC. The Fund did not pay or accrue distribution expenses during the
year ended April 30, 1996.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company,
serves as transfer and dividend
VISION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
disbursing agent for the Fund for which it receives a fee. The fee paid to FServ
is based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses of $18,626 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following November 2, 1993 ( date the Fund became
effective). For the year ended April 30, 1996, the Fund paid $3,083 pursuant to
this agreement.
GENERAL--Certain of the Officers 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
year ended April 30, 1996, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 51,300,785
- ------------------------------------------------------------------------------------------------------- -------------
SALES $ 38,522,961
- ------------------------------------------------------------------------------------------------------- -------------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
VISION GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Vision
Growth and Income Fund (a portfolio of Vision Group of Funds, Inc.), including
the portfolio of investments, as of April 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and financial highlights for each
of the periods presented therein. 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 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 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, 1996, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Vision
Growth and Income Fund of Vision Group of Funds, Inc., at April 30, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the periods presented therein, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 14, 1996
ADDRESSES
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
SUB-ADVISER
Harbor Capital Management Company, Inc.
125 High Street
Boston, Massachusetts 02110-2701
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
40
Vision
Growth and Income
Fund
---------------------------------------------
Prospectus dated
June 30, 1996
[VISION LOGO]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS
TRUST COMPANY
---------------------------------------
Investment Adviser
Federated Investors Tower A subsidiary of First Empire State
Pittsburgh, PA 15222-3779 Corporation
HARBOR CAPITAL MANAGEMENT
Federated Securities Corp. COMPANY, INC.
is the distributor of the ---------------------------------------
fund and is a subsidiary Sub-Adviser
of Federated Investors.
92830F604
3100401A (6/96)
TR3100401A (6/96)
VISION GROWTH AND INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus of
one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Growth and Income Fund (the "Fund") dated June 30, 1996.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 1996. This Statement of Additional Information is
incorporated into the Fund's prospectus by reference. To receive a copy
of the prospectus, or a paper copy of this Statement of Additional
Information, if you have received it electronically, write to Vision
Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of
Additional Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1996
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 4
INVESTMENT OBJECTIVE 4
INVESTMENT POLICIES 4
ACCEPTABLE INVESTMENTS 4
Corporate Debt Obligations 4
Zero Coupon Bonds 5
U.S. Government Securities 6
Mortgage-Backed Securities 6
Money Market Instruments 8
Securities of Foreign Issuers 9
Repurchase Agreements 10
When-Issued and Delayed Delivery
Transactions 11
Illiquid and Restricted Securities 11
Lending of Portfolio Securities 13
Reverse Repurchase Agreements 13
Futures and Options Transactions 14
Warrants 22
Portfolio Turnover 23
INVESTMENT LIMITATIONS 23
VISION GROUP OF FUNDS, INC. MANAGEMENT 29
Fund Ownership 33
Directors' Compensation 33
Director Liability 34
INVESTMENT ADVISORY SERVICES 35
Investment Adviser and Sub-Adviser 35
Advisory and Sub-Advisory Fees 37
OTHER SERVICES 38
Administrative Services 38
Custodian and Portfolio Accountant 38
Transfer Agent and Dividend Disbursing
Agent 39
Independent Auditors 39
BROKERAGE TRANSACTIONS 39
DESCRIPTION OF FUND SHARES 41
HOW TO BUY SHARES 43
Conversion to Federal Funds 43
HOW THE FUND VALUES ITS SHARES 43
HOW TO REDEEM SHARES 44
Redemption in Kind 44
DETERMINING NET ASSET VALUE 45
TAX STATUS 45
The Fund's Tax Status 45
Shareholders' Tax Status 45
TOTAL RETURN 46
YIELD 46
PERFORMANCE COMPARISONS 47
Economic and Market Information 52
APPENDIX 53
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Vision Group of Funds, Inc. (the
"Corporation"). The Corporation was established as a Maryland Corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE
The investment objective of the Vision Growth and Income Fund (the "Fund")
is to provide long term growth of capital and income. The investment
objective of the Fund cannot be changed without approval of its
shareholders.
INVESTMENT POLICIES
The prospectus discusses the Fund's investment policies. Supplemental
information is set out below concerning the types of securities and other
instruments in which the Fund may invest, the investment policies and
strategies that the Fund may utilize, and certain risks attendant to those
investments, policies and strategies.
