[LOGO OF VISION GROUP OF FUNDS, INC.]
PROSPECTUS
VISION EQUITY INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED SEPTEMBER 25, 1997
Vision Group of Funds, Inc. (the "Corporation") is an open-end
management investment company (a mutual fund) that offers you a choice
of eight separate investment portfolios with distinct investment
objectives and policies. This prospectus relates to one of the eight
portfolios, Vision Equity Income Fund ("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. 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 September 25, 1997, 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
VISION GROUP OF FUNDS, INC.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
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TABLE OF CONTENTS
Synopsis 3
A Summary of the Fund's Expenses 4
How the Fund Invests 5
Investment Information 5
Fund Management, Distribution and
Administration 15
Board of Directors 15
Investment Adviser 15
Distribution of Fund Shares 16
Administration of the Fund 17
Your Guide to Using the Fund 18
How the Fund Values its Shares 18
What Fund Shares Cost 18
How to Buy Shares 21
How to Exchange Shares 22
How to Redeem Shares 23
Tax Information 26
Voting Rights and Other Information 26
2
SYNOPSIS
INVESTMENT OBJECTIVE AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in eight separate, professionally managed
portfolios. This prospectus describes the Vision Equity Income Fund.
VISION EQUITY INCOME FUND
(THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH SEEKS TO PROVIDE CURRENT INCOME.
CAPITAL APPRECIATION IS A SECONDARY INVESTMENT CONSIDERATION. THE FUND PURSUES
ITS INVESTMENT OBJECTIVE BY INVESTING IN A DIVERSIFIED PORTFOLIO CONSISTING
PRIMARILY OF INCOME-PRODUCING EQUITY SECURITIES OF DOMESTIC COMPANIES (E.G.
COMMON AND PREFERRED STOCKS, CONVERT- IBLE SECURITIES). THE FUND ALSO MAY
INVEST IN FOREIGN EQUITY SECURITIES AND DEBT OBLIGATIONS. (SEE "INVESTMENT
INFORMATION.")
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 IRA accounts), 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" or the "Adviser"). M&T Bank makes investment decisions for the Fund. M&T
Bank is the principal banking subsidiary of First Empire State Corporation. (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, telephone 842-4488).
RISK FACTORS
An investment in the Fund may involve certain market risks that are
explained more fully in the sections of this prospectus discussing the
Fund's investment techniques.
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A SUMMARY OF THE FUND'S EXPENSES
Every mutual fund incurs expenses in conducting operations, managing
investments and providing services to shareholders. The following
summary breaks out the Fund's expenses. You should consider this
expense information, along with other information provided in this
prospectus, in making your investment decision.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) 0.12%
12b-1 Fee (2) 0.00%
Other Expenses 1.29%
Shareholder Servicing Fee (2) 0.00%
Total Fund Operating Expenses (3) 1.41%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee by the investment adviser. The investment adviser
can terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee for the Fund 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,
1998. 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 1.65% absent the voluntary waiver of a portion
of the administrative fee by the administrator.
(4) The Total Fund Operating Expenses absent the voluntary waivers by
the investment adviser and administrator are estimated to be 2.35% for
the year ending April 30, 1998. The Total Fund Operating Expenses in
the table above are based on expenses expected during the fiscal year
ending April 30, 1998.
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." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
<TABLE>
<S> <C> <C>
Example: 1 year 3 years
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 charge. The Fund charges no
redemption fees........................................................................ $69 $97
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current 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
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Directors without approval of shareholders.
Shareholders will be notified before any material change in these
policies becomes effective.
The Fund pursues its investment objective by maintaining a diversified
portfolio consisting primarily of income-producing equity securities
of domestic companies (e.g., common and preferred stocks, convertible
securities). Capital appreciation is a secondary non-fundamental
consideration. The Fund will attempt to provide a yield greater than
the average yield offered by the stocks of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index") and a lower level of
price volatility, although there is no assurance that it will be able
to do so. The Adviser will invest in companies on the basis of
traditional research techniques, including assessment of the
companies' earnings and dividend growth prospects, risk/volatility of
the company's industry, sound management techniques, ability to
finance expected growth, and on the basis of a company's
undervaluation relative to other companies in the same industry. These
companies may be categorized as "seasoned" or "well-established"
companies, although companies with less-established operating
histories may be chosen for investment if they have present
opportunities for income and capital appreciation.
