1933 Act File No. 33-20673
1940 Act File No. 811-5514
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 25 .............. X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 26 ............................. X
VISION GROUP OF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
- ---
on pursuant to paragraph (b)
- --- ------------
X 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
- ---
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24e-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on June 14, 1996; or
intends to file the Notice required by that Rule on or about
; or
during the most recent fiscal year did not sell any securities pursuant
- ---
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
Copy to:
Charles H. Morin, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of Vision Group of Funds,
Inc., which is comprised of seven portfolios: (1) Vision Money Market Fund,
(2) Vision Treasury Money Market Fund, (3) Vision New York Tax-Free Money
Market Fund, (4) Vision New York Tax-Free Fund, (5) Vision U.S. Government
Securities Fund, (6) Vision Growth and Income Fund, and (7) Vision Capital
Appreciation Fund, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-7) Cover Page.
Item 2. Synopsis.................(1-7) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..............(1-7) Financial Highlights; (1-7) How
the Funds Show Performance.
Item 4. General Description of
Registrant...............(1-7) Synopsis; (1-7) How the Funds
Invest; (1-7) Investment Objective; (1-
7) Investment Policies; (1-7) Acceptable
Investments; (1) Risk Factors Associated
with Foreign Investments; (2,4)
Investment Risks of New York Municipal
Securities; (2,4) Concentration of
Investments; (2,4) Types of Municipal
Securities; Temporary Investments; (1-7)
Common Fund Investment Techniques,
Features and Limitations.
Item 5. Management of the Fund...(1-7) Fund Management, Distribution, and
Administration; (1-7) Board of
Directors; (1-7) Investment Adviser;
Distribution of Fund Shares; (1-7)
Administration of the Funds; (4-7)
Expenses of the Funds.
Item 6. Capital Stock and Other
Securities...............(1-7) Description of Fund Shares; (1-7)
Voting Rights and Other Information; (1-
7) Tax Information.
Item 7. Purchase of Securities Being
Offered..................(1-7) How the Funds Value their Shares;
(1-7) How to Buy Shares; (1-7) How to
Exchange Shares.
Item 8. Redemption or Repurchase.(1-7) How to Redeem Shares.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-7) Cover Page.
Item 11. Table of Contents........(1-7) Table of Contents.
Item 12. General Information and
History..................(1-7) General Information About the
Fund;
Item 13. Investment Objectives and
Policies.................(1-7) Investment Objective and Policies;
(1-7) Investment Limitations.
Item 14. Management of the Fund...(1-7) Vision Group of Funds, Inc.
Management.
Item 15. Control Persons and Principal
Holders of Securities....Not Applicable
Item 16. Investment Advisory and Other
Services.................(1-7) Investment Advisory Services; (1-
7) Administrative Services;
Item 17. Brokerage Allocation.....(1-7) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............(1-7) Description of Fund Shares.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered .................(1-7) Purchasing Shares; (1-7)
Determining Net Asset Value; (1-3)
Redeeming Shares; (4-5) Redeeming Fund
Shares; (6-7) How to Redeem Shares.
Item 20. Tax Status...............(1-7) Tax Status.
Item 21. Underwriters.............Not applicable.
Item 22. Calculation of Performance
Data.....................(1-7) Performance Comparisons; (1,3,5,7)
Yield; (2,4) Tax-Equivalent Yield; (2,4)
Tax-Equivalency Table; (4-7) Appendix.
Item 23. Financial Statements (1-7) (To be filed by Amendment)
[Vision Logo]
Prospectus
Vision Group of Funds, Inc.
Prospectus dated June 30, 1997
Vision Group of Funds, Inc. is an open-end management investment company (a
mutual fund) that offers you a choice of seven separate investment
portfolios with distinct investment objectives and policies. This
prospectus relates to three diversified portfolios (the "Funds"), each of
which is a no-load fund, so you pay no sales charge to purchase Fund
shares. The Funds are:
VISION MONEY MARKET FUND VISION TREASURY MONEY MARKET FUND VISION NEW YORK
TAX-FREE MONEY MARKET FUND AN INVESTMENT IN THE FUNDS IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. THESE SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL. BECAUSE THE VISION NEW YORK TAX-FREE MONEY MARKET FUND MAY
INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE
ISSUER, INVESTMENT IN THE VISION NEW YORK TAX-FREE MONEY MARKET FUND MAY
INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus gives you information about each of the Funds and can help
you decide if any of the Funds is a suitable investment for you. Please
read the prospectus before you invest and keep it for future reference.
You can find additional facts about each of the Funds in their
respective Statements of Additional Information dated June 30, 1997, which
have also been filed with the Securities and Exchange Commission ("SEC").
The information contained in the Statements of Additional Information is
incorporated by reference into this prospectus. To obtain a free copy of
any of these Statements of Additional Information, or a paper copy of this
prospectus, if you have received it electronically, or make other inquiries
about any of the Funds, simply call or write Vision Group of Funds, Inc. at
the telephone number or address below. The Statements of Additional
Information, material incorporated by reference into this document, and
other information regarding the Funds is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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
TABLE OF CONTENTS
SYNOPSIS
INVESTMENT OBJECTIVE
Vision Group of Funds, Inc. (the `Corporation'') offers you a convenient,
affordable way to participate in three separate, professionally managed,
diversified portfolios of short-term money market securities.
VISION MONEY MARKET FUND
(THE `MONEY MARKET FUND'') SEEKS CURRENT INCOME WITH LIQUIDITY AND
STABILITY OF PRINCIPAL BY INVESTING IN HIGH QUALITY MONEY MARKET
INSTRUMENTS. (SEE PAGE 9 FOR DETAILS.)
VISION TREASURY MONEY MARKET FUND
(THE `TREASURY FUND'') SEEKS CURRENT INCOME WITH LIQUIDITY AND STABILITY
OF PRINCIPAL BY INVESTING IN DIRECT OBLIGATIONS OF THE U.S. TREASURY, SUCH
AS TREASURY BILLS AND NOTES, AND REPURCHASE AGREEMENTS SECURED BY THESE
OBLIGATIONS. (SEE PAGE 11 FOR MORE INFORMATION.)
VISION NEW YORK TAX-FREE MONEY MARKET FUND
(THE `TAX-FREE FUND'') SEEKS AS HIGH A LEVEL OF CURRENT INTEREST INCOME
THAT IS EXEMPT FROM FEDERAL REGULAR INCOME TAX AS IS CONSISTENT WITH
LIQUIDITY AND RELATIVE STABILITY OF PRINCIPAL. (SEE PAGE 12 FOR DETAILS.)
VALUING FUND SHARES
The Funds attempt to maintain a stable market value (referred to as net
asset value) of $1.00 per share, although there is no assurance that they
will be able to do so. (See `How the Funds Value Their Shares.'')
BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Funds are bought and redeemed without charge at net asset
value. The minimum initial investment in each Fund is $500 ($250 for
retirement plans), except under certain circumstances described in this
prospectus. (See `Your Guide to Using the Funds.'')
FUND MANAGEMENT
The Funds' investment adviser is M&T Bank, which makes investment
decisions for the Funds. M&T Bank is the principal banking subsidiary of
First Empire State Corporation.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account, and about the Funds and their services by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488).
RISK FACTORS
An investment in the Funds may involve certain risks that are explained
more fully in the sections of the prospectuss discussing each Fund's
investment policies and their common investment techniques.
A SUMMARY OF THE FUNDS' EXPENSES (To be filed by amendment)
VISION MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS (To be filed by amendment)
SOME BASIC FACTS ABOUT THE MONEY MARKET AND MONEY MARKET MUTUAL FUNDS
The money market is the marketplace in which governments and companies
borrow money for short periods of time by issuing short-term debt
obligations known as money market instruments or money market securities.
These securities often have maturity dates of a year or less, at which time
the debt obligation comes due and must be repaid by the issuer. The
marketplace is known as the money market because these instruments can
generally be converted into cash quickly.
Among the most common types of money market securities are:
Certificates of deposit issued by banks;
Bankers' acceptances, a means of short-term financing for importers and
exporters; Commercial paper, short-term debt obligations issued by
corporations;
U.S. Treasury bills issued by the U.S. Government; and
Short-term municipal securities, such as bond anticipation notes ("BANs"),
tax anticipation notes ("TANs") and revenue anticipation notes ("RANs")
issued by state or local governments.
UNDERSTANDING MONEY MARKET FUNDS
When you invest in a money market fund, your money is pooled with that of
many other investors. Professional investment managers use the money to
purchase a portfolio of various money market securities, which represent
debt issued by different companies or government entities. The Fund earns
interest on the securities in its portfolio and passes on the income to
shareholders in the form of dividend distributions. That income represents
your return on the money you have invested in the Fund and it is usually
referred to as yield.
Money market funds generally offer the following basic advantages.
PROFESSIONAL INVESTMENT MANAGEMENT. You get the benefit of full-time,
experienced, professional management that might otherwise be unavailable to
you. The Fund's portfolio managers make investment decisions on behalf of
you and other shareholders, selecting securities that they believe will
best achieve each Fund's objective, as stated in the Fund's prospectus.
DIVERSIFICATION. Diversification--spreading investments among a number of
different securities--is a basic principle in reducing overall investment
risk. Money market funds usually invest in a large number of securities,
maintaining a level of diversification that most investors could not afford
on their own because money market instruments typically require a minimum
investment of $10,000 to $1 million.
COMPETITIVE MONEY MARKET YIELDS. Money market funds often offer higher
yields than most investors could obtain on other short-term savings and
investment alternatives. Money market funds are not insured or guaranteed
by the U.S. government, and their yields fluctuate as market conditions
change.
STABILITY OF PRINCIPAL. There is relatively little risk of losing your
principal--the money you invest--with a money market fund because the
securities it holds are short-term and of high credit quality. In fact,
most money market funds are managed with the objective of maintaining a
stable net asset value of $1 per share, although there is no guarantee that
they can do so.
LIQUIDITY. Money market fund shares are highly liquid and easily converted
into cash. The Funds are legally required to redeem or buy back investors'
shares and pay the investors within seven days.
HOW THE FUNDS SHOW PERFORMANCE
FROM TIME TO TIME, ADVERTISEMENTS FOR THE FUNDS MAY REFER TO RATINGS,
RANKINGS, AND OTHER INFORMATION IN CERTAIN FINANCIAL PUBLICATIONS AND/OR
COMPARE THE FUNDS' PERFORMANCE TO CERTAIN INDICES. THE FUNDS MAY ADVERTISE
THEIR PERFORMANCE IN TERMS OF YIELD, EFFECTIVE YIELD, TAX-EQUIVALENT YIELD
AND TOTAL RETURN, AS DEFINED BELOW. OF COURSE, YIELD AND TOTAL RETURN
FIGURES ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF FUTURE
PERFORMANCE.
YIELD
The yield of each Fund refers to the income generated by an investment in
the Fund over a seven-day period. This income is then annualized, which
means it is assumed to be generated by the investment each week for a 52-
week period, and then it is expressed as a percentage of the investment.
EFFECTIVE YIELD
The effective yield is calculated similarly to the yield, but it assumes
that the annualized income earned from the investment is reinvested in the
Fund on a daily basis. The effective yield will be slightly higher than the
yield because this assumed reinvestment produces a compounding effect.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Tax-Free Fund is calculated similarly to
the yield. However, it is adjusted to show the taxable yield an investor
would have to earn to equal the Fund's tax-free yield, assuming a specific
tax rate, and assuming that income is 100% tax exempt.
The tax-equivalent yield is computed by dividing the tax-free yield by
the result of one minus the combined federal and state tax rate. For
example, if an investor is in the 31% federal income tax bracket, and the
rate for state taxes is 6.85%, assuming the tax-free yield is 3.5%, the
investor would have to receive 5.73% from a taxable investment to equal
that tax-free yield (3.5% divided by 1 - (.31 + .07875) = 5.73%).
TOTAL RETURN Total return represents the overall change in value of an
investment in a Fund over a specified period of time, assuming all dividend
distributions are reinvested in the Fund. Total return is calculated by
dividing that overall change in value by the amount of the initial
investment, and it is expressed as a percentage.
For example, suppose $1,000 is invested in a Fund on January 1 and on
December 31 of that year the investment is worth $1,075 (assuming all
dividends are reinvested). The overall change in value is $75 and the total
return on the investment over that period of time would be 7.5% (75 divided
by 1,000 = 7.5%).
HOW THE FUNDS INVEST
Vision Money Market Fund
THE MONEY MARKET FUND IS DESIGNED FOR CONSERVATIVE INVESTORS WHO WANT
CURRENT INCOME, LIQUIDITY AND STABILITY OF PRINCIPAL.
BY INVESTING ONLY IN HIGH QUALITY SECURITIES WITH MINIMAL CREDIT RISK AND
WITH SHORT-TERM MATURITIES, THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE
PRICE, REFERRED TO AS NET ASSET VALUE PER SHARE. THE FUND CANNOT GUARANTEE
A STABLE SHARE PRICE. HOWEVER, THE SHORT-TERM NATURE OF ITS INVESTMENTS
HELPS TO MINIMIZE PRICE FLUCTUATIONS.
INVESTMENT OBJECTIVE The investment objective of the Money Market Fund
(referred to in this section as the "Fund") is to seek current income with
liquidity and stability of principal by investing in high quality money
market instruments. The Fund pursues this investment objective by investing
in a broad range of short-term debt obligations issued by the U.S.
government, banks and corporations.
These obligations generally mature and come due for repayment by the issuer
in 397 days or less. However, securities subject to repurchase agreements
may have longer maturities (see "Repurchase Agreements" for a definition of
repurchase agreements). While the Fund may hold individual securities with
longer maturities, the average maturity of the money market instruments in
the Fund's portfolio, computed on a dollar-weighted basis, must be 90 days
or less.
In seeking to achieve its investment objective, the Fund must comply with
the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds.
For a further discussion of these requirements, see the "Regulatory
Compliance" section in the Fund's Statement of Additional Information. The
Fund's investment objective and the investment policies and limitations
described below cannot be changed without shareholder approval.
INVESTMENT POLICIES
THE FUND INVESTS IN A WIDE RANGE OF HIGH QUALITY MONEY MARKET INSTRUMENTS.
THESE INCLUDE CORPORATE COMMERCIAL PAPER IN S&P'S OR MOODY'S TWO HIGHEST
RATING CATEGORIES, CERTIFICATES OF DEPOSIT ISSUED BY MAJOR BANKS, AND U.S.
GOVERNMENT SECURITIES.
ACCEPTABLE INVESTMENTS
The high quality money market instruments in which the Fund invests
include, but are not limited to, the following:
commercial paper (short-term promissory notes issued by corporations)
rated A-2 or better by Standard & Poor's Ratings Group ("S&P") or Prime-2
or better by Moody's Investors Service, Inc. ("Moody's"), money market
instruments (including commercial paper) which are not rated but are
determined by M&T Bank, the Fund's investment adviser, to be of comparable
quality pursuant to guidelines approved by the Corporation's Board of
Directors, variable rate demand notes, and variable amount demand master
notes (see pages 17 and 18 for a definition);
instruments of domestic banks and savings and loans (such as
certificates of deposit, time deposits, and bankers' acceptances) if they
have capital, surplus and undivided profits of over $100,000,000 and if
their deposits are insured by the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"), both of which are administered
by the Federal Deposit Insurance Corporation ("FDIC"). The Fund may also
make interest-bearing savings deposits in commercial banks and savings
banks not in excess of 5% of the Fund's total assets. In addition, the Fund
may purchase U.S. dollar-denominated instruments issued or supported by the
credit of U.S. or foreign banks or savings institutions having total assets
at the time of purchase in excess of $1 billion;
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including certain of these obligations purchased on a
when-issued or delayed delivery basis (see "When-Issued and Delayed
Delivery Transactions"). Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government, such as Government National
Mortgage Association participation certificates, are backed by the full
faith and credit of the U.S. Treasury. Other securities, such as
obligations of the Federal National Mortgage Association, Farm Credit Banks
or Federal Home Loan Mortgage Corporation, are backed by the credit of the
agency or instrumentality issuing the obligations but not the full faith
and credit of the U.S. government; and
repurchase agreements secured by any of the above instruments (see
"Repurchase Agreements").
RISK FACTORS ASSOCIATED WITH FOREIGN INVESTMENTS
THE FUND MAY INVEST ONLY IN HIGH QUALITY DEBT OBLIGATIONS OF FOREIGN BANKS.
The Fund's investment in U.S. dollar- denominated obligations of foreign
banks and foreign branches of U.S. banks is limited to less than 25% of the
value of the Fund's total assets at the time of purchase. Further, the Fund
may invest in an obligation of a foreign bank or a foreign branch of a U.S.
bank only if the investment adviser considers the instrument to present
minimal credit risk. Nevertheless, this type of investment may subject the
Fund to different risks than investing in domestic obligations of U.S.
banks because political, regulatory, and economic systems and conditions
vary from country to country.
These risks include possible adverse political and economic developments,
the possible imposition of withholding taxes on interest income and the
possible seizure or nationalization of foreign deposits. Additional risks
include the possible establishment of exchange controls and the possible
adoption of foreign government restrictions that might adversely affect the
payment of principal and interest on these foreign obligations.
In addition, foreign banks and foreign branches of U.S. banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Vision Treasury Money Market Fund
THE TREASURY FUND IS DESIGNED FOR CONSERVATIVE INVESTORS WHO WANT CURRENT
INCOME, LIQUIDITY, AND STABILITY OF PRINCIPAL.
BY INVESTING IN U.S. TREASURY SECURITIES WITH SHORT-TERM MATURITIES, THE
FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS NET ASSET
VALUE PER SHARE. THE FUND CANNOT GUARANTEE A STABLE SHARE PRICE. HOWEVER,
THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO MINIMIZE PRICE
FLUCTUATIONS.
INVESTMENT OBJECTIVE
The investment objective of the Treasury Fund (referred to in this section
as the "Fund") is to seek current income with liquidity and stability of
principal. The Fund pursues this investment objective by investing in
direct obligations of the U.S. Treasury, such as Treasury bills and notes,
and repurchase agreements secured by these obligations. A repurchase
agreement is an agreement in which the organization selling U.S. Treasury
securities to the Fund agrees to repurchase the securities at a mutually
agreed upon price and time (see "Repurchase Agreements" for further
details).
The Fund invests in direct U.S. Treasury obligations that mature in 397
days or less from the time of investment. However, securities subject to
repurchase agreements may have longer maturities. While the Fund may hold
individual securities with longer maturities, the average maturity of the
obligations in the Fund's portfolio, computed on a dollar-weighted basis,
must be 90 days or less.
In seeking to achieve its investment objective, the Fund must comply with
the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds.
For a further discussion of these requirements, see the "Regulatory
Compliance" section in the Fund's Statement of Additional Information. The
Fund's investment objective and the investment policies and limitations
described below cannot be changed without shareholder approval.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS
The Fund invests in short-term U. S. Treasury obligations. The obligations
are issued by the U.S. government and are fully guaranteed as to principal
and interest by the United States. The Fund may also invest in repurchase
agreements secured by these obligations.
Vision New York Tax-Free Money Market Fund
THE TAX-FREE FUND IS DESIGNED FOR INVESTORS WHO WANT INCOME THAT IS FREE
FROM FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAXES, AS WELL AS
LIQUIDITY AND STABILITY OF PRINCIPAL.
BY INVESTING ONLY IN HIGH QUALITY SECURITIES WITH SHORT-TERM MATURITIES,
THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS NET
ASSET VALUE PER SHARE. THE FUND CANNOT GUARANTEE A STABLE PRICE. HOWEVER,
THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO MINIMIZE PRICE
FLUCTUATIONS.
INVESTMENT OBJECTIVE
The investment objective of the Tax-Free Fund (referred to in this section
as the "Fund") is to seek as high a level of current interest income that
is exempt from federal regular income tax as is consistent with liquidity
and relative stability of principal. The Fund pursues this investment
objective by investing substantially all of its assets in a portfolio of
high quality, tax-exempt debt obligations (municipal securities) that
mature in 397 days or less from the time of investment. However, variable
rate demand master notes and securities subject to repurchase agreements
may have longer maturities. The average maturity of the tax-free
obligations in the Fund's portfolio, computed on a dollar-weighted basis,
must be 90 days or less.
Under normal market conditions, the Fund intends to invest at least 80% of
its net assets in debt obligations that pay interest exempt from federal
regular income tax, although the Fund may also invest in short-term taxable
debt obligations in certain circumstances.
Subject to the Fund's investment objective and policies, the Fund will
attempt to invest its net assets, to the extent practicable, in tax-exempt
obligations issued by the State of New York and its political subdivisions
(New York municipal securities). The Fund intends to invest, under normal
market conditions, at least 80% of its net assets in New York municipal
securities. To the extent dividends paid by the Fund are derived from
interest on New York municipal securities, they will be exempt from federal
regular income tax, as well as New York State and New York City income
taxes. New York municipal securities are discussed in more detail below.
In seeking to achieve its investment objective, the Fund must comply with
the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds.
For a further discussion of these requirements, see the "Regulatory
Compliance" section in the Fund's Statement of Additional Information. The
Fund's investment objective and the investment policies described below
cannot be changed without shareholder approval.
INVESTMENT POLICIES
THE TYPES OF MUNICIPAL SECURITIES IN WHICH THE FUND MAY INVEST ARE
DISCUSSED IN MORE DETAIL BELOW UNDER "TYPES OF MUNICIPAL SECURITIES."
ACCEPTABLE INVESTMENTS
The Fund intends to invest exclusively in a diversified portfolio of short-
term, tax-exempt municipal obligations. However, in certain extraordinary
circumstances, the Fund may make temporary investments, as discussed below
under "Temporary Investments."
Municipal securities include securities issued by or on behalf of states,
counties, and municipalities and their agencies, authorities and other
political subdivisions, as well as securities issued by the District of
Columbia and territories and possessions of the United States, such as
Puerto Rico. When these securities are issued, attorneys representing the
issuer provide opinions stating that the securities are valid municipal
securities and that the interest on the securities is exempt from federal
regular income tax.
Municipal securities include, but are not limited to, the following types:
general obligation bonds and notes, revenue bonds and notes, tax and
revenue anticipation notes, bond and grant anticipation notes, construction
loan notes, and tax exempt commercial paper.
CREDIT GUIDELINES
THE FUND HAS STRICT INVESTMENT STANDARDS.
The Fund invests only in municipal securities that are determined by M&T
Bank, the Fund's investment adviser, to present minimal credit risks and
that are considered to be of "high quality," as defined below, at the time
of purchase. This includes securities that are:
rated within the two highest rating categories by Moody's (Aaa or Aa) or
S&P (AAA or AA), in the cases of bonds;
rated SP-1 by S&P or MIG-1 by Moody's, in the case of notes;
rated VMIG-1 by Moody's, in the case of variable rate municipal
securities;
rated A-1 or higher by S&P or Prime-1 by Moody's, in the case of tax-
exempt commercial paper; and
securities that are not rated at the time of purchase but that are
determined to be of comparable quality to the above ratings by M&T Bank.
M&T Bank uses guidelines approved by the Corporation's Board of Directors
to make these quality determination.
NEW YORK MUNICIPAL SECURITIES
THE FUND INTENDS TO INVEST MOST OF ITS ASSETS IN NEW YORK MUNICIPAL
SECURITIES, PROVIDED A SUFFICIENT SUPPLY OF SUITABLE QUALITY NEW YORK
SECURITIES IS AVAILABLE.
Whenever possible, M&T Bank intends to invest at least 80% of the Fund's
net assets in New York municipal securities, provided the investment is
consistent with the Fund's investment objective and policies and its status
as a diversified management investment company. Because the supply of New
York municipal securities that meet the Fund's investment objective may
fluctuate, M&T Bank cannot predict precisely what percentage of the Fund's
portfolio will be invested in such issuers.
New York municipal securities are generally issued to finance public works
within the state, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and sewer works.
They are also issued to repay outstanding obligations, to raise funds for
general operating expenses, or to make loans to other public institutions
and facilities.
New York municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing assistance to
acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increase local employment.
INVESTMENT RISKS OF NEW YORK MUNICIPAL SECURITIES
Yields on New York municipal securities depend on a variety of factors,
including the general conditions of the short-term municipal note market
and of the municipal bond market, the size of the particular offering, the
maturity of the obligations, and the rating of the issue. Further, any
adverse economic conditions or developments affecting the State, counties,
municipalities or City of New York could have an impact on the Fund's
portfolio. The ability of the Fund to achieve its investment objective
depends on the continuing ability of issuers of New York municipal
securities, or their guarantors, to meet their obligations for the timely
payment of interest and principal when due. Investing in New York municipal
securities that meet the Fund's quality standards may not be possible if
the State, counties, municipalities and City of New York do not maintain
their current credit ratings.
CONCENTRATION OF INVESTMENTS
Except as stated above with respect to New York municipal securities, M&T
Bank does not intend to invest more than 25% of the Fund's net assets on a
regular basis in securities of issuers in the same industry.
TO THE EXTENT THE FUND CONCENTRATES ITS INVESTMENTS, IT IS SUBJECT TO
GREATER RISKS.
To the extent the Fund's assets are concentrated in New York municipal
securities, the Fund will be subject to the special risks presented by the
laws and economic conditions relating to that state to a greater extent
than it would be if its assets were not so concentrated. In particular, an
investment in the Fund is subject to the risk of market value fluctuations
inherent in owning New York municipal securities.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities are general
obligation and revenue bonds. These and other types of municipal securities
are discussed below.
GENERAL OBLIGATION BONDS
ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES, TOWNS
AND OTHER GOVERNMENT UNITS.
General obligation bonds are secured by the issuer's pledge of its full
faith and credit and taxing power for the payment of principal and
interest.
REVENUE BONDS
REVENUE BONDS MAY BE ISSUED TO BUILD A TOLL BRIDGE, HIGHWAY, EDUCATIONAL
FACILITY, HOSPITAL OR OTHER FACILITY THAT SERVES A PUBLIC NEED AND GENERATE
REVENUE. THE TOLLS OR OTHER FEES COLLECTED BY THESE FACILITIES ARE THEN
USED TO REPAY THE BONDS.
Interest on and principal of revenue bonds, however, are payable only from
the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt or charge against the general revenues of a
municipality or public authority.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS
INDUSTRIAL DEVELOPMENT BONDS ARE ISSUED BY A STATE OR LOCAL GOVERNMENT TO
FINANCE PLANTS AND FACILITIES THAT ARE LEASED TO PRIVATE BUSINESSES.
Industrial development bonds and pollution control bonds are typically
classified as revenue bonds and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of such revenue
bonds is usually directly related to the credit standing of the corporate
user of the facility involved.
MORAL OBLIGATION BONDS
Moral obligation bonds are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
interest and principal payments from current revenues, it may draw on a
reserve fund. The state or municipality that created the issuer has given a
moral pledge to appropriate funds to replenish the reserve fund. But that
pledge is only a moral commitment, not a legal obligation of the state or
municipality.
VARIABLE RATE MUNICIPAL SECURITIES Some of the municipal securities which
the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate
index or some similar standard, such as the 91-day U.S. Treasury bill rate.
Many variable rate municipal securities are subject to payment of principal
on demand by the Fund (usually in not more than seven days) which is
considered in computing maturity. While some variable rate municipal
securities without this demand feature may not be considered liquid by M&T
Bank, the Fund's investment limitations require that it will invest no more
than 10% of its total assets in illiquid securities.
All variable rate municipal securities will meet the quality standards for
the Fund. The investment adviser has been instructed by the Corporation's
Board of Directors to monitor the pricing, quality, and liquidity of the
variable rate municipal securities held by the Fund on the basis of
published financial information and reports of the rating agencies and
other analytical services. Where necessary to ensure that an instrument is
of "high quality," the Fund will require that the issuer's obligation to
pay the principal of the instrument be backed by an unconditional bank
letter or line of credit guarantee or commitment to lend.
AMT OBLIGATIONS
INTEREST ON SOME MUNICIPAL SECURITIES MAY BE SUBJECT TO A SPECIAL FEDERAL
ALTERNATIVE MINIMUM TAX.
While traditional municipal bonds finance roads, schools, libraries, and
other public facilities, some municipal bonds known as private activity
bonds provide benefits to private parties. Examples of private activity
bonds include single-family housing bonds and some industrial development
bonds. Interest on certain private activity municipal bonds issued after
August 7, 1986 is a tax preference item for purposes of computing the
federal alternative minimum tax (AMT), although interest on these bonds is
not subject to regular federal income tax. These bonds are referred to as
AMT bonds or AMT obligations. For more information about the AMT, please
see "Tax Information."
The Fund may purchase all kinds of municipal securities, including AMT
obligations. To the extent the Fund invests in AMT obligations, a portion
of the Fund's dividends will be treated as a tax preference item for
shareholders potentially subject to the AMT.
As noted earlier, the Fund has a policy of investing at least 80% of its
net assets in securities that pay interest exempt from federal regular
income tax. The Fund does not consider these AMT obligations tax-exempt for
purposes of determining its compliance with this investment policy.
TEMPORARY INVESTMENTS
THE FUND MAY MAKE TEMPORARY TAXABLE INVESTMENTS.
The Fund invests its assets so that at least 80% of its annual interest
income is exempt from federal regular income tax. However, from time to
time, on a temporary basis, or when M&T Bank determines that market
conditions call for a temporary defensive posture, the Fund may invest in
short-term money market instruments (referred to as temporary investments).
Interest income from temporary investments may be taxable to shareholders
as ordinary income.
These temporary investments may not exceed 20% of the total assets of the
Fund, except when made for temporary defensive purposes. They include:
obligations issued by or on behalf of municipal or corporate issuers
having the same quality characteristics as the New York municipal
securities purchased by the Fund;
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
certificates of deposit, bankers' acceptances, or other instruments
issued by a U. S. branch of a domestic bank or savings and loan association
with capital, surplus, and
undivided profits in excess of $1 billion at the time of investment;
repurchase agreements and reverse repurchase agreements;
certain specified private activity bonds; and
debt securities, including commercial paper, of issuers having a quality
rating within the two highest rating categories of either S&P or Moody's at
the time of purchase.
In addition, the Fund may temporarily hold uninvested cash reserves that do
not earn income if, in the opinion of M&T Bank, suitable tax-exempt
obligations are unavailable. There is no percentage limitation on the
amount of assets that may be held uninvested.
See the Tax-Free Fund's Statement of Additional Information for a further
discussion of these temporary investments.
COMMON FUND INVESTMENT TECHNIQUES, FEATURES AND LIMITATIONS
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Funds purchase
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Funds to miss
a price or yield considered to be advantageous. Under normal market
conditions, each Fund will not enter into commitments to purchase
securities on a when-issued basis that exceed 25% of the value of its total
assets. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary
from the purchase prices.
As an operating policy, the Funds reserve the right to dispose of a
commitment prior to settlement if the adviser deems it appropriate to do
so. In addition, the Funds may enter into transactions to sell their
purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. The Funds may realize short-term profits or losses upon the
sale of such commitments.
REPURCHASE AGREEMENTS
IN A REPURCHASE AGREEMENT, A FUND BUYS SECURITIES AND AT THE SAME TIME
AGREES TO SELL THEM BACK AT A STATED PRICE.
The Funds may enter into repurchase agreements for U.S. government
securities and certificates of deposit with banks, broker/dealers, and
other recognized financial institutions. In a repurchase agreement, a Fund
agrees to purchase securities from the selling institution and the seller
simultaneously agrees to repurchase the securities at a specific price
within a stated time. The stated repurchase date must be within a year of
the date the Fund acquires the securities. The Funds or their custodian
(the bank that holds each Fund's assets in safekeeping) takes possession of
securities subject to repurchase agreements, and these securities are
marked to the market or valued daily.
If the original seller does not repurchase the securities from a Fund, that
Fund could receive less than the repurchase price on any sale of those
securities. If the seller filed for bankruptcy or became insolvent, the
Fund's sale of the securities might be delayed pending court action. The
Funds have regular procedures in effect for taking custody of portfolio
securities subject to repurchase agreements. Because of those established
procedures, the Funds believe that a court of competent jurisdiction would
rule in favor of the Fund and allow the Fund to retain or dispose of the
securities.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers that the Funds'
adviser considers creditworthy under guidelines approved by the
Corporation's Board of Directors.
VARIABLE RATE DEMAND NOTES
The Funds may purchase variable rate demand notes, which are long-term debt
instruments that have variable or floating interest rates and provide the
Funds with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a published
interest rate or interest rate index. Many variable rate demand notes allow
the Funds to demand the repurchase of the security on not more than seven
days' prior notice. Other notes only permit the Funds tender the security
at the time of each interest rate adjustment or at other fixed intervals.
VARIABLE AMOUNT DEMAND MASTER NOTES
WITH A VARIABLE AMOUNT DEMAND MASTER NOTE, BOTH THE AMOUNT OF THE LOAN AND
THE INTEREST RATE MAY VARY.
The Tax-Free Fund and the Money Market Fund may purchase variable amount
demand master notes. Variable amount demand master notes represent a
borrowing arrangement between a commercial paper issuer, the borrower, and
an institutional lender, such as the Fund. The Fund has the right to demand
payment of the loan it has made upon short notice. The Fund typically has
the right to increase the amount borrowed under the note, at any time, up
to the full amount provided by the note agreement.