ACCEPTABLE INVESTMENTS
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations. Corporate debt
obligations may bear fixed, fixed and contingent, or variable rates of
interest. They may involve equity features such as conversion or exchange
rights, warrants for the acquisition of common stock of the same or a
different issuer, participations based on revenues, sales, or profits, or
the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt obligations, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate under
such terms, conditions, and limitations as are described in each issuer's
prospectus.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which may be in the form of zero
coupon convertible securities. Zero coupon bonds are debt securities which
are issued at a discount to their face amount and do not entitle the holder
to any periodic payments of interest prior to maturity. Rather, interest
earned on zero coupon bonds accretes at a stated yield until the security
reaches its face amount at maturity. Zero coupon convertible securities are
convertible into a specific number of shares of the issuer's common stock.
Zero coupon convertible bonds usually have put features that provide the
holder with the opportunity to put the bonds back to the issuer at a stated
price before maturity. Generally, the prices of zero coupon bonds may be
more sensitive to market interest rate fluctuations than conventional debt
securities.
Federal income tax law requires the holder of a zero coupon bond to
recognize income from the security prior to the receipt of cash payments.
To maintain its qualification as regulated investment companies and avoid
liability of federal income taxes, the Fund will be required to distribute
income accrued from zero coupon bonds which the Fund owns, and may have to
sell portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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:
o Farm Credit Banks;
o The Student Loan Marketing Association;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation; and
o Federal National Mortgage Association.
MORTGAGE-BACKED SECURITIES
Privately issued mortgage-related securities which the Fund may purchase
generally represent an ownership interest in federal agency mortgage pass-
through securities such as those issued by Governmental National Mortgage
Association. The terms and characteristics of the mortgage instruments may
vary among pass-through mortgage loan pools. The market for such mortgage-
related securities has expanded considerably since its inception. The size
of the primary issuance market and the active participation in the
secondary market by securities dealers and other investors makes
government-related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the
Fund may invest generally are readjusted at intervals of one year or
less to an increment over some predetermined interest rate index.
There are two main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such as a cost
of funds index or a moving average of mortgage rates. Commonly
utilized indices include the one-year and five-year constant maturity
Treasury Note rates, the three-month Treasury Bill rate, the 180-day
Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant
maturity Treasury Note rate, closely mirror changes in market interest
rate levels. Other tend to lag changes in market rate levels and tend
to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate
changes than a fixed rate debt security of the same stated maturity.
Hence, adjustable rate mortgage securities which use indices that lag
changes in market rates should experience greater price volatility
than adjustable rate mortgage securities that closely mirror the
market. Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to
correspondingly increased price volatility. In the event the Fund
purchases such residual interest mortgage securities, it will factor
in the increased interest and price volatility of such securities when
determining its dollar-weighted average duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and
REMICs in which the Fund invests will frequently have caps and floors
which limit the maximum amount by which the loan rate to the
residential borrower may change up or down: (1) per reset or
adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may
result in negative amortization.
The value of mortgage securities in which the Fund invests may be
affected if market interest rates rise or fall faster and farther than
the allowable caps or floors on the underlying residential mortgage
loans. Additionally, even though the interest rates on the underlying
residential mortgages are adjustable, amortization and prepayments may
occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities
stated in the underlying mortgages.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
oinstruments 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;
ocommercial paper rated, at the time of purchase, not less than A-1
by Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's
Investors Services, Inc. ("Moody's"), or F-1 by Fitch Investors
Service, Inc. ("Fitch"), or if not rated are determined to be of
comparable quality by the Fund's sub-adviser, Harbor Capital
Management Company, Inc. ("Harbor") (see Appendix for a description
of the basis of those ratings);
otime 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
obankers' acceptances.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in securities of foreign issuers. Securities of foreign
issuers may include debt obligations of supranational entities, which
include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and
international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank
for Reconstruction and Development (World Bank), European Investment Bank
and InterAmerican Development Bank.