Under normal market conditions, the Fund intends to invest at least
65% of the value of its total assets in equity securities that are
expected to produce current income. The Fund will also consider
whether the securities offer the opportunity for capital appreciation.
In selecting investments, the Adviser intends to focus on large
capitalization ("large-cap") companies which are those companies with
a market capitalization of at least $10 billion or more at the time of
investment. The Adviser also may invest, to a lesser extent, in medium
capitalization ("mid-cap") or small-capitalization ("small-cap")
companies which are generally companies with a market capitalization
under $10 billion. Investors should be aware that since the major
portion of the Fund's portfolio will normally be invested in common
stocks, the Fund's net asset value may be subject to greater
fluctuation than a portfolio containing a substantial amount of fixed
income securities. There can be no assurance that the objective of the
Fund will be realized, that any income will be earned, or that the
Fund's portfolio will not decline in value.
While equity securities of large-cap companies are generally less
volatile than those of more aggressive mid-to-small cap companies,
they may also offer less potential for high growth. However, large-cap
companies generally offer more potential for income than mid-cap and
small-cap stocks because they provide a history of dividends that may
help reduce the effects of broader stock price changes. Furthermore,
large-cap companies are often beyond the new or emerging phase of
their life cycles, yet still are dynamic enough to be responsive and
adaptive to changing needs. Large-cap companies can also offer
potential for growth yet tend to have less risk than small-cap
companies because of their greater resources, more established
organizational structures and more experienced management.
The Adviser also will focus on stocks of companies with unrecognized
or undervalued assets. A value approach seeks companies whose stock
prices do not appear to reflect their underlying value as measured by
assets, earnings, cash flow, business franchises, or other
quantitative or qualitative measurements. Value stocks may
5
be out of favor with or misunderstood by investors for a variety of
reasons, but are considered to have inherent value or future prospects
that are not currently reflected in their stock price. Accordingly,
value stocks may have a price/ earnings ratio less than the S&P 500
Index, lower than average price to book value, and a higher than
average dividend yields than competitors, and thereby offer greater
income and growth potential.
The Fund may also seek income by investing up to 35% of the value of
its total assets in debt obligations.
For a description of these securities and the following list of
Acceptable Investments, see the "Investment Techniques, Features and
Limitations" section.
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 Stock Exchange ("NYSE") or American Stock Exchange ("AMEX") or other
domestic stock exchange or traded in the over-the-counter markets;
. convertible securities;
. investments in American Depository Receipts ("ADRs") of foreign
companies traded on the NYSE or AMEX or other domestic 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 directly, which may include securities traded on
NYSE, AMEX or other domestic stock exchanges ("Non-ADRs");
. domestic issues of corporate debt obligations (including convertible bonds
and debentures) rated, at the time of purchase, investment grade by a
nationally recognized statistical rating organization ("NRSRO") (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 the Adviser;
. U.S. government securities;
. securities of other investment companies;
. mortgage-backed securities;
. asset-backed securities;
. for temporary defensive purposes, the Fund has adopted a temporary
defensive policy that allows the Fund to invest up to 35% of its
total assets in 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 the Adviser, time and
savings deposits (including certificates of deposit) in domestic
and foreign commercial or savings banks, and bankers' acceptances;
. warrants;
. futures contracts; and
. options.
INVESTMENT TECHNIQUES, FEATURES AND LIMITATIONS
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 the Adviser, the investment characteristics of the
underlying common shares will assist the Fund in achieving its
investment objective. Otherwise the Fund may hold or trade convertible
securities. In selecting convertible securities for the Fund, the
Adviser 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, the
Adviser 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
6
by an NRSRO 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 the Adviser. If any security
purchased by the Fund is subsequently 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. The lowest category of
investment grade securities (e.g., Baa or BBB) has speculative
characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to pay
principal and interest payments on such obligations than higher rated
obligations. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information.