Both the Fund and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. In some instances, however, the Fund
and the borrower may agree that the amount of outstanding indebtedness
remain fixed. Variable amount demand master notes provide that the interest
rate on the amount outstanding varies depending upon a stated short-term
interest rate index.
CREDIT ENHANCEMENT
Certain of the Acceptable Investments of the Tax-Free Fund and the Money
Market Fund may have been credit-enhanced by a guaranty, letter of credit,
or insurance. Any bankruptcy, receivership, or default, or change in the
credit quality of the party providing the credit enhancement will adversely
affect the quality and marketability of the underlying security and could
cause losses to the Tax-Free Fund and the Money Market Fund and affect
their share price. The Tax-Free Fund and the Money Market Fund may have
more than 25% of their total assets invested in securities credit-enhanced
by banks.
DEMAND FEATURES
The Tax-Free Fund and the Money Market Fund may acquire securities that are
subject to puts and standby commitments ("demand features") to purchase the
securities at their principal amount (usually with accrued interest) within
a fixed period (usually seven days) following a demand by the Funds. The
demand feature may be issued by the issuer of the underlying securities, a
dealer in the securities or another third party, and may not be transferred
separately from the underlying security. The Funds use these arrangements
to provide the Funds with liquidity and not to protect against changes in
the market value of the underlying securities.
The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect
the liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security may be
treated as a form of credit enhancement.
INVESTMENT LIMITATIONS
THE FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS IN
ORDER TO LIMIT INVESTMENT RISKS.
Many of the investment restrictions to which each Fund is subject may be
changed only by a majority vote of the outstanding shares of the Fund. You
can find a more detailed description of the following investment
limitations, together with other investment limitations that can be changed
only with such a vote of shareholders, in the Statement of Additional
Information under "Investment Limitations."
All of the Funds have the following common investment limitations. The
Funds may not:
borrow money or issue senior securities, except, under certain
circumstances, a Fund may borrow from banks or enter into reverse
repurchase agreements for temporary purposes in amounts up to 10% of the
value of its total assets at the time of such borrowing. The Fund may not
purchase securities while its borrowings (including reverse repurchase
agreements) are outstanding; or
enter into repurchase agreements providing for settlement more than
seven days after notice, if such an investment, together with any other
illiquid securities in a Fund, exceeds 10% the Fund's total assets.
The Tax-Free Fund may not:
purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to
obligations issued by the State of New York or any of its authorities,
agencies, instrumentalities, or political subdivisions; obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities;
domestic bank certificates of deposit and bankers' acceptances; or
repurchase agreements secured by any of the foregoing obligations; or
invest less than 80% of its net assets in securities the interest on
which is exempt from federal regular income tax, except during temporary
defensive periods; AMT obligations are not considered securities the
interest on which is exempt from federal regular income tax.
The Treasury Fund may not:
purchase securities other than direct obligations of the U.S. Treasury,
such as Treasury bills and notes, some of which may be subject to
repurchase agreements.
The Money Market Fund may not:
purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, domestic bank certificates of deposit,
bankers' acceptances, and repurchase agreements secured by domestic bank
instruments or obligations of the U.S. government, its agencies or
instrumentalities.
FUND MANAGEMENT, DISTRIBUTION AND ADMINISTRATION
BOARD OF DIRECTORS
A BOARD OF DIRECTORS SUPERVISES THE FUNDS.
The Corporation's Board of Directors are responsible for managing the
business affairs of the Funds and for exercising all the Funds' powers,
except those reserved for the Funds' shareholders.
INVESTMENT ADVISER
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK") MAKES INVESTMENT
DECISIONS FOR THE FUNDS, ACTING UNDER THE DIRECTION OF THE BOARD OF
DIRECTORS.
As investment adviser, M&T Bank continually conducts investment research
and supervision for the Funds and is responsible for all purchases and
sales of the securities in each Fund's portfolio. M&T Bank receives an
annual fee from each of the Funds for these services.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Funds and their
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Funds' shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Funds; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as
investment adviser, M&T Bank is entitled to receive a fee from each Fund
equal to an annual rate of .50% of each Fund's average net assets. This fee
is computed daily and paid monthly. M&T Bank has agreed to pay all expenses
it incurs in connection with its advisory activities, other than the cost
of securities (including any brokerage commissions) purchased for the
Funds.
M&T BANK MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
From time to time, M&T Bank may voluntarily waive all or a portion of its
advisory fees in order to help the Fund maintain a competitive expense
ratio.
ADVISER'S BACKGROUND
FOUNDED IN 1856, M&T BANK PROVIDES COMPREHENSIVE BANKING AND FINANCIAL
SERVICES.
M&T Bank is the principal banking subsidiary of First Empire State
Corporation, a $12 billion bank holding company, as of December 31, 1996,
headquartered in Buffalo, New York. M&T Bank has 161 offices throughout New
York State and an office in Nassau, The Bahamas.
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.
DISTRIBUTION OF FUND SHARES
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUNDS.
Shares of the Funds are sold on a continuous basis by Federated Securities
Corp., as the principal distributor. It is a Pennsylvania corporation
organized on November 14, 1969, and is also the principal distributor for a
number of other investment companies. Federated Securities Corp. is a
subsidiary of Federated Investors.
SHAREHOLDER SERVICING ARRANGEMENTS
The Funds have 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
Funds. The Funds 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 a Fund's average daily net
assets for which the Shareholder Servicing Agent provides services. The
Funds will not accrue or pay any shareholder servicing agent fees until a
separate class of shares has been created for the Funds or the prospectus
is amended to reflect the imposition of fees.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings and
loan associations) to provide certain administrative services that are not
provided by Federated Administrative Services (see below). These
administrative services include distributing prospectuses and other
information, providing accounting assistance and shareholder
communications, or otherwise facilitating shareholder purchases and
redemptions (sales) of any Fund shares. The administrators appointed could
include affiliates of the adviser.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. If the distributor pays any fees for these
services, the fees will be reimbursed by the adviser and not the Funds.
In addition, brokers, dealers, and administrators may receive additional
payments in the form of cash or promotional incentives based on the amount
of any Fund shares purchased by their clients or customers.
The distributor, M&T Bank, or affiliates thereof, at their own expense and
out of their own assets, may also provide other compensation to financial
institutions in connection with sales of shares of the Funds or as
financial assistance for providing substantial marketing, sales and
operational support. Compensation may also include, but is not limited to,
financial assistance to financial institutions in connection with
conferences, sales, or training programs for their employees, seminars for
the public, advertising or sales campaigns, or other special events. In
some instances, this compensation may be predicated upon the amount of
shares sold and/or upon the type and nature of sales or operational support
they furnish. Dealers may not use sales of the Corporation's shares to
qualify for this compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned other
compensation shall be paid for by the Corporation, the Funds or their
shareholders, nor will it change the price paid by investors for the
purchase of Fund shares.
ADMINISTRATION OF THE FUNDS
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUNDS WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUNDS.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as
specified below:
MAXIMUM ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC.
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year will be at least
$50,000 per Fund. Federated Administrative Services may choose voluntarily
to waive a portion of its fee at any time.
YOUR GUIDE TO USING THE FUNDS
HOW THE FUNDS VALUE THEIR SHARES
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE FUND SHARE.
Net asset value is calculated by adding up the value of all of a Fund's
securities and cash (its assets), subtracting all of its liabilities
(including all expenses payable or accrued by the Fund), and then dividing
the result (net assets) by the total number of Fund shares outstanding.
Each Fund attempts to maintain a stable net asset value of $1.00 per share
through its investment policies, which have been described previously, and
through its policies for valuing securities in its portfolio. Each Fund
values its portfolio securities based on their amortized cost. This method
of valuation assumes a stable rate of income from the day securities are
purchased until they mature, without taking into account actual changes in
market value based on interest rate changes. Prices of money market
securities and other fixed income securities typically move in the opposite
direction of interest rates. That is, prices generally increase when
interest rates fall and decrease when interest rates rise.
Under the amortized cost method of valuation used by the Funds, the value
of the Funds' assets will not change in response to fluctuating interest
rates. However, each Fund monitors the difference between the amortized
cost value of its assets and their actual market value, which can be
expected to vary inversely with changes in interest rates. Of course, the
Funds cannot guarantee that their net asset value will always remain at
$1.00 per share.
WHAT FUND SHARES COST
THERE IS NO SALES CHARGE TO BUY FUND SHARES.
Shares of the Fund are sold at the next net asset value calculated after
your order is received (normally $1.00 per share). Each Fund's net asset
value is determined at 12:00 p.m. Eastern time, 3:00 p.m. Eastern time and
at the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange Monday through Friday, except on: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and
Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may
from time to time offer certain items of nominal value to any shareholder
or investor.
HOW TO BUY SHARES
YOU CAN BUY FUND SHARES BY FEDERAL RESERVE WIRE, MAIL OR TRANSFER, AS
EXPLAINED BELOW.
You can buy shares of the Funds on any business day, except on days when
the New York Stock Exchange or M&T Bank is closed, or on holidays when wire
transfers are restricted (Columbus Day, Veterans' Day, and Martin Luther
King Day). The Fund reserves the right to reject any purchase request.
Texas residents must purchase through Federated Securities Corp. at 1-800-
618-8573.
OPENING AN ACCOUNT
To make an initial investment in the Funds, you must open an account by
completing the account application form. Information needed to open your
account may also be taken over the telephone. To apply by phone or get help
in completing the enclosed application, simply call an account
representative at M&T Bank or those affiliates of M&T Bank which make
shares, or M&T Bank's Mutual Fund Services at (800) 836-2211 (in the
Buffalo area, phone 842-4488). The Funds use this telephone number only to
service shareholders of Vision Group of Funds, Inc. You also may purchase
shares of the Funds through any representative of M&T Securities, Inc.
("M&T Securities") at M&T Bank, as well as at separate M&T Securities
locations, or by calling 1-800-724-5445. M&T Securities (member NASD and
SIPC) is a wholly-owned registered broker-dealer subsidiary of M&T Bank.
The Funds reserve the right to reject any purchase request.
MINIMUM INITIAL INVESTMENT
A $500 INITIAL INVESTMENT IS ALL THAT'S REQUIRED.
The minimum initial investment in each Fund is $500, unless the investment
is in a retirement plan, in which case the minimum initial investment is
$250. Subsequent minimum investments must be in amounts of at least $25,
including retirement plans. In addition, the minimum initial and subsequent
investment amounts may be waived or lowered from time to time, such as for
customers participating in automatic investment services offered by M&T
Bank.
BUYING SHARES BY WIRE
You can purchase shares of the Funds by Federal Reserve wire. This is
referred to as wiring federal funds, and it simply means that your bank
sends money to the Funds' bank through the Federal Reserve System. To
purchase shares by Federal Reserve wire, call M&T Bank's Mutual Fund
Services before 11:00 a.m. (Eastern time) to place your order. The order is
considered immediately received. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that same day.
BUYING SHARES BY MAIL
To buy shares of a Fund for the first time by mail, complete and sign the
account application form and mail it, together with your check made payable
to (Name of the Fund) in an amount of $500 or more, to the address below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, NewYork 14240-4556
Current shareholders can purchase shares by mail by sending a check to the
same address. Orders by mail are considered received after payment by check
has been converted into federal funds. This is normally the next business
day after the check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Funds by transferring money from a bank account,
you must maintain a checking or NOW deposit account at M&T Bank or any of
its affiliate banks. To place an order, call M&T Bank's Mutual Fund
Services before 11:00 a.m. (Eastern time). The money will be transferred
from your M&T Bank Demand Deposit Account to your Fund account that same
day.
Shareholders who previously purchased shares of the Funds through The
Fairfield Group, Inc., the Fund's former distributor, may continue to
purchase, exchange, or redeem their shares by calling Federated Securities
Corp. at (800) 618-8573.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares of the Funds through different types
of customer accounts at M&T Bank and its affiliates. You should read this
prospectus together with any applicable agreement between you and the
institution to learn about the services provided, the fees charged for
those services, and any restrictions or limitations that may be imposed.
SYSTEMATIC INVESTMENT PROGRAM
YOU CAN BUY SHARES CONVENIENTLY THROUGH THE FUNDS' SYSTEMATIC INVESTMENT
PROGRAM.
Once you have opened a Fund account, you can add to your investment on a
regular basis in amounts of $25 or more through automatic deductions from
your bank demand deposit account. The money may be withdrawn monthly or
quarterly and invested in Fund shares at the next net asset value
calculated after your order is received. To sign up for this program,
please call M&T Bank's Mutual Fund Services for an application.
DIVIDENDS
YOU EARN DAILY DIVIDENDS.
The Funds declare dividends daily and pay them monthly. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day.
Shares purchased by check begin earn ing dividends on the day after the
check is converted into federal funds.
Dividends are automatically reinvested in additional shares of a Fund on
the dates the dividends are paid unless you request cash payments on the
account application form or by contacting M&T Bank's Mutual Fund Services.
CAPITAL GAINS
If, for some extraordinary reason, a Fund realizes capital gains, those
capital gains could result in an increase in the Fund's dividends.
Conversely, any capital losses realized by a Fund could result in a
decrease in its dividends. In the unlikely event that a Fund realizes net
long-term capital gains, it will distribute them at least once every 12
months. The Funds do not expect to realize any capital gains or losses and,
therefore, do not foresee paying any "capital gains dividends," as defined
in the Internal Revenue Code.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a share account for each shareholder. The Funds will not issue
certificates for your shares unless you make a written request to the
Funds. Federated Shareholder Services Company is a subsidiary of Federated
Investors.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans
or IRA accounts. For further details, contact the Fund and consult a tax
adviser. You should note that an investment in the Tax-Free Fund is
generally not appropriate for retirement plans or IRA accounts.
HOW TO EXCHANGE SHARES
IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN CONVENIENTLY EXCHANGE SHARES OF
ANY OF THE FUNDS FOR SHARES OF OTHER FUNDS IN THE CORPORATION THAT ARE
REGISTERED IN YOUR STATE.
All shareholders in any of the Funds are shareholders of Vision Group of
Funds, Inc. and have access to the other portfolios of the Corporation
(referred to as the "Participating Funds" and listed below under
"Description of Fund Shares") through an exchange program. You may exchange
shares of a Participating Fund for shares of other Participating Funds at
net asset value, plus any applicable sales charge.
When exchanging into and out of Participating Funds with a sales charge
and Participating Funds without a sales charge, shareholders who have paid
a sales charge once upon purchasing shares of any Participating Fund,
including those shares acquired by the reinvestment of dividends, will not
have to pay a sales charge again on an exchange. 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. However, shares
of Participating Funds with no sales charge that were acquired by the
reinvestment of dividends will not be subject to a sales charge upon an
exchange into shares of a Participating Fund with a sales charge. Instead,
such exchanges will be made at net asset value.
To be eligible for this exchange privilege, you must exchange shares with a
net asset value of at least $500. This privilege is available to
shareholders resident in any state in which the fund shares being acquired
may be sold. You may exchange your shares only for shares of Participating
Funds that may legally be sold in your state of residence. Prior to any
exchange, you must receive a copy of the current prospectus of the
Participating Fund into which the exchange is being made.
Once Federated Shareholder Services Company has received proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next net asset value calculated. If you do
not have an account in the Participating Fund whose shares you want to
acquire, you must establish a new account. Unless you specify otherwise,
this account will be registered in the same name and have the same dividend
and capital gains payment options as you selected with your existing
account. If the new account registration (name, address, and taxpayer
identification number) is not identical to your existing account, you must
provide a signature guarantee to verify your signature. Please see
"Signature Guarantees" below for more information about signature
guarantees.
Each exchange is considered a sale of shares of one Fund and a purchase of
shares of another Fund and, depending on the circumstances, may generate a
short or long-term capital gain or loss for federal income tax purposes.
Each Fund reserves the right to modify or terminate the exchange privilege
at any time. Shareholders will be notified prior to any modification or
termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services at the number listed below.
EXCHANGING SHARES BY TELEPHONE
TO BE ELIGIBLE FOR TELEPHONE EXCHANGES, SELECT THAT OPTION WHEN YOU OPEN
YOUR ACCOUNT.
You may exchange shares between Participating Funds by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488). To sign-up for telephone exchanges, you must select the telephone
exchange option on the new account application. It is recommended that you
request this privilege on your initial application. If you do not and later
wish to take advantage of telephone exchanges, you may call M&T Bank's
Mutual Fund Services for authorization.
You can only exchange shares by telephone between Fund accounts with
identical shareholder registrations (names, addresses, and taxpayer
identification numbers).
Telephone exchange instructions must be received by M&T Bank by 11:00 a.m.
(Eastern time) and transmitted to Federated Shareholder Services Company
before 4:00 p.m. (Eastern time) for shares to be exchanged that same day.
You will not receive a dividend from the Fund into which you are exchanging
on the date of the exchange.
You may have difficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot
make a telephone exchange. Instead, the certificates must be properly
endorsed and should be sent by registered or certified mail, along with
your written exchange request, to the Vision Group of Funds, Inc. at the
address shown below. M&T Bank's Mutual Fund Services will then forward the
certificate to the transfer agent, Federated Shareholder Services Company,
and the shares will be deposited in your account before the exchange is
made.
Shareholders requesting the telephone exchange service authorize the
corporation and its agents to act upon their telephonic instructions to
exchange shares from any account for which they have authorized such
services. Exchange instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Funds, the Funds may be liable for losses due to unauthorized or
fraudulent telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
YOU CAN REDEEM FUND SHARES BY TELEPHONE, CHECK, OR MAIL. TO ENSURE YOUR
SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES EXPLAINED
BELOW.
Each Fund redeems or repurchases your shares at the net asset value per
share next determined after the Fund receives your redemption request. You
may only redeem shares on days when the Funds compute their net asset
value. You cannot redeem shares on days when the New York Stock Exchange or
M&T Bank is closed, or on federal holidays when wire transfers are
restricted (Columbus Day, Veterans' Day, and Martin Luther King Day). While
you may redeem various amounts by telephone, check, or written request, you
can close your account only by writing.
TELEPHONE REDEMPTIONS
TO QUALIFY FOR TELEPHONE REDEMPTIONS, CHOOSE THAT OPTION WHEN YOU OPEN YOUR
ACCOUNT.
You may redeem your shares by calling M&T Bank's Mutual Fund Services at
(800) 836-2211 (in the Buffalo area, phone 842-4488) before 11:00 a.m.
(Eastern time). The proceeds will be wired that same day directly to your
account at M&T Bank or an affiliate or to another account you previously
designated at a domestic commercial bank account that is a member of the
Federal Reserve system. M&T Bank reserves the right to charge a fee for a
wire transfer from a customer checking account, which may contain
redemption proceeds, to another commercial bank.
You will be automatically eligible for telephone redemptions, unless you
check the box on the new account application form to decline this
privilege. It is recommended that you provide the necessary information for
the telephone/ wire redemption option on your initial application. If you
do not do this and later wish to take advantage of telephone redemptions,
you must call M&T Bank's Mutual Fund Services for authorization forms. If
your redemption request is received after 11:00 a.m. (Eastern time), you
will be paid the Fund's daily dividend on those shares. However, the
proceeds will not be wired to your bank account until the following
business day. If your redemption request is received before 11:00 a.m.
(Eastern time), the proceeds will be wired the same day, but you will not
receive that day's dividend.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds. Inc. at the address shown below.
Each Fund reserves the right to modify or terminate the telephone
redemption privilege at any time. Shareholders will be notified prior to
any modification or termination.
If you hold shares in certificate form or hold Fund shares through an IRA
account, you cannot redeem those shares by phone, but instead must redeem
them in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to
redeem shares from any account for which they have authorized such
services. Redemption instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Funds, the Funds may be liable for losses due to unauthorized or
fraudulent telephone instructions.
REDEEMING SHARES BY CHECK
At your request, Federated Shareholder Services Company will establish a
checking account that allows you to redeem Fund shares by writing checks in
amounts of $250 or more. The ability to redeem shares by check may not be
available when establishing an account through certain financial
institutions (such as brokers). You should read this prospectus together
with any applicable agreement between you and the institution to learn
about the services provided, the fees charged for those services, and any
restrictions or limitations that may be imposed. For more information,
contact M&T Bank's Mutual Fund Services.
REDEEMING SHARES BY MAIL
You may also redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions
before redeeming by letter. Your written request must include your name,
the Fund's name, your account number, and the share or dollar amount you
want to redeem. If share certificates have been issued to you, those
certificates must be properly endorsed and should be sent by registered or
certified mail along with your redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
if you are redeeming shares worth $50,000 or more;
if you want a redemption of any amount sent to an address other than
your address on record with a Fund;
if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
if you want to transfer the registration of Fund shares.
signature guarantee must be provided by:
a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
a savings bank or savings association whose deposits are insured by
SAIF, which is administered by the FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Funds and their transfer
agent reserve the right to amend these standards at any time without
notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request, provided the Fund or its agents have received payment
for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
THE FUNDS' SYSTEMATIC WITHDRAWAL PROGRAM LETS YOU RECEIVE REGULAR AUTOMATIC
PAYMENTS OF A PREDETERMINED AMOUNT.
If you own Fund shares worth $10,000 or more you can have regular payments
of $50 or more sent from your Fund account to you, another person you
designate or your bank demand deposit account. Fund shares are redeemed to
provide monthly or quarterly payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends and
any capital gains distributions paid on the Fund shares, and any possible
fluctuations in a Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason,
you should not consider systematic withdrawal payments as yield or income
received on your investment in the Fund.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the
Funds may redeem your shares and send you the proceeds if your account
balance falls below a minimum value of $250 due to shareholder redemptions.
Shareholders who make large or frequent withdrawals may be particularly
vulnerable to this involuntary redemption process. However, before shares
are redeemed to close an account, the shareholder will be notified in
writing and given 30 days to purchase additional shares to meet the minimum
balance requirement.
Further, each Fund reserves the right to redeem shares involuntarily or
make payment for redemptions in the form of securities if it appears
appropriate to do so in light of the Fund's responsibilities under the
Investment Company Act of 1940.
TAX INFORMATION
THE FOLLOWING DISCUSSION ON TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE
CONSULT YOUR OWN TAX ADVISER FOR SPECIFIC TAX INFORMATION ABOUT YOUR
PARTICULAR SITUATION.
Below is a general discussion of tax considerations for each of the Funds.
No attempt has been made to present a detailed explanation of the federal,
state, and local income tax treatment of a Fund or its shareholders, and
this discussion is not intended as a substitute for careful tax planning.
The tax consequences discussed here apply whether you receive dividends in
cash or reinvest them in additional shares. The Funds will send you tax
information annually regarding the federal income tax consequences of
distributions made during the year. You should definitely consult your own
tax adviser about any state or local taxes that may apply.
Each Fund will be treated as a separate entity for federal income purposes.
Income earned by each of the Funds, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
portfolios.
The Funds intend to qualify each year as a regulated investment company
under the Internal Revenue Code so that they are not required to pay
federal income taxes on the income and capital gains distributed to
shareholders.
TAX-FREE FUND
THE FUND EXPECTS MOST OF ITS INCOME TO BE EXEMPT FROM FEDERAL REGULAR
INCOME TAX.
FEDERAL TAXES
Shareholders are not required to pay federal regular income tax on any
dividends received from the Fund that represent net interest received from
tax-exempt municipal securities (exempt-interest dividends). The Fund
intends to invest its assets so that most of the dividends it pays will be
considered exempt-interest dividends. Shareholders will be required to pay
federal income tax on dividends received from the Fund attributable to
capital gains and net interest received from taxable temporary investments,
although the Fund anticipates that such amounts will be limited.
However, exempt-interest dividends on certain private activity municipal
securities may be included in calculating the federal alternative minimum
tax ("AMT") for individuals and corporations. The AMT is a special federal
tax that applies to taxpayers who claim certain large regular income tax
deductions, which are referred to as tax preference items. Among these tax
preference items is the income earned on certain private activity municipal
bonds issued after August 7, 1986. Individual taxpayers compute the
alternative minimum tax by adding back these tax preference items to their
regular taxable income, subtracting certain adjustments and applying a tax
rate of up to 28% of income subject to the AMT. You only pay the AMT if it
exceeds your federal regular income tax liability for the year.
The Fund may invest in all types of municipal securities, including private
activity municipals that may be subject to the AMT. To the extent the Fund
invests in AMT obligations, a portion of the Fund's dividends will be
treated as a tax preference item for shareholders potentially affected by
the AMT. But this is only meaningful if you yourself are subject to the
AMT. Ask your own tax adviser for more information.
NEW YORK TAXES
Under existing New York laws, shareholders will not be subject to New York
State or New York City personal income taxes on dividends to the extent
that such dividends qualify as "exempt interest dividends" under the
Internal Revenue Code of 1986, as amended, and represent interest income
attributable to obligations of the State of New York and its political
subdivisions, as well as certain other obligations, the interest on which
is exempt from New York State and New York City personal income taxes, such
as, for example, certain obligations of the Commonwealth of Puerto Rico. To
the extent that distributions are derived from other income, such
distributions will be subject to New York State or New York City personal
income tax.
The Fund cannot predict in advance the exact portion of its dividends that
will be exempt from New York State and New York City personal income taxes.
However, the Fund will report to shareholders at least annually what
percentage of the dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the same extent that they are exempt from the New York City
personal income tax.
Dividends paid by the Fund are not excluded from net income in determining
New York State or New York City franchise taxes on corporations or
financial institutions.
CORPORATE SHAREHOLDER INFORMATION
In the case of a corporate shareholder, all exempt-interest dividends paid
by the Fund are included in computing the shareholder's adjusted current
earnings, upon which is based a separate corporate preference item that may
be subject to the AMT. The corporate AMT tax rate is 20%.
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
Dividends paid by the Fund are not exempt from the New York State franchise
tax on corporations or the New York City general corporation tax.
THE TAX TREATMENT OF TEMPORARY INVESTMENTS
Dividends paid by the Fund that are attributable to the net interest earned
on some temporary investments and any realized net short-term capital gains
are taxed as ordinary income.
MONEY MARKET FUND AND TREASURY FUND
FEDERAL INCOME TAXES
Unless shareholders are otherwise exempt from taxes, they are required to
pay federal income taxes on Fund dividends and other distributions received
(including capital gains distributions, if any).
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. (the "Corporation") was organized as a Maryland
corporation on February 23, 1988, and the Funds commenced operations on
June 1, 1988. The Corporation has authorized capital of 10 billion shares
of common stock with a par value of $.001 per share (referred to as capital
stock). The Corporation's Articles of Incorporation permit the Corporation
to offer separate series of shares in the Funds or other future portfolios.
Currently, the Corporation offers seven portfolios: Vision Money Market
Fund, Vision Treasury Money Market Fund, Vision New York Tax-Free Money
Market Fund, Vision U.S. Government Securities Fund, Vision New York Tax-
Free Fund, Vision Growth and Income Fund, and Vision Capital Appreciation
Fund.
Each Fund share represents an equal proportionate interest in the Fund with
other shares of the same class and participates equally in the dividends
and any other distributions that are declared at the discretion of the
Corporation's Board of Directors.
VOTING RIGHTS AND OTHER INFORMATION
EACH SHARE OF EACH FUND IS ENTITLED TO ONE VOTE IN DIRECTOR ELECTIONS AND
OTHER MATTERS SUBMITTED TO SHAREHOLDERS FOR VOTE.
Shareholders of the Fund are entitled to one vote for each full share
they hold and to fractional votes for any fractional shares they hold.
Shareholders in all the Funds generally vote in the aggregate and not by
class, unless the law expressly requires otherwise or the Board of
Directors determines that the matter to be voted upon affects only the
interests of shareholders of a particular class. (See the "Description of
Fund Shares" in the Statement of Additional Information for examples of
when the Investment Company Act of 1940 requires that shareholders vote by
class.) As of April 18, 1997, Tice & Co., Buffalo, New York, acting in
various capacities for numerous accounts, was the owner of record of 43.24%
of the voting securities of the Money Market Fund; 80.97% of the voting
securities of the Treasury Fund; and 59% of the voting securities of the
Tax-Free Fund, and, therefore, may for certain purposes be deemed to
control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
The Funds are not required to hold annual shareholder meetings, unless
matters arise that require a vote of the shareholders under the Investment
Company Act of 1940. That law requires a vote of the shareholders to
approve changes in the Funds' investment advisory agreement, to replace the
Funds' independent certified public accountants and, under certain
circumstances, to elect members to the Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a
vote of shareholders at a special meeting. The Corporation's Board of
Directors will promptly call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of any Fund's
outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in a Fund,
together with all income, earnings, profits, and proceeds derived from the
investment of that money. This includes any proceeds from the sale,
exchange, or liquidation of these investments, any funds or payments
derived from the reinvestment of these proceeds, and a portion of the
general assets of the Corporation that do not otherwise belong to the Fund.
Assets belonging to a Fund are charged with the direct expenses and
liabilities of that Fund and with a share of the general expenses and
liabilities of the Corporation. The general expenses and liabilities of the
Corporation are allocated in proportion to the relative asset values of all
the Corporation's portfolios at the time the expense or liability is
incurred.
The management of the Corporation determines each Fund's direct and
allocable liabilities at the time the expense or liability is incurred as
well as each Fund's allocable share of any general assets at the time the
asset is acquired. These determinations are reviewed and approved annually
by the Corporation's Board of Directors and are conclusive.
ADDRESSES
Vision Group of Funds, Inc. P.O. Box 4556 Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER Manufacturers and Traders Trust Company One M&T Plaza
Buffalo, New York 14240
CUSTODIAN State Street Bank and Trust Company P.O. Box 1790 Boston,
Massachusetts 02105-9849
ADMINISTRATOR Federated Administrative Services Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Shareholder Services
Company P.O. Box 8600 Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS Ernst & Young LLP One Oxford Centre Pittsburgh,
Pennsylvania 15219
Vision Money Market Fund
Vision Treasury Money Market Fund
Vision New York Tax-Free Money Market Fund
Prospectus dated June 30, 1997
[LOGO OF VISION]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS TRUST COMPANY Since
1955 Investment Adviser Federated Investors Tower A subsidiary of First
Empire State Corporation Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund and is subsidiary
of Federated Investors.
92830F307 92830F208 92830F109
1072302A (6/97) TR1072302A (6/97)
VISION MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus
of one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Money Market Fund (the ``Fund') dated June 30, 1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 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 Additional
Information, if you have received it electronically, write to Vision
Group of Funds, Inc., P.O. Box 4556, Buffalo, NY 14240-4556, or call
(800) 836-2211 or (716) 842-4488. Please retain this Statement of
Additional Information for further reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
U.S. Government Obligations 1
When-Issued and Delayed Delivery Transactions 1
Reverse Repurchase Agreements 1
Credit Enhancement 2
INVESTMENT LIMITATIONS 2
Regulatory Compliance 3
VISION GROUP OF FUNDS, INC. MANAGEMENT 4
Fund Ownership 1
Directors' Compensation 2
Director Liability 2
INVESTMENT ADVISORY SERVICES 2
Adviser to the Fund 2
Advisory Fees 3
OTHER SERVICES 3
Administrative Services 3
Custodian and Portfolio Accountant 3
Transfer Agent and Dividend Disbursing Agent 3
Independent Auditors 3
BROKERAGE TRANSACTIONS 3
DESCRIPTION OF FUND SHARES 4
HOW TO BUY SHARES 5
Conversion to Federal Funds 5
Cash Sweep Program 5
DETERMINING NET ASSET VALUE 5
REDEEMING SHARES 6
BANKING LAWS 6
TAX STATUS 6
The Fund's Tax Status 6
Shareholders' Tax Status 6
TOTAL RETURN 7
YIELD 7
EFFECTIVE YIELD 7
PERFORMANCE COMPARISONS 7
Economic and Market Information 8
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Vision Group of Funds, Inc. (the
`Corporation''). The Corporation was established as a Maryland corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and stability of principal by investing in high-quality money market
instruments.
TYPES OF INVESTMENTS
The Fund invests in money market instruments which mature in 397 days or
less and which include, but are not limited to, commercial paper and
variable amount demand master notes, bank instruments, U.S. government
obligations, and repurchase agreements.
The instruments of banks and savings and loans that are members of the
Federal Deposit Insurance Corporation, such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, are not
necessarily guaranteed by those organizations.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain
obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oStudent Loan Marketing Association;
oFederal Home Loan Mortgage Corporation;
oFederal Home Loan Banks; and
oFederal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. The Fund engages in when-issued
and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 25%
of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled.
The above investment objective and policies cannot be changed without
approval of a majority of the outstanding shares of the Fund.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. However, credit-enhanced securities will not be treated
as having been issued by the credit enhancer for diversification purposes,
unless the Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, or participate on a joint or joint and several basis in any
securities trading account.
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the terms described
in the Prospectus. The Fund does not anticipate entering into reverse
repurchase agreements in excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any securities,
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the
value of the Fund's total assets at the time of its borrowings.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts
(including futures contracts), real estate, oil, gas, or mineral
exploration or development programs, except that it may purchase
marketable securities of companies engaged in such activities.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by
others.