Securities of a foreign issuer may present greater risks than investments
in U.S. securities, including higher transaction costs as well as the
imposition of additional taxes by foreign governments. In addition,
investments in foreign issuers may include additional risks associated with
less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest
income, the possible seizure or nationalization of foreign holdings, the
possible establishment of exchange controls, or the adoption of other
governmental restrictions, might adversely affect the payment of principal
and interest on securities of foreign issuers. As a matter of practice, the
Fund will not invest in the securities of a foreign issuer if any risk
appears to Harbor to be substantial.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/ dealers, and other recognized
financial institutions sell U.S. government securities or certificates of
deposit to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition. The Fund or its custodian will take possession of the
securities subject to repurchase agreements and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Fund might be delayed pending court action. The
Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Fund may
only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are found by Harbor to
be creditworthy pursuant to guidelines established by the Board of
Directors.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. 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 on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest in illiquid and restricted securities. The ability of
the Board of Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-
harbor for certain secondary market transactions involving securities
subject to restrictions on resale under federal securities laws. The Rule
provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of the
Securities and Exchange Commission has left the question of determining the
liquidity of all restricted securities (eligible for resale under the Rule)
to the Corporation's Board.
Under the criteria currently established by the Directors, Harbor must
consider the following factors in determining the liquidity of restricted
securities: (i) the frequency of trades and quotes for the security; (ii)
the volatility of quotations and trade prices for the security; (iii) the
number of dealers willing to purchase or sell the security and the number
of potential purchasers; (iv) dealer undertakings to make a market in the
security; (v) the nature of the security and the nature of the marketplace
trades; (vi) the rating of the security and the financial condition and
prospects of the issuer of the security; and (vii) such other factors as
may be relevant to a Fund's ability to dispose of the security.
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as
the Fund, who agrees that it is purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Directors are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Directors, including Section 4(2) commercial paper, as determined by
Harbor, as liquid and not subject to the investment limitation applicable
to illiquid securities. In addition, because Section 4(2) commercial paper
is liquid, the Fund intends to not subject such paper to the limitation
applicable to restricted securities.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any interest paid on such securities. Loans are subject to termination
at the option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the
right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
is settled.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolios by
buying and selling futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase current income.
The Fund will maintain its position in securities, options and segregated
cash subject to puts and calls until the options are exercised, closed, or
have expired. An option position of futures transactions may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. The Fund currently does
not intend to invest more than 5% of its total assets in options
transactions.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates and market conditions
without necessarily buying or selling the securities. The Fund also
may purchase and sell stock index futures to hedge against changes in
prices. The Fund will not engage in futures transactions for
speculative purposes. A futures contract is a firm commitment by two
parties: the seller who agrees to make delivery of the specific type
of security called for in the contract ("going short") and the buyer
who agrees to take delivery of the security ("going long") at a
certain time in the future.
For example, in the fixed income securities market, prices move
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates means a rise in price. In order to hedge
its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect
itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period.
The Fund would "go long" (i.e., agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the issuers included in the indices.
An index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to
the differences between the value of the index at the close of the
last trading day of the contract and the price at which the index
contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash
or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that
futures contract initial margin does not involve the borrowing of
funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Fund is also
required to deposit and maintain margin when it writes call options on
futures contracts.
The Fund will comply with the following restrictions when purchasing
and selling futures contracts. First, the Fund will not participate in
futures transactions if the sum of its initial margin deposits on open
contracts and options on premiums will exceed 5% of the market value
of the Fund's total assets, after taking into account the unrealized
profits and losses on those contracts it has entered into. Second, the
Fund will not enter into these contracts for speculative purposes.
Third, since the Fund does not constitute a commodity pool, it will
not market itself as such, nor serve as a vehicle for trading in the
commodities futures or commodity options markets. Connected with this,
the Fund will disclose to all prospective investors the limitations on
its futures and options transactions, and make clear that these
transactions are entered into only for bona fide hedging purposes, or
other permissible purposes pursuant to regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). Finally, because the
Fund will submit to the CFTC special calls for information, the Fund
will not register as a commodities pool operator.
PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
The Fund may purchase listed put options on financial and stock index
futures contracts. The Fund would purchase put options on futures
contracts to protect portfolio securities against decreases in value
resulting from an anticipated increase in market interest rates or
changes in stock prices. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument
on a set date at a specified price, the purchase of a put option on a
futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position
at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by
the Fund upon the sale of the second option will be large enough to
offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on financial and stock index futures contracts to
hedge its portfolio against an increase in market interest rates or
changes in stock market conditions. When the Fund writes a call option
on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option
is exercised. As market interest rates rise or market conditions
change, causing the prices of futures to go down, the Fund's
obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This
premium can offset the drop in value of the Fund's fixed income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in their portfolios.