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.
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;
. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
7
. notes, bonds, and discount notes of other U.S. government instrumentalities
supported by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government 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
Government National Mortgage Association ("Ginnie Mae"), Federal
National Mortgage Association ("Fannie Mae"), and Federal Home Loan
Mortgage Corporation ("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.
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 "Risks of
Mortgage-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 ("CMOS"). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by
8
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 an NRSRO or are of comparable quality as determined by
the Adviser, 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"). The Fund may
invest in 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.
RISKS OF MORTGAGE-BACKED SECURITIES
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
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
9
bonds. The securities are issued by non-governmental entities and carry no
direct or indirect government guarantee.
RISKS OF ASSET-BACKED SECURITIES
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party there is a risk that
the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then reregistered because the owner
and obligor moves to another state, such reregistration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in U.S. dollar-denominated and foreign currency
denominated equity 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
be substantial to the Adviser.
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
10
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.
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.
Generally, 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, unless
permitted to exceed these limitations by an exemptive order of the SEC
or as otherwise permitted by the Investment Company Act of 1940. It
should be noted that investment companies incur certain expenses such
as advisory, custodian and transfer agency fees and, therefore, any
investment by the Fund in shares of another investment company may 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 the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form
of cash, U.S. government securities or other liquid 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.
DIVERSIFICATION
The Fund is a "diversified" investment company. Under the Investment
Company Act of 1940 and Internal Revenue Code of 1986, this means that
with respect to 75% of its total assets, a diversified fund may not
invest more than 5% of its total assets in the securities of any one
issuer (except U.S. government obligations, securities of other
investment companies and cash items). The balance of a diversified
fund's assets is not subject to this limitation. Thus, a diversified
fund may invest up to 25% of its total assets in the securities of any
one issuer.
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
11
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 25%
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 the 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 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.
12
Generally, the Fund may not purchase or sell futures contracts or
related options, for other than bona fide hedging purposes, 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 net assets,
after taking into account the unrealized profits and losses on those
contracts it has entered into; and, provided further, that in the case
of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5%. 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 OF FUTURES AND OPTIONS
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, the 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 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.
WARRANTS
The Fund has no present intent to invest more than 5% of its net
assets in warrants.
EQUITY 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.
Because the Fund may invest in small-to-medium capitalization stocks,
there are some additional risk factors associated with investments in
the Fund. In particular, although their potential for growth may be
greater, stocks in the small-to-medium capitalization sector of the
United States equity market tend to be slightly more volatile in price
than larger capitalization stocks, such as those included in the S&P
500 Index. This is because, among other things, small-to-medium-sized
companies have less certain growth prospects than larger companies,
have a lower degree of liquidity in the equity market, and tend to
have a greater sensitivity to changing market conditions. Further, in
addition to exhibiting slightly higher volatility, the stocks of
small-to-medium-sized companies may, to some degree though not
necessarily, fluctuate independently of the stocks of larger
companies. That is, the stocks of small-to-medium-sized companies may
decline in price as the price of large company stocks rises or vice
versa.
DEBT RISKS
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 will fluctuate due to changes in
economic conditions and other market factors such as interest rates
which are beyond the control of the Adviser. The Adviser could be
incorrect in its expectations
13
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, the Adviser will attempt to
minimize the fluctuation of the Fund's net asset value by anticipating
the direction of interest rates and modifying investments accordingly.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities will be sold whenever the Fund's
Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a
particular security may have been held. However, the Adviser
contemplates that the Fund's portfolio turnover rate will not exceed
100%. Nevertheless, transactions for the Fund's portfolio will be
based upon investment considerations and will not be limited by any
other considerations when the Adviser deems it appropriate to make
changes to the Fund's portfolio.
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, securities of other investment companies 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.
14
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 THE
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 for its
services.
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
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 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.