LENDING CASH OR SECURITIES
The Fund will not make loans except that the Fund may purchase or hold
debt instruments, including repurchase agreements, in accordance with
its investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase securities issued by any one issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if as a result more than
5% of the value of its total assets would be invested in the
securities of that issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to this 5%
limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total
assets in any one industry. Utilities, however, will be divided
according to their services; for example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry. Wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are
primarily related to financing activities of their parents. In
addition, the Fund may invest more than 25% in cash or cash items
(including instruments issued by a U.S. branch of a domestic bank or
savings and loan association and bankers' acceptances), securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market
instruments (i.e., repurchase agreements).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
DIRECTORS OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if
the officers or Directors of the Corporation or the Fund's investment
adviser owning beneficially more than one-half of 1% of the issuer's
securities together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total
assets in the securities of issuers which have records of less than
three years of continuous operation, including the operation of any
predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising
control or management.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in
the coming fiscal year.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and were
constructed so as to comply with Rules promulgated by the Securities and
Exchange Commission (SEC) governing mutual funds' use of the amortized cost
method of accounting, as they were in effect at the time the Fund were
created.
The SEC has subsequently revised Rule 2a-7 under the Investment Company Act
of 1940 which governs money market funds' use of the amortized cost method
of accounting. As a result of the revisions, the Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments"). These securities must be
either rated in one of the two highest short-term rating categories by
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such rating.
The Fund will follow applicable regulations in determining whether a
security rated by NRSROs can be treated as being in the twohighest short-
term rating categories.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
Former President, Brand Name Sales, Inc.; President, Hambleton & Carr,
Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel and Vice President, Federated Administrative Services;
formerly Attorney, Morrison & Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Tice & Co., Buffalo, New York,
owned approximately 264,428,489 shares (43.24%) and National Financial
Services Co., New York, New York, owned approximately 34,286,181 shares
(5.60%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank'') pursuant to an investment advisory
agreement dated April 25, 1988. The advisory services provided and the
expenses assumed by M&T Bank, as well as the advisory fees payable to it,
are described in the Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with its performance under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of M&T
Bank in the performance of its duties, or from reckless disregard by it of
its duties and obligations thereunder. Because of internal controls
maintained by M&T Bank to restrict the flow of non-public information, Fund
investments are typically made without any knowledge of M&T Bank's or its
affiliates' lending relationships with an issuer.
Unless sooner terminated, the advisory agreement between the Fund and M&T
Bank will continue in effect from year to year if such continuance is
approved at least annually by the Corporation's Board of Directors, or by
vote of a majority of the outstanding shares of the Fund (as defined in the
Prospectus), and by a majority of the Directors who are not parties to the
advisory agreement or interested persons (as defined in the Investment
Company Act of 1940) of any party to the advisory agreement, by vote cast
in person at a meeting called for such purpose. The advisory agreement is
terminable at any time on sixty days' written notice without penalty by the
Directors, by vote of a majority of the outstanding shares of the Fund, or
by M&T Bank. The advisory agreement also terminates automatically in the
event of its assignment, as defined in the Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment
advisory fee as described in the Prospectus. During the fiscal years ended
April 30, 1997, 1996, and 1995, the Fund's adviser earned $ ,
-----
$2,339,981, and $1,635,164, respectively, which were reduced by $ ,
-----
$530,234, and $618,151, respectively, because of undertakings to limit the
Fund's expenses. All advisory fees were computed on the same basis as in
the advisory contract described in the Prospectus.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1997,
1996, and 1995, Federated Administrative Services earned $ , $531,676,
-----
and $415,548, respectively, of which $ , $5,988, and $0, respectively,
-----
were waived
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
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
Pursuant to the Fund's advisory agreement, M&T Bank determines which
securities are to be sold and purchased by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Portfolio securities
are normally purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asking price. While M&T Bank generally seeks
competitive spreads or commissions, the Fund may not necessarily pay the
lowest spread or commission available on each transaction for reasons
discussed below.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided
The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with M&T Bank, or its affiliates, and will
not give preference to M&T Bank's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and
reverse repurchase agreements. While serving as investment adviser to the
Fund, M&T Bank has agreed to maintain its policy and practice of conducting
its Trust and Investment Services Division independently of its Commercial
Department. The Fund's advisory agreement provides that, in making
investment recommendations for the Fund, Trust and Investment Services
Division personnel will not inquire or take into consideration whether the
issuer of securities proposed for purchase or sale by the Fund is a
customer of the Commercial Department and, in dealing with its commercial
customers, the Commercial Department will not inquire or take into
consideration whether securities of such customers are held by the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
The Fund does not intend to seek profits through short-term trading. The
Fund's annual portfolio turnover will be relatively high but portfolio
turnover is not expected to have a material effect on the net income of the
Fund.
For the fiscal years ended April 30, 1997, 1996, and 1995, the Fund paid
no commissions on brokerage transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to ten billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F and G Common
Stock represent interests in Vision Money Market Fund, Vision Treasury
Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, and Vision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion
or exchange rights as the Board of Directors may grant in its discretion.
When issued for payment as described in the Fund's Prospectus and this
Statement of Additional Information, the Fund's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative asset values of the Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 also provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation's shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding Common Stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange and the Federal Reserve wire system are open for
business. The procedure for purchasing shares of the Fund is explained in
the Prospectus under `How to Buy Shares.''
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. M&T Bank and State
Street Bank act as the shareholders' agents in depositing checks and
converting them to federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future.
For participating accounts, cash accumulations in demand deposit accounts
with M&T Bank would be automatically invested in shares of the Fund on a
day selected by M&T Bank and its customer, or when the demand deposit
account reaches a predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read
together with any agreement between the customer and the depository
institution with regard to the services to be provided, the fees to be
charged for those services, and any restrictions and limitations that
would be imposed. Beneficial ownership of Fund shares held by M&T Bank
and other institutional investors on behalf of their customers would
be recorded by the institutions and reflected in the regular account
statements provided by institutions to their customers.
DETERMINING NET ASSET VALUE
The Directors have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Directors must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Directors will decide what, if any, steps should be taken if there is a
difference of more than 0.5% between the two values. The Directors will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under `Redeeming Shares.''
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 Funds are subject to such banking
laws and regulations. They believe that they may perform those services for
the Funds contemplated by any agreement entered into with the Funds without
violating those laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes
and regulations, could prevent these entities from continuing to perform
all or a part of the above services. If this happens, the Corporation's
Board of Directors would consider alternative means of continuing available
services. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income taxes on dividends received as
cash or additional shares. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Net income for dividend purposes includes (i) interest and dividends
accrued and discount earned on the Fund's assets (including both original
issue and market discount), less (ii) amortization of any premium and
accrued expenses directly attributable to the Fund, and the general
expenses (e.g. legal, accounting and Directors' fees) of the Corporation
prorated to the Fund on the basis of its relative net assets.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total returns for the one-year and five-year
periods ended April 30, 1997, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1997, were %, % and
----- -----
%, respectively.
- -----
The average annual total return for the shares is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at
the end of the period by the offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1997, was
%. The Fund calculates its yield daily, based upon the seven days
- -----
ending on the day of the calculation, called the `base period.'' This
yield is computed by:
odetermining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased shares;
odividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
omultiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD
The Fund's effective yield for the seven-day period ended April 30,
1997, was %.
-----
The Fund's effective yield is computed by compounding the unannualized base
period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates on money market instruments;
ochanges in Fund expenses; and
othe relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``money market instrument
funds'' category in advertising and sales literature.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates of
50 leading banks and thrift institution money market deposit
accounts. The rates published in the index are an average of the
personal account rates offered on the Wednesday prior to the date of
publication by ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and year-to-date investment
results for the same money funds.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, and to money market funds
using the Lipper Analytical Services money market instruments average.
Unlike federally insured bank products, the shares of the Fund are not
insured.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute(`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
the more than 6,000 funds available.
92830F307
G01716-05 (6/97)
VISION TREASURY MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus
of one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Treasury Money Market Fund (the ``Fund') dated June 30, 1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 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 June 30, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Credit Enhancement 1
When-Issued and Delayed Delivery Transactions 1
INVESTMENT LIMITATIONS 2
Regulatory Compliance 3
VISION GROUP OF FUNDS, INC. MANAGEMENT 3
Fund Ownership 6
Directors' Compensation 6
Director Liability 6
INVESTMENT ADVISORY SERVICES 6
Adviser to the Fund 6
Advisory Fees 7
OTHER SERVICES 7
Administrative Services 7
Custodian and Portfolio Accountant 7
Transfer Agent and Dividend Disbursing Agent 7
Independent Auditors 7
BROKERAGE TRANSACTIONS 7
DESCRIPTION OF FUND SHARES 8
HOW TO BUY SHARES 9
Conversion to Federal Funds 9
Cash Sweep Program 9
DETERMINING NET ASSET VALUE 9
REDEEMING SHARES 10
BANKING LAWS 10
TAX STATUS 10
The Fund's Tax Status 10
Shareholders' Tax Status 10
TOTAL RETURN 10
YIELD 11
EFFECTIVE YIELD 11
PERFORMANCE COMPARISONS 11
Economic and Market Information 13
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Vision Group of Funds, Inc. (the
`Corporation''). The Corporation was established as a Maryland corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity
and stability of principal by investing in direct obligations of the U.S.
Treasury with remaining maturities of 397 days or less.
TYPES OF INVESTMENTS
The Fund invests in direct obligations of the U.S. Treasury, such as bills,
notes, and bonds, and repurchase agreements collateralized by U.S. Treasury
obligations, which mature in 397 days or less.
`U.S. Treasury Obligations'' refers to evidences of indebtedness issued by
the United States that are fully guaranteed as to principal and interest by
the United States, maturing in one year or less from the date of
acquisition or purchased pursuant to repurchase agreements that provide for
repurchase by the seller within one year from the date of acquisition.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements as described in the
Prospectus.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled.
The above investment objective and policies cannot be changed without
approval of a majority of the outstanding shares of the Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. The Fund engages in when-issued
and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for the purpose of acquiring portfolio securities. No fees or
other expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to
be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
has been settled. The Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation
of more than 25% of the total value of its assets.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, or participate on a joint or joint and several basis in any
securities trading account.
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the terms described
in the Prospectus. The Fund does not anticipate entering into reverse
repurchase agreements in excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any securities,
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the
value of the Fund's total assets at the time of its borrowings.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts
(including futures contracts), real estate, oil, gas, or mineral
exploration or development programs, except that the purchase of
marketable securities of companies engaged in such activities is not
hereby precluded.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by
others.
LENDING CASH OR SECURITIES
The Fund will not make loans except that the Fund may purchase or hold
debt instruments, including repurchase agreements, in accordance with
its investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
DIRECTORS OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuers if
the officers or Directors of the Corporation or the Fund's investment
adviser owning beneficially more than one-half of 1% of the issuer's
securities together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total
assets in the securities of issuers which have records of less than
three years of continuous operation, including the operation of any
predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising
control or management.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in
the coming fiscal year.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and were
constructed so as to comply with Rules promulgated by the Securities and
Exchange Commission (SEC) governing mutual funds' use of the amortized cost
method of accounting, as they were in effect at the time the Fund were
created.
The SEC has subsequently revised Rule 2a-7 under the Investment Company Act
of 1940 which governs money market funds' use of the amortized cost method
of accounting. As a result of the revisions, the Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments"). The Fund will follow
applicable regulations in determining whether a security rated by
nationally recognized statistical rating organizations ("NRSROs") can be
treated as being in the highest short-term rating category.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
Former President, Brand Name Sales, Inc.; President, Hambleton & Carr,
Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel and Vice President, Federated Administrative Services;
formerly Attorney, Morrison & Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Tice & Co., Buffalo, New York,
owned approximately 322,483,228 shares (80.97%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank''), pursuant to an investment advisory
agreement dated April 25, 1988. The advisory services provided and the
expenses assumed by M&T Bank, as well as the advisory fees payable to it,
are described in the Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with its performance under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of M&T
Bank in the performance of its duties, or from reckless disregard by it of
its duties and obligations thereunder. Because of internal controls
maintained by M&T Bank to restrict the flow of non-public information, Fund
investments are typically made without any knowledge of M&T Bank's or its
affiliates' lending relationships with an issuer.
Unless sooner terminated, the advisory agreement between the Fund and M&T
Bank will continue in effect from year to year if such continuance is
approved at least annually by the Corporation's Board of Directors, or by
vote of a majority of the outstanding shares of the Fund (as defined in the
Prospectus), and by a majority of the directors who are not parties to the
advisory agreement or interested persons (as defined in the Investment
Company Act of 1940) of any party to the advisory agreement, by vote cast
in person at a meeting called for such purpose. The advisory agreement is
terminable at any time on 60 days' written notice without penalty by the
directors, by vote of a majority of the outstanding shares of the Fund, or
by M&T Bank. The advisory agreement also terminates automatically in the
event of its assignment, as defined in the Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment
advisory fee as described in the Prospectus. During the fiscal years ended
April 30, 1997, 1996, and 1995, the Fund's adviser earned $ ,
-----
$1,699,400, and $1,120,095, respectively, which was reduced by $ ,
-----
$319,668, and $418,701, respectively, because of undertakings to limit the
Fund's expenses. All advisory fees were computed on the same basis as in
the advisory contract described in the Prospectus.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1997,
1996, and 1995, Federated Administrative Services earned $ , $384,262,
-----
and $285,906, respectively, of which $ , $2,303, and $0, respectively,
-----
were waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
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
Pursuant to the Fund's advisory agreement, M&T Bank determines which
securities are to be sold and purchased by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Portfolio securities
are normally purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asking price. While M&T Bank generally seeks
competitive spreads or commissions, the Fund may not necessarily pay the
lowest spread or commission available on each transaction for reasons
discussed below.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers, subject to review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with M&T Bank or its affiliates, and will not
give preference to M&T Bank's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and
reverse repurchase agreements. While serving as investment adviser to the
Fund, M&T Bank has agreed to maintain its policy and practice of conducting
its Trust and Investment Services Division independently of its Commercial
Department. The Fund's advisory agreement provides that, in making
investment recommendations for the Fund, Trust and Investment Services
Division personnel will not inquire or take into consideration whether the
issuer of securities proposed for purchase or sale by the Fund is a
customer of the Commercial Department and, in dealing with its commercial
customers, the Commercial Department will not inquire or take into
consideration whether securities of such customers are held by the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
The Fund does not intend to seek profits through short-term trading. The
Fund's annual portfolio turnover will be relatively high, but portfolio
turnover is not expected to have a material effect on the net income of the
Fund.
For the fiscal years ended April 30, 1997, 1996, and 1995, the Fund paid
no commissions on brokerage transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to ten billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F, and G Common
Stock represent interests in Vision Money Market Fund, Vision Treasury
Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, andVision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion
or exchange rights as the Board of Directors may grant in its discretion.
When issued for payment as described in the Fund's Prospectus and this
Statement of Additional Information, the Fund's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative asset values of the Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical, or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio.
However, Rule 18f-2 also provides that the ratification of independent
certified public accountants, the approval of principal underwriting
contracts and the election of directors may be effectively acted upon by
shareholders of the Corporation voting without regard to class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation's shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding Common Stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange and the Federal Reserve wire system are open for
business. The procedure for purchasing shares of the Fund is explained in
the Prospectus under `How to Buy Shares.''
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. M&T Bank and State
Street Bank act as the shareholders' agents in depositing checks and
converting them to federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future.
For participating accounts, cash accumulations in demand deposit accounts
with M&T Bank would be automatically invested in shares of the Fund on a
day selected by M&T Bank and its customer, or when the demand deposit
account reaches a predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read
together with any agreement between the customer and the depository
institution with regard to the services to be provided, the fees to be
charged for those services, and any restrictions and limitations that
would be imposed. Beneficial ownership of Fund shares held by M&T Bank
and other institutional investors on behalf of their customers would
be recorded by the institutions and reflected in the regular account
statements provided by institutions to their customers.
DETERMINING NET ASSET VALUE
The Directors have decided that the best method for determining the
value of portfolio instruments is amortized cost. Under this method,
portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. Accordingly, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or depreciation of
the portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Fund computed by dividing the annualized daily
income on the Fund's portfolio by the net asset value computed as above may
tend to be higher than a similar computation made by using a method of
valuation based upon prices and estimates. In periods of rising interest
rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Directors must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Directors will decide what, if any, steps should be taken if there is a
difference of more than 0.5% between the two values. The Directors will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under `Redeeming Shares.''
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 Funds are subject to such banking
laws and regulations. They believe that they may perform those services for
the Funds contemplated by any agreement entered into with the Funds without
violating those laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes
and regulations, could prevent these entities from continuing to perform
all or a part of the above services. If this happens, the Corporation's
Board of Directors would consider alternative means of continuing available
services. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Net income for dividend purposes includes (i) interest and dividends
accrued and discount earned on the Fund's assets (including both original
issue and market discount), less (ii) amortization of any premium and
accrued expenses directly attributable to the Fund, and the general
expenses (e.g. legal, accounting and directors' fees) of the Corporation
prorated to the Fund on the basis of its relative net assets.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total returns for the one-year and five-year
periods ended April 30, 1997, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1997, were %, %, and
----- -----
%, respectively.
- -----
The average annual total return for the shares is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at
the end of the period by the offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1997, was
%. The Fund calculates its yield daily, based upon the seven days
- ----
ending on the day of the calculation, called the `base period.'' This
yield is computed by:
odetermining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased shares;
odividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
omultiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD
The Fund's effective yield for the seven-day period ended April 30,
1997, was %.
-----
The Fund's effective yield is computed by compounding the unannualized base
period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates on money market instruments;
ochanges in Fund expenses; and
othe relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``money market instrument
funds'' category in advertising and sales literature.
oSALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S.
Treasury maturing in 30 days.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates of
50 leading banks and thrift institution money market deposit
accounts. The rates published in the index are an average of the
personal account rates offered on the Wednesday prior to the date of
publication by ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and year-to-date investment
results for the same money funds.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, and to money market funds
using the Lipper Analytical Services money market instruments average.
Unlike federally insured bank products, the shares of the Fund are not
insured.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`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
the more than 6,000 funds available.
92830F109
G01716-04 (6/97)
VISION NEW YORK TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus
of one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision New York Tax-Free Money Market Fund (the ``Fund') dated June 30,
1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 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 June 30, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Municipal Security Issues 1
Types of Acceptable Investments 2
Temporary Investments 2
Credit Enhancement 3
New York Investment Risks 3
INVESTMENT LIMITATIONS 5
Regulatory Compliance 6
VISION GROUP OF FUNDS, INC. MANAGEMENT 7
Fund Ownership 8
Directors' Compensation 9
Director Liability 9
INVESTMENT ADVISORY SERVICES 9
Adviser to the Fund 9
Advisory Fees 10
OTHER SERVICES 10
Administrative Services 10
Custodian and Portfolio Accountant 10
Transfer Agent and Dividend Disbursing Agent 10
Independent Auditors 10
BROKERAGE TRANSACTIONS 10
DESCRIPTION OF FUND SHARES 11
HOW TO BUY SHARES 12
Conversion to Federal Funds 12
Cash Sweep Program 12
DETERMINING NET ASSET VALUE 12
REDEEMING SHARES 12
BANKING LAWS 13
TAX STATUS 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13
YIELD 14
TAX-EQUIVALENT YIELD 14
Tax-Equivalency Table 14
EFFECTIVE YIELD 15
PERFORMANCE COMPARISONS 15
Economic and Market Information 16
APPENDIX 17
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Vision Group of Funds, Inc. (the
`Corporation''). The Corporation was established as a Maryland corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek as high a level of current
interest income that is exempt from federal regular income tax as is
consistent with liquidity and stability of principal by investing in high-
quality tax-exempt obligations with remaining maturities of 397 days or
less.
TYPES OF INVESTMENTS
The Fund invests substantially all its assets in high-quality tax-exempt
obligations having remaining maturities of 397 days or less. While the Fund
may also invest in short-term taxable obligations, under normal conditions
at least 80% of the Fund's net assets will be invested in obligations
exempt from federal regular income tax.
Subject to the Fund's investment objective and policies stated above, the
Fund will attempt to invest its assets, to the extent practicable, in tax-
exempt obligations issued by the State of New York and its political
subdivisions (`New York municipal securities''). The Fund intends to
invest, under normal circumstances, at least 80% of its net assets in New
York municipal securities. To the extent dividends paid by the Fund are
derived from interest on New York municipal securities, they will be exempt
from both federal regular income tax and New York State and New York City
income tax.
MUNICIPAL SECURITY ISSUES
Municipal securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses and the
extension of loans to public institutions and facilities. Industrial
development bonds that are issued by or on behalf of public authorities to
finance various privately-operated facilities are included within the term
municipal securities if the interest paid thereon is exempt from federal
regular income tax.
There are, of course, variations in the quality of municipal securities
both within a particular classification and between classifications, and
the yields on municipal securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue. The ratings of Moody's Investors Service Inc. (`Moody's'') and
Standard & Poor's Ratings Group (`S&P'') described in the Prospectus
represent their opinions as to the quality of municipal securities. It
should be emphasized, however, that ratings are general and are not
absolute standards of quality, and municipal securities with the same
maturity, interest rate and rating may have different yields while
municipal securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Fund, an
issue of municipal securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund.
Manufacturers and Traders Trust Company (`M&T Bank''), the investment
adviser to the Fund, will consider such an event and the requirements of
Rule 2a-7 under the Investment Company Act of 1940 in determining whether
the Fund will continue to hold the obligation.
The payment of principal and interest on most municipal securities
purchased by the Fund will depend upon the ability of the issuers to meet
their obligations. An issuer's obligations under its municipal securities
are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. The power or ability of
an issuer to meet its obligations for the payment of interest on and
principal of its municipal securities may be materially adversely affected
by litigation or other conditions. For purposes of this Statement of
Additional Information and the Fund's Prospectus, the District of Columbia,
each state, each of their political subdivisions, agencies,
instrumentalities and authorities and each multi-state agency of which a
state is a member is considered to be an `issuer.'' Further, the
nongovernmental user of facilities financed by industrial development bonds
is considered to be an `issuer.'' With respect to those municipal
securities that are supported by a bank guarantee or other credit facility,
the bank or other institution (or governmental agency) providing the
guarantee or credit facility may also be considered to be an `issuer'' in
connection with the guarantee or facility.
Among other types of municipal securities, the Fund may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan
notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements or other revenues. In addition, the Fund may
invest in other types of tax-exempt instruments, such as municipal bonds
and industrial development bonds, provided they have remaining maturities
of 397 days or less at the time of purchase.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of New York municipal securities are:
otax exempt project notes issued by the U.S. Department of Housing
and Urban Development to provide financing for housing,
redevelopment, and urban renewal;
omunicipal notes and tax-exempt commercial paper;
oserial bonds sold with a series of maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
obond anticipation notes sold in anticipation of the issuance of
longer-term
bonds in the future;
orevenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program; and
opre-refunded municipal bonds refundable at a later date.
TEMPORARY INVESTMENTS
As stated in the Prospectus, the Fund may invest a portion of its assets on
a temporary basis for temporary purposes in short-term taxable money market
instruments (`Temporary Investments''). Temporary Investments in which the
Fund may invest include instruments within the classes listed below.
Although the Fund has retained the flexibility of investing up to 20% of
its total assets in these Temporary Investments during non-defensive
periods (and greater amounts during temporary defensive periods), the Fund
anticipates that it would not invest more than 5% of its net assets in any
one of the following classes of Temporary Investments.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
oFarm Credit Banks;
oStudent Loan Marketing Association;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation; and
oFederal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. The Fund engages in when-
issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Fund's investment
objective and policies, not for investment leverage. No fees or other
expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the
securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 25% of the total value
of its assets.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
The Fund may invest in certificates of deposit of domestic branches of
U.S. commercial banks which are members of the Federal Reserve System
or the deposits of which are insured by the Federal Deposit Insurance
Corporation having total assets at the time of purchase in excess of
$1 billion, and bankers' acceptances guaranteed by domestic branches
of U.S. commercial banks having total assets at the time of purchase
in excess of $1 billion.
COMMERCIAL PAPER
The Fund may invest in commercial paper rated at the time of purchase
`A-2'' or better by S&P or ``Prime-2'' or better by Moody's or, if not
rated, found by M&T Bank to be of comparable quality pursuant to
guidelines approved by the Board of Directors.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements as described in the
Prospectus.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at
the trade date. These securities are marked to market daily and
maintained until the transaction is settled.
The above investment objective and policies cannot be changed without
approval of a majority of the outstanding shares of the Fund.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. However, credit-enhanced securities will not be treated as
having been issued by the credit enhancer for diversification purposes,
unless the Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York (the `State'') issuers which
result in the Fund's performance being subject to risks associated with the
overall conditions present within the State. The following information is a
general summary of the State's financial condition and a brief summary of
the prevailing economic conditions. This information is based on various
sources that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs,
education and Medicare expenditures have been the areas of largest growth
while prudent program cuts and increases in revenues through service fees
has enabled the State's budget to remain within balance for the last few
years. The State also benefits from a high level of per capita income that
is well above the national average and from significant amounts of
international trade. While the State still has a large accumulated deficit
as a percentage of its overall budget, the fiscal performance in recent
years has demonstrated a changed political environment that has resulted in
realistic revenue and expenditure projections to achieve financially
favorable results. The recent budgets have included personal income tax
cuts and emphasized cost control. Budgets in recent years have been delayed
due to disagreements between the Governor and the New York State
legislature. Last year's budget was not passed until July, four months
late. Failure to pass a budget in a timely manner can have a negative
impact on New York municipalities dependent upon state aid.
New York's economy is large and diverse. While several upstate counties
benefit from agriculture, manufacturing and high technology industries, New
York City nonetheless still dominates the State's economy through its
international importance in economic sectors such as advertising, finance,
and banking. The State's economy has been slow to recover after the late
1980's recession that resulted in the loss of over 400,000 jobs in the New
York City metropolitan area alone. Any major changes to the financial
condition of New York City would ultimately have an affect on the State.
Obligations of issuers within the State are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights of and remedies
of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by the U.S. Congress, state
legislators, or referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon enforcement of such
obligations, or upon the ability of the State or its political subdivisions
to levy taxes. There is also the possibility that, as a result of
litigation or other conditions (including delays in adopting budgets), the
power or ability of any issuer to pay, when due, the principal of and
interest on its municipal securities may be materially affected.
A substantial principal amount of bonds issued by various State agencies
and authorities are either guaranteed by the State or supported by the
State through lease-purchase arrangements, or other contractual or moral
obligation provisions. Moral obligation commitments by the State impose no
immediate financial obligations on the State and require appropriations by
the legislature before any payments can be made. Failure of the State to
appropriate necessary amounts or to take other action to permit the
authorities and agencies to meet their obligations could result in defaults
on such obligations. If a default were to occur, it would likely have a
significant adverse impact on the market price of obligations of the State
and its authorities and agencies. In recent years, the State has had to
appropriate large amounts of funds to enable State agencies to meet their
financial obligations and, in some cases, prevent default. Additional
assistance is expected to be required in current and future fiscal years
since certain localities and authorities continue to experience financial
difficulties.
To the extent State agencies and local governments require State assistance
to meet their financial obligations, the ability of the state of New York
to meet its own obligations as they become due or to obtain additional
financing could be adversely affected. This financial situation could
result not only in defaults of State and agency obligations but also
impairment of the marketability of securities issued by the State, its
agencies and local governments.
The overall financial condition of the state can also be illustrated by
changes to its debt ratings. During the period in which the state
experienced financial difficulties, its general obligation long-term debt
ratings as determined by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group decreased from A1 and A, respectively, to A and A-,
which are the current ratings as of April 1997.
The Fund's concentration in municipal securities issued by the state and
its political subdivisions provides a greater level of risk than a fund
which is diversified across numerous states and municipal entities. The
ability of the state or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the state; and the underlying fiscal
condition of the state, its counties, and its municipalities.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of a majority of the outstanding shares of the Fund.
INVESTING IN EXEMPT-INTEREST OBLIGATIONS
The Fund will not invest less than 80% of its net assets in securities
the interest on which is exempt from federal regular income tax,
except during temporary defensive periods. AMT obligations are not
counted as securities the interest on which is exempt from federal
regular income tax.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, or participate on a joint or joint and several basis in any
securities trading account.
BORROWING MONEY
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the terms described
herein. The Fund does not anticipate entering into reverse repurchase
agreements in excess of 5% of its net assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of its borrowing. The Fund will not
purchase securities while its borrowings (including reverse repurchase
agreements) are outstanding.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts
(including futures contracts), real estate, oil, gas, or mineral
exploration or development programs, except that it may purchase
marketable securities of companies engaged in such activities.
UNDERWRITING
The Fund will not underwrite securities.
LENDING CASH OR SECURITIES
The Fund will not make loans, except that it may purchase or hold debt
instruments, including repurchase agreements, in accordance with its
investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company, except as part of a merger, consolidation, reorganization, or
acquisition of assets.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase securities issued by any one issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if as a result more than
5% of the value of its total assets would be invested in the
securities of that issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to this limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total
assets in issuers in the same industry.
However, the Fund may invest more than 25% of the value of its total
assets in obligations issued by any state, territory, or possession of
the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, in
cash or cash items (including instruments issued by a U.S. branch of a
domestic bank or savings and loan association and bankers'
acceptances), securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, or instruments secured by these
money market instruments (i.e., repurchase agreements).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to legal or contractual
restrictions.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
DIRECTORS OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if
the officers or Directors of the Corporation or the Fund's investment
adviser owning beneficially more than one-half of 1% of the issuer's
securities together own beneficially more than 5% of such securities.
DEALING IN PUTS AND CALLS
The Fund will not write or purchase put or call options.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 10% of the value of its total
assets in the securities of issuers which have records of less than
three years of continuous operation, including the operation of any
predecessor.
VOTING SECURITIES AND REVENUE BONDS
The Fund will not buy common stocks or voting securities of state,
municipal or industrial revenue bond issuers.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest in any issuer for purposes of exercising
control or management.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in
the coming fiscal year.
REGULATORY COMPLIANCE
The Fund is a money market fund. Many of the Fund's investment policies are
fundamental, cannot be changed without vote of shareholders, and were
constructed so as to comply with Rules promulgated by the Securities and
Exchange Commission (SEC) governing mutual funds' use of the amortized cost
method of accounting, as they were in effect at the time the Fund were
created.
The SEC has subsequently revised Rule 2a-7 under the Investment Company Act
of 1940 which governs money market funds' use of the amortized cost method
of accounting. As a result of the revisions, the Fund will adhere to
certain nonfundamental operating policies that are more restrictive in
order to comply with revised Rule 2a-7. Since the Fund may follow such
operating policies without violating its fundamental investment policies
and limitations, the Fund does not presently intend to ask for shareholder
approval of changes to the Fund's investment policies or limitations.
The Fund will invest in money market instruments (See the section of the
prospectus entitled "Acceptable Investments") rated in one of the two
highest short-term rating categories by nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities
having such rating.
The Fund will follow applicable regulations in determining whether a
security rated by NRSROs can be treated as being in the two highest short-
term rating categories.
The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operating
policies to reflect changes in the laws and regulations without the
approval of its shareholders, unless such changes are more permissive than
the Fund's fundamental policies.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
Former President, Brand Name Sales, Inc.; President, Hambleton & Carr,
Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel and Vice President, Federated Administrative Services;
formerly Attorney, Morrison & Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Tice & Co., Buffalo, New York,
owned approximately 34,720,808 shares (59%) and National Financial Services
Co., New York, New York, owned approximately 6,267,541 shares (10.65%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank''), pursuant to an investment advisory
agreement dated April 25, 1988. The advisory services provided and the
expenses assumed by M&T Bank, as well as the advisory fees payable to it,
are described in the Fund's Prospectus.
The investment advisory agreement provides that M&T Bank shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with its performance under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of M&T
Bank in the performance of its duties, or from reckless disregard by it of
its duties and obligations thereunder. Because of internal controls
maintained by M&T Bank to restrict the flow of non-public information, Fund
investments are typically made without any knowledge of M&T Bank's or its
affiliates' lending relationships with an issuer.
Unless sooner terminated, the advisory agreement between the Fund and M&T
Bank will continue in effect from year to year if such continuance is
approved at least annually by the Corporation's Board of Directors, or by
vote of a majority of the outstanding shares of the Fund (as defined in the
Prospectus), and by a majority of the Directors who are not parties to the
advisory agreement or interested persons (as defined in the Investment
Company Act of 1940) of any party to the advisory agreement, by vote cast
in person at a meeting called for such purpose. The advisory agreement is
terminable at any time on 60 days' written notice without penalty by the
Directors, by vote of a majority of the outstanding shares of the Fund, or
by M&T Bank. The advisory agreement also terminates automatically in the
event of its assignment, as defined in the Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment
advisory fee as described in the Prospectus. During the fiscal years ended
April 30, 1997, 1996, and 1995, the Fund's adviser earned $ ,
-----
$277,858, and $218,054, respectively, of which $ , $211,303, and
-----
$198,560, respectively, were voluntarily waived.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the Prospectus. For the fiscal years ended April 30, 1997,
1996, and 1995, Federated Administrative Services earned $ , $62,956,
-----
and $55,419, respectively, of which $ , $392, and $31,013,
-----
respectively, were voluntarily waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
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
Pursuant to the Fund's advisory agreement, M&T Bank determines which
securities are to be sold and purchased by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Portfolio securities
are normally purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asking price. While M&T Bank generally seeks
competitive spreads or commissions, the Fund may not necessarily pay the
lowest spread or commission available on each transaction for reasons
discussed below.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with M&T Bank or its affiliates, and will not
give preference to M&T Bank's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and
reverse repurchase agreements. While serving as investment adviser to the
Fund, M&T Bank has agreed to maintain its policy and practice of conducting
its Trust and Investment Services Division independently of its Commercial
Department.