A put option gives the Fund, in return for a premium, the right to
sell the underlying security to the writer (seller) at a specified
price during the term of the option. The Fund may purchase these put
options as long as the underlying stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options on securities either held
in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash in the
amount of any additional consideration. As the writer of a call
option, the Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of
the exercise price. Covered call options generally do not present
investment risks different from those associated with a security
purchase. For example, a security may be sold before it reaches its
maximum potential value, or it may be retained even though its current
market price has dropped below its purchase price. Similarly, a
covered call option presents these risks. For example, when the option
purchaser acquires the security at the predetermined exercise price,
the Fund could be giving up any capital appreciation above the
exercise price that is not offset by the option premium paid by the
option purchaser to the Fund. Conversely, if the underlying security
decreases in price and the option purchaser decides not to carry out
the transaction, the Fund keeps the premium and the Fund can sell the
security or hold onto it for future price appreciation. The Fund may
only sell call options either on securities held in its portfolio or
on securities which it has the right to obtain without payment of
further consideration or for which it has segregated cash in the
amount of any additional consideration. Writing of call options by the
Fund is intended to generate income for the Fund and thereby protect
against price movements in particular securities in the Fund's
portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyer or writers of the
options for those options on portfolio securities held by the Funds
and not traded on an exchange.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stock
included in the index.
The effectiveness of purchasing stock index options will depend upon
the extent to which price movements in the Fund's portfolio correlate
with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of options on an index
depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock
indices will be subject to the ability of Harbor to predict correctly
movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
RISKS
When the Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the
futures contracts may not correlate with the prices of the securities
in the Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to
market changes. In addition, Harbor could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although Harbor will
consider liquidity before entering into these transactions, there is
not assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at
any particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market. The
inability to close out these positions could have an adverse effect on
the Fund's ability to effectively hedge its portfolio.
To minimize risks, the Fund may not purchase or sell futures contracts
or related options if immediately thereafter the sum the amount of
margin deposits on the Fund's existing futures positions and premiums
paid for related options would exceed 5% of the market value of the
Fund's total assets. When the Fund purchases futures contracts, an
amount of cash and cash equivalents, equal to the underlying commodity
value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position
and thereby insure that the use of such futures contract is
unleveraged. When the Fund sells futures contracts, it will either own
or have the right to receive the underlying future or security, or
will make deposits to collateralize the position as discussed above.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period
of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life
of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve its investment objective. Securities in its portfolio will be
sold whenever Harbor believes it is appropriate to do so in light of the
Fund's investment objectives, without regard to the length of time a
particular security may have been held. M&T Bank and Harbor do not
anticipate that the Fund's annual portfolio rate will exceed 100% under
normal market conditions. For the fiscal year ended April 30, 1996 and
1995, the Fund's portfolio turnover rate was 77% and 79%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, except as described below and other than in connection with
buying futures contracts and put options, and writing covered call
options, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities.
The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
To comply with registration requirements in certain states, the Fund
(1) will limit short sales of securities of any class of any one
issuer to 20% of the Fund's net assets, and (2) will make short sales
only on securities listed on recognized stock exchanges. The latter
restrictions, however, do not apply to short sales of securities the
Fund holds or has a right to acquire without the payment of further
consideration. (If state requirements change, these restrictions may
be revised without shareholder notification.)
The Fund may purchase and dispose of U.S. Government securities and
CMOs before they are issued and may also purchase and dispose of them
on a delayed delivery basis.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, the Fund may mortgage,
pledge, or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of the borrowing. For purposes of this limitation,
the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options and
segregation or collateral arrangements made in connection with
options, futures, options on futures, reverse repurchase agreements,
lending of portfolio securities, or the purchase of securities on a
when-issued basis.