ADVISER'S BACKGROUND
M&T Bank is the principal banking subsidiary of First Empire State
Corporation, a $13 billion bank holding company, as of December 31,
1996, headquartered in Buffalo, New York. M&T Bank has 174 offices
throughout New York State and an office in Nassau, The Bahamas as of
May 31, 1997.
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, 1996, M&T Bank had $3.1 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, 1996, M&T Bank
managed over $1.2 billion in net 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.
John E. Leslie III has been the Fund's portfolio manager since the Fund's
inception. Mr. Leslie joined M&T Bank in February 1996 as Vice President and
Senior Portfolio Manager. His investment experience includes two years with
Value
15
Line Asset Management, New York where he was a Senior Portfolio Manager
(1994-1996). From 1992 to 1994, Mr. Leslie was an independent consultant
designing quantitative equity valuation models and structured investment
products. Mr. Leslie obtained his B.A. in Finance from Suffolk University, his
M.B.A. from Babson College and is a Chartered Financial Analyst.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, M&T Bank looks for prompt execution of the
order at a favorable price. In working with dealers, M&T Bank 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, M&T Bank may give consideration to those firms which have
sold or are selling shares of the Fund and other funds distributed by
Federated Securities Corp. M&T Bank makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Directors and M&T Bank.
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, 1998.
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 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
16
Shareholder Servicing Agent provides services. The Fund has no present
intention of paying or accruing shareholder servicing fees during the
fiscal year ending April 30, 1998.
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 in the following table:
<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.
17
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 or an IRA account, in which case
the minimum initial investment is $250. Subsequent investments must be
in amounts of at least $25. 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 CONCES-
SALES CHARGE SALES CHARGE SION AS A PER-
AS A PERCENT- AS A PERCENT- CENTAGE OF PUB-
AMOUNT OF AGE OF PUBLIC AGE OF NET LIC OFFERING
TRANSACTION OFFERING 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,
Presidents' 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.
18
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 and the Adviser, 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, 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.
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.
19
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.
20
HOW TO BUY SHARES
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS
WHICH THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS
WHEN WIRE TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND
MARTIN LUTHER KING DAY).
Shares may be purchased either by wire, mail or transfer. The Fund
reserves the right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
THROUGH THE BANK
You may purchase shares through M&T Bank. To do so, contact an account
representative at M&T Bank or those affiliates of M&T Bank which make
shares available, or M&T Bank's Mutual Fund Services at (800) 836-2211
(in the Buffalo area, phone 842-4488).
THROUGH M&T SECURITIES, INC.
You may purchase shares of the Fund through any representative of M&T
Securities, Inc. ("M&T Securities") at M&T Bank 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 Equity 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. (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
21
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
Shareholders will receive detailed confirmations of transactions
(except for systematic program transactions). In addition,
shareholders will receive periodic statements reporting all account
activity, including dividends paid.
The Fund will not issue share certificates.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP
OF FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS IN THE CORPORATION
(REFERRED TO AS "PARTICIPATING FUNDS") THROUGH AN EXCHANGE PROGRAM.
YOU MAY EXCHANGE SHARES OF ANY OF THE FUNDS 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. When exchanging into and out of Participating Funds
with different sales charges, exchanges are made at net asset value.
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 an 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
22
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.
23
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
24
. 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.
25
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE INCOME
TAX TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS
NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
The tax consequences discussed here apply whether you receive
dividends in cash or reinvest them in additional shares. The Fund will
send you tax information annually regarding the federal income tax
consequences of distributions made during the year. You should
definitely consult your own tax adviser about any state or local taxes
that may apply. The Fund will be treated as a separate entity for
federal income tax purposes. Income earned by the Fund, including any
capital gains or losses realized, is not combined with income earned
on the Corporation's other portfolios.
The Fund intends to qualify each year as a regulated investment
company under the Internal Revenue Code so that it is not required to
pay federal income taxes on the income and capital gains distributed
to shareholders.