The Fund's advisory agreement provides that, in making investment
recommendations for the Fund, Trust and Investment Services Division
personnel will not inquire or take into consideration whether the issuer of
securities proposed for purchase or sale by the Fund is a customer of the
Commercial Department and, in dealing with its commercial customers, the
Commercial Department will not inquire or take into consideration whether
securities of such customers are held by the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
The Fund does not intend to seek profits through short-term trading. The
Fund's annual portfolio turnover will be relatively high but portfolio
turnover is not expected to have a material effect on the net income of the
Fund.
For the fiscal years ended April 30, 1997, 1996, and 1995, the Fund paid
no commissions on brokerage transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to ten billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Classes A, B, C, D, E, F and G Common Stock
represent interests in Vision Money Market Fund, Vision Treasury Money
Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, and Vision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion
or exchange rights as the Board of Directors may grant in its discretion.
When issued for payment as described in the Fund's Prospectus and this
Statement of Additional Information, the Fund's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund and a proportionate
distribution, based upon the relative asset values of the Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 also provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation's shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding Common Stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange and the Federal Reserve wire system are open for
business. The procedure for purchasing shares of the Fund is explained in
the Prospectus under `How to Buy Shares.''
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. M&T Bank and State
Street Bank act as the shareholders' agents in depositing checks and
converting them to federal funds.
CASH SWEEP PROGRAM
The Fund reserves the right to create a Cash Sweep Program in the future.
For participating accounts, cash accumulations in demand deposit accounts
with M&T Bank would be automatically invested in shares of the Fund on a
day selected by M&T Bank and its customer, or when the demand deposit
account reaches a predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS
Participating depository institutions would be responsible for prompt
transmission of orders relating to the program. These depository
institutions would be the record owners of the shares of the Fund.
Depository institutions participating in this program would be able to
charge their customers for services relating to the program. This
Statement of Additional Information should, therefore, be read
together with any agreement between the customer and the depository
institution with regard to the services to be provided, the fees to be
charged for those services, and any restrictions and limitations that
would be imposed. Beneficial ownership of Fund shares held by M&T Bank
and other institutional investors on behalf of their customers would
be recorded by the institutions and reflected in the regular account
statements provided by institutions to their customers.
DETERMINING NET ASSET VALUE
The Directors have decided that the best method for determining the
value of portfolio instruments is amortized cost. Under this method,
portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. Accordingly, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or depreciation of
the portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Fund computed by dividing the annualized daily
income on the Fund's portfolio by the net asset value computed as above may
tend to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates. In periods of rising
interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions of Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Directors must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Directors will decide what, if any, steps should be taken if there is a
difference of more than 0.5% between the two values. The Directors will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under `Redeeming Shares.''
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 Funds are subject to such banking
laws and regulations. They believe that they may perform those services for
the Funds contemplated by any agreement entered into with the Funds without
violating those laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes
and regulations, could prevent these entities from continuing to perform
all or a part of the above services. If this happens, the Corporation's
Board of Directors would consider alternative means of continuing available
services. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations. These dividends (to
the extent taxable), and any short-term capital gains, are taxable as
ordinary income.
Net income for dividend purposes includes (i) interest and dividends
accrued and discount earned on the Fund's assets (including both original
issue and market discount), less (ii) amortization of any premium and
accrued expenses directly attributable to the Fund, and the general
expenses (e.g. legal, accounting and directors' fees) of the Corporation
prorated to the Fund on the basis of its relative net assets.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total returns for the one-year and five-year
periods ended April 30, 1997, and for the period from June 1, 1988 (date of
initial public investment) to April 30, 1997, were %, % and %,
---- ----- ----
respectively.
The average annual total return for the shares is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at
the end of the period by the offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the seven-day period ended April 30, 1997, was
%. The Fund calculates its yield daily, based upon the seven days
- -----
ending on the day of the calculation, called the `base period.'' This
yield is computed by:
odetermining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased shares;
odividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
omultiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the seven-day period ended April 30,
1997, was %.
------
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 28% federal tax rate and the
regular personal income tax rate imposed by New York and assuming that its
income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income taxes,* and is
often free from state and local taxes as well. As the table below indicates
a `tax-free'' investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 21.850% 34.850% 37.850% 42.850% 46.450%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart on the previous page is for illustrative purposes only. It is
not an indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
EFFECTIVE YIELD
The Fund's effective yield for the seven-day period ended April 30,
1997, was %.
----
The Fund's effective yield is computed by compounding the unannualized base
period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates on money market instruments;
ochanges in Fund expenses; and
othe relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates of
50 leading banks and thrift institution money market deposit
accounts. The rates published in the index are an average of the
personal account rates offered on the Wednesday prior to the date of
publication by ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and year-to-date investment
results for the same money funds.
From time to time, the Fund will quote its Lipper ranking in the `money
market instrument funds''category in advertising and sales literature.
Investors may use such a reporting service in addition to the Fund's
prospectus to obtain a more complete view of the Fund's performance before
investing. Of course, when comparing Fund performance to any reporting
service, factors such as composition of the reporting service and
prevailing market conditions should be considered in assessing the
significance of such comparisons.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, and to money market funds
using the Lipper Analytical Services money market instruments average.
Unlike federally insured bank products, the shares of the Fund are not
insured.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`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
the more than 6,000 funds available.
APPENDIX
Standard & Poor's Ratings Group Bond Ratings
AAA-Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible o the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc. Bond Ratings
AAA-Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR-Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Fitch Investors Service, Inc. Long-Term Debt Ratings
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+.''
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR-NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category.
Standard & Poor's Ratings Group Municipal Note Ratings
SP-1-Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc. Short-Term Loan Ratings
MIG1/VMIG1-This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2-This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Fitch Investors Service, Inc. Short-Term Debt Ratings
F-1+-EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2-GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 ratings.
Standard & Poor's Ratings Group Commercial Paper Ratings
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc. Commercial Paper Ratings
PRIME-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2-Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
92830F208
G01716-03 (6/97)
PROSPECTUS
VISION NEW YORK TAX-FREE FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1997
Vision Group of Funds, Inc. (the "Corporation") is an open-end
management investment company (a mutual fund) that offers you a choice of
seven separate investment portfolios with distinct investment objectives
and policies. This prospectus relates to one of the seven portfolios,
Vision New York Tax-Free Fund (the "Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund. Please read the
prospectus before you invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of
Additional Information June 30, 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 is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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
TABLE OF CONTENTS
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the `Corporation'') offers you a convenient,
affordable way to participate in seven separate, professionally managed
portfolios. This prospectus discusses Vison New York Tax-Free Fund.
VISION NEW YORK TAX-FREE FUND
(THE `FUND'') SEEKS CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAX
AND THE PERSONAL INCOME TAXES IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
MUNICIPALITIES AND IS CONSISTENT WITH THE PRESERVATION OF CAPITAL. (SEE
`HOW THE FUND INVESTS.'')
BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Fund are sold at net asset value plus a sales charge and
redeemed at net asset value. The minimum initial investment in the Fund is
$500, which may be waived or lowered from time to time. (See `Your Guide
to Using the Fund.')
FUND MANAGEMENT
The Fund's investment adviser is Manufacturers and Traders Trust Company
(`M&T Bank''), which makes investment decisions for the Fund. M&T Bank is
the principal banking subsidiary of First Empire State Corporation.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in
the Buffalo area, phone 842-4488).
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
techniques.
A SUMMARY OF THE FUND'S EXPENSES (To be filed by amendment)
VISION NEW YORK TAX-FREE FUND
FINANCIAL HIGHLIGHTS (To be filed by amendment)
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal income tax and the personal income taxes imposed by the
state of New York and New York municipalities and is consistent with the
preservation of capital. The investment objective of the Fund cannot be
changed without approval of its shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so
by following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described
above retains its exempt status when distributed to the Fund's
shareholders. Income distributed by the Fund may not necessarily be exempt
from state or municipal taxes in states other than New York.
INVESTMENT POLICIES
THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN
SECURITIES, THE INTEREST OF WHICH IS EXEMPT FROM FEDERAL INCOME TAX AND
PERSONAL INCOME TAXES IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
MUNICIPALITIES. THE FUND INVESTS IN THESE SECURITIES TO EARN INCOME
CONSISTENT WITH THE PRESERVATION OF CAPITAL. UNDER NORMAL MARKET
CONDITIONS, AT LEAST 80% OF THE FUND'S NET ASSETS WILL BE INVESTED IN
SECURITIES THAT PAY INTEREST EXEMPT FROM FEDERAL INCOME TAX. THIS POLICY
MAY NOT BE CHANGED WITHOUT APPROVAL OF SHAREHOLDERS. FOR PURPOSES OF THIS
POLICY, THE TAX-FREE INTEREST MUST NOT BE A PREFERENCE ITEM FOR PURPOSES OF
COMPUTING THE FEDERAL ALTERNATIVE MINIMUM TAX. UNDER NORMAL MARKET
CONDITIONS, AT LEAST 65% OF THE VALUE OF THE FUND'S TOTAL ASSETS WILL BE
INVESTED IN OBLIGATIONS ISSUED BY OR ON BEHALF OF THE STATE OF NEW YORK,
ITS POLITICAL SUBDIVISIONS OR AGENCIES THE INTEREST OF WHICH IS EXEMPT FROM
THE PERSONAL INCOME TAX IMPOSED BY THE STATE OF NEW YORK AND NEW YORK
MUNICIPALITIES. UNLESS INDICATED OTHERWISE, THIS POLICY AND OTHER
INVESTMENT POLICIES OF THE FUND MAY BE CHANGED BY THE DIRECTORS WITHOUT
APPROVAL OF SHAREHOLDERS. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL
CHANGES IN THESE POLICIES BECOME EFFECTIVE.
ACCEPTABLE INVESTMENTS
The Fund's investments include:
obligations issued by or on behalf of the State of New York, its
political subdivisions, or agencies ("New York municipal securities");
debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and
participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Corporation or the opinion
of the investment adviser to the Fund, exempt from both federal income tax
and the personal income tax imposed by the State of New York and New York
municipalities.
The Fund also may invest in municipal leases, variable amount demand master
notes, temporary investments and certain other investments as well as
engage in certain investment techniques as noted below.
MATURITY
The maturity of debt securities may be considered long (10 plus years),
intermediate (3 to 10 years), or short-term (3 years or less). The
proportion invested by the Fund in each category can be expected to vary
depending upon the evaluation of market patterns and trends by the adviser.
However, the Fund anticipates that, under normal circumstances, at least
65% of its total assets will be invested in fixed income securities having
maturities of greater than one year.
NEW YORK MUNICIPAL SECURITIES
New York municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for
general operating expenses, and to make loans to other public institutions
and facilities.
New York municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increase local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds
do not represent a pledge of credit or create any debt of or charge against
the general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
MORAL OBLIGATION BONDS
Moral obligation bonds are normally issued by special purpose authorities.
If an issuer of a moral obligation bond is unable to meet its interest and
principal payments from current revenues, it may draw on a reserve fund.
The state or municipality that created the issuer has given a moral pledge
to appropriate funds to replenish the reserve fund. But that pledge is only
a moral commitment, not a legal obligation of the state or municipality.
RATING CHARACTERISTICS
The Fund may buy municipal securities which, at the time of purchase, are
investment grade. For example, investment grade bonds are those that are
rated Aaa, Aa, A, or Baa by Moody's Investors Services, Inc. ("Moody's"),
or AAA, AA, A, or BBB by Standard & Poor's Ratings Group ("S&P") or by
Fitch Investors Service, Inc. ("Fitch"). In certain cases, the Fund's
adviser may purchase securities which are unrated if it determines that
they are of comparable quality to the investment grade securities described
above. If any security purchased by the Fund is subsequently downgraded
below investment grade, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so. It should be noted that
bonds receiving the lowest of the four investment grade ratings listed
above (e.g., Baa or BBB) have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments on such bonds
than higher rated bonds. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information.
PARTICIPATION INTERESTS
The Fund may purchase participation interests from financial institutions
such as commercial banks, savings and loan associations, and insurance
companies. These participation interests give the Fund an undivided
interest in New York municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Board of Directors of the
Corporation or, pursuant to delegated authority, the Fund's adviser, will
determine whether participation interests meet the prescribed quality
standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES
Some of the municipal securities which the Fund purchases may have variable
interest rates. Variable interest rates are ordinarily based on a published
interest rate, interest rate index or a similar standard, such as the 91-
day U.S. Treasury bill rate. Many variable rate municipal securities are
subject to payment of principal on demand by the Fund in not more than
seven days. All variable rate municipal securities will meet the quality
standards described above. The Fund's adviser has been instructed by the
Corporation's Board of Directors to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including
participation interests held by the Fund, on the basis of published
financial information and reports of the rating agencies and other
analytical services.
MUNICIPAL LEASES
The Fund may purchase municipal leases, which are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities and some may be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract
or a participation certificate on any of the above.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Fund is able to purchase variable amount demand master notes. Variable
amount demand master notes represent a borrowing arrangement between an
issuer (borrower) and an institutional lender such as the Fund (lender).
These notes are payable upon demand. The lender typically has the right to
increase the amount under the note at any time up to the full amount
provided by the note agreement. Both the lender and the borrower have the
right to reduce the amount of outstanding indebtedness at any time. In some
instances, however, the lender and the borrower may agree that the amount
of outstanding indebtedness remain fixed. Variable amount demand master
notes provide that the interest rate on the amount outstanding varies
depending upon a stated short-term interest rate index.
AMT OBLIGATIONS
As noted earlier, the Fund has a policy of investing at least 80% of its
net assets in securities that pay interest exempt from federal income tax.
Interest on certain private activity municipal bonds issued after August 7,
1986 is a tax preference item for purposes of computing the federal
alternative minimum tax ("AMT"), although interest on these bonds is not
subject to federal income tax. These bonds are referred to as AMT bonds or
AMT obligations. The Fund does not consider these AMT obligations tax-
exempt for purposes of determining its compliance with this investment
policy and the Fund will, therefore, limit AMT obligations to 20% of net
assets under normal market conditions.
TEMPORARY INVESTMENTS
As noted above, under normal circumstances, the Fund invests its assets so
that at least 80% of its net assets are exempt from federal income tax and
at least 65% of its total assets are invested in securities the interest on
which is exempt from the personal income taxes imposed by the State of New
York and New York municipalities. From time to time, when the Fund's
adviser determines that market conditions call for a temporary defensive
posture, the Fund may invest in short-term non-New York municipal tax-
exempt obligations or taxable temporary investments. These temporary
investments include: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government,
its agencies, or instrumentalities; money market instruments; commercial
paper; certificates of deposit, bankers' acceptances or other instruments
issued by a U.S. branch of a domestic bank, or savings and loan association
with capital, surplus, and undivided profits in excess of $1 billion at the
time of purchase; shares of other investment companies; repurchase
agreements; and reverse repurchase agreements. Although the Fund is
permitted to make taxable, temporary investments, there is no current
intention of generating income subject to federal income tax or personal
income taxes imposed by the state of New York or New York municipalities.
MUNICIPAL BOND INSURANCE
The Fund may purchase municipal securities covered by insurance which
guarantees the timely payment of principal at maturity and interest on such
securities. These insured municipal securities are either (1) covered by an
insurance policy applicable to a particular security, whether obtained by
the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) insured under master insurance policies issued by
municipal bond insurers, which may be purchased by the Fund (the
"Policies").
The Fund will obtain municipal bond insurance when purchasing municipal
securities which would not otherwise meet the Fund's quality standards. The
Fund may also obtain municipal bond insurance when, in the opinion of the
Fund's investment adviser, such insurance would benefit the Fund, for
example, through improvement of portfolio quality or increased liquidity of
certain securities. The Fund's investment adviser anticipates that not more
than 50% of the Fund's net assets will be invested in municipal securities
which are insured.
Issuer-Obtained Insurance policies are noncancellable and continue in force
as long as the municipal securities are outstanding and their respective
insurers remain in business. If a municipal security is covered by Issuer-
Obtained Insurance, then such security need not be insured by the Policies
purchased by the Fund.
The Fund may purchase two types of Policies issued by municipal bond
insurers. One type of Policy covers certain municipal securities only
during the period in which they are in the Fund's portfolio. In the event
that a municipal security covered by such a Policy is sold from the Fund,
the insurer of the relevant Policy will be liable only for those payments
of interest and principal which are then due and owing at the time of sale.
The other type of Policy covers municipal securities not only while they
remain in the Fund's portfolio but also until their final maturity even if
they are sold out of the Fund's portfolio, so that the coverage may benefit
all subsequent holders of those municipal securities. The Fund will obtain
insurance which covers municipal securities until final maturity even after
they are sold out of the Fund's portfolio only if, in the judgment of the
investment adviser, the Fund would expect to receive net proceeds from the
sale of those securities, after deducting the cost of such permanent
insurance and related fees, significantly in excess of the proceeds it
would expect to receive if such municipal securities were sold without
insurance.
Payments received from municipal bond insurers may not be tax-exempt income
to shareholders of the Fund.
INVESTMENT RISKS
Yields on New York municipal securities depend on a variety of factors,
including, but not limited to: the general conditions of the short-term
municipal note market and the municipal bond market; the size of the
particular offering; the maturity of the obligations; and the rating of the
issue. Further, any adverse economic conditions or developments affecting
the State, counties, municipalities or City of New York could impact the
Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of New York
municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal
when due. Investing in New York municipal securities which meet the Fund's
quality standards may not be possible if the State, counties,
municipalities and City of New York do not maintain their current credit
ratings. An expanded discussion of the current economic risks associated
with the purchase of New York municipal securities is contained in the
Statement of Additional Information.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in
which banks, broker/dealers, and other recognized financial institutions
sell U.S. government securities or other high quality, liquid securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, it could receive less than the
repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
which may include restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its
investment objective and policies, but which are subject to restriction on
resale under federal securities laws. To the extent these securities are
deemed to be illiquid, the Fund will limit its purchases, together with
other securities considered to be illiquid, to 15% of its net assets.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term debt
instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a published
interest rate or interest rate index. Many variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven
days' prior notice. Other notes only permit the Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies.
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 otherwise by the Investment
Company Act of 1940. It should be noted that investment companies incur
certain expenses such as custodian and transfer agency fees and, therefore,
any investment by the Fund in shares of another investment company would be
subject to such duplicate expenses.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which are debt securities issued
at a discount to their face amount and do not entitle the holder to any
periodic payments of interest prior to maturity.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, or both, up to one-third of
the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will enter into loan
arrangements only with broker/dealers, banks, or other institutions which
the Fund's adviser has determined are creditworthy under guidelines
established by the Corporation's Board of Directors and will receive
collateral in the form of cash, 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.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not
own is sold in anticipation of a decline in its price. If the decline
occurs, shares equal in number to those sold short can be purchased at the
lower price. If the price increases, the higher price must be paid. The
purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When the Fund
enters into a short sale, assets that are equal to the market price of the
securities sold short or any lesser price at which the Fund can obtain such
securities, are segregated on the Fund's records and maintained until the
Fund meets its obligations under the short sale.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These
options will be used as a hedge to attempt to protect securities which the
Fund holds against fluctuations in value. The Fund may also write put and
call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write put and call options on securities either
held in its portfolio or for which the Fund has the right to obtain without
payment of further consideration or for which it has segregated cash in the
amount of any additional consideration. The Fund may also purchase call
options on securities to protect against price movements in particular
securities which the Fund intends to purchase. A call option gives the
Fund, in return for a premium, the right (but not the obligation) to buy
the underlying security from the seller at a pre-determined price.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers
of the options since options on certain portfolio securities held by the
Fund are not traded on an exchange. The Fund purchases and writes options
only with investment dealers and other financial institutions (such as
commercial banks or broker/dealers) deemed creditworthy by the Fund's
adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while over-the-
counter options may not.
If the Fund does not exercise an option it has purchased, then the Fund
loses in value the price it paid for the option premium. If the Fund writes
(sells) an option which is subsequently exercised, the premium received by
the Fund from the option purchaser may not exceed the increase (in the case
of a call option) or decrease (in the case of a put option) in the value of
the securities underlying the option, in which case the difference
represents a loss for the Fund. However, if the option expires without
being exercised, the Fund realizes a gain in the amount of the premium it
received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to attempt to
hedge all or a portion of its portfolio against changes in interest rates
or economic market conditions. Financial futures contracts require the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
Generally, the Fund may not purchase or sell futures contracts or
related options, 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 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.
RISKS
When the Fund uses futures and options on futures as hedging devices, there
is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in
the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market
changes. In addition, the Fund's investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under limited
circumstances. This transaction is similar to borrowing cash.
DIVERSIFICATION
The Fund is a "non-diversified" investment company under the Investment
Company Act of 1940 and intends to qualify as a regulated investment
company under the Internal Revenue Code of 1986. In order to do so, with
respect to 50% of its total assets, the Fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government obligations). The balance of the Fund's assets is not subject to
this limitation. However, under the Internal Revenue Code of 1986, as
amended, a regulated investment company at the close of each quarter of the
taxable year may not hold more than 25% of its assets in securities of any
one issuer (other than U.S. government securities or the securities of
other regulated investment companies). Thus, the Fund may invest up to 25%
of its total assets in the securities of any two issuers. An investment in
the Fund, therefore, will entail greater risk than would exist in a
diversified portfolio of securities because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the
total market values of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio
than would be the case if the portfolio were diversified among more
issuers.
DEBT CONSIDERATION
In the debt market, prices move inversely to interest rates. A decline in
market interest rates results in a rise in the market prices of outstanding
debt obligations. Conversely, an increase in market interest rates results
in a decline in market prices of outstanding debt obligations. In either
case, the amount of change in market prices of debt obligations in response
to changes in market interest rates generally depends on the maturity of
the debt obligations: the debt obligations with the longest maturities will
experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset
value, will fluctuate due to changes in economic conditions and other
market factors such as interest rates which are beyond the control of the
Fund's adviser. The Fund's adviser could be incorrect in its expectations
about the direction or extent of these market factors. Although debt
obligations with longer maturities offer potentially greater returns, they
have greater exposure to market price fluctuation. Consequently, to the
extent the Fund is significantly invested in debt obligations with longer
maturities, there is a greater possibility of fluctuation in the Fund's bet
asset value.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder
approval.
FUND MANAGEMENT, DISTRIBUTION AND ADMINISTRATION
BOARD OF DIRECTORS
THE FUND IS MANAGED BY A BOARD OF DIRECTORS.
The Directors are responsible for managing the business affairs for the
Fund and for exercising all the Fund's powers except those reserved for the
shareholders.
INVESTMENT ADVISER
INVESTMENT DECISIONS FOR THE FUND ARE MADE BY M&T BANK, SUBJECT TO
DIRECTION BY THE DIRECTORS.
The Adviser continually conducts investment research and supervision for
the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Corporation's Board of Directors, and
could result in severe penalties.
ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as
investment adviser, M&T Bank is entitled to receive a fee from the Fund,
equal to an annual rate of .70% of the Fund's average net assets. This fee
is computed daily and paid monthly. M&T Bank has agreed to pay all expenses
it incurs in connection with its advisory activities, other than the cost
of securities (including any brokerage commissions) purchased for the Fund.
From time to time, M&T Bank may voluntarily waive all or a portion of its
advisory fees in order to help the Fund maintain a competitive expense
ratio.
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.
M&T Bank has 161 offices throughout New York State and an office in Nassau,
The Bahamas.
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.
Mr. Robert J. Truesdell served as the Fund's portfolio manager from August
1994 through February 1995. Since the Fund's inception, Mr. Truesdell was
also responsible for overseeing the Fund's management, and has supervised
the Fund's investment decisions. Mr. Truesdell oversees investment
activities of M&T Bank's money market and fixed income products, and the
money market funds in the Vision Group of Funds, Inc. Mr. Truesdell joined
M&T Bank as Vice President and Fixed Income Manager in 1988. In addition to
the Vision money market funds, he also manages individual investment
management accounts. Mr. Truesdell holds an M.B.A. in accounting from
S.U.N.Y. at Buffalo.
Mr. Thomas R. Pierce has been the Fund's portfolio manager since March
1995. Mr. Pierce joined M&T Bank in January 1995 as Vice President from
Merit Investment Advisors where he acted as Director of Fixed Income
Product and Trading since 1993. For the period from 1987 to 1993, Mr.
Pierce served as Fixed Income Manager at ANB Investment Management Company,
where he directed the management of $3.5 billion of active and passive
fixed income portfolios. Mr. Pierce holds an A.B. in Economics from
Washington University, and is an M.B.A. candidate at the University of
Chicago.
DISTRIBUTION OF FUND SHARES
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
Shares of the Fund are sold on a continuous basis by Federated Securities
Corp. It is a Pennsylvania corporation organized on November 14, 1969, and
is also the principal distributor for a number of other investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors, Pittsburgh, Pennsylvania.
DISTRIBUTION PLAN
Under a distribution plan (referred to as the "Plan") adopted in
accordance with Rule 12b-1 promulgated under the Investment Company Act of
1940, the Fund may pay to the distributor an amount computed at an annual
rate of 0.25% of its average daily net assets to finance any activity which
is principally intended to result in the sale of shares subject to the
Plan. The distributor may from time to time and for such periods as it
deems appropriate, voluntarily reduce its 12b-1 compensation under the Plan
to the extent the expenses attributable to shares of the Fund exceed such
lower expense limitation as the distributor may, by notice to the
Corporation, voluntarily declare to be effective. The Fund has no present
intention of paying or accruing 12b-1 fees during the fiscal year ending
April 30, 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
Shareholder Servicing Agent provides services. The Fund will not accrue or
pay any shareholder servicing agent fees until a separate class of shares
has been created for the Fund or the prospectus is amended to reflect the
imposition of fees.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings
banks) to provide administrative services that are not provided by
Federated Administrative Services (see below). These administrative
services include distributing prospectuses and other information, providing
accounting assistance and shareholder communications, or otherwise
facilitating shareholder purchases and redemptions (sales) of any Fund
shares. The administrators appointed could include affiliates of the
adviser.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. If the distributor pays any fees for these
services, the fees will be reimbursed by the adviser and not the Fund.
ADMINISTRATION OF THE FUND
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUND WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUND.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as
specified below:
MAXIMUM ADMINISTRATIVE AGGREGATE DAILY NET ASSETS OF
FEE VISION GROUP OF FUNDS, INC. .
150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000. Federated Administrative Services may choose voluntarily to waive
a portion of its fee at any time.
YOUR GUIDE TO USING THE FUND
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE FLUCTUATES.
The net asset value for the Fund's shares is determined by adding the
market value of all securities and other assets of the Fund, subtracting
the liabilities of the Fund and dividing the remainder by the total number
of the Fund's shares outstanding.
MINIMUM INITIAL INVESTMENT
The minimum initial investment in the Fund is $500, which may be waived or
lowered from time to time. Subsequent investments must be in amounts of at
least $25. In addition, the minimum initial and subsequent investment
amounts may be waived or lowered from time to time, such as for customers
participating in the automatic investment services described below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
DEALER
SALES CHARGE CONCESSION AS
SALES CHARGE AS A A PERCENTAGE AS A
AS A PERCENTAGE OF NET AMOUNT PERCENTAGE OF
AMOUNT OF PUBLIC OFFERING INVESTED PUBLIC OFFERING
OF TRANSACTION PRICE PRICE
Less than $100,000........ 4.50% 4.71%
4.00%
$100,000 but less than
$250,000... 3.75% 3.90%
3.25%
$250,000 but less than
$500,000... 3.00% 3.09%
2.75%
$500,000 but less than
$1 million......... 2.00% 2.04%
1.75%
$1 million or more............ 0.00% 0.00%
0.00%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected;
(ii) days during which no shares are tendered for redemption and no orders
to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may
from time to time offer certain items of nominal value to any shareholder
or investor.
SALES CHARGE REALLOWANCE
For sales of shares of the Fund, a broker/dealer will normally receive up
to 90% of the applicable sales charge. Any portion of the sales charge
which is not paid to a broker/dealer will be retained by the distributor.
However, the distributor will uniformly and periodically offer to pay
broker/dealers up to 100% of the sales charge retained by it. Such payments
may take the form of cash, items of material value, or promotional
incentives, such as payment of certain expenses of qualified employees and
their spouses to attend informational meetings about the Fund or other
special events at recreational- type facilities. In some instances, these
incentives will be made available only to broker/ dealers whose employees
have sold or may sell significant amounts of shares.
The distributor may pay fees to financial institutions out of the sales
charge in exchange for sales and/or administrative services performed on
behalf of their customers in connection with the initiation of customer
accounts and purchases of shares of the Fund.
In addition, the distributor will offer to pay broker/dealers an amount of
up to 1.00% of the net asset value of shares purchased for an account of
their client or customer in an amount of $1 million or more.
The distributor, M&T Bank, or affiliates thereof, at their own expense and
out of their own assets, may also provide other compensation to financial
institutions in connection with sales of shares of the Fund or as financial
assistance for providing substantial marketing sales and operational
support. Compensation may also include, but is not limited to, financial
assistance to financial institutions in connection with conferences, sales,
or training programs for their employees, seminars for the public,
advertising or sales campaigns, or other special events. In some instances,
this compensation may be predicated upon the amount of shares sold and/or
upon the type and nature of sales or operational support they furnish.
Dealers may not use sales of the Corporation's shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state
or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned other compensation
shall be paid for by the Corporation, the Fund, or its shareholders, nor
will it change the price paid by investors for the purchase of Fund shares.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may also be purchased, subject to applicable law and
regulation from time to time, at net asset value, without a sales charge,
by the following investors, their spouses and their immediate relatives:
(i) current and retired employees and directors of M&T Bank, 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 a "no-load" purchase provision. This
payment will be made out of the distributor's assets and not by the
Corporation, the Fund, or its shareholders.
A special application form, which is available from the Shareholder
Servicing Agent, must be submitted with the initial purchase.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF MUTUAL FUND SHARES OR ANNUITIES
Investors may purchase shares of the Fund at net asset value, without a
sales charge, with the proceeds from either: (i) the redemption of shares
of a mutual fund which was sold with a sales charge or commission; or (ii)
fixed or variable rate annuities. The purchase must be made within 60 days
of the redemption, and M&T Bank's Mutual Fund Services must be notified by
the investor in writing, or by the investor's financial institution, at the
time the purchase is made, and must present satisfactory evidence of the
redemption. Redemptions of mutual fund shares that are subject to a
contingent deferred sales charge are not eligible to purchase Fund shares
under this method. The distributor will uniformly and periodically offer to
pay cash payments as incentives to broker/dealers whose customers or
clients purchase shares of the Fund under this "no-load" purchase
provision. This payment will be made out of the distributor's assets and
not by the Corporation, the Fund, or its shareholders.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund
through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table under "What Fund Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the
same day by the investor, the investor's spouse, and the investor's
children under age 21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will
consider the previous purchases still invested in the Fund in calculating
the applicable sales charge rate. For example, if a shareholder already
owns shares which were purchased at the public offering price of $70,000
and then purchases $40,000 more at the current public offering price, the
sales charge of the additional purchase according to the schedule now in
effect would be the rate imposed on a $110,000 investment, not the rate
imposed on a $40,000 investment.
To receive the sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the shareholder in writing at the time
the purchase is made that Fund shares are already owned or that purchases
are being combined. The Fund will reduce the sales charge after it confirms
the purchase.
LETTER OF INTENT
If a shareholder intends to purchase shares of the Fund equal in value to
at least $100,000 over the next 13 months, the sales charge may be reduced
by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the
Custodian to hold 4.50% of the total amount intended to be purchased in
escrow (in shares of the Fund) until such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at
the end of the 13-month period, unless the amount specified in the letter
of intent is not purchased. In this event, an appropriate number of
escrowed shares may be redeemed in order to realize the difference in the
sales charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. This
letter may be dated as of a prior date to include any purchases made within
the past 90 days; however, these previous purchases will not receive the
reduced sales charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time
right to reinvest, within 90 days, the redemption proceeds in the Fund at
the next-determined net asset value without any sales charge. M&T Bank's
Mutual Fund Services or the distributor must be notified by the shareholder
in writing or by the shareholder's financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder
redeems his or her shares in the Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Vision Group of Funds, Inc., the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $70,000 in one
of the funds with a sales charge, and $40,000 in another fund with a sales
charge, the sales charge imposed on each purchase would be reduced to the
sales charge rate in effect for a $110,000 investment in the respectve
fund.
To receive this sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the agent placing the order at the time
the concurrent purchases are made. The sales charge will be reduced after
the purchase is confirmed.