UNDERWRITING
The Fund will not underwrite any issue of securities except as they
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests although it may invest in securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities,
the market value of which does not exceed one-third of the value of
the Fund's total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and
limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except that the Fund may purchase and
sell futures contracts and related options.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry, except that the Fund may invest 25% or more of
the value of its total assets in cash or cash items (including
instruments issued by a U.S. branch of a domestic bank or savings and
loan association and bankers' acceptances), securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
and repurchase agreements collateralized by such securities.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of its total assets would be invested
in the securities of that issuer. Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations are fundamental policies of the Fund and
cannot be changed without shareholder approval. The following limitations,
however, may be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
DIRECTORS OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if
the Officers and Directors of the Corporation or the Fund's investment
adviser or sub-adviser, owning individually more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's
securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements providing for settlement
in more than seven days after notice, over-the-counter options,
certain restricted securities not determined by the Directors to be
liquid, and non-negotiable time deposits with maturities over seven
days.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities where the principal and interest are the responsibility
of companies (or guarantors, where applicable) with less than three
years of continuous operations, including the operation of any
predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although they may
purchase the securities of issuers which invest in or sponsor such
programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
In order to comply with the investment restrictions imposed by certain
states, the Fund will limit investments in the securities of other
investment companies to those with sales loads not exceeding 1.00% of
the offering price of such securities. The Fund may amend this
investment policy without notice to shareholders in the event that the
state restriction on this type of investment is amended.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put
options on stock indices, unless the underlying securities are held in
the Fund's portfolio and not more than 5% of the value of the Fund's
total assets would be invested in premiums on open put options.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the
underlying securities are held in a Fund's portfolio, or unless the
Fund is entitled to them in deliverable form without further payment
or after segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on nationally recognized stock
exchanges to 2% of its total assets. (If state restrictions change,
this latter restriction may be revised without notice to
shareholders.) For purposes of this investment restriction, warrants
acquired by the Fund in units or attached to securities may be deemed
to be without value.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction. The Fund has no present intent to
borrow money in excess of 5% of the value of its net assets during the
coming fiscal year. In order to permit the sale of the Fund's shares in
certain states, the Fund may make commitments more restrictive than the
investment limitations described above. In this regard, to comply with
certain state restrictions, the Fund will not invest more than 5% of its
total assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued under Section
4(2) of the Securities Act of 1933 and certain other restricted securities
which meet the criteria for liquidity as established by the Directors. (If
state restrictions change, these restrictions may be revised without
shareholder approval or notification.)
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel, Federated Services Company; formerly Attorney, Morrison
& Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of May 31, 1996, the following shareholders of record owned 5% or more
of the Fund: Tice and Co., Buffalo, New York, owned approximately 2,059,782
shares (41.71%); and Reho & Co., Buffalo, New York, owned approximately
559,845 shares (11.34%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM
CORPORATION CORPORATION*#
Randall I. Benderson,
Director $9,500
Joseph J. Castiglia,
Director $10,000
Daniel R. Gernatt, Jr.,
Director $10,000
George K. Hambleton, Jr.,
Director $10,000
*Information is furnished for the fiscal year ended April 30, 1996. The
Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is
comprised of seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER AND SUB-ADVISER
The Fund's investment adviser is Manufacturers and Traders Trust Company
("M&T Bank"). It is M&T Bank's responsibility to select, subject to review
and approval by the Corporation's Board of Directors and shareholders, a
subadviser to the Fund which has distinguished itself in its area of
expertise in asset management and to review its continued performance.
Pursuant to authority granted to M&T Bank by the Corporation's Directors
and pursuant to the provisions of the Investment Advisory Agreement between
M&T Bank and the Corporation with respect to the Fund, M&T Bank has
selected Harbor Capital Management Company, Inc. ("Harbor"), an
independent, employee-owned, Massachusetts corporation, to act as a sub-
investment adviser of the Fund and to provide certain services, as
described in the Sub-Advisory Contract and summarized below.
Subject to the supervision and review of M&T Bank and of the Directors of
the Corporation, Harbor shall manage the investment operations of the Fund,
including the purchase, retention and disposition of securities, in
accordance with the Fund's investment objective, policies and restrictions.
In addition, Harbor shall supervise the Fund's investments and determine
from time to time what securities will be purchased, retained, sold or
loaned, and what portion of the assets will be invested or held uninvested
as cash.
In the performance of its duties and obligations under the Sub-Advisory
Contract, Harbor shall act in conformity with the Corporation's Articles of
Incorporation and By-Laws, the Prospectus of the Fund, and with the
instructions and directions received in writing from M&T Bank or the
Directors of the Corporation. Harbor also will conform to and comply with
the requirements of the Investment Company Act of 1940, the Internal
Revenue Code of 1986, as amended (including the requirements for
qualification as a regulated investment company) and all other applicable
federal and state laws and regulations.
M&T Bank and Harbor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with
their performance under the respective advisory agreements, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on their part in the performance of their duties,
or from reckless disregard by them of their duties and obligations
thereunder. Because of internal controls maintained by M&T Bank to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of M&T Bank's or its affiliates' lending
relationships with an issuer.