FEDERAL INCOME TAXES
Unless shareholders of the Fund are otherwise exempt from taxes, they
are required to pay federal income taxes on dividends and other
distributions received (including capital gains distributions, if any)
from the Fund.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on
February 23, 1988, and consists of eight 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 and Income Fund, Vision New York Tax-Free Fund, Vision
Capital Appreciation Fund and Vision Equity Income Fund. The
Corporation's Articles of Incorporation permit the Corporation to
offer separate series of shares in these funds or other future
portfolios.
Each Fund share represents an equal proportionate interest in the Fund
with other shares and participates equally in the dividends and any
other distributions that are declared at the discretion of the
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 the Fund's
outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the
26
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, total return and yield figures are based on
past results and are not an indication of future performance.
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.
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.
27
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
28
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
Vision
Equity Income
Fund
---------------------------------------------
Prospectus dated
September 25, 1997
[LOGO OF VISION GROUP OF FUNDS, INC.]
MANUFACTURERS AND TRADERS
TRUST COMPANY
[LOGO] Federated Investors ---------------------------------------
Investment Adviser
Federated Securities Corp., Distributor A subsidiary of First Empire State
Corporation
CUSIP 92830F802
G00157-02 (9/97) TRG00157-02
VISION EQUITY INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the
prospectus dated September 25, 1997 of the Vision Equity Income Fund
(the "Fund"), a portfolio of the Vision Group of Funds, Inc.
This Statement of Additional Information is not a prospectus
itself, but should be read in conjunction with the Fund's
current prospectus dated September 25, 1997. 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 September 25, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First Empire State Corporation
Federated Securities Corp. is distributor for the Fund.
<PAGE>
TABLE OF CONTENTS
I
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE 1
INVESTMENT POLICIES 1
ACCEPTABLE INVESTMENTS 1
Corporate Debt Obligations 1
Zero Coupon Bonds 1
U.S. Government Securities 1
Mortgage-Backed Securities 2
Money Market Instruments 3
Securities of Foreign Issuers 3
Repurchase Agreements 3
When-Issued and Delayed Delivery Transactions 3
Illiquid and Restricted Securities 4
Lending of Portfolio Securities 4
Reverse Repurchase Agreements 4
Futures and Options Transactions 5
Warrants 8
Portfolio Turnover 8
INVESTMENT LIMITATIONS 8
VISION GROUP OF FUNDS, INC. MANAGEMENT 10
Fund Ownership 12
Directors' Compensation 12
Director Liability 12
INVESTMENT ADVISORY SERVICES 12
Adviser to the Fund 12
Advisory Fees 13
OTHER SERVICES 13
Administrative Services 13
Custodian and Portfolio Accountant 13
Transfer Agent and Dividend Disbursing Agent 13
Independent Auditors 13
BROKERAGE TRANSACTIONS 13
DESCRIPTION OF FUND SHARES 14
HOW TO BUY SHARES 14
Conversion to Federal Funds 14
HOW THE FUND VALUES ITS SHARES 15
HOW TO REDEEM SHARES 15
Redemption in Kind 15
DETERMINING NET ASSET VALUE 15
BANKING LAWS 15
TAX STATUS 16
The Fund's Tax Status 16
Shareholders' Tax Status 16
TOTAL RETURN 16
YIELD 16
PERFORMANCE COMPARISONS 17
Economic and Market Information 19
APPENDIX 20
<PAGE>
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 Equity Income Fund (the "Fund")
is to provide current income. The investment objective of the Fund
cannot be changed without approval of its shareholders. Capital
appreciation is a secondary, non-fundamental investment consideration.
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:
<PAGE>
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:
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-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 investment adviser, Manufacturers and Traders
Trust Company ("M&T Bank") (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.
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 Inter American 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 M&T Bank 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 M&T Bank 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, M&T Bank
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 M&T Bank, 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 and stock futures
contracts to generate income or 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. To the extent
required to comply with Commodity Futures Trading Commission
("CFTC") Regulation 4.5 and thereby avoid status as a
"commodity pool operator," the Fund will not enter into a
futures contract for other than bona fide hedging purposes,
or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by it,
plus premiums paid by it for open options on futures
contracts, would exceed 5% of the market value of the Fund's
net assets, after taking into account the unrealized profits
and losses on those contracts it has entered into; and,
provided further, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing such 5%. Second, 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. 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 PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write put options to generate income and
thereby protect against price movements in the Fund's
portfolio securities. As a writer of a put option, the Fund
has the obligation to purchase a security from the purchaser
of the option upon the exercise of the option. In the case of
put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the
exercise price of the underlying securities.