HOW TO BUY SHARES
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS WHICH
THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS WHEN WIRE
TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND MARTIN LUTHER
KING DAY).
Shares may be purchased either by wire, mail or transfer. The Fund reserves
the right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
THROUGH THE BANK
You may purchase shares through M&T Bank. To do so, contact an account
representative at M&T Bank or those affiliates of M&T Bank which make
shares available, 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 New York Tax-Free Fund" in an amount of $500 or more, to the
address below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York, 14240-4556
Current shareholders can purchase shares by mail by sending a check to the
same address. Orders by mail are considered received after payment by check
has been converted into federal funds. This is normally the next business
day after the check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account,
you must maintain a checking or NOW deposit account at M&T Bank or any of
its affiliate banks. To place an order, call M&T Bank's Mutual Fund
Services or any representative of M&T Securities before 4:00 p.m. (Eastern
time). The money will be transferred from your checking or NOW deposit
account to your Fund account by the next business day and your purchase of
shares will be effected on the day the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about
the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a
regular basis in amounts of $25 or more through automatic deductions from
your checking or NOW deposit account. The money may be withdrawn
periodically and invested in Fund shares at the next net asset value
calculated after your order is received plus any applicable sales charge.
To sign up for this program, please call M&T Bank's Mutual Fund Services
for an application.
DIVIDENDS AND CAPITAL GAINS
The Fund declares dividends daily and pays them monthly. Capital gains
realized by the Fund, if any, will be distributed at least once every 12
months.
Dividends and capital gains will be automatically reinvested in additional
shares of the Fund on payment dates at the ex-dividend date's net asset
value without a sales charge, unless payments are requested by writing to
the Fund or M&T Bank's Mutual Fund Services. Dividends and capital gains
can also be reinvested in shares of any other fund comprising the Vision
Group of Funds, Inc., subject to any applicable investment requirements.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. The Fund will not issue
certificates for your shares unless you make a written request to the Fund.
Federated Shareholder Services Company is a subsidiary of Federated
Investors.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to shareholders of the Fund to
report dividends paid during the month.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP OF
FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS IN THE CORPORATION (REFERRED
TO AS "PARTICIPATING FUNDS" AND LISTED BELOW UNDER "DESCRIPTION OF FUND
SHARES") THROUGH AN EXCHANGE PROGRAM. YOU MAY EXCHANGE SHARES OF THE FUND
FOR SHARES OF OTHER
PARTICIPATING FUNDS AT NET ASSET VALUE, PLUS ANY APPLICABLE SALES CHARGE.
When exchanging into and out of Participating Funds with a sales charge
and Participating Funds without a sales charge, shareholders who have paid
a sales charge once upon purchasing shares of any Participating Fund,
including those shares 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. However, shares of
Participating Funds with no sales charge that were acquired by the
reinvestment of dividends will not be subject to a sales charge upon an
exchange into shares of a Participating Fund with a sales charge. Instead,
such exchanges will be made at net asset value.
To be eligible for this exchange privilege, you must exchange shares with a
net asset value of at least the minimum initial investment required by the
fund into which you are exchanging if it is a new account. You may exchange
your shares only for shares of Participating Funds that may legally be sold
in your state of residence. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the Participating Fund into
which an exchange is to be made.
Once the transfer agent has received proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next net asset value calculated. If you do not have an account in the
Participating Fund whose shares you want to acquire, you must establish a
new account. Unless you specify otherwise, this account will be registered
in the same name and have the same dividend and capital gains payment
options as you selected with your existing account. If the new account
registration (name, address, and taxpayer identification number) is not
identical to your existing account, you must provide a signature guarantee
to verify your signature. Please see the "Signature Guarantees" section
later in this prospectus for more information about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a
short or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege
at any time. Shareholders will be notified prior to any modification or
termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488). To sign up for telephone exchanges, you must select the telephone
exchange option on the new account application. It is recommended that you
request this privilege on your initial application. If you do not and later
wish to take advantage of telephone exchanges, you may call M&T Bank's
Mutual Fund Services for authorization forms.
You can only exchange shares by telephone between fund accounts with
identical shareholder registrations (names, addresses, and taxpayer
identification numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated
Shareholder Services Company before 4:00 p.m. (Eastern time) for shares to
be exchanged that same day. You will not receive a dividend from the fund
into which you are exchanging on the date of the exchange.
You may have difficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot
make a telephone exchange. Instead, the certificates must be properly
endorsed and should be sent by registered or certified mail, along with
your written exchange request, to the Vision Group of Funds, Inc. at the
address shown below. M&T Bank's Mutual Fund Services will then forward the
certificate to the transfer agent, Federated Shareholder Services Company,
and the shares will be deposited into your account before the exchange is
made.
Shareholders requesting the telephone exchange service authorize the
Corporation and its agents to act upon their telephonic instructions to
exchange shares from any account for which they have authorized such
services. Exchange instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
THE FUND REDEEMS YOUR SHARES AT THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE FUND RECEIVES YOUR REDEMPTION REQUEST. WHEN FUND
SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
You may redeem shares only on days when the Fund computes its net asset
value. You cannot redeem shares shares on days when the New York Stock
Exchange or M&T Bank are closed, or on holidays when wire transfers are
restricted (Columbus Day, Veterans' Day, and Martin Luther King Day). While
you may redeem various amounts by telephone or written request, you can
close your account only by written request.
TELEPHONE REDEMPTIONS
You may redeem your shares by calling M&T Bank's Mutual Fund Services at
(800) 836-2211 (in the Buffalo area, phone 842-4488) before 4:00 p.m.
(Eastern time). The proceeds will be wired the next business day directly
to your account at M&T Bank or an affiliate or to another account you
previously designated at a domestic commercial bank that is a member of the
Federal Reserve System. M&T Bank reserves the right to charge a fee for a
wire transfer from a customer checking account, which may contain
redemption proceeds, to another commercial bank.
You will be automatically eligible for telephone redemptions, unless you
check the box on the new account application form to decline this
privilege. It is recommended that you provide the necessary information for
the telephone/ wire redemption option on your initial application. If you
do not do this and later wish to take advantage of telephone redemptions,
you must call M&T Bank's Mutual Fund Services for authorization forms.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written redemption request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time. Shareholders will be notified prior to any
modification or termination.
If you hold shares in certificate form, you cannot redeem those shares by
phone, but instead must redeem them in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to
redeem shares from any account for which they have authorized such
services. Redemption instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING SHARES BY MAIL
You may redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions
before redeeming by letter. Your written request must include your name,
the Fund's name, your account number, and the share or dollar amount you
want to redeem. If share certificates have been issued to you, those
certificates must be properly endorsed and should be sent by registered or
certified mail along with your redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
if you are redeeming shares worth $50,000 or more;
if you want a redemption of any amount sent to an address other than
your address on record with the Fund;
if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
if you want to transfer the registration of the Fund shares.
The signature guarantee must be provided by:
a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which also is administered by
the FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request, provided the Fund or its agents have received payment
for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
If you own Fund shares worth $10,000 or more, you can have regular payments
of $50 or more sent from your Fund account to you, another person you
designate or your checking or NOW deposit account. Fund shares are redeemed
to provide periodic payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends or any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in the Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason,
you should not consider systematic withdrawal payments as yield or income
received from your investment in the Fund. Due to the fact that shares are
sold subject to a sales charge, it may not be advisable for shareholders to
be purchasing shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the
Fund may redeem your shares and send you the proceeds if your account
balance falls below a minimum value of $250 due to shareholder redemptions.
Shareholders who make large or frequent withdrawals may be particularly
vulnerable to this involuntary redemption process. However, before shares
are redeemed to close an account, the shareholder will be notified in
writing and given 30 days to purchase additional shares to meet the minimum
balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate
to do so in light of the Fund's responsibilities under the Investment
Company Act of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE INCOME TAX
TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
The tax consequences discussed here apply whether you receive dividends in
cash or reinvest them in additional shares. The Fund will send you tax
information annually regarding the federal income tax consequences of
distributions made during the year. You should definitely consult your own
tax adviser about any state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax
purposes. income earned by the Fund, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
Portfolios.
The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code so that it is not required to pay federal
income taxes on the income and capital gains distributed to shareholders.
FEDERAL TAXES
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest received from tax-exempt
municipal securities (exempt-interest dividends). The Fund intends to
invest its assets so that most of the dividends it pays will be considered
exempt-interest dividends. Shareholders will be required to pay federal
income tax on dividends received from the Fund attributable to capital
gains and net interest received from taxable temporary investments,
although the Fund anticipates that such amounts will be limited.
However, exempt-interest dividends on certain private activity municipal
securities may be included in calculating the federal alternative minimum
tax ("AMT") for individuals and corporations (previously discussed in the
"AMT Obligations" section). The AMT is a special federal tax that applies
to taxpayers who claim certain large income tax deductions, which are
referred to as tax preference items. To the extent the Fund invests in AMT
obligations, a portion of the Fund's dividends will be treated as a tax
preference item for shareholders potentially affected by the AMT. But this
is only meaningful if you yourself are subject to the AMT. Ask your own tax
adviser for more information.
NEW YORK TAXES
Under existing New York laws, shareholders will not be subject to New York
State
or New York City personal income taxes on dividends to the extent that such
dividends qualify as "exempt interest dividends" under the Internal Revenue
Code of 1986, as amended, and represent interest income attributable to
obligations of the State of New York and its political subdivisions, as
well as certain other obligations, the interest on which is exempt from New
York State and New York City personal income taxes, such as, for example,
certain obligations of the Commonwealth of Puerto Rico. To the extent that
distributions are derived from other income, such distributions will be
subject to New York State or New York City personal income tax.
The Fund cannot predict in advance the exact portion of its dividends that
will be exempt from New York State and New York City personal income taxes.
However, the Fund will report to shareholders at least annually what
percentage of the dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the same extent that they are exempt from the New York City
personal income tax.
Dividends paid by the Fund are not excluded from net income in determining
New York State or New York City franchise taxes on corporations or
financial institutions.
CORPORATE SHAREHOLDER INFORMATION
In the case of a corporate shareholder, all exempt-interest dividends paid
by the Fund are included in computing the shareholder's adjusted current
earnings, upon which is based a separate corporate preference item that may
be subject to the AMT. The corporate AMT tax rate is 20%.
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
Dividends paid by the Fund are not exempt from the New York State franchise
tax on corporations or the New York City general corporation tax.
THE TAX TREATMENT OF TEMPORARY INVESTMENTS
Dividends paid by the Fund that are attributable to the net interest earned
on some temporary investments (previously discussed in the "Temporary
Investments" section) and any realized net short-term capital gains are
taxed as ordinary income.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on
February 23, 1988, and consists of seven available portfolios: Vision Money
Market Fund, Vision Treasury Money Market Fund, Vision New York Tax-Free
Money Market Fund, Vision U.S. Government Securities Fund, Vision New York
Tax-Free Fund, Vision Growth and Income Fund and Vision Capital
Appreciation Fund. The Corporation's Articles of Incorporation permit the
Corporation to offer separate series of shares in these funds or other
future portfolios.
Each Fund share represents an equal proportionate interest in the Fund with
other shares and participates equally in the dividends and any other
distributions that are declared at the discretion of the Corporation's
Board of Directors.
VOTING RIGHTS AND OTHER INFORMATION
SHAREHOLDERS OF THE FUND ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE THEY
HOLD AND TO FRACTIONAL VOTES FOR ANY FRACTIONAL SHARES THEY HOLD.
Shareholders in the Fund generally vote in the aggregate and not by class,
unless the law expressly requires otherwise or the Board of Directors
determines that the matter to be voted upon affects only the interests of
shareholders of a particular class. (See the "Description of Fund Shares"
in the Statement of Additional Information for examples of when the
Investment Company Act of 1940 requires that shareholders vote by class.)
The Fund is not required to hold annual shareholder meetings, unless
matters arise that require a vote of the shareholders under the Investment
Company Act of 1940. That law requires a vote of the shareholders to
approve changes in the Fund's investment advisory agreement, to replace the
Fund's independent certified public accountants and, under certain
circumstances, to elect members to the Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a
vote of shareholders at a special meeting. The Corporation's Board of
Directors will promptly call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of any Fund's
outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in the
Fund, together with all income, earnings, profits, and proceeds derived
from the investment of that money. This includes any proceeds from the
sale, exchange, or liquidation of these investments, any funds or payments
derived from the reinvestment of these proceeds, and a portion of the
general assets of the Corporation that do not otherwise belong to the Fund.
Assets belonging to the Fund are charged with the direct expenses and
liabilities of the Fund and with a share of the general expenses and
liabilities of the Corporation. The general expenses and liabilities of the
Corporation are allocated in proportion to the relative asset values of all
the Corporation's portfolios at the time the expense or liability is
incurred.
The management of the Corporation determines the Fund's direct and
allocable liabilities at the time the expense or liability is incurred as
well as the Fund's allocable share of any general assets at the time the
asset is acquired. These determinations are reviewed and approved annually
by the Corporation's Board of Directors and are conclusive.
HOW THE FUND SHOWS PERFORMANCE
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices. The Fund may advertise
its performance in terms of yield and total return, as defined below. Of
course, total return, yield, and tax-equivalent 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 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
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the
yield. However, it is adjusted to show the taxable yield that the Fund
would have had to earn to equal its actual yield, assuming a specific tax
rate, and assuming that income is 100% tax exempt. The tax-equivalent yield
is computed by dividing the tax-free yield by the result of one minus the
combined federal and state tax rate. For example, if an investor is in the
31% federal income tax bracket, and the rate for state taxes is 6.85%,
assuming the tax-free yield is 3.5%, the investor would have to receive
5.73% from a taxable investment to equal that tax-free yield (3.5% divided
by 1 - (.31 + .07875 = 5.73%).
Addresses
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision New York Tax-Free Fund
Prospectus dated
June 30, 1997
[VISION LOGO]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS TRUST
COMPANY
Federated Investors Tower Investment Adviser Pittsburgh, PA 15222-
3779 A subsidiary of First Empire State
Corporation
Federated Securities Corp. is the distributor of the fund and is a
subsidiary of Federated Investors.
92830F505
3081706A (6/97)
TR3081706A (6/97)
[VISION LOGO]
PROSPECTUS
VISION U.S. GOVERNMENT SECURITIES FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1997
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven
separate investment portfolios with distinct investment objectives and
policies. This prospectus relates to one of the seven portfolios, Vision
U.S. Government Securities Fund (the "Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T BANK"), ARE NOT ENDORSED OR
GUARANTEED BY M&T BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund. Please read the
prospectus before you invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of
Additional Information dated June 30, 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 is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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
TABLE OF CONTENTS
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in seven separate, professionally managed
portfolios. This prospectus discusses Vision U.S. Government Securities
Fund.
VISION U.S. GOVERNMENT SECURITIES FUND (THE "FUND") IS A DIVERSIFIED
PORTFOLIO WHICH SEEKS CURRENT INCOME. THE FUND INVESTS IN A DIVERSIFIED
PORTFOLIO CONSISTING PRIMARILY OF SECURITIES THAT ARE GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES. CAPITAL APPRECIATION IS A SECONDARY INVESTMENT
CONSIDERATION. (SEE "HOW THE FUND INVESTS.")
BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Fund are sold at net asset value plus a sales charge and
redeemed at net asset value. The minimum initial investment in the Fund is
$500 ($250 for retirement plans), and it may be waived or lowered from time
to time. (See "Your Guide to Using the Fund.")
FUND MANAGEMENT
The Fund's investment adviser is M&T Bank, which makes investment
decisions for the Fund. M&T Bank is the principal banking subsidiary of
First Empire State Corporation.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in
the Buffalo area, phone 842-4488).
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
techniques.
A SUMMARY OF THE FUND'S EXPENSES (To be filed by amendment)
VISION U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS (To be filed by amendment)
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income. The investment
objective cannot be changed without approval of its shareholders. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in
this prospectus.
INVESTMENT POLICIES
THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING, UNDER NORMAL MARKET
CIRCUMSTANCES, AT LEAST 65% OF ITS TOTAL ASSETS IN A DIVERSIFIED PORTFOLIO
CONSISTING OF SECURITIES THAT ARE GUARANTEED AS TO PAYMENT OF PRINCIPAL AND
INTEREST BY THE U.S. GOVERNMENT OR ITS AGENCIES OR INSTRUMENTALITIES ("U.S.
GOVERNMENT SECURITIES"). CAPITAL APPRECIATION IS A SECONDARY INVESTMENT
CONSIDERATION. THE FUND ANTICIPATES THAT MOST OF ITS ASSETS WILL BE
INVESTED IN FIXED INCOME SECURITIES HAVING MATURITIES GREATER THAN ONE
YEAR. CERTAIN MORTGAGE-BACKED SECURITIES, INCLUDING ARMS AND CMOS (AS
DEFINED BELOW), ARE INCLUDED WITHIN THE DEFINI- TION OF "U.S. GOVERNMENT
SECURITIES." DEPENDING UPON MARKET CONDITIONS, THE FUND MAY INVEST A
SUBSTANTIAL PORTION OF ITS ASSETS IN MORTGAGE-BACKED SECURITIES. FOR A
DESCRIPTION OF THESE SECURITIES, SEE BELOW.
ACCEPTABLE INVESTMENTS
The Fund's investments include:
U.S. Government Securities (see below);
mortgage-backed securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on
real property (see below);
asset-backed securities that are similar to mortgage-backed securities,
but have underlying assets that are not mortgage loans or interests in
mortgage loans (see below);
taxable municipal securities;
domestic issues of corporate debt obligations, including demand master
notes, rated at the time of purchase Aaa, Aa, or A by Moody's Investors
Service, Inc. ("Moody's"), or AAA, AA, or A by Standard & Poor's Ratings
Group ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), or, if
unrated, of comparable quality as determined by the Fund's adviser;
commercial paper that at the time of purchase is rated not less than P-
1, A-1, or F-1 by Moody's, S&P, or Fitch, respectively, or, if unrated, of
comparable quality as determined by the Fund's adviser;
time and savings deposits (including certificates of deposit) in
commercial or savings banks;
bankers' acceptances;
repurchase agreements collateralized by high quality, liquid
investments; and
money market instruments.
In addition, the Fund may purchase the investments and engage in the
investment techniques described below.
U.S. GOVERNMENT SECURITIES
The U.S. Government Securities in which the Fund invests include:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
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
notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
Mortgage-backed securities, including ARMS and CMOs (as defined below), are
securities which can be issued by the U.S. government, its agencies or
instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities
of the U.S. government are backed by the full faith and credit of the U.S.
Treasury. No assurances can be given that the U.S. government will provide
financial support to other agencies or instrumentalities, since it is not
obligated to do so. These instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or the credit of the agency or
instrumentality.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, which are securities
that directly or indirectly represent a participation in, or are secured by
and payable from, mortgage loans on real property. There are currently four
basic types of mortgage-backed securities that the Fund may purchase: (i)
those issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as Federal 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; (iii) those
issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit
enhancement; and (iv) privately issued securities which are collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government.
The privately issued mortgage-backed securities provide for a periodic
payment consisting of both interest and/or principal. The interest portion
of these payments will be distributed by the Fund as income, and the
capital portion will be reinvested. See "Asset-Backed Securities" below for
a description of risks.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The ARMS in which the
Fund invests are issued by Ginnie Mae, Fannie Mae, or Freddie Mac, and are
actively traded. The underlying mortgages which collateralize ARMS issued
by Ginnie Mae are fully guaranteed by the Federal Housing Administration
("FHA") or Veterans Administration ("VA"), while those collateralizing ARMS
issued by Fannie Mae or Freddie Mac are typically conventional residential
mortgages conforming to strict underwriting size and maturity constraints.
ARMS may also be collateralized by whole loans or private pass-through
securities.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus a holder of the ARMS, such as the Fund,
would receive monthly scheduled payments of principal and/or interest and
may receive unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of fixed-income securities.
Not unlike other fixed-income securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole
loans or private pass-through securities.
The Fund will only invest in CMOs which, at the time of purchase, are rated
AAA by a nationally recognized statistical rating organization ("NRSRO") or
are of comparable quality as determined by the Fund's adviser, and which
may be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. Government Securities;
or (c) collateralized by pools of mortgages without a government guarantee
as to payment of principal and interest, but which have some form of credit
enhancement.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under provisions of
the Internal Revenue Code. Issuers of REMICs may take several forms, such
as trusts, partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed through the
entity and is taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes of "regular
interest." To qualify as a REMIC, substantially all the assets of the
entity must be in assets directly or indirectly secured principally by real
property.
The mortgage-related securities provide for a periodic payment consisting
of both interest and principal. The interest portion of these payments will
be distributed by the Fund as income, and the capital portion will be
reinvested.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities which have structural
characteristics similar to mortgage-backed securities but have underlying
assets that are not mortgage loans or interests in mortgage loans. The Fund
may invest in asset-backed securities which, at the time of purchase, are
rated in the top three rating categories by an NRSRO, including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These
securities may be in the form of pass-through instruments or asset-backed
bonds. The securities are issued by non-governmental entities and carry no
direct or indirect government guarantee.
Mortgage-backed securities (including ARMs, CMOs, and REMICs) and asset-
backed securities generally pay back principal and interest over the life
of the security. At the time the Fund reinvests the payments and any
unscheduled prepayments of principal received, it may receive a rate of
interest which is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of
debt instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be prepaid
without penalty or premium. Prepayment risks on mortgage-backed securities
tend to increase during periods of declining mortgage interest rates
because many borrowers refinance their mortgages to take advantage of the
more favorable rates. Prepayments on mortgage-backed securities are also
affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages.
Although asset-backed securities generally are less likely to experience
substantial prepayments than are mortgage-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-backed securities
also affect the rate of prepayments on asset-backed securities. Furthermore
if mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of
a holder's principal investment to the extent of the premium paid.
Conversely, if mortgage-backed securities are purchased at a discount, both
a scheduled payment of principal and an unscheduled prepayment of principal
would increase current and total returns and would accelerate the
recognition of income, which would be taxed as ordinary income when
distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-
backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the
underlying obligations. If the servicer sells these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities.
Further, if a vehicle is registered in one state and is then reregistered
because the owner and obligor moves to another state, such reregistration
could defeat the original security interest in the vehicle in certain
cases. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing
such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
TAXABLE MUNICIPAL SECURITIES
The Fund may invest in taxable municipal securities, which are generally
issued to finance public works such as airports, bridges, highways,
housing, hospitals, mass transportation projects, schools, streets, and
water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make
loans to other public institutions and facilities.
Municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of municipal securities are `general
obligation''and ``revenue'' bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds
do not represent a pledge of credit or create any debt of or charge against
the general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations, including corporate
bonds, notes, and debentures, which may have floating or fixed rates of
interest. These obligations will be rated at the time of purchase in the
top three rating categories of an NRSRO or, if the obligations are unrated,
they will be of comparable quality as determined by the Fund's adviser. If
any security purchased by the Fund is subsequently downgraded, securities
will be evaluated on a case by case basis by the Fund's adviser. The Fund's
adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold. A description of
the rating categories is contained in the Appendix to the Fund's Statement
of Additional Information.
FIXED RATE CORPORATE DEBT OBLIGATIONS
The Fund may invest in fixed rate securities, including fixed rate
securities with short-term characteristics. Fixed rate securities with
short-term characteristics are long-term debt obligations, but are treated
in the market as having short maturities because call features of the
securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or a fixed income
security approaching maturity, where the expectation of call or redemption
is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described below,
behave like short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest rate index.
Fixed rate securities pay a fixed rate of interest and are more sensitive
to fluctuating interest rates. In periods of rising interest rates the
value of a fixed rate security is likely to fall. Fixed rate securities
with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.
FLOATING RATE CORPORATE DEBT OBLIGATIONS
The Fund may invest in floating rate corporate debt obligations, including
increasing rate securities. Floating rate securities are generally offered
at an initial interest rate which is at or above prevailing market rates.
The interest rate paid on these securities is then reset periodically
(commonly every 90 days) to an increment over some predetermined interest
rate index. Commonly utilized indices include the three-month Treasury bill
rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial
paper rates, or the longer-term rates on U.S. Treasury securities.
Downgraded securities will be evaluated on a case by case basis by the
adviser. The adviser will determine whether or not the security continues
to be an acceptable investment. If not, the security will be sold.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in
which banks, broker/dealers, and other recognized financial institutions
sell U.S. government securities or other high quality, liquid securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, it could receive less than the
repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of net assets in illiquid securities, which
may include restricted securities. Restricted securities are any securities
in which the Fund may otherwise invest pursuant to its investment objective
and policies, but which are subject to restriction on resale under federal
securities laws. To the extent these securities are deemed to be illiquid,
the Fund will limit its purchases, together with other securities
considered to be illiquid, to 15% of its net assets.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term debt
instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a published
interest rate or interest rate index. Many variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven
days' prior notice. Other notes only permit the Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies.
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 otherwise 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 would be subject to such duplicate expenses.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which are debt securities issued
at a discount to their face amount and do not entitle the holder to any
periodic payments of interest prior to maturity.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, or both, up to one-third of
the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will enter into loan
arrangements only with broker/dealers, banks, or other institutions which
the Fund's adviser has determined are creditworthy under guidelines
established by the Corporation's Board of Directors and will receive
collateral in the form of cash, 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.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not
own is sold in anticipation of a decline in its price. If the decline
occurs, shares equal in number to those sold short can be purchased at the
lower price. If the price increases, the higher price must be paid. The
purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When the Fund
enters into a short sale, assets that are equal to the market price of the
securities sold short or any lesser price at which the Fund can obtain such
securities, are segregated on the Fund's records and maintained until the
Fund meets its obligations under the short sale.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These
options will be used as a hedge to attempt to protect securities which the
Fund holds against fluctuations in value. The Fund may also write put and
call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write put and call options on securities either
held in its portfolio or for which the Fund has the right to obtain without
payment of further consideration or for which it has segregated cash in the
amount of any additional consideration. The Fund may also purchase call
options on securities to protect against price movements in particular
securities which the Fund intends to purchase. A call option gives the
Fund, in return for a premium, the right (but not the obligation) to buy
the underlying security from the seller at a pre-determined price.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers
of the options since options on certain portfolio securities held by the
Fund are not traded on an exchange. The Fund purchases and writes options
only with investment dealers and other financial institutions (such as
commercial banks or broker/dealers) deemed creditworthy by the Fund's
adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may
not.
If the Fund does not exercise an option it has purchased, then the Fund
loses in value the price it paid for the option premium. If the Fund writes
(sells) an option which is subsequently exercised, the premium received by
the Fund from the option purchaser may not exceed the increase (in the case
of a call option) or decrease (in the case of a put option) in the value of
the securities underlying the option, in which case the difference
represents a loss for the Fund. However, if the option expires without
being exercised, the Fund realizes a gain in the amount of the premium it
received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to attempt to
hedge all or a portion of its portfolio against changes in interest rates
or economic market conditions. Financial futures contracts require the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
Generally, the Fund may not purchase or sell futures contracts or
related options, 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 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.
RISKS
When the Fund uses futures and options on futures as hedging devices, there
is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in
the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market
changes. In addition, the Fund's investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under limited
circumstances. This transaction is similar to borrowing cash.
DIVERSIFICATION
The Fund is a "diversified" investment company. Under the Investment
Company Act of 1940 and the Internal Revenue Code of 1986, this means that
with respect to 75% of its total assets, the Fund may not invest more than
5% of its total assets in the securities of any one issuer (except U.S.
government obligations). The balance of the Fund's assets is not subject to
this limitation. Thus, the Fund may invest up to 25% of its total assets in
the securities of any one issuer.
DEBT CONSIDERATION
In the debt market, prices move inversely to interest rates. A decline in
market interest rates results in a rise in the market prices of outstanding
debt obligations. Conversely, an increase in market interest rates results
in a decline in market prices of outstanding debt obligations. In either
case, the amount of change in market prices of debt obligations in response
to changes in market interest rates generally depends on the maturity of
the debt obligations: the debt obligations with the longest maturities
will experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset
value, will fluctuate due to changes in economic conditions and other
market factors such as interest rates which are beyond the control of the
Fund's investment adviser. The Fund's investment adviser could be incorrect
in its expectations about the direction or extent of these market factors.
Although debt obligations with longer maturities offer potentially greater
returns, they have greater exposure to market price fluctuation.
Consequently, to the extent the Fund is significantly invested in debt
obligations with longer maturities, there is a greater possibility of
fluctuation in the Fund's net asset value.
Yields on taxable municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. The ability of
the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of municipal securities and demand features, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings.
with respect to 75% of the value of its total assets, invest more than 5%
in securities of one issuer other than cash, cash items, or securities
issued or guaranteed by the government of the United States or its agencies
or instrumentalities and repurchase agreements collateralized by such
securities, or acquire more than 10% of the voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder
approval.
FUND MANAGEMENT, DISTRIBUTION AND ADMINISTRATION
BOARD OF DIRECTORS
THE FUND IS MANAGED BY A BOARD OF DIRECTORS.
The Directors are responsible for managing the business affairs for the
Fund and for exercising all the Fund's powers except those reserved for the
shareholders.
INVESTMENT ADVISER
INVESTMENT DECISIONS FOR THE FUND ARE MADE BY M&T BANK, SUBJECT TO
DIRECTION BY THE DIRECTORS.
The Adviser continually conducts investment research and supervision for
the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Corporation's Board of Directors and
could result in severe penalties.
ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as
investment adviser, M&T Bank is entitled to receive a fee from the Fund,
equal to an annual rate of .70% of the Fund's average net assets. This fee
is computed daily and paid monthly. M&T Bank has agreed to pay all expenses
it incurs in connection with its advisory activities, other than the cost
of securities (including any brokerage commissions) purchased for the Fund.
From time to time, M&T Bank may voluntarily waive all or a portion of its
advisory fees in order to help the Fund maintain a competitive expense
ratio.
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 161 offices throughout New
York State and an office in Nassau, The Bahamas.
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.
Mr. Robert J. Truesdell served as the Fund's portfolio manager from August
1994 through February 1995. Since the Fund's inception, Mr. Truesdell was
also responsible for overseeing the Fund's management, and has supervised
the Fund's investment decisions. Mr. Truesdell oversees investment
activities of M&T Bank's money market and fixed income products, and the
money market funds in the Vision Group of Funds, Inc. Mr. Truesdell joined
M&T Bank as Vice President and Fixed Income Manager in 1988. In addition to
the Vision money market funds, he also manages individual investment
management accounts. Mr. Truesdell holds an M.B.A. in accounting from
S.U.N.Y. at Buffalo.
Mr. Thomas R. Pierce has been the Fund's portfolio manager since March
1995. Mr. Pierce joined M&T Bank in January 1995 as Vice President from
Merit Investment Advisors where he acted as Director of Fixed Income
Product and Trading since 1993. For the period from 1987 to 1993, Mr.
Pierce served as Fixed Income Manager at ANB Investment Management Company,
where he directed the management of $3.5 billion of active and passive
fixed income portfolios. Mr. Pierce holds an A.B. in Economics from
Washington University and is an M.B.A. candidate at the University of
Chicago.
DISTRIBUTION OF FUND SHARES
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
Shares of the Fund are sold on a continuous basis by Federated Securities
Corp. It is a Pennsylvania corporation organized on November 14, 1969, and
is also the principal distributor for a number of other investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors, Pittsburgh, Pennsylvania.
DISTRIBUTION PLAN
Under a distribution plan (referred to as the "Plan") adopted in
accordance with Rule 12b-1 promulgated under the Investment Company Act of
1940, the Fund may pay to the distributor an amount computed at an annual
rate of 0.25% of its average daily net assets to finance any activity which
is principally intended to result in the sale of shares subject to the
Plan. The distributor may from time to time and for such periods as it
deems appropriate, voluntarily reduce its 12b-1 compensation under the Plan
to the extent the expenses attributable to shares of the Fund exceed such
lower expense limitation as the distributor may, by notice to the
Corporation, voluntarily declare to be effective. The Fund has no present
intention of paying or accruing 12b-1 fees during the fiscal year ending
April 30, 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 Shareholder Servicing Agent provides services. The
Fund will not accrue or pay any shareholder servicing agent fees until a
separate class of shares has been created for the Fund or the prospectus is
amended to reflect the imposition of fees.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings
banks) to provide administrative services that are not provided by
Federated Administrative Services (see below). These administrative
services include distributing prospectuses and other information, providing
accounting assistance and shareholder communications, or otherwise
facilitating shareholder purchases and redemptions (sales) of any Fund
shares. The administrators appointed could include affiliates of the
adviser.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. If the distributor pays any fees for these
services, the fees will be reimbursed by the adviser and not the Fund.
ADMINISTRATION OF THE FUND
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUND WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUND.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as
specified below:
MAXIMUM ADMINISTRATIVE AGGREGATE DAILY NET FEE
ASSETS OF VISION
GROUP OF FUNDS, INC.
..150% on the first $250 million
..125% on the next $250 million
..100% on the next $250 million
..075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000. Federated Administrative Services may choose voluntarily to waive
a portion of its fee at any time.
YOUR GUIDE TO USING THE FUND
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE FLUCTUATES.