Unless sooner terminated, the Investment Advisory Agreement between the
Fund and M&T Bank, and the Sub-Advisory Contract among the Fund, M&T Bank
and Harbor, will each continue in effect from year to year if such
continuance is approved at least annually by the Corporation's Board of
Directors, or by vote of a majority of the outstanding shares of the Fund
(as defined in the Investment Company Act of 1940), and by a majority of
the Directors who are not parties to the respective advisory agreements or
interested persons (as defined in the Investment Company Act of 1940) of
any party to the respective advisory agreements, by vote cast in person at
a meeting called for such purpose. Each advisory agreement is terminable at
any time on sixty days' written notice without penalty by the Directors, by
vote of a majority of the outstanding shares of the Fund, by M&T Bank or by
Harbor. Each advisory agreement also terminates automatically in the event
of its assignment, as defined in the Investment Company Act of 1940.
ADVISORY AND SUB-ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment advisory
fee from the Fund as described in the Prospectus. For its sub-advisory
services, Harbor receives from M&T Bank an annual investment advisory fee
as described in the Prospectus.
For the fiscal years ended April 30, 1996 and 1995, and for the period from
November 29, 1993 (date of initial public investment) through April 30,
1994, M&T Bank and Harbor cumulatively earned $358,050, $215,057 and
$26,123, respectively, of which $541, $172,187 and $26,123, respectively,
were voluntarily waived.
In addition, for the fiscal years ended April 30, 1996 and 1995, and for
the period from November 29, 1993 (date of initial public investment)
through April 30, 1994, M&T Bank reimbursed the Fund $0, $112,828 and
$38,157 respectively, of other operating expenses.
STATE EXPENSE LIMITATIONS
M&T Bank has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, M&T Bank will
reimburse the Fund for its expenses over the limitation. If the Fund's
monthly projected operating expenses exceed this limitation, the
investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by M&T Bank will be limited by
the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
describedin the Prospectus. For the fiscal years ended April 30, 1996 and
1995, and for the period from November 29, 1993 (date of initial public
investment) through April 30, 1994, the Fund incurred administrative
service costs of $58,037, $50,000 and $20,822, respectively, of which $0,
$10,958 and $15,888, respectively, were voluntarily waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund and provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Fund's registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
BROKERAGE TRANSACTIONS
Pursuant to the Fund's Sub-Advisory Contract, Harbor determines which
securities are to be sold and purchased by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Portfolio securities
of the Fund are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from dealers
serving as market makers may include the spread between the bid and asking
price. While Harbor generally seeks competitive spreads or commissions, a
Fund may not necessarily pay the lowest spread or commission available on
each transaction for reasons discussed below.
Harbor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to Harbor
and 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. Research
services provided by brokers and dealers may be used by M&T Bank or its
affiliates and Harbor in advising the Fund and other accounts. To the
extent that receipt of these services may supplant services for which M&T
Bank or its affiliates and Harbor might otherwise have paid, it would tend
to reduce their expenses. Harbor exercises reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with M&T Bank, or its affiliates, and will
not give preference to M&T Bank's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and
reverse repurchase agreements. While serving as investment adviser to the
Fund, M&T Bank has agreed to maintain its policy and practice of conducting
M&T Bank's Trust and Investment Services Division independently of its
Commercial Department.
In making investment recommendations for the Fund, neither Harbor nor Trust
and Investment Services Division personnel of M&T Bank will inquire or take
into consideration whether the issuer of securities proposed for purchase
or sale by the Fund is a customer of the Commercial Department of M&T Bank
and, in dealing with its commercial customers, the Commercial Department
will not inquire or take into consideration whether securities of such
customers are held by the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank and Harbor, investments of
the type the Fund may make may also be made by those other accounts. When
the Fund and one or more other accounts managed by M&T Bank and Harbor are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by M&T Bank and Harbor to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund.
In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
For the fiscal years ended April 30, 1996 and 1995, and for the period from
November 29, 1993 (date of initial public investment) to April 30, 1994,
the Fund paid $128,098, $95,432 and $40,176, respectively, in commissions
on brokerage transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to 10 billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F and G 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, Vision Growth
and Income Fund, and Vision Capital Appreciation 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 may grant in its discretion. When issued
for payment as described in the Fund's Prospectus and this Statement of
Additional Information, the Fund's shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative asset values of that Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is not affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical, or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of Directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding common stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the New York Stock Exchange and the Federal Reserve
Wire System are open for business. The procedure for purchasing shares of
the Fund is explained in the prospectus under "How to Buy Shares."