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 Fund 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
M&T Bank 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, M&T Bank 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 M&T Bank 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, for other than bona fide
hedging purposes, 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 after
taking into account the unrealized profits and losses on
those contracts it has entered into; and provided further,
that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in
computing such 5%. 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 M&T Bank believes it is appropriate to
do so in light of the Fund's investment objective, without regard to
the length of time a particular security may have been held. M&T Bank
and M&T Bank does not anticipate that the Fund's annual portfolio rate
will exceed 100% under normal market conditions.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund may sell securities short but will not purchase
any securities on margin in connection with buying futures
contracts and put options, and writing covered call options
and obtaining 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.
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 for temporary
defensive purposes, it may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities.
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, securities of
other investment companies 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. The 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 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.
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.
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."
<PAGE>
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
Former President, Brand Name Sales, Inc.; President, Hambleton & Carr, Inc.
<PAGE>
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 and Vice President, Federated Administrative
Services; formerly Attorney, Morrison & Foerster (law firm).
<PAGE>
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding
shares.
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, 1997.
The Corporation is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Corporation which is comprised
of eight 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 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 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 from the Fund as described in the Prospectus.
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.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund Federated Services
Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 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
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 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 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.
M&T Bank may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the
Fund or to M&T Bank 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 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 might otherwise have paid, it would tend to reduce their
expenses. M&T Bank 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 M&T Bank
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, 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 is
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.
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 eight billion shares have been classified into
eight classes of one billion shares each. Two billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F, G and H
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
Municipal Income Fund, Vision Growth and Income Fund, Vision Capital
Appreciation Fund, and Vision Equity Income Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares
of the Corporation into one or more additional classes by setting or
changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or pre-emptive rights and only such
conversion or exchange rights as the Board 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.
<PAGE>
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.
BANKING LAWS
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.
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. 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 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 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.
<PAGE>
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.
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 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.
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.
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 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.
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.
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 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 THE S&P/BARRA VALUE INDEX AND THE S&P/BARRA GROWTH INDEX are
constructed by Standard & Poor's and BARRA, Inc., an
investment technology and consulting company, by separating
the S&P 500 Index into value stocks and growth stocks. The
S&P/BARRA Growth and S&P/BARRA Value Indices are constructed
by dividing the stocks in the S&P 500 Index according to
their price-to-book ratios. The S&P/BARRA Growth Index,
contains companies with higher price-to-earnings ratios, low
dividends yields, and high earnings growth (concentrated in
electronics, computers, health care, and drugs). The Value
Index contains companies with lower price-to-book ratios and
has 50% of the capitalization of the S&P 500 Index. These
stocks tend to have lower price-to-earnings ratios, high
dividend yields, and low historical and predicted earnings
growth (concentrated in energy, utility and financial
sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices
are capitalization-weighted and rebalanced semi-annually.
Standard & Poor's/BARRA calculates these total return
indices with dividends reinvested.
o RUSSELL 1000 GROWTH INDEX consists of those Russell 1000
securities with a greater-than-average growth orientation.
Securities in this index tend to exhibit higher
price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth values.
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 RUSSELL MIDCAP GROWTH INDEX measures the performance of
those Russell Midcap companies with higher price-to-book
ratios and higher forecasted growth values. The stocks are
also members of the Russell 1000 Growth Index.
o RUSSELL MIDCAP VALUE INDEX measures the performance of those
Russell Midcap companies with lower price-to-book ratios and
lower forecasted growth values. The stocks are also members
of the Russell 1000 Value Index.
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 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 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,
including 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 ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to more than 6,000
funds available.
<PAGE>
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.
Cusip 92830F802
G01716-02 (9/97)