The net asset value for the Fund's shares is determined by adding the
market value of all securities and other assets of the Fund, subtracting
the liabilities of the Fund and dividing the remainder by the total number
of the Fund's shares outstanding.
MINIMUM INITIAL INVESTMENT
The minimum initial investment in the Fund is $500, unless the investment
is in a retirement plan, in which case the minimum initial investment is
$250. The minimum initial investment may be waived or lowered from time to
time. Subsequent investments must be in amounts of at least $25, including
retirement plans. In addition, the minimum initial and subsequent
investment amounts may be waived or lowered from time to time, such as for
customers participating in the automatic investment services described
below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
DEALER
SALES CHARGE SALES CHARGE CONCESSION
AS AS A AS A
A PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
OFFERING AMOUNT OFFERING
AMOUNT PRICE INVESTED PRICE
OF TRANSACTON
Less than $100,000........... 4.50% 4.71%
4.00% $100,000 but less
than $250,000...... 3.75% 3.90%
3.25% $250,000 but less than
$500,000...... 3.00% 3.09% 2.75%
$500,000 but less than
$1 million.... 2.00% 2.04% 1.75%
$1 million or more............... 0.00% 0.00%
0.00%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected;
(ii) days during which no shares are tendered for redemption by
shareholders and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may
from time to time offer certain items of nominal value to any shareholder
or investor.
SALES CHARGE REALLOWANCE
For sales of shares of the Fund, a broker/dealer will normally receive up
to 90% of the applicable sales charge. Any portion of the sales charge
which is not paid to a broker/dealer will be retained by the distributor.
However, the distributor will uniformly and periodically offer to pay
broker/dealers up to 100% of the sales charge retained by it. Such payments
may take the form of cash, items of material value, or promotional
incentives, such as payment of certain expenses of qualified employees and
their spouses to attend informational meetings about the Fund or other
special events at recreational- type facilities. In some instances, these
incentives will be made available only to broker/ dealers whose employees
have sold or may sell significant amounts of shares.
The distributor may pay fees to financial institutions out of the sales
charge in exchange for sales and/or administrative services performed on
behalf of their customers in connection with the initiation of customer
accounts and pur- chases of shares of the Fund.
In addition, the distributor will offer to pay broker/dealers an amount of
up to 1.00% of the net asset value of shares purchased for an account of
their client or customer in an amount of $1 million or more.
The distributor, M&T Bank, or affiliates thereof, at their own expense and
out of their own assets, may also provide other compensation to financial
institutions, in connection with sales of shares of the Fund or as
financial assistance for providing substantial marketing, sales and
operational support. Compensation may also include, but is not limited to,
financial assistance to financial institutions in connection with
conferences, sales, or training programs for their employees, seminars for
the public, advertising or sales campaigns, or other special events. In
some instances, this compensation may be predicated upon the amount of
shares sold and/or upon the type and nature of sales or operational support
they furnish. Dealers may not use sales of the Corporation's shares to
qualify for this compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned other
compensation shall be paid for by the Corporation, the Fund, or its
shareholders, nor will it change the price paid by investors for the
purchase of Fund shares.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased, subject to applicable law and
regulation from time to time, at net asset value, without a sales charge,
by the following investors, their spouses and their immediate relatives:
(i) current and retired employees and directors of M&T Bank, 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.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table under "What Fund Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the
same day by the investor, the investor's spouse, and the investor's
children under age 21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will
consider the previous purchases still invested in the Fund in calculating
the applicable sales charge rate. For example, if a shareholder already
owns shares which were purchased at the public offering price of $70,000
and then purchases $40,000 more at the current public offering price, the
sales charge of the additional purchase according to the schedule now in
effect would be the rate imposed on a $110,000 investment, not the rate
imposed on a $40,000 investment.
To receive the sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the shareholder in writing at the time
the purchase is made that Fund shares are already owned or that purchases
are being combined. The Fund will reduce the sales charge after it confirms
the Purchase.
LETTER OF INTENT
If a shareholder intends to purchase shares of the Fund equal in value to
at least $100,000 over the next 13 months, the sales charge may be reduced
by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the
Custodian to hold 4.50% of the total amount intended to be purchased in
escrow (in shares of the Fund) until such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at
the end of the 13-month period, unless the amount specified in the letter
of intent is not purchased. In this event, an appropriate number of
escrowed shares may be redeemed in order to realize the difference in the
sales charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. This
letter may be dated as of a prior date to include any purchases made within
the past 90 days; however, these previous purchases will not receive the
reduced sales charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time
right to reinvest, within 90 days, the redemption proceeds in the Fund at
the next-determined net asset value without any sales charge. M&T Bank's
Mutual Fund Services or the distributor must be notified by the shareholder
in writing or by the shareholder's financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder
redeems his or her shares in the Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Vision Group of Funds, Inc., the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $70,000 in one
of the funds with a sales charge, and $40,000 in another fund with a sales
charge, the sales charge imposed on each purchase would be reduced to the
sales charge rate in effect for a $110,000 investment in the respective
fund.
To receive this sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the agent placing the order at the time
the concurrent purchases are made.
The sales charge will be reduced after the purchase is confirmed.
HOW TO BUY SHARES
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS WHICH
THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS WHEN WIRE
TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND MARTIN LUTHER
KING DAY).
Shares may be purchased either by wire, mail or transfer. The Fund reserves
the right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
THROUGH THE BANK
You may purchase shares through M&T Bank. To do so, contact an account
representative at M&T Bank or those affiliates of M&T Bank which make
shares available 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 U.S. Government Securities Fund" in an amount of $500 or more, to
the address below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York, 14240-4556
Current shareholders can purchase shares by mail by sending a check to the
same address. Orders by mail are considered received after payment by check
has been converted into federal funds. This is normally the next business
day after the check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account,
you must maintain a checking or NOW deposit account at M&T Bank or any of
its affiliate banks. To place an order, call M&T Bank's Mutual Fund
Services or any representative of M&T Securities before 4:00 p.m. (Eastern
time). The money will be transferred from your checking or NOW deposit
account to your Fund account by the next business day and your purchase of
shares will be effected on the day the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about
the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a
regular basis in amounts of $25 or more through automatic deductions from
your checking or NOW deposit account. The money may be withdrawn
periodically and invested in Fund shares at the next net asset value
calculated after your order is received plus any applicable sales charge.
To sign up for this program, please call M&T Bank's Mutual Fund Services
for an application.
DIVIDENDS AND CAPITAL GAINS
The Fund declares dividends daily and pays them monthly. Capital gains
realized by the Fund, if any, will be distributed at least once every 12
months. Dividends and capital gains will be automatically reinvested in
additional shares of the Fund on payment dates at the ex-dividend date's
net asset value without a sales charge, unless payments are requested by
writing to the Fund or M&T Bank's Mutual Fund Services. Dividends and
capital gains can also be reinvested in shares of any other funds
comprising the Vision Group of Funds, Inc., subject to any applicable
investment requirements.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans
or IRA accounts. For further details, contact the Fund and consult a tax
adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. The Fund will not issue
certificates for your shares unless you make a written request to the Fund.
Federated Shareholder Services Company is a subsidiary of Federated
Investors.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to shareholders of the Fund to
report dividends paid during the month.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP OF
FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS IN THE CORPORATION (REFERRED
TO AS "PAR- TICIPATING FUNDS" AND LISTED BELOW UNDER "DESCRIPTION OF FUND
SHARES") THROUGH AN EXCHANGE PROGRAM. YOU MAY EXCHANGE SHARES OF THE FUND
FOR SHARES OF OTHER PARTICIPATING FUNDS AT NET ASSET VALUE, PLUS ANY
APPLICABLE SALES CHARGE.
When exchanging into and out of Participating Funds with a sales charge
and Participating Funds without a sales charge, shareholders who have paid
a sales charge once upon purchasing shares of any Participating Fund,
including those shares acquired by the reinvestment of dividends, will not
have to pay a sales charge again on an exchange. 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. However, shares
of Participating Funds with no sales charge that were acquired by the
reinvestment of dividends will not be subject to a sales charge upon an
exchange into shares of a Participating Fund with a sales charge. Instead,
such exchanges will be made at net asset value.
To be eligible for this exchange privilege, you must exchange shares with a
net asset value of at least the minimum initial investment required by the
Participating Fund into which you are exchanging if it is a new account.
You may exchange your shares only for shares of Participating Funds that
may legally be sold in your state of residence. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the
Participating Fund into which an exchange is to be made.
Once the transfer agent has received proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next net asset value calculated. If you do not have an account in the
Participating Fund whose shares you want to acquire, you must establish a
new account. Unless you specify otherwise, this account will be registered
in the same name and have the same dividend and capital gains payment
options as you selected with your existing account. If the new account
registration (name, address, and taxpayer identification number) is not
identical to your existing account, you must provide a signature guarantee
to verify your signature. Please see the "Signature Guarantees" section
later in this prospectus for more information about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a
short or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege
at any time. Shareholders will be notified prior to any modification or
termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488). To sign up for telephone exchanges, you must select the telephone
exchange option on the new account application. It is recommended that you
request this privilege on your initial application. If you do not and later
wish to take advantage of telephone exchanges, you may call M&T Bank's
Mutual Fund Services for authorization forms.
You can only exchange shares by telephone between fund accounts with
identical shareholder registrations (names, addresses, and taxpayer
identification numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated
Shareholder Services Company before 4:00 p.m. (Eastern time) for shares to
be exchanged that same day. You will not receive a dividend from the fund
into which you are exchanging on the date of the exchange.
You may have diffficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot
make a telephone exchange. Instead, the certificates must be properly
endorsed and should be sent by registered or certified mail, along with
your written exchange request, to the Vision Group of Funds, Inc. at the
address shown below. M&T Bank's Mutual Fund Services will then forward the
certificate to the transfer agent, Federated Shareholder Services Company,
and the shares will be deposited into your account before the exchange is
made.
Shareholders requesting the telephone exchange service authorize the
Corporation and its agents to act upon their telephonic instructions to
exchange shares from any account for which they have authorized such
services. Exchange instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
THE FUND REDEEMS YOUR SHARES AT THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE FUND RECEIVES YOUR REDEMPTION REQUEST. WHEN FUND
SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
You may redeem shares only on days when the Fund computes its net asset
value. You cannot redeem shares on days when the New York Stock Exchange or
M&T Bank are closed, or on holidays when wire transfers are restricted
(Columbus Day, Veterans' Day, and Martin Luther King Day ). While you may
redeem various amounts by telephone or written request, you can close your
account only by written request.
TELEPHONE REDEMPTIONS
You may redeem your shares by calling M&T Bank's Mutual Fund Services at
(800) 836-2211 (in the Buffalo area, phone 842-4488) before 4:00 p.m.
(Eastern time). The proceeds will be wired the next business day directly
to your account at M&T Bank or an affiliate or to another account you
previously designated at a domestic commercial bank that is a member of the
Federal Reserve System. M&T Bank reserves the right to charge a fee for a
wire transfer from a customer checking account, which may contain
redemption proceeds, to another commercial bank.
You will be automatically eligible for telephone redemptions, unless you
check the box on the new account application form to decline this
privilege. It is recommended that you provide the necessary information for
the telephone/ wire redemption option on your initial application. If you
do not do this and later wish to take advantage of telephone redemptions,
you must call M&T Bank's Mutual Fund Services for authorization forms.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written redemption request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time. Shareholders will be notified prior to any
modification or termination.
If you hold shares in certificate form or hold Fund shares through an IRA
account, you cannot redeem those shares by phone, but instead must redeem
them in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to
redeem shares from any account for which they have authorized such
services. Redemption instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING SHARES BY MAIL
You may redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions
before redeeming by letter. Your written request must include your name,
the Fund's name, your account number, and the share or dollar amount you
want to redeem. If share certificates have been issued to you, those
certificates must be properly endorsed and should be sent by registered or
certified mail along with your redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
if you are redeeming shares worth $50,000 or more;
if you want a redemption of any amount sent to an address other than
your address on record with the Fund;
if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
if you want to transfer the registration of the Fund shares
The signature guarantee must be provided by:
a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ( "SAIF" ), which also is administered
by the FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request, provided the Fund or its agents have received payment
for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
If you own Fund shares worth $10,000 or more, you can have regular payments
of $50 or more sent from your Fund account to you, another person you
designate or your checking or NOW deposit account. Fund shares are redeemed
to provide periodic payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends or any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in the Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason,
you should not consider systematic withdrawal payments as yield or income
received from your investment in the Fund. Due to the fact that shares are
sold subject to a sales charge, it may not be advisable for shareholders to
be purchasing shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the
Fund may redeem your shares and send you the proceeds if your account
balance falls below a minimum value of $250 due to shareholder redemptions.
Shareholders who make large or frequent withdrawals may be particularly
vulnerable to this involuntary redemption process. However, before shares
are redeemed to close an account, the shareholder will be notified in
writing and given 30 days to purchase additional shares to meet the minimum
balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate
to do so in light of the Fund's responsibilities under the Investment
Company Act of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE FEDERAL,
STATE, AND LOCAL INCOME TAX TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
The tax consequences discussed here apply whether you receive dividends in
cash or reinvest them in additional shares. The Fund will send you tax
information annually regarding the federal income tax consequences of
distributions made during the year. You should definitely consult your own
tax adviser about any state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax
purposes. Income earned by the Fund, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
portfolios.
The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code so that it is not required to pay federal
income taxes on the income and capital gains distributed to shareholders.
FEDERAL INCOME TAXES Unless shareholders of the Fund are otherwise exempt
from taxes, they are required to pay federal income taxes on dividends and
other distributions received ( including capital gains distributions, if
any) from the Fund.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on
February 23, 1988, and consists of seven available portfolios: Vision Money
Market Fund, Vision Treasury Money Market Fund, Vision New York Tax-Free
Money Market Fund, Vision U.S. Government Securities Fund, Vision New York
Tax-Free Fund, Vision Growth and Income Fund and Vision Capital
Appreciation Fund. The Corporation's Articles of Incorporation permit the
Corporation to offer separate series of shares in these funds or other
future portfolios.
Each Fund share represents an equal proportionate interest in the Fund with
other shares and participates equally in the dividends and any other
distributions that are declared at the discretion of the Corporation's
Board of Directors.
VOTING RIGHTS AND OTHER INFORMATION
SHAREHOLDERS OF THE FUND ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE THEY
HOLD AND TO FRACTIONAL VOTES FOR ANY FRACTIONAL SHARES THEY HOLD.
Shareholders in the Fund generally vote in the aggregate and not by
class, unless the law expressly requires otherwise or the Board of
Directors determines that the matter to be voted upon affects only the
interests of shareholders of a particular class. (See the "Description of
Fund Shares" in the Statement of Additional Information for examples of
when the Investment Company Act of 1940 requires that shareholders vote by
class.) As of April 18, 1997, Tice & Co., Buffalo, New York, acting in
various capacities for numerous accounts, was the owner of record of 33.51%
of the voting securities of the Fund, and Reho & Co., Buffalo, New York,
acting in various capacities for numerous accounts, was the owner of record
of 33.7% of the voting securities of the Fund, and, therefore, may for
certain purposes be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
The Fund is not required to hold annual shareholder meetings, unless
matters arise that require a vote of the shareholders under the Investment
Company Act of 1940. That law requires a vote of the shareholders to
approve changes in the Fund's investment advisory agreement, to replace the
Fund's independent certified public accountants and, under certain
circumstances, to elect members to the Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a
vote of shareholders at a special meeting. The Corporation's Board of
Directors will promptly call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of any Fund's
outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in the
Fund, together with all income, earnings, profits, and proceeds derived
from the investment of that money. This includes any proceeds from the
sale, exchange, or liquidation of these investments, any funds or payments
derived from the reinvestment of these proceeds, and a portion of the
general assets of the Corporation that do not otherwise belong to the Fund.
Assets belonging to the Fund are charged with the direct expenses and
liabilities of the Fund and with a share of the general expenses and
liabilities of the Corporation. The general expenses and liabilities of the
Corporation are allocated in proportion to the relative asset values of all
the Corporation's portfolios at the time the expense or liability is
incurred.
The management of the Corporation determines the Fund's direct and
allocable liabilities at the time the expense or liability is incurred as
well as the Fund's allocable share of any general assets at the time the
asset is acquired. These determinations are reviewed and approved annually
by the Corporation's Board of Directors and are conclusive.
HOW THE FUND SHOWS PERFORMANCE
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices. The Fund may advertise
its performance in terms of yield and total return, as defined below. Of
course, yield and total return figures are based on past results and are
not an indication of future performance.
TOTAL RETURN
The average annual total return of the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.
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.
ADDRESSES
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision U.S. Government Securities Fund
Prospectus dated
June 30, 1997
[VISION LOGO]
[LOGO] FEDERATED INVESTORS MANUFACTURERS AND TRADERS
TRUST COMPANY
Federated Investors Tower Investment Adviser Pittsburgh, PA 15222-
3779 A subsidiary of First Empire State Corporation
Federated Securities Corp. is the distributor of the fund and is a
subsidiary of Federated Investors.
92830F406
3081707A (6/97)
TR3081707A (6/97)
VISION U.S. GOVERNMENT SECURITIES FUND
VISION NEW YORK TAX-FREE FUND
(PORTFOLIOS OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectuses
of two portfolios of the Vision Group of Funds, Inc., referred to as
the Vision U.S. Government Securities Fund and the Vision New York Tax-
Free Fund (collectively, the ``Funds''or individually, a ``Fund'')
dated June 30, 1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the respective Fund's current
prospectus dated June 30, 1997. This d Statement of Additional
Information is incorporated into each respective Fund's prospectus by
reference. To receive a copy of the prospectus for either Fund, or a
paper copy of this Statement of Additional Information, if you have
received it electronically, write to Vision Group of Funds, Inc., P.O.
Box 4556, Buffalo, NY 14240-4556, or call (800) 836-2211 or (716) 842-
4488. Please retain this Statement of Additional Information for future
reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1997
GENERAL INFORMATION ABOUT THE FUNDS 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Acceptable Investments and Techniques1
Municipal Security Issues 1
Illiquid and Restricted Securities 3
Corporate Debt Securities 3
Ratings 4
Zero Coupon Bonds 4
Privately Issued Mortgage-Related Securities 4
Resets of Interest 4
Caps and Floors 4
Lending of Portfolio Securities 5
Insurance on Municipal Securities 5
Duration 6
Futures and Options Transactions 7
Temporary Investments 9
U.S. Government Obligations 9
Money Market Instruments 11
When-Issued And Delayed Delivery Transactions11
Repurchase Agreements 11
Reverse Repurchase Agreements 11
Portfolio Turnover 11
INVESTMENT LIMITATIONS 12
New York Investment Risks 14
VISION GROUP OF FUNDS, INC. MANAGEMENT 15
Fund Ownership 17
Directors' Compensation 17
Director Liability 17
INVESTMENT ADVISORY SERVICES 17
Adviser to the Fund 17
Advisory Fees 18
OTHER SERVICES 18
Administrative Services 18
Custodian and Portfolio Accountant 18
Transfer Agent and Dividend Disbursing Agent 18
Independent Auditors 18
BROKERAGE TRANSACTIONS 18
DESCRIPTION OF FUND SHARES 19
HOW TO BUY SHARES 20
Conversion to Federal Funds 20
DETERMINING MARKET VALUE OF SECURITIES 20
REDEEMING FUND SHARES 20
Redemption in Kind 20
DETERMINING NET ASSET VALUE 21
BANKING LAWS 21
TAX STATUS 21
The Funds' Tax Status 21
Shareholders' Tax Status 21
TOTAL RETURN 21
YIELD 22
TAX-EQUIVALENT YIELD 22
Tax-Equivalency Table 22
PERFORMANCE COMPARISONS 24
Economic and Market Information 25
APPENDIX 26
GENERAL INFORMATION ABOUT THE FUNDS
The Funds are portfolios in the Vision Group of Funds, Inc. (the
`Corporation''). The Corporation was established as a Maryland Corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Vision U.S. Government Securities Fund (the
`Government Fund'') is to provide current income. Capital appreciation is
a secondary investment consideration of the Government Fund. The investment
objective of the Government Fund cannot be changed without approval of its
shareholders. Current income includes, in general, discount earned on U.S.
Treasury bills and agency discount notes, interest earned on all other U.S.
government securities, and short-term capital gains.
The investment objective of Vision New York Tax-Free Fund (the `Tax-Free
Fund') is to provide current income which is exempt from federal income
tax and personal income taxes imposed by the state of New York and New York
municipalities and is consistent with the preservation of capital. The
investment objective of the Tax-Free Fund cannot be changed without
approval of its shareholders.
TYPES OF ACCEPTABLE INVESTMENTS AND TECHNIQUES
MUNICIPAL SECURITY ISSUES
The Government Fund and the Tax-Free Fund may invest in taxable
municipal securities. Municipal securities include debt obligations issued
by governmental entities to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating
expenses and the extension of loans to public institutions and facilities.
Industrial development bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included
within the term municipal securities if the interest paid thereon is exempt
from federal income tax.
There are, of course, variations in the quality of municipal securities
both within a particular classification and between classifications, and
the yields on municipal securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue. The ratings of Moody's Investors Service Inc. (`Moody's''), Fitch
Investors Service, Inc. (`Fitch''), and Standard & Poor's Ratings Group
(`S&P'') described in the Prospectus and the Appendix to this Statement of
Additional Information represent their opinions as the quality of municipal
securities. It should be emphasized, however, that ratings are general and
are not absolute standards of quality, and municipal securities with the
same maturity, interest rate and rating may have different yields while
municipal securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Funds,
an issue of municipal securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Funds.
Manufacturers and Traders Trust Company (`M&T Bank''), the investment
adviser to the Funds, will consider such an event in determining whether
the Funds should continue to hold the obligations.
The payment of principal and interest on most municipal securities
purchased by the Funds will depend upon the ability of the issuers to meet
their obligations. An issuer's obligations under its municipal securities
are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. The power or ability of
an issuer to meet its obligations for the payment of interest on and
principal of its municipal securities may be materially adversely affected
by litigation or other conditions. For purposes of this Statement of
Addition Information and the Government Fund's and the Tax-Free Fund's
Prospectuses, the District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-
state agency of which a state is a member is considered to be an
`issuer.'' Further, the nongovernmental user of facilities financed by
industrial development bonds is considered to be an `issuer.'' With
respect to those municipal securities that are supported by a bank
guarantee, insurance policy or other credit facility, the bank or other
institution (or governmental agency) providing the guarantee, insurance or
credit facility may also be considered to be an `issuer'' in connection
with the guarantee, insurance or facility.
Among other types of municipal securities, the Funds may purchase short-
term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper,
construction loan notes and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the
receipt of tax funds, the proceeds of bond placements or other revenues. In
addition, the Tax-Free Fund may invest in other types of tax-exempt
instruments, such as municipal bonds and industrial development bonds.
Examples of municipal securities which the Government Fund and the Tax-Free
Fund (limited to New York municipal securities) may purchase include:
ogovernmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment
payments for equipment, buildings, or other facilities being leased
by the state or municipality. Government lease certificates
purchased by the Funds will not contain nonappropriation clauses;
omunicipal notes and tax-exempt commercial paper;
oserial bonds sold with a series of maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
obond anticipation notes sold in anticipation of the issuance of
long-term bonds;
orevenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program;
opre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
and
ogeneral obligation bonds.
VARIABLE-RATE MUNICIPAL SECURITIES
The Tax-Free Fund may purchase variable-rate municipal securities.
Variable-interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable-rate
municipal securities than for fixed-income obligations. Many municipal
securities with variable-interest rates purchased by the Tax-Free Fund
are subject to repayment of principal (usually within seven days) on
the Tax-Free Fund's demand. The terms of these variable-rate demand
instruments require payment of principal and accrued interest from the
issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
PARTICIPATION INTERESTS
The Tax-Free Fund may purchase municipal securities in the form of
participation interests. The financial institutions from which the
Tax-Free Fund purchases participation interests frequently provide or
secure from another financial institution irrevocable letters of
credit or guarantees and give the Tax-Free Fund the right to demand
payment of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
MUNICIPAL LEASES
The Tax-Free Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
When determining whether municipal leases purchased by the Tax-Free
Fund will be classified as a liquid or an illiquid security, the Board
of Directors has directed the Tax-Free Fund's adviser to consider
certain factors such as: the frequency of trades and quotes for the
security; the volatility of quotations and trade prices for the
security; the number of dealers willing to purchase or sell the
security and the number of potential purchasers; dealer undertaking to
make a market in the security; the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of
transfer); the rating of the security and the financial condition and
prospects of the issuer of the security; whether the lease can be
terminated by the lessee; the potential recovery, if any, from a sale
of the leased property upon termination of the lease; the lessee's
general credit strength (e.g., its debt, administrative, economic and
financial characteristics and prospects); the likelihood that the
lessee will discontinue appropriating funding for the lease property
because the property is no longer deemed essential to its operations
(e.g., the potential for an `event of nonappropriation''); any credit
enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease; and such other
factors as may be relevant to the Tax-Free Fund's ability to dispose
of the security.
ILLIQUID AND RESTRICTED SECURITIES
Each of the Funds may invest in illiquid and restricted securities. The
ability of the Board of Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission staff position set forth in the adopting release for Rule 144A
under the Securities Act of 1933 (the `Rule''). The Rule is a non-
exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws.
The Rule provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for
securities eligible for resale under the Rule. The Funds believe that the
staff of the Securities and Exchange Commission has left the question of
determining the liquidity of all restricted securities (eligible for resale
under the Rule) to the Corporation's Board.
Under the criteria currently established by the Directors, a Fund's
investment adviser must consider the following factors in determining the
liquidity of restricted securities and, with respect to the Tax-Free Fund,
municipal lease securities; (1) the frequency of trades and quotes for the
security; (2) the volatility of quotations and trade prices for the
security; (3) the number of dealers willing to purchase or sell the
security and the number of potential purchasers; (4) dealer undertakings to
make a market in the security; (5) the nature of the security and the
nature of the marketplace trades; (6) the rating of the security and the
financial condition and prospects of the issuer of the security; and (7)
such other factors as may be relevant to a Fund's ability to dispose of the
security. In the case of a municipal lease security, the Tax-Free Fund's
adviser must also consider the following additional factors: (a) whether
the lease can be terminated by the lessee; (b) the potential recovery, if
any, from a sale of the leased property upon termination of the lease; (c)
the lessee's general credit strength; (d) the likelihood that the lessee
will discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (e) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition
under federal securities law, and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper
for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like
the Funds through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) commercial paper, thus providing
liquidity. The Funds believe that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Directors are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial
paper, as determined by a Fund's investment adviser, as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Funds intend
to not subject such paper to the limitation applicable to restricted
securities.
CORPORATE DEBT SECURITIES
Each of the Funds may invest in corporate debt securities. Corporate debt
securities may bear fixed, fixed and contingent, or variable rates of
interest. They may involve equity features such as conversion or exchange
rights, warrants for the acquisition of common stock of the same or a
different issuer, participations based on revenues, sales, or profits, or
the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate under
such terms, conditions, and limitations as are described in each issuer's
prospectus.
RATINGS
The corporate debt obligations in which the Government Fund may invest will
be rated at the time of purchase in the top three rating categories of a
nationally recognized statistical rating organization, or if unrated, of
comparable quality as determined by the Fund's adviser. If any security
purchased by the Fund is subsequently downgraded, securities will be
evaluated on a case by case basis by the Government Fund's adviser. The
Government Fund's adviser will determine whether or not the security
continues to be an acceptable investment. If not, the security will be
sold. The lowest category of investment grade securities (e.g., Baa or BBB)
have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to pay
principal and interest payments on such obligations than higher rated
obligations. A description of the rating categories is contained in this
Statement of Additional Information. (See `Appendix'').
ZERO COUPON BONDS
Each of the Funds may invest in zero coupon bonds, which are debt
securities issued at a discount to their face amount that do not entitle
the holder to any periodic payments of interest prior to maturity. Rather,
interest earned on zero coupon bonds accretes at a stated yield until the
security reaches its face amount at maturity. Generally, the prices of zero
coupon bonds may be more sensitive to market interest rate fluctuations
than conventional debt securities.
Federal income tax law requires the holder of a zero coupon bond to
recognize income from the security prior to the receipt of cash payments.
To maintain their qualification as regulated investment companies and avoid
liability of federal income taxes, the Funds will be required to distribute
income accrued from zero coupon bonds which each Fund owns, and may have to
sell portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities which the Government Fund may
purchase generally represent an ownership interest in federal agency
mortgage pass-through securities such as those issued by Government
National Mortgage Association. The terms and characteristics of the
mortgage instruments may vary among pass-through mortgage loan pools. The
market for such mortgage-related securities has expanded considerably since
its inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and other
investors makes government-related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the
Government Fund may invest generally are readjusted at intervals of one
year or less to an increment over some predetermined interest rate index.
There are two main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such as a cost of
funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year and five-year constant maturity Treasury Note
rates, the three-month Treasury Bill rate, the 180-day Treasury Bill rate,
rates on longer-term Treasury securities, the National Median Cost of
Funds, the one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a specific bank, or commercial paper rates. Some indices,
such as the one-year constant maturity Treasury Note rate, closely mirror
changes in market interest rate levels. Other tend to lag changes in market
rate levels and tend to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence,
adjustable rate mortgage securities which use indices that lag changes in
market rates should experience greater price volatility than adjustable
rate mortgage securities that closely mirror the market. Certain residual
interest tranches of CMOs may have adjustable interest rates that deviate
significantly from prevailing market rates, even after the interest rate is
reset, and are subject to correspondingly increased price volatility. In
the event the Government Fund purchases such residual interest mortgage
securities, it will factor in the increased interest and price volatility
of such securities when determining its dollar-weighted average duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Government Fund invests will frequently have caps and floors
which limit the maximum amount by which the loan rate to the residential
borrower may change up or down: (1) per reset or adjustment interval, and
(2) over the life of the loan. Some residential mortgage loans restrict
periodic adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest rate changes.
These payment caps may result in negative amortization.
The value of mortgage securities in which the Government Fund invests may
be affected if market interest rates rise or fall faster and farther than
the allowable caps or floors on the underlying residential mortgage loans.
Additionally, even though the interest rates on the underlying residential
mortgages are adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in which the
Government Fund invests to be shorter than the maturities stated in the
underlying mortgages.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Funds lend portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to a Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Funds may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Funds do not have the
right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment.
INSURANCE ON MUNICIPAL SECURITIES
The Tax-Free Fund may purchase Policies from MBIA Corp. (`MBIA''), AMBAC
Indemnity Corporation (`AMBAC''), and Financial Guaranty Insurance Company
(`FGIC''), or any other municipal bond insurer which is rated Aaa by
Moody's or AAA by S&P. Each Policy guarantees the timely payment of
principal and interest on those municipal securities it insures. The
Policies will have the same general characteristics and features. A
municipal security will be eligible for coverage if it meets certain
requirements set forth in a Policy. In the event interest or principal on
an insured municipal security is not paid when due, the insurer covering
the security will be obligated under its Policy to make such payment not
later than 30 days after it has been notified by the Tax-Free Fund that
such non-payment has occurred. The insurance feature reduces financial
risk, but the cost thereof and the restrictions on investments imposed by
the guidelines in the insurance policies reduce the yield to shareholders.
MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in
the Fund's portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies
for any reason except failure to pay premiums when due. MBIA, AMBAC, and
FGIC will reserve the right at any time upon 90 days' written notice to the
Tax-Free Fund to refuse to insure any additional municipal securities
purchased by the Tax-Free Fund after the effective date of such notice. The
Board of Directors will reserve the right to terminate any of the Policies
if it determines that the benefits to the Tax-Free Fund of having its
portfolio insured under such Policy are not justified by the expense
involved.
Additionally, the Board of Directors reserve the right to enter into
contracts with insurance carriers other than MBIA, AMBAC, or FGIC if such
carriers are rated AAA by S & P or Aaa by Moody's.
Under the Policies, municipal bond insurers unconditionally guarantee to
the Tax-Free Fund the timely payment of principal and interest on the
insured municipal securities when and as such payments shall become due but
shall not be paid by the issuer, except that in the event of any
acceleration of the due date of the principal by reason of mandatory or
optional redemption (other than acceleration by reason of mandatory sinking
fund payments), default or otherwise, the payments guaranteed will be made
in such amounts and at such times as payments of principal would have been
due had there not been such acceleration. The municipal bond insurers will
be responsible for such payments less any amounts received by the Tax-Free
Fund from any trustee for the municipal bond issuers or from any other
source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value for the shares of the Tax-Free
Fund, or payments of any tender purchase price upon the tender of the
municipal securities. The Policies also do not insure against nonpayment of
principal of or interest on the securities resulting from the insolvency,
negligence or any other act or omission of the trustee or other paying
agent for the securities. However, with respect to small issue industrial
development municipal bonds and pollution control revenue municipal bonds
covered by the Policies, the municipal bond insurers guarantee the full and
complete payments required to be made by or on behalf of an issuer of such
municipal securities if there occurs any change in the tax-exempt status of
interest on such municipal securities, including principal, interest or
premium payments, if any, as and when required to be made by or on behalf
of the issuer pursuant to the terms of such municipal securities. A `when-
issued''municipal security will be covered under the Policies upon the
settlement date of the issuer of such `when-issued'' municipal security.
In determining whether to insure municipal securities held by the Tax-Free
Fund, each municipal bond insurer has applied its own standard, which
corresponds generally to the standards it has established for determining
the insurability of new issues of municipal securities. This insurance is
intended to reduce financial risk, but the cost thereof and compliance with
investment restrictions imposed under the Policies will reduce the yield to
shareholders of the Tax-Free Fund.
If a Policy terminates as to municipal securities sold by the Tax-Free Fund
on the date of sale, in which event municipal bond insurers will be liable
only for those payments of principal and interest that are then due and
owing, the provision for insurance will not enhance the marketability of
securities held by the Tax-Free Fund, whether or not the securities are in
default or subject to significant risk of default, unless the option to
obtain permanent insurance is exercised. On the other hand, since Issuer-
Obtained Insurance will remain in effect as long as the insured municipal
securities are outstanding, such insurance may enhance the marketability of
municipal securities covered thereby, but the exact effect, if any, on
marketability cannot be estimated. The Tax-Free Fund generally intends to
retain any securities that are in default or subject to significant risk of
default and to place a value on the insurance, which ordinarily will be the
difference between the market value of the defaulted security and the
market value of similar securities of minimum investment grade (i.e., rated
`Baa'' by Moody's or ``BBB'' by S&P) that are not in default. To the extent
that the Tax-Free Fund holds defaulted securities, it may be limited in its
ability to manage its investment and to purchase other municipal
securities. Except as described above with respect to securities that are
in default or subject to significant risk of default, the Tax-Free Fund
will not place any value on the insurance in valuing the municipal
securities that it holds.
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. (`MBIA'') is a wholly-owned
subsidiary of MBIA, Inc. MBIA insures municipal bonds. The address
of MBIA is 113 King Street, Armonk, New York, 10504, and its telephone
number is (914) 273-4545. As of May 5, 1996, S&P has rated the claims-
paying ability of MBIA `AAA.''
AMBAC INDEMNITY CORPORATION.
AMBAC Indemnity Corporation (`AMBAC'') is a wholly-owned subsidiary
of AMBAC, Inc., a financial holding company which is owned by the
public. AMBAC provides financial guarantee insurance, investment and
financial products and health care information services. The Company
provides services to both public and private customers throughout the
United States. The address of AMBAC's administrative offices is One
State Street Plaza, New York, New York 10004, and its telephone number
is (212) 668-0340. As of May 5, 1996, S&P has rated the claims-paying
ability of AMBAC `AAA.''
FINANCIAL GUARANTY INSURANCE COMPANY.
Financial Guaranty Insurance Company (`Financial Guaranty'') is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is wholly-owned by General Electric Capital
Corporation. Financial Guaranty insures municipal bonds and certain
non-municipal structured debt obligations. The address of Financial
Guaranty is 175 Water St., New York, New York 10038-4972, and its
telephone number is (800) 352-0001. As of May 5, 1996, S&P has rated
the claims-paying ability of Financial Guaranty `AAA.''
DURATION
Duration is a commonly used measure of the potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of fixed
income securities, prior to maturity. Volatility is the magnitude of the
change in the price of a bond relative to a given change in the market rate
of interest. A bond's price volatility depends on three primary variables:
the bond's coupon rate; maturity date; and the level of market yields of
similar fixed income securities. Generally, bonds with lower coupons or
longer maturities will be more volatile than bonds with higher coupons or
shorter maturities. Duration combines these variables into a single
measure.
Duration is calculated by dividing the sum of the time-weighted values of
the cash flows of a bond or bonds, including interest and principal
payments, by the sum the present values of the cash flows. When the
Government Fund invests in mortgage pass-through securities, its duration
will be calculated in a manner which requires assumptions to be made
regarding future principal prepayments. A more complete description of this
calculation is available upon request from the Government Fund.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Funds, each of the Funds may attempt to hedge all or a portion of its
portfolios by buying and selling futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Funds may also write covered
call options on portfolio securities to attempt to increase current income.
Each Fund will maintain its position in securities, options and segregated
cash subject to puts and calls until the options are exercised, closed, or
have expired. An option position of futures transactions may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. Each Fund currently does
not intend to invest more than 5% of its total assets in options
transactions.
FUTURES CONTRACTS
The Funds may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates and market conditions
without necessarily buying or selling the securities. The Funds will
not engage in futures transactions for speculative purposes. A futures
contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the
contract (`going short'') and the buyer who agrees to take delivery
of the security (`going long'') at a certain time in the future.
For example, in the fixed income securities market, price moves
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates means a rise in price. In order to hedge
its holdings of fixed income securities against a rise in market
interest rates, a Fund could enter into contracts to deliver
securities at a predetermined price (i.e., `go short'') to protect
itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period.
The Fund would `go long'' (agree to purchase securities in the future
at a predetermined price) to hedge against a decline in market
interest rates.
``MARGIN''IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, a Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Funds are
also required to deposit and maintain margin when they write call
options on futures contracts.
Each Fund will comply with the following restrictions when
purchasing and selling futures contracts. To the extent required to
comply with Commodity Futures Trading Commission (`CFTC'') Regulation
4.5 and thereby avoid status as a `commodity pool operator,'' each
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 a 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 a
Fund does not constitute a commodity pool, it will not market itself
as such, nor serve as a vehicle for trading in the commodities futures
or commodity options markets. Finally, because each Fund will submit
to the CFTC special calls for information, none of the Funds will
register as a commodities pool operator.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Funds may purchase listed put options on financial futures
contracts. The Funds would purchase put options on futures contracts
to protect portfolio securities against decreases in value resulting
from an anticipated increase in market interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy
a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether
to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Funds will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by
the Funds upon the sale of the second option will be large enough to
offset both the premium paid by the Funds for the original option plus
the decrease in value of the hedged securities.
Alternatively, a Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, a Fund may write
listed call options on financial futures contracts to hedge its
portfolio against an increase in market interest rates. When a Fund
writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise,
causing the prices of futures to go down, the Fund's obligation under
a call option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to
increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This
premium can offset the drop in value of the Fund's fixed income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by one of the Funds, or
exercise of it by the buyer, the Fund may close out the option by
buying an identical option. If the hedge is successful, the cost of
the second option will be less than the premium received by the Fund
for the initial option. The net premium income of the Fund will then
offset the decrease in value of the hedged securities.
A Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Funds may purchase put options on portfolio securities to protect
against price movements in particular securities in their portfolios.
A put option gives a Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option. The Funds may purchase these put
options as long as they are listed on a recognized options exchange
and the underlying stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
A Fund may also write covered call options on securities either held
in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash in the
amount of any additional consideration. As the writer of a call
option, a Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of
the exercise price. A Fund may only sell call options either on
securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration or for which
it has segregated cash in the amount of any additional consideration.
The call options which a Fund writes and sells must be listed on a
recognized options exchange. Writing of call options by a Fund is
intended to generate income for the Fund and thereby protect against
price movements in particular securities in the Fund's portfolio.
OVER-THE-COUNTER OPTIONS
The Funds may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyer or writers of the
options for those options on portfolio securities held by the Funds
and not traded on an exchange.
RISKS
When the Funds use futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in a Fund's portfolio. This may cause the futures contract
and any related options to react differently than the portfolio
securities to market changes. In addition, a Fund's adviser could be
incorrect in its expectations about the direction or extent of market
factors such as price movements. In these events, the Fund may lose
money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although a Fund's
adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract or option at any particular time. A Fund's ability to
establish and close out futures and options positions depends on this
secondary market. The inability to close out these positions could
have an adverse effect on the Fund's ability to effectively hedge its
portfolio.
To minimize risks, each Fund may not purchase or sell futures
contracts or related options, 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 a Fund sells futures contracts, it will either own or have the
right to receive the underlying future or security, or will make
deposits to collateralize the position as discussed above.
TEMPORARY INVESTMENTS
As stated in the Tax-Free Fund's prospectus, the Tax-Free Fund may invest a
portion of its assets on a temporary basis for temporary purposes in short-
term taxable money market instruments (`Temporary Investments'').
Temporary Investments in which the Tax-Free Fund may invest include
instruments within the listed classes. Although the Tax-Free Fund has
retained the flexibility of investing up to 20% of its total assets in
these Temporary Investments during non-defensive periods (and greater
amounts during temporary defensive periods), the Tax-Free Fund anticipates
that it would not invest more than 5% of its net assets in any one of the
classes of temporary investments.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Funds may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oThe Student Loan Marketing Association;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation; and
oFederal National Mortgage Association.
MONEY MARKET INSTRUMENTS
The Funds may invest in money market instruments such as:
oinstruments of domestic and foreign banks and savings and loans if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
federally insured;
ocommercial paper rated, at the time of purchase, not less than A-2
by S&P, Prime-2 by Moody's, or F-2 by Fitch, or if not rated are
determined to be of comparable quality by the Funds' investment
adviser (see Appendix for a description of the basis of those
ratings);
otime and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund (``BIF''), or institutions whose accounts are insured
by the Savings Association Insurance Fund (``SAIF''), including
certificates of deposit issued by, and other time deposits in,
foreign branches of BIF-insured banks which, if negotiable, mature
in six months or less or if not negotiable, either mature in ninety
days or less, or are withdrawable upon notice not exceeding ninety
days; and
obankers' acceptances.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Funds. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Funds sufficient to make payment for the securities to be purchased are
segregated on the Funds' records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of the Funds' assets.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or certificates of deposit to
the Funds and agree at the time of sale to repurchase them at a mutually
agreed upon time and price within one year from the date of acquisition.
The Funds or their custodian will take possession of the securities subject
to repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from a Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Funds
believe that under the regular procedures normally in effect for custody of
the Funds' portfolio securities subject to repurchase agreements, a court
of competent jurisdiction would rule in favor of the Funds and allow
retention or disposition of such securities. The Funds may only enter into
repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are found by a Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of
Directors.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Funds to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Funds will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
is settled.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet a portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an
attempt to achieve a Fund's investment objective. Securities in its
portfolio will be sold whenever a Fund's investment adviser believes it is
appropriate to do so in light of the Fund's investment objectives, without
regard to the length of time a particular security may have been held. For
the fiscal years ended April 30, 1997 and 1996, the Tax-Free Fund's and
Government Fund's portfolio turnover rates were % and 113%,and % and
---- ---
132%, respectively. The Tax-Free Fund's higher rate of portfolio turnover
during the last fiscal year can be attributed to the unexpected, higher
volatility of interest rates and the repositioning of the Tax-Free Fund by
a new portfolio manager. The Government Fund's higher rate of portfolio
turnover during the last fiscal year can be attributed to the unexpected,
higher volatility of interest rates. Despite this higher portfolio turnover
rate for the Tax-Free Fund and Government Fund during the last fiscal year,
the adviser does not anticipate that the annual portfolio turnover rate for
either Fund will generally exceed 100% under normal market conditions.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short nor purchase any
securities on margin, except as described below and other than in
connection with buying financial futures contracts, put options on
financial futures, put options on portfolio securities, and writing
covered call options, but may obtain such short-term credits as are
necessary for clearance of purchases and sales of securities.
The deposit or payment by the Funds of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
The Funds will not sell securities short unless either Fund (1) owns,
or has a right to acquire, an equal amount of such securities, or (2)
has segregated an amount of its other assets equal to the lesser of
the market value of the securities sold short or the amount required
to acquire such securities. The segregated amount will not exceed 25%
of the respective Fund's net assets. While in a short position, each
Fund will retain the securities, rights, or segregated assets.
Each Fund may purchase and dispose of U.S. Government securities and
CMOs before they are issued and may also purchase and dispose of them
on a delayed delivery basis.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that the Funds may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of their net assets, including the amounts
borrowed. The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Funds to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Funds will not purchase any
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of their respective total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, the Funds may
mortgage, pledge, or hypothecate assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets at the time of the borrowing. For purposes of
this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options and segregation or collateral arrangements made in connection
with options activities or the purchase of securities on a when-issued
basis.
UNDERWRITING
The Funds will not underwrite any issue of securities except as they
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with their
investment objectives, policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate including limited
partnership interests although they may invest in securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
LENDING CASH OR SECURITIES
The Funds will not lend any of their assets except portfolio
securities, the market value of which does not exceed one-third of the
value of the Funds' respective total assets. This shall not prevent
the Funds from purchasing or holding U.S. government obligations,
money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Funds' investment objectives,
policies, and limitations.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except that the Funds may purchase and
sell futures contracts and related options.
CONCENTRATION OF INVESTMENTS
Neither the Government Fund nor the Tax-Free Fund will invest 25% or
more of the value of its total assets in any one industry, except that
the Government Fund, and, for temporary defensive purposes, the Tax-
Free Fund, may invest 25% or more of the value of its total assets in
cash or cash items (including instruments issued by a U.S. branch of a
domestic bank or savings and loan association and bankers'
acceptances), securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, and repurchase agreements
collateralized by such securities.
In addition, the Tax-Free Fund may invest more than 25% of the value
of its total assets in obligations issued by any state, territory, or
possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political
subdivisions.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Government Fund will not purchase securities issued by any
one issuer (other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities) if as a result more than 5% of the value of its total
assets would be invested in the securities of that issuer. Also, the
Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer.
INVESTING IN EXEMPT-INTEREST OBLIGATIONS
The Tax-Free Fund will not invest less than 80% of its net assets in
securities the interest on which is exempt from federal income tax,
except during temporary defensive periods. AMT obligations are not
counted as securities the interest on which is exempt from federal
income tax.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of their net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain restricted securities not determined by the Directors
to be liquid, and non-negotiable time deposits with maturities over
seven days.
Except with respect to borrowing money, if a percentage limitation
is adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction. None of the Funds has any present
intent to borrow money in excess of 5% of the value of its net assets
during the coming fiscal year.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
`cash items.''
NEW YORK INVESTMENT RISKS
The Tax-Free Fund invests in obligations of New York (the `State'')
issuers which result in the Tax-Free Fund's performance being subject to
risks associated with the overall conditions present within the State. The
following information is a general summary of the State's financial
condition and a brief summary of the prevailing economic conditions. This
information is based on various sources that are believed to be reliable
but should not be considered as a complete description of all relevant
information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs,
education and Medicare expenditures have been the areas of largest growth
while prudent program cuts and increases in revenues through service fees
has enabled the State's budget to remain within balance for the last few
years. The State also benefits from a high level of per capita income that
is well above the national average and from significant amounts of
international trade. While the State still has a large accumulated deficit
as a percentage of its overall budget, the fiscal performance in recent
years has demonstrated a changed political environment that has resulted in
realistic revenue and expenditure projections to achieve financially
favorable results. The recent budgets have included personal income tax
cuts and emphasized cost control. Budgets in recent years have been delayed
due to disagreements between the Governor and the New York State
legislature. Last year's budget was not passed until July, four months
late. Failure to pass a budget in a timely manner cann have a negative
impact on New York municipalities dependent upon state aid.
New York's economy is large and diverse. While several upstate counties
benefit from agriculture, manufacturing and high technology industries, New
York City nonetheless still dominates the State's economy through its
international importance in economic sectors such as advertising, finance,
and banking. The State's economy has been slow to recover after the late
1980's recession that resulted in the loss of over 400,000 jobs in the New
York City metropolitan area alone. Any major changes to the financial
condition of New York City would ultimately have an affect on the State.
Obligations of issuers within the State are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights of and remedies
of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by the U.S. Congress, state
legislators, or referenda extending the time for payment of principal
and/or interest, or imposing other constraints upon enforcement of such
obligations, or upon the ability of the State or its political subdivisions
to levy taxes. There is also the possibility that, as a result of
litigation or other conditions (including delays in adopting budgets), the
power or ability of any issuer to pay, when due, the principal of and
interest on its municipal securities may be materially affected.
A substantial principal amount of bonds issued by various State agencies
and authorities are either guaranteed by the State or supported by the
State through lease-purchase arrangements, or other contractual or moral
obligation provisions. Moral obligation commitments by the State impose no
immediate financial obligations on the State and require appropriations by
the legislature before any payments can be made. Failure of the State to
appropriate necessary amounts or to take other action to permit the
authorities and agencies to meet their obligations could result in defaults
on such obligations. If a default were to occur, it would likely have a
significant adverse impact on the market price of obligations of the State
and its authorities and agencies. In recent years, the State has had to
appropriate large amounts of funds to enable State agencies to meet their
financial obligations and, in some cases, prevent default. Additional
assistance is expected to be required in current and future fiscal years
since certain localities and authorities continue to experience financial
difficulties.
To the extent State agencies and local governments require State assistance
to meet their financial obligations, the ability of the state of New York
to meet its own obligations as they become due or to obtain additional
financing could be adversely affected. This financial situation could
result not only in defaults of State and agency obligations but also
impairment of the marketability of securities issued by the State, its
agencies and local governments.
The overall financial condition of the state can also be illustrated by
changes to its debt ratings. During the period in which the state
experienced financial difficulties, its general obligation long-term debt
ratings as determined by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group decreased from A1 and A, respectively, to A and A-,
which are the current ratings as of April 1997.
The Tax-Free Fund's concentration in municipal securities issued by the
state and its political subdivisions provides a greater level of risk than
a fund which is diversified across numerous states and municipal entities.
The ability of the state or its municipalities to meet their obligations
will depend on the availability of tax and other revenues; economic,
political, and demographic conditions within the state; and the underlying
fiscal condition of the state, its counties, and its municipalities.
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Vision Group of Funds, Inc., and principal occupations.
Randall I. Benderson
570 Delaware Avenue
Buffalo, NY
Birthdate: January 12, 1955
Director
Senior Vice President and Chief Operating Officer, Benderson Development
Company, Inc.
Joseph J. Castiglia
Roycroft Campus
21 South Grove Street, Suite 291
East Aurora, NY 14052
Birthdate: July 20, 1934
Director
Director, New York State Electric & Gas Corp.; Secewsow Environmental
Services, Inc.; Blue Cross & Blue Shield of Western New York; Buffalo
Branch, Federal Reserve Bank of New York; and Former President, Chief
Executive Officer and Vice Chairman, Pratt & Lambert United, Inc.
Daniel R. Gernatt, Jr.
Richardson & Taylor Hollow Roads
Collins, NY
Birthdate: July 14, 1940
Director
President and CFO of Gernatt Asphalt Products, Inc.; Executive Vice
President, Dan Gernatt Gravel Products, Inc.; Vice President, Countryside
Sand & Gravel, Inc.
George K. Hambleton, Jr.
670 Young Street
Tonawanda, NY
Birthdate: February 8, 1933
Director
Former President, Brand Name Sales, Inc.; President, Hambleton & Carr,
Inc.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
other funds distributed by Federated Securities Corp.; President, Executive
Vice President and Treasurer of other funds distributed by Federated
Securities Corp.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, PA
Birthdate: November 17, 1961
Secretary
Corporate Counsel and Vice President, Federated Administrative Services;
formerly Attorney, Morrison & Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholder of record owned 5% or
more of the outstanding shares of the Government Fund: Tice & Co.,
Buffalo, New York, owned approximately 1,593,599 shares (33.51%) and Reho &
Co., Buffalo, New York, owned approximately 1,602,592 shares (33.7%).As of
April 18, 1997, the following shareholder of record owned 5% or more of the
outstanding shares of the Tax-Free Fund: Tice & Co., Buffalo, New York,
owned approximately 412,380 shares (11.89%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank''). The advisory services provided and
the expenses assumed by M&T Bank, as well as the advisory fees payable to
it, are described in the Funds' Prospectus.
The investment advisory agreement provides that M&T Bank shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Funds in connection with its performance under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of M&T
Bank in the performance of its duties, or from reckless disregard by it of
its duties and obligations thereunder. Because of internal controls
maintained by M&T Bank to restrict the flow of non-public information, Fund
investments are typically made without any knowledge of M&T Bank's or its
affiliates' lending relationships with an issuer.
Unless sooner terminated, the advisory agreement between a Fund and M&T
Bank will continue in effect from year to year if such continuance is
approved at least annually by the Corporation's Board of Directors, or by
vote of a majority of the outstanding shares of a Fund (as defined in the
Prospectus), and by a majority of the Directors who are not parties to the
advisory agreement or interested persons (as defined in the Investment
Company Act of 1940) of any party to the advisory agreement, by vote cast
in person at a meeting called for such purpose. The advisory agreement is
terminable at any time on sixty days' written notice without penalty by the
Directors, by vote of a majority of the outstanding shares of a Fund, or by
M&T Bank. The advisory agreement also terminates automatically in the event
of its assignment, as defined in the Investment Company Act of 1940.
ADVISORY FEES
For its advisory services, M&T Bank receives an annual investment
advisory fee as described in the Prospectus.
For the fiscal years ended April 30, 1997, 1996, and 1995, for the Tax-Free
Fund and the Government Fund, M&T Bank earned advisory fees of $ ,
----
$209,254, and$179,621 and $ , $227,041, and $192,549, respectively, of
-----
which $ , $91,153, and $161,296 and $ , $48,652, and $166,425,
----- -----
respectively, were voluntarily waived.
In addition, for the fiscal years ended April 30, 1997, 1996, and 1995, for
the Tax-Free Fund and the Government Fund, M&T Bank reimbursed $ , $0,
-----
and $109,458 and $ , $0, and $97,631, respectively, of other operating
-----
expenses.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the respective Prospectus. For the fiscal years ended April
30, 1997, 1996, and 1995, the Tax-Free Fund and Government Fund incurred
costs for administrative services of $ , $50,001, and $50,000 and
-----
$ , $49,999, and $50,000, respectively, of which $ , $10,672, and
----- -----
$17,273 and $ , $9,295, and $14,920, respectively, were voluntarily
-----
waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Funds.
Federated Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvani 15222-3779 provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, the
Funds' registered transfer agent, maintains all necessary shareholder
records.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
BROKERAGE TRANSACTIONS
Pursuant to the Funds' advisory agreement, M&T Bank determines which
securities are to be sold and purchased by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Portfolio securities
of the Funds are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from dealers
serving as market makers may include the spread between the bid and asking
price. While M&T Bank generally seeks competitive spreads or commissions, a
Fund may not necessarily pay the lowest spread or commission available on
each transaction for reasons discussed below.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Directors. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Funds or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with M&T Bank, or its
affiliates, and will not give preference to M&T Bank's correspondents with
respect to such transactions, securities, savings deposits, repurchase
agreements and reverse repurchase agreements. While serving as investment
adviser to the Funds, M&T Bank has agreed to maintain its policy and
practice of conducting its Trust and Investment Services Division
independently of its Commercial Department.
The Funds' advisory agreement provides that, in making investment
recommendations for the Funds, Trust and Investment Services Division
personnel will not inquire or take into consideration whether the issuer of
securities proposed for purchase or sale by the Funds is a customer of the
Commercial Department and, in dealing with its commercial customers, the
Commercial Department will not inquire or take into consideration whether
securities of such customers are held by the Funds.
Although investment decisions for the Funds are made independently from
those of the other accounts managed by M&T Bank, investments of the type
the Funds may make may also be made by those other accounts. When the Funds
and one or more other accounts managed by M&T Bank are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by M&T Bank
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Funds or the size of the position
obtained or disposed of by the Funds. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Funds.
For the fiscal years ended April 30, 1997, 1996 and 1995,the Tax-Free
Fund and Government Fund paid no brokerage commissions on brokerage
transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to 10 billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F, and G Common
Stock represent interests in Vision Money Market Fund, Vision Treasury
Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, and Vision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption. Shares have no
subscription or pre-emptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in a Fund's separate Prospectus and this Statement of Additional
Information, the Funds' shares will be fully paid and non-assessable. In
the event of a liquidation or dissolution of the Corporation, shares of the
Funds are entitled to receive the assets available for distribution
belonging to the respective Funds, and a proportionate distribution, based
upon the relative asset values of that Fund and the Corporation's other
portfolios, of any general assets not belonging to any particular portfolio
which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is not affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical, or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of Directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding Common Stock of the Funds
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares of the Funds are sold at net asset value plus an applicable sales
charge on days on which the New York Stock Exchange and the Federal Reserve
Wire System are open for business. The procedures for purchasing shares of
the Funds are explained in the Fund's respective prospectus under `How to
Buy Shares.''
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. M&T Bank and State
Street Bank act as the shareholders' agents in depositing checks and
converting them to federal funds.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Funds' portfolio securities are determined as
follows:
ofor bond and other fixed income securities, as determined by an
independent pricing service; or
ofor 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
ofor all other securities, at fair value as determined in good faith
by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The Funds will value futures contracts, options and put options on
financial futures at their market values established by the exchanges at
the close of option trading on such exchanges, unless the Directors
determine in good faith that another method of valuing option positions is
necessary.
REDEEMING FUND SHARES
The Funds redeem shares at the next computed net asset value after a Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under `Redeeming Shares.'' Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Funds intend to redeem shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from a Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Directors determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated for shares of the Funds are described in the
prospectus.
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 permissible activities of banks
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes
and regulations, could prevent these entities from continuing to perform
all or a part of the above services. If this happens, the Corporation's
Board of Directors would consider alternative means of continuing available
services. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, a Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Funds is eligible for the
dividends received deduction available to corporations. These dividends (to
the extent taxable), and any short-term capital gains, are taxable as
ordinary income.
Net income for dividend purposes includes (1) interest and dividends
accrued and discount earned on a Fund's assets (including both original
issue and market discount), less (2) amortization of any premium and
accrued expenses directly attributable to such Fund, and the general
expenses (e.g. legal, accounting and directors' fees) of the Corporation
prorated to each Fund on the basis of its relative net assets.
CAPITAL GAINS
Capital gains experienced by a Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
for some extraordinary reason a Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
The Tax-Free Fund's average annual total returns for the one-year period
ended April 30, 1997, and for the period from September 22, 1993 (date of
initial public investment) to April 30, 1997, were % and %,
--- ----
respectively. The Government Fund's average annual total returns for the
one-year period ended April 30, 1997, and for the period from September 22,
1993 (date of initial public investment) to April 30, 1997, were % and
---
%, respectively.
- ---
The average annual total return for the shares is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at
the end of the period by the offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The yields for the Tax-Free Fund and Government Fund for the thirty-day
period ended April 30, 1997, were % and %, respectively.
---- ----
The yield for the Funds is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. The yield
does not necessarily reflect income actually earned by the Fund because of
certain adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
Fund, the performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for the Tax-Free Fund for the thirty-day period
ended April 30, 1997, was %. The tax-equivalent yield of the Tax-Free
-----
Fund is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the Fund would have had to earn to equal its actual
yield, assuming a combined federal and state marginal tax rate of
34.850%.
TAX-EQUIVALENCY TABLE
The Tax-Free Fund may also use a tax-equivalency table in advertising
and sales literature. The interest earned by the municipal obligations in
the Tax-Free Fund's portfolio generally remains free from federal income
tax,* and often is free from state and local taxes as well. As the table on
the next page indicates, a `tax-free'' investment is an attractive choice
for investors, particularly in times of narrow spreads between tax-free and
taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 21.850% 34.850% 37.850% 42.850% 46.450%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of the Tax-Free Fund.
*Some portion of the Tax-Free Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The performance of shares of the Funds depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in a Fund's expenses; and
ovarious other factors.
The Funds' performances fluctuate on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return as described above.
Investors may use financial publications and/or indices to obtain a more
complete view of each Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Funds
use in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Government Fund and the Tax-Free Fund will quote their
Lipper rankings in the ``General U.S. Government Funds'' and the
``New York Municipal Bond Funds'' categories, respectively, in
advertising and sales literature. (Both Funds)
oLEHMAN BROTHERS GOVERNMENT (LT) INDEX is an index composed of bonds
issued by the U.S. government or its agencies which have at least $1
million outstanding in principal and which have maturities of ten
years or longer. Index figures are total return figures calculated
monthly. (Government Fund)
oLEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average
maturity of nine years. It calculates total returns for one month,
three months, twelve months, and ten year periods, and year-to-date.
(Government Fund)
oLEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index
measuring both the capital price changes and income provided by the
underlying universe of securities, weighted by market value
outstanding. The Aggregate Bond Index is comprised of the Lehman
Brothers Government Bond Index, Corporate Bond Index, Mortgage-
Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S.
agency obligations, including those of the Farm Credit System,
including the National Bank for Cooperatives and Banks for
Cooperatives; foreign obligations, U.S. investment-grade corporate
debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum rating of BBB by S&P or
Fitch, or a minimum rating of Baa by Moody's. (Government Fund)
oMERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which
must be in the form of publicly placed, nonconvertible, coupon-
bearing domestic debt and must carry a term of maturity of at least
one year. Par amounts outstanding must be no less than $10 million
at the start and at the close of the performance measurement period.
Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e., BBB/Baa or better). (Government Fund)
oMERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic
debt and must carry a term to maturity of at least one year. Par
amounts outstanding must be no less than $10 million at the start
and at the close of the performance measurement period. The Domestic
Master Index is a broader index than the Merrill Lynch Corporate and
Government Index and includes, for example, mortgage related
securities. The mortgage market is divided by agency, type of
mortgage and coupon and the amount outstanding in each
agency/type/coupon subdivision must be no less than $200 million at
the start and at the close of the performance measurement period.
Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e., BBB/Baa or better). (Government Fund)
oSALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade
domestic corporate taxable bonds, rated AAA-AA with maturities of
twelve years or more and companies in industry, public utilities,
and finance. (Government Fund)
oLEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an
unmanaged index comprised of all the bonds issued by the Lehman
Brothers Government/Corporate Bond Index with maturities between 1
and 9.99 years. Total return is based on price
appreciation/depreciation and income as a percentage of the original
investment. Indices are rebalanced monthly by market capitalization.
(Government Fund)
oTHE SALOMON BROTHERS TOTAL RATE-OF-RETURN INDEX for mortgage pass-
through securities reflects the entire mortgage pass-through market
and reflects their special characteristics. The index represents
data aggregated by mortgage pool and coupon within a given sector. A
market-weighted portfolio is constructed considering all newly
created pools and coupons. (Government Fund)
oTHE MERRILL LYNCH TAXABLE BOND INDICES include U.S. Treasury and
agency issues and were designed to keep pace with structural changes
in the fixed income market. The performance indicators capture all
rating changes, new issues, and any structural changes of the entire
market. (Government Fund)
oLEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of
all publicly issued, non-convertible domestic debt of the U.S.
government, or any agency thereof, or any quasi-federal corporation
and of corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum outstanding principal of $1 million and a
minimum maturity of one year are included. (Government Fund)
oLEHMAN 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.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than l,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit, and Treasury bills, and to money market funds
using the Lipper Analytical Services money market instruments average.
Unlike federally insured bank products, the shares of the Funds are not
insured. Unlike money market funds, which attempt to maintain a stable net
asset value, the net asset value of the Funds' shares fluctuates.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions
of economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Funds' portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute (`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 the more than 6,000 funds available.
APPENDIX
Standard & Poor's Ratings Group Bond Ratings
AAA-Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible o the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc. Bond Ratings
AAA-Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR-Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Fitch Investors Service, Inc. Long-Term Debt Ratings
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+.''
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR-NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category.
Standard & Poor's Ratings Group Municipal Note Ratings
SP-1-Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc. Short-Term Loan Ratings
MIG1/VMIG1-This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2-This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Fitch Investors Service, Inc. Short-Term Debt Ratings
F-1+-EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2-GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 ratings.
Standard & Poor's Ratings Group Commercial Paper Ratings
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc. Commercial Paper Ratings
PRIME-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2-Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
92830F406
92830F505
G01716-01 (6/97)
PROSPECTUS
VISION GROWTH AND INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.) PROSPECTUS DATED JUNE 30,
1997
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven
separate investment portfolios with distinct investment objectives and
policies. This prospectus relates to one of the seven portfolios, Vision
Growth and Income Fund ("Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY, ARE NOT ENDORSED OR GUARANTEED BY
MANUFACTURERS AND TRADERS TRUST COMPANY, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THESE SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund, and can help you
decide if the Fund is a suitable investment for you. Please read the
prospectus before you invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of
Additional Information dated June 30, 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 is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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
TABLE OF CONTENTS
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in seven separate, professionally managed
portfolios. This prospectus describes the Vision Growth and Income Fund.
VISION GROWTH AND INCOME FUND (THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH
SEEKS LONG-TERM GROWTH OF CAPITAL AND INCOME. THE FUND PURSUES ITS
INVESTMENT OBJECTIVE BY INVESTING IN A DIVERSIFIED PORTFOLIO CONSISTING
PRIMARILY OF EQUITY SECURITIES (E.G., COMMON STOCK, CONVERTIBLE
SECURITIES), ALTHOUGH IT MAY ALSO INVEST IN DEBT SECURITIES (E.G., BONDS,
NOTES). (SEE "HOW THE FUND INVESTS.")
BUYING AND REDEEMING FUND SHARES
You can conveniently buy and redeem Fund shares on almost any business day.
Shares of the Fund are sold at net asset value plus a sales charge and
redeemed at net asset value. The minimum initial investment in the Fund is
$500 ($250 for retirement plans), and it may be waived or lowered from time
to time. (See "Your Guide to Using the Fund.")
FUND MANAGEMENT
The Fund's investment adviser is Manufacturers and Traders Trust Company
("M&T Bank') M&T Bank makes investment decisions for the Fund. M&T Bank is
the principal banking subsidiary of First Empire State Corporation..")
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in
the Buffalo area, phone 842-4488).
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
techniques.
A SUMMARY OF THE FUND'S EXPENSES
(To be filed by Amendment)
VISION GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
(To be filed by Amendment)
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of
capital and income. This investment objective cannot be changed without
approval of the Fund's shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
IN SELECTING INVESTMENTS, THE ADVISER INTENDS TO FOCUS ON MID-SIZE (MID-
CAP) COMPANIES THAT ARE REGARDED AS `UNDERVALUED,'' ALTHOUGH WHEN
CONSISTENT WITH THE FUND'S INVESTMENT OBJECTIVE OF LONG-TERM GROWTH OF
CAPITAL AND INCOME, THE ADVISER ALSO MAY INVEST IN LARGE-CAP COMPANIES AND,
TO A LESSER EXTENT, SMALL-CAP COMPANIES.
THE ADVISER WILL FOCUS ON MID-CAP COMPANIES BECAUSE THEY OFFER THE
POTENTIAL FOR GREATER GROWTH THAN MORE CONSERVATIVE, LARGE COMPANY STOCKS,
WITH GENERALLY LESS VOLATILITY THAN MORE AGGRESSIVE, SMALLER-COMPANY
STOCKS. MID-CAP COMPANIES ARE OFTEN BEYOND THE NEW OR EMERGING PHASE OF
THEIR LIFE CYCLES, YET STILL ARE DYNAMIC ENOUGH TO BE MORE RESPONSIVE AND
ADAPTIVE TO CHANGING NEEDS THAN LARGER-CAP COMPANIES. AS A RESULT, MID-CAP
COMPANIES CAN OFFER GREATER POTENTIAL FOR GROWTH THAN LARGER-CAP COMPANIES,
YET TEND TO HAVE LESS RISK THAN SMALLER-CAP COMPANIES BECAUSE OF THEIR
GREATER RESOURCES, MORE ESTABLISHED ORGANIZATIONAL STRUCTURES AND MORE
EXPERIENCED MANAGEMENT.
THE ADVISER ALSO WILL FOCUS ON COMPANIES THAT ARE UNDERVALUED. 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 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 LOWER PRICE/EARNINGS RATIO AND A HIGHER DIVIDEND YIELD THAN
COMPETITORS, AND THEREBY OFFER GREATER INCOME AND GROWTH POTENTIAL. THE
ADVISER MAY ALSO INVEST IN GROWTH STOCKS BECAUSE THEY CAN OFFER GREATER
POTENTIAL FOR PRICE APPRECIATION THAN VALUE STOCKS DUE TO FAVORABLE MARKET
CONDITIONS OR NEW PRODUCTS AND SERVICES. UNLESS INDICATED OTHERWISE, THIS
POLICY AND THE OTHER INVESTMENT POLICIES OF THE FUND MAY BE CHANGED BY THE
DIRECTORS WITHOUT APPROVAL OF SHAREHOLDERS. SHAREHOLDERS WILL BE NOTIFIED
BEFORE ANY MATERIAL CHANGES IN THESE POLICIES BECOME EFFECTIVE.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
common or preferred stocks of U.S. companies which are either listed
on the New York or American Stock Exchange or traded in the over-the-
counter markets and are considered by M&T Bank to have an established
market;
convertible securities (see below);
investments in American Depository Receipts ("ADRs") of foreign
companies traded on the New York Stock Exchange or in the over-the-counter
market. The Fund may not invest more than 25% of its total assets in ADRs.
In addition, the Fund may invest up to 20% of its total assets in other
securities of foreign issuers ("Non-ADRs") (see page 11);
domestic issues of corporate debt obligations (including convertible
bonds and debentures) rated, at the time of purchase, investment grade
(e.g., Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB
or higher by Standard and Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch") or, if unrated, of comparable quality as
determined by M&T Bank;
U.S. government securities (see page 8);
mortgage-backed securities (see page 9); .
asset-backed securities (see pages 10 to 11); .
money market instruments, including commercial paper that, at the
time of purchase, are rated not less than P-1, A-1 or F-1, by Moody's, S&P
or Fitch, respectively, or, if unrated, are of comparable quality as
determined by M&T Bank, time and savings deposits (including certificates
of deposit) in commercial or savings banks, and bankers' acceptances;
and
warrants.
In addition, the Fund may purchase the investments and engage in the
investment techniques described below. For additional information about the
investments and investment techniques, please refer to the Statement of
Additional Information.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. The Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock when, in the opinion of M&T Bank, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise the Fund may hold or trade
convertible securities. In selecting convertible securities for the Fund,
M&T Bank 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, M&T Bank
considers numerous factors, including the economic and political outlook,
the value of the security relative to other investment alternatives, trends
in the determinants of the issuer's profits, and the issuer's management
capability and practices.
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations, including corporate
bonds, notes, and debentures, which may have floating or fixed rates of
interest. These obligations will be rated at the time of purchase in the
top four rating categories (investment grade). If the obligations are
unrated, they will be of comparable quality as determined by M&T Bank. If
any security purchased by the Fund is subsequently downgraded, securities
will be evaluated on a case by case basis by M&T Bank. M&T Bank will
determine whether or not the security continues to be an acceptable
investment. If not, the security will be sold. The lowest category of
investment grade securities (e.g., Baa or BBB) have speculative
characteristics, and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to pay principal and
interest payments on such obligations than higher rated obligations. A
description of the rating categories is contained in the Appendix to the
Fund's Statement of Additional Information.
FIXED RATE CORPORATE DEBT OBLIGATIONS
The Fund may invest in fixed rate securities, including fixed rate
securities with short-term characteristics. Fixed rate securities with
short-term characteristics are long-term debt obligations, but are treated
in the market as having short maturities because call features of the
securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or a fixed income
security approaching maturity, where the expectation of call or redemption
is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described below,
behave like short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest rate index.
Fixed rate securities pay a fixed rate of interest and are more sensitive
to fluctuating interest rates. In periods of rising interest rates, the
value of a fixed rate security is likely to fall. Fixed rate securities
with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.
FLOATING RATE CORPORATE DEBT OBLIGATIONS
The Fund may invest in floating rate corporate debt obligations, including
increasing rate securities. Floating rate securities are generally offered
at an initial interest rate which is at or above prevailing market rates.
The interest rate paid on these securities is then reset periodically
(commonly every 90 days) to an increment over some predetermined interest
rate index. Commonly utilized indices include the three-month Treasury bill
rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial
paper rates, or the longer-term rates on U.S. Treasury securities.
VARIABLE RATE DEMAND NOTES
The Fund may purchase variable rate demand notes, which are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Many variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which are debt securities issued
at a discount to their face amount and do not entitle the holder to any
periodic payments of interest prior to maturity.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities which include:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
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
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. See "Asset-Backed Securities" below for a description of
risks.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The ARMS in which the
Fund invests are issued by Ginnie Mae, Fannie Mae, or Freddie Mac, and are
actively traded. The underlying mortgages which collateralize ARMS issued
by Ginnie Mae are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMS issued by Fannie
Mae or Freddie Mac are typically conventional residential mortgages
conforming to strict underwriting size and maturity constraints. ARMS may
also be collateralized by whole loans or private pass-through securities.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus a holder of the ARMS, such as the Fund,
would receive monthly scheduled payments of principal and/or interest and
may receive unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of fixed-income securities.
Not unlike other fixed-income securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates, but may be collateralized by whole loans or private pass-
through securities.
The Fund will only invest in CMOs which, at the time of purchase, are
rated AAA by a nationally recognized statistical rating organization
("NRSRO") or are of comparable quality as determined by M&T Bank, and which
may be: (i) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities;
or (iii) collateralized by pools of mortgages without a U.S. government
guarantee as to payment of principal and interest, but which have some form
of credit enhancement.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under provisions of
the Internal Revenue Code. Issuers of REMICs may take several forms, such
as trusts, partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed through the
entity and is taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes of "regular
interest." To qualify as a REMIC, substantially all the assets of the
entity must be in assets directly or indirectly secured principally by real
property.
The mortgage-related securities provide for a periodic payment consisting
of both interest and principal. The interest portion of these payments will
be distributed by the Fund as income, and the capital portion will be
reinvested.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities which have structural
characteristics similar to mortgage-backed securities but have underlying
assets that are not mortgage loans or interests in mortgage loans. The Fund
may invest in asset-backed securities which, at the time of purchase, are
rated in the top four rating categories (investment grade ) by a NRSRO,
including, but not limited to, interests in pools of receivables, such as
motor vehicle installment purchase obligations and credit card receivables.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
Mortgage-backed securities (including ARMS, CMOs, and REMICs) and asset-
backed securities generally pay back principal and interest over the life
of the security. At the time the Fund reinvests the payments and any
unscheduled prepayments of principal received, the Fund may receive a rate
of interest which is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of
debt instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be prepaid
without penalty or premium. Prepayment risks on mortgage-backed securities
tend to increase during periods of declining mortgage interest rates
because many borrowers refinance their mortgages to take advantage of the
more favorable rates. Prepayments on mortgage-backed securities are also
affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages.
Although asset-backed securities generally are less likely to experience
substantial prepayments than are mortgage-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-backed securities
also affect the rate of prepayments on asset-backed securities.
Furthermore, if mortgage-backed securities are purchased at a premium,
mortgage foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium paid.
Conversely, if mortgage-backed securities are purchased at a discount, both
a scheduled payment of principal and an unscheduled prepayment of principal
would increase current and total returns and would accelerate the
recognition of income, which would be taxed as ordinary income when
distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-
backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the
underlying obligations. If the servicer sells these obligations to another
party there is a risk that the purchaser would acquire an interest superior
to that of the holders of the related asset-backed securities. Further, if
a vehicle is registered in one state and is then reregistered because the
owner and obligor moves to another state, such reregistration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in U.S. dollar-denominated and foreign currency
denominated securities of foreign issuers. There may be certain risks
associated with investing in foreign securities. These include risks of
adverse political and economic developments (including possible
governmental seizure or nationalization of assets), the possible imposition
of exchange controls or other governmental restrictions, currency
fluctuations, less uniformity in accounting and reporting requirements,
higher transaction costs and the possibility that there will be less
information on such securities and their issuers available to the public.
In addition, there are restrictions on foreign investments in other
jurisdictions and there tends to be difficulty in obtaining judgments from
abroad and affecting repatriation of capital invested abroad. Delays could
occur in settlement of foreign transactions, which could adversely affect
shareholder equity. Foreign securities may be subject to foreign taxes,
which reduce yield, and may be less marketable than comparable United
States securities. To the extent that securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value
of any interest earned, gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
in that currency will decrease. As a matter of practice, the Fund will not
invest in the securities of a foreign issuer if any risk identified above
appears to M&T Bank to be substantial.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in
which banks, broker/dealers, and other recognized financial institutions
sell U.S. government securities or other high quality, liquid securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
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 otherwise 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 would be subject to such duplicate expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis or both up to one-third of
the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which M&T
Bank has determined are creditworthy under guidelines established by the
Corporation's Board of 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.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not
own is sold in anticipation of a decline in its price. If the decline
occurs, shares equal in number to those sold short can be purchased at the
lower price. If the price increases, the higher price must be paid. The
purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When the Fund
enters into a short sale, assets that are equal to the market price of the
securities sold short or any lesser price at which the Fund can obtain such
securities, are segregated on the Fund's records and maintained until the
Fund meets its obligations under the short sale.
The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities, or (2) it has
segregated an amount of its other liquid assets equal to the lesser of the
market value of the securities sold short or the amount required to acquire
such securities. 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 M&T Bank.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may
not.
If the Fund does not exercise an option it has purchased, then the Fund
loses in value the price it paid for the option premium. If the Fund writes
(sells) an option which is subsequently exercised, the premium received by
the Fund from the option purchaser may not exceed the increase (in the case
of a call option) or decrease (in the case of a put option ) in the value
of the securities underlying the option, in which case the difference
represents a loss for the Fund. However, if the option expires without
being exercised, the Fund realizes a gain in the amount of the premium it
received.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial and stock index futures contracts
to attempt to hedge all or a portion of its portfolio against changes in
interest rates or economic market conditions. Financial futures contracts
generally require the delivery of particular debt instruments at a certain
time in the future. The seller of the contract agrees to make delivery of
the type of instrument called for in the contract, and the buyer agrees to
take delivery of the instrument at the specified future time. Stock index
futures contracts generally involve cash settlement rather than delivery of
the stocks comprising the index.
The Fund may also write call options and purchase put options on financial
or stock index futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value. When the Fund
writes a call option on a futures contract, it is undertaking the
obligation of selling a futures contract at a fixed price at any time
during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but
not obligated) to sell a futures contract at the fixed price during the
life of the option.
Generally, the Fund may not purchase or sell futures contracts or
related options, 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 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.
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 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 M&T Bank will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.
WARRANTS
The Fund has no present intent to invest more than 5% of its net assets in
warrants.
INVESTMENT RISKS
As with other mutual funds that invest in equity securities, the Fund is
subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time, and the United
States equity market tends to be cyclical, experiencing both periods when
stock prices generally increase and periods when stock prices generally
decrease.
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. Therefore, the Fund could be slightly more volatile than, and may
fluctuate independently of, broad stock market indices such as the S&P 500
Index.
With respect to the debt obligations which the Fund may purchase, their
prices move inversely to interest rates. A decline in market interest rates
results in a rise in the market prices of outstanding debt obligations.
Conversely, an increase in market interest rates results in a decline in
market prices of outstanding debt obligations. In either case, the amount
of change in market prices of debt obligations in response to changes in
market interest rates generally depends on the maturity of the debt
obligations: the debt obligations with the longest maturities will
experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset
value, will fluctuate due to changes in economic conditions and other
market factors such as interest rates which are beyond the control of M&T
Bank. M&T Bank could be incorrect in its expectations about the direction
or extent of these market factors. Although debt obligations with longer
maturities offer potentially greater returns, they have greater exposure to
market price fluctuation. Consequently, to the extent the Fund is
significantly invested in debt obligations with longer maturities, there is
a greater possibility of fluctuation in the Fund's net asset value.
However, M&T Bank will attempt to minimize the fluctuation of the Fund's
net asset value by predicting the direction of interest rates.
INVESTMENT LIMITATIONS
The Fund will not:
..borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings; and
..with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer other than cash, cash
items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
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.
M&T Bank continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from the Fund.
Both the Corporation and M&T Bank have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes of the Corporation and M&T Bank: require preclearance and periodic
reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial
public offerings; and prohibit taking profits on securities held for less
than sixty days. Violations of the codes are subject to review by the
Corporation's Board of Directors, and could result in severe penalties.
ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as
investment adviser, M&T Bank is entitled to receive a fee from the Fund,
equal to an annual rate of .70% of the Fund's average 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 161 offices throughout New
York State and an office in Nassau, The Bahamas.
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 F. Moore has been the Fund's portfolio manager since January 1,
1997. Mr. Moore joined M&T Bank in October 1995 as Senior Vice President
and Chief Investment Officer. His 18 years of investment experience
includes five years with Value Line Asset Management, New York where he
most recently was the Director of Asset Management and Senior Portfolio
Manager. Mr. Moore obtained his B.A. and M.B.A. from the University of
North Carolina.
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 Corporation's Board of 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 Shareholder Servicing Agent provides services.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings
banks) to provide administrative services that are not provided by
Federated Administrative Services (see below). These administrative
services include distributing prospectuses and other information, providing
accounting assistance and shareholder communications, or otherwise
facilitating shareholder purchases and redemptions (sales) of Fund shares.
The administrators appointed could include affiliates of the advisers.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. If the distributor pays any fees for these
services, the fees will be reimbursed by one of the advisers and not the
Fund.
ADMINISTRATION OF THE FUND
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUND WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUND.
ADMINISTRATIVE SERVICES
Such services include certain legal and accounting services. Federated
Administrative Services provides these services for an annual fee as
specified below:
MAXIMUM ADMINISTRATIVE
AGGREGATE DAILY NET
FEE
ASSETS OF VISION
GROUP OF FUNDS, INC.
..150%
on the first $250 million
..125%
on the next $250 million
..100%
on the next $250 million
..075%
in excess of $750 million
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.
YOUR GUIDE TO USING THE FUND
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE FLUCTUATES.
The net asset value for the Fund's shares is determined by adding the
market value of all securities and other assets of the Fund, subtracting
the liabilities of the Fund and dividing the remainder by the total number
of the Fund's shares outstanding.
MINIMUM INITIAL INVESTMENT
The minimum initial investment in the Fund is $500, unless the investment
is in a retirement plan, in which case the minimum initial investment is
$250. Subsequent investments must be in amounts of at least $25. In
addition, the minimum initial and subsequent investment amounts may be
waived or lowered from time to time, such as for customers participating in
the automatic investment services described below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
DEALER
SALES CHARGE
SALES CHARGE
CONCESSION
AS A
AS A
AS A
PERCENTAGE
PERCENTAGE
PERCENTAGE OF
OF PUBLIC
OF NET
PUBLIC
AMOUNT OF
OFFERING
INVESTED
OFFERING
TRANSACTION
PRICE
PRICE
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%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
(i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected;
(ii) days during which no shares are tendered for redemption and no orders
to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may
from time to time offer certain items of nominal value to any shareholder
or investor.
SALES CHARGE REALLOWANCE
For sales of shares of the Fund, a broker/dealer will normally receive up
to 90% of the applicable sales charge. Any portion of the sales charge
which is not paid to a broker/dealer will be retained by the distributor.
However, the distributor will uniformly and periodically offer to pay
broker/dealers up to 100% of the sales charge retained by it. Such payments
may take the form of cash, items of material value, or promotional
incentives, such as payment of certain expenses of qualified employees and
their spouses to attend informational meetings about the Fund or other
special events at recreational-type facilities. In some instances, these
incentives will be made available only to broker/dealers whose employees
have sold or may sell significant amounts of shares.
The distributor may pay fees to financial institutions out of the sales
charge in exchange for sales and/or administrative services performed on
behalf of their customers in connection with the initiation of customer
accounts and purchases of shares of the Fund.
In addition, the distributor will offer to pay broker/dealers an amount of
up to 1.00% of the net asset value of shares purchased for an account of
their client or customer in an amount of $1 million or more.
The distributor and M&T Bank, or affiliates thereof, at their own
expense and out of their own assets, may also provide other compensation to
financial institutions in connection with sales of shares of the Fund or as
financial assistance for providing substantial marketing, sales and
operational support. Compensation may 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.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table under "What Fund Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the
same day by the investor, the investor's spouse, and the investor's
children under age 21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will
consider the previous purchases still invested in the Fund in calculating
the applicable sales charge rate. For example, if a shareholder already
owns shares which were purchased at the public offering price of $70,000
and then purchases $40,000 more at the current public offering price, the
sales charge of the additional purchase according to the schedule now in
effect would be the rate imposed on a $110,000 investment, not the rate
imposed on a $40,000 investment.
To receive the sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the shareholder in writing at the time
the purchase is made that Fund shares are already owned or that purchases
are being combined. The Fund will reduce the sales charge after it confirms
the purchase.
LETTER OF INTENT
If a shareholder intends to purchase shares of the Fund equal in value to
at least $50,000 over the next 13 months, the sales charge may be reduced
by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the
Custodian to hold 5.50% of the total amount intended to be purchased in
escrow (in shares of the Fund) until such purchase is completed.
The 5.50% held in escrow will be applied to the shareholder's account at
the end of the 13-month period, unless the amount specified in the letter
of intent is not purchased. In this event, an appropriate number of
escrowed shares may be redeemed in order to realize the difference in the
sales charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. This
letter may be dated as of a prior date to include any purchases made within
the past 90 days; however, these previous purchases will not receive the
reduced sales charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time
right to reinvest, within 90 days, the redemption proceeds in the Fund at
the next-determined net asset value without any sales charge. M&T Bank's
Mutual Fund Services or the distributor must be notified by the shareholder
in writing or by the shareholder's financial institution of the
reinvestment in order to eliminate the sales charge. If the shareholder
redeems his or her shares in the Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Vision Group of Funds, Inc., the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $70,000 in one
of the funds with a sales charge, and $40,000 in another fund with a sales
charge, the sales charge imposed on each purchase would be reduced to the
sales charge rate in effect for a $110,000 investment in the respective
fund.
To receive this sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the agent placing the order at the time
the concurrent purchases are made. The sales charge will be reduced after
the purchase is confirmed.
HOW TO BUY SHARES
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS WHICH
THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS WHEN WIRE
TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND MARTIN LUTHER
KING DAY).
Shares may be purchased either by wire, mail or transfer. The Fund reserves
the right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
THROUGH THE BANK
You may purchase shares through M&T Bank. To do so, contact an account
representative at M&T Bank or those affiliates of M&T Bank which make
shares available, 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 Growth and Income Fund" in an amount of $500 or more, to the
address below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York, 14240-4556
Current shareholders can purchase shares by mail by sending a check to the
same address. Orders by mail are considered received after payment by check
has been converted into federal funds. This is normally the next business
day after the check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank
account, you must maintain a checking or NOW deposit account at M&T Bank or
any of its affiliate banks. To place an order, call M&T Bank's Mutual Fund
Services or any representative of M&T Securities before 4:00 p.m. (Eastern
time). The money will be transferred from your checking or NOW deposit
account to your Fund account by the next business day and your purchase of
shares will be effected on the day the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about
the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a
regular basis in amounts of $25 or more through automatic deductions from
your checking or NOW deposit account. The money may be withdrawn
periodically and invested in Fund shares at the next net asset value
calculated after your order is received plus any applicable sales charge.
To sign up for this program, please call M&T Bank's Mutual Fund Services
for an application.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays dividends quarterly. Capital gains realized by
the Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be automatically reinvested in additional
shares of the Fund on payment dates at the ex-dividend date's net asset
value without a sales charge, unless payments are requested by writing to
the Fund or M&T Bank's Mutual Fund Services. Dividends and capital gains
can also be reinvested in shares of any other fund comprising the Vision
Group of Funds, Inc., subject to any applicable investment requirements.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans
or IRA accounts. For further details, contact the Fund and consult a tax
adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. The Fund will not issue
certificates for your shares unless you make a written request to the Fund.
Federated Shareholder Services Company is a subsidiary of Federated
Investors.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Confirmations are sent to shareholders of the Fund to report
dividends paid during the quarter.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP OF
FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS IN THE CORPORATION (REFERRED
TO AS "PARTICIPATING FUNDS") THROUGH AN EXCHANGE PROGRAM. YOU MAY EXCHANGE
SHARES OF THE FUND FOR SHARES OF OTHER PARTICIPATING FUNDS AT NET ASSET
VALUE, PLUS ANY APPLICABLE SALES CHARGE.
When exchanging into and out of Participating Funds with a sales charge
and Participating Funds without a sales charge, shareholders who have paid
a sales charge once upon purchasing shares of any Participating Fund,
including those shares 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. However, shares
of Participating Funds with no sales charge that were acquired by the
reinvestment of dividends will not be subject to a sales charge upon an
exchange into shares of a Participating Fund with a sales charge. Instead,
such exchanges will be made at net asset value.
To be eligible for this exchange privilege, you must exchange shares with a
net asset value of at least the minimum initial investment required by the
Participating Fund into which you are exchanging if it is a new account.
You may exchange your shares only for shares of Participating Funds that
may legally be sold in your state of residence. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the
Participating Fund into which an exchange is to be made.
Once the transfer agent has received proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next net asset value calculated. If you do not have an account in the
Participating Fund whose shares you want to acquire, you must establish a
new account. Unless you specify otherwise, this account will be registered
in the same name and have the same dividend and capital gains payment
options as you selected with your existing account. If the new account
registration (name, address, and taxpayer identification number) is not
identical to your existing account, you must provide a signature guarantee
to verify your signature. Please see the "Signature Guarantees" section
later in this prospectus for more information about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a
short or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege
at any time. Shareholders will be notified prior to any modification or
termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services at the number listed below.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488). To sign up for telephone exchanges, you must select the telephone
exchange option on the new account application. It is recommended that you
request this privilege on your initial application. If you do not and later
wish to take advantage of telephone exchanges, you may call M&T Bank's
Mutual Fund Services for authorization forms.
You can only exchange shares by telephone between fund accounts with
identical shareholder registrations (names, addresses, and taxpayer
identification numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated
Shareholder Services Company before 4:00 p.m. (Eastern time) for shares to
be exchanged that same day. You will not receive a dividend from the fund
into which you are exchanging on the date of the exchange.
You may have difficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot
make a telephone exchange. Instead, the certificates must be properly
endorsed and should be sent by registered or certified mail, along with
your written exchange request, to the Vision Group of Funds, Inc. at the
address shown below. M&T Bank's Mutual Fund Services will then forward the
certificate to the transfer agent, Federated Shareholder Services Company,
and the shares will be deposited into your account before the exchange is
made.
Shareholders requesting the telephone exchange service authorize the
Corporation and its agents to act upon their telephonic instructions to
exchange shares from any account for which they have authorized such
services. Exchange instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc. P.O. Box 4556 Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
THE FUND REDEEMS YOUR SHARES AT THE NET ASSET VALUE PER SHARE NEXT
DETERMINED AFTER THE FUND RECEIVES YOUR REDEMPTION REQUEST. WHEN FUND
SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
You may redeem shares only on days when the Fund computes its net asset
value. You cannot redeem shares on days when the New York Stock Exchange or
M&T Bank are closed, or on holidays when wire transfers are restricted
(Columbus Day, Veterans' Day, and Martin Luther King Day). While you may
redeem various amounts by telephone or written request, you can close your
account only by written request.
TELEPHONE REDEMPTIONS
You may redeem your shares by calling M&T Bank's Mutual Fund Services at
(800) 836-2211 (in the Buffalo area, phone 842-4488) before 4:00 p.m.
(Eastem time). The proceeds will be wired the next business day directly to
your account at M&T Bank or an affiliate or to another account you
previously designated at a domestic commercial bank that is a member of the
Federal Reserve System. M&T Bank reserves the right to charge a fee for a
wire transfer from a customer checking account, which may contain
redemption proceeds, to another commercial bank.
You will be automatically eligible for telephone redemptions, unless you
check the box on the new account application form to decline this
privilege. It is recommended that you provide the necessary information for
the telephone/ wire redemption option on your initial application. If you
do not do this and later wish to take advantage of telephone redemptions,
you must call M&T Bank's Mutual Fund Services for authorization forms.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written redemption request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time. Shareholders will be notified prior to any
modification or termination.
If you hold shares in certificate form or hold Fund shares through an IRA
account, you cannot redeem those shares by phone, but instead must redeem
them in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to
redeem shares from any account for which they have authorized such
services. Redemption instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING SHARES BY MAIL
You may redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions
before redeeming by letter. Your written request must include your name,
the Fund's name, your account number, and the share or dollar amount you
want to redeem. If share certificates have been issued to you, those
certificates must be properly endorsed and should be sent by registered or
certified mail along with your redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
if you are redeeming shares worth $50,000 or more;
if you want a redemption of any amount sent to an address other than
your address on record with the Fund;
if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
if you want to transfer the registration of the Fund shares.
The signature guarantee must be provided by:
a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which also is administered by
the FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request, provided the Fund or its agents have received payment
for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
If you own Fund shares worth $10,000 or more, you can have regular payments
of $50 or more sent from your Fund account to you, another person you
designate or your checking or NOW deposit account. Fund shares are redeemed
to provide periodic payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends or any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in the Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason,
you should not consider systematic withdrawal payments as yield or income
received from your investment in the Fund. Due to the fact that shares are
sold subject to sales charge, it may not be advisable for shareholders to
be purchasing shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the
Fund may redeem your shares and send you the proceeds if your account
balance falls below a minimum value of $250 due to shareholder redemptions.
Shareholders who make large or frequent withdrawals may be particularly
vulnerable to this involuntary redemption process. However, before shares
are redeemed to close an account, the shareholder will be notified in
writing and given 30 days to purchase additional shares to meet the minimum
balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate
to do so in light of the Fund's responsibilities under the Investment
Company Act of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE INCOME TAX
TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
The tax consequences discussed here apply whether you receive dividends in
cash or reinvest them in additional shares. The Fund will send you tax
information annually regarding the federal income tax consequences of
distributions made during the year. You should definitely consult your own
tax adviser about any state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax
purposes. Income earned by the Fund, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
portfolios.
The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code so that it is not required to pay federal
income taxes on the income and capital gains distributed to shareholders.
FEDERAL INCOME TAXES
Unless shareholders of the Fund are otherwise exempt from taxes, they are
required to pay federal income taxes on dividends and other distributions
received (including capital gains distributions, if any) from the Fund.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on
February 23, 1988, and consists of seven available portfolios: Vision Money
Market Fund, Vision Treasury Money Market Fund, Vision New York Tax-Free
Money Market Fund, Vision U.S. Government Securities Fund, Vision Growth &
Income Fund, Vision New York Tax-Free Fund and Vision Capital Appreciation
Fund. The Corporation's Articles of Incorporation permit the Corporation to
offer separate series of shares in these funds or other future portfolios.
Each Fund share represents an equal proportionate interest in the Fund with
other shares and participates equally in the dividends and any other
distributions that are declared at the discretion of the Corporation's
Board of Directors.
VOTING RIGHTS AND OTHER INFORMATION
SHAREHOLDERS OF THE FUND ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE THEY
HOLD AND TO FRACTIONAL VOTES FOR ANY FRACTIONAL SHARES THEY HOLD.
Shareholders in the Fund generally vote in the aggregate and not by
class, unless the law expressly requires otherwise or the Board of
Directors determines that the matter to be voted upon affects only the
interests of shareholders of a particular class. (See the "Description of
Fund Shares" in the Statement of Additional Information for examples of
when the Investment Company Act of 1940 requires that shareholders vote by
class.) As of April 18, 1997, Reho & Co., Buffalo, New York, acting in
various capacities for numerous accounts, was the owner of record of 34.05%
of the voting securities of the Fund, and, therefore, may for certain
purposes be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
The Fund is not required to hold annual shareholder meetings, unless
matters arise that require a vote of the shareholders under the Investment
Company Act of 1940. That law requires a vote of the shareholders to
approve changes in the Fund's investment advisory agreement, to replace the
Fund's independent certified public accountants and, under certain
circumstances, to elect members to the Corporation's Board of Directors.
Directors may be removed by the Corporation's Board of Directors or by a
vote of shareholders at a special meeting. The Corporation's Board of
Directors will promptly call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of any Fund's
outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in the
Fund, together with all income, earnings, profits, and proceeds derived
from the investment of that money. This includes any proceeds from the
sale, exchange, or liquidation of these investments, any funds or payments
derived from the reinvestment of these proceeds, and a portion of the
general assets of the Corporation that do not otherwise belong to the Fund.
Assets belonging to the Fund are charged with the direct expenses and
liabilities of the Fund and with a share of the general expenses and
liabilities of the Corporation. The general expenses and liabilities of the
Corporation are allocated in proportion to the relative asset values of all
the Corporation's portfolios at the time the expense or liability is
incurred.
The management of the Corporation determines the Fund's direct and
allocable liabilities at the time the expense or liability is incurred as
well as the Fund's allocable share of any general assets at the time the
asset is acquired. These determinations are reviewed and approved annually
by the Corporation's Board of Directors and are conclusive.
HOW THE FUND SHOWS PERFORMANCE
From time to time, advertisements for the Fund may refer to ratings,
rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices. The Fund may advertise its
performance in terms of yield and total return, as defined below. Of
course, 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.
ADDRESSES
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision Growth and Income Fund
Prospectus dated
June 30, 1997
[VISION LOGO]
92830F604
3100401A (6/97)
TR3100401A (6/97)
VISION GROWTH AND INCOME FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus
of one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Growth and Income Fund (the ``Fund') dated June 30, 1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 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 June 30, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First empire State Corporation
Federated Securities Corp. is distributor for the Fund.
GENERAL INFORMATION ABOUT THE FUND 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 4
Securities of Foreign Issuers 4
Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Illiquid and Restricted Securities 5
Lending of Portfolio Securities 5
Reverse Repurchase Agreements 5
Futures and Options Transactions 6
Warrants 9
Portfolio Turnover 9
INVESTMENT LIMITATIONS 9
VISION GROUP OF FUNDS, INC. MANAGEMENT 10
Fund Ownership 13
Directors' Compensation 13
Director Liability 13
INVESTMENT ADVISORY SERVICES 14
Adviser to the Fund 14
Advisory Fees 14
OTHER SERVICES 14
Administrative Services 14
Custodian and Portfolio Accountant 14
Transfer Agent and Dividend Disbursing Agent 14
Independent Auditors 15
BROKERAGE TRANSACTIONS 15
DESCRIPTION OF FUND SHARES 15
HOW TO BUY SHARES 16
Conversion to Federal Funds 16
HOW THE FUND VALUES ITS SHARES 16
HOW TO REDEEM SHARES 17
Redemption in Kind 17
DETERMINING NET ASSET VALUE 17
BANKING LAWS 17
TAX STATUS 17
The Fund's Tax Status 17
Shareholders' Tax Status 17
TOTAL