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.
HOW THE FUND VALUES ITS SHARES
The market value of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sales price on a national
securities exchange, if applicable;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bond and other fixed income securities, as determined by an
independent pricing service;
o 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
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The Fund will value futures contracts, options on portfolio securities and
options on futures at their market values established by the applicable
exchanges at the close of trading on such exchanges, unless the Directors
determine in good faith that another method of valuing these positions is
necessary to appraise their fair value.
HOW TO REDEEM SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "How to Redeem Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Directors determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated for shares of the Fund are described in the prospectus.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, a Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends
received deduction to the Fund if the Fund were a regular corporation, and
to the extent designated by the Fund as so qualifying. Otherwise, these
dividends, and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
the Fund realizes net long-term capital gains, it will distribute them
at least once every 12 months.
TOTAL RETURN
The Fund's average annual total return for the one-year period ended April
30, 1996, and for the period from November 29, 1993 (date of initial public
investment) to April 30, 1996, was 24.29% and 12.28%, respectively.
The Fund's total return for the above periods reflects a maximum sales
charge of 4.50%. Effective July 1, 1996, the maximum sales charge will
increase to 5.50%.
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, less
any applicable sales load, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and
distributions. Any applicable redemption fee is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of shares redeemed.
YIELD
The Fund's yield for the thirty-day period ended April 30, 1996, was .82%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of shares of the Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in a Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return as described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper rankings in the growth and income
category in advertising and sales literature.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average maturity
of nine years. It calculates total returns for one month, three month,
twelve month, and ten year periods, and year-to-date.
o 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 Farm Credit System, including the National Bank
for Cooperatives and Banks for Cooperatives; 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.
o 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).
o 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).
o 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.
o SALOMON BROTHERS LONG-TERM HIGH GRADE CORPORATE BOND INDEX is an
unmanaged index of long-term high grade corporate bonds issued by U.S.
corporations with maturities ranging from 10 to 20 years.
o 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.
o 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.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected blue chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because
it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
o STANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON
STOCKS are composite indices of common stocks in industry,
transportation, and financial and public utility companies that can be
used to compare to the total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard &
Poor's indices assume reinvestment of all dividends paid by stocks
listed on its indices. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the Standard &
Poor's figures.
o RUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index
consisting of approximately 2,000 small capitalization common stocks
that can be used to compare to the total returns of funds whose
portfolios are invested primarily in small capitalization common
stocks.
o WILSHIRE 5000 EQUITY INDEX consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available, and can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks.
o CONSUMER PRICE INDEX is generally considered to be a measure of
inflation.
o NEW YORK STOCK EXCHANGE COMPOSITE INDEX is a market value weighted
index which relates all NYSE stocks to an aggregate market value as of
December 31, 1965, adjusted for capitalization changes.
o VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common
equity securities. It is based on a geometric average of relative
price changes of the component stocks and does not include income.
o NASDAQ OVER-THE-COUNTER COMPOSITE INDEX covers 4,500 stocks traded
over the counter. It represents many small company stocks but is
heavily influenced by about 100 of the largest NASDAQ stocks. It is a
value-weighted index calculated on price change only and does not
include income.
o AMEX MARKET VALUE INDEX covers approximately 850 American Stock
Exchange stocks and represents less than 5% of the market value of all
US stocks. The AMEX is a value-weighted index calculated on price
change only and does not include income.
o 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit and Treasury bills, and to money market funds using
the Lipper Analytical Services money market instruments average. Unlike
federally insured bank products, the shares of the Fund are not insured.
Unlike money market funds, which attempt to maintain a stable offering
price, the offering price of the Fund's shares fluctuates. Advertisements
may quote performance information which does not reflect the effect of the
sales load.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
APPENDIX
STANDARD & POOR'S RATINGS GROUP BOND RATINGS
AAA-Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA-Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated BAA are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR-Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR-NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category.
STANDARD & POOR'S RATINGS GROUP 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
MIG 1/VMIG 1-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.
MIG 2/VMIG 2-This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2-Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great for issues assigned F-1+ and F-1 ratings.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: Leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
PRIME-2-Issuers (or related supporting institutions) rated PRIME-2 have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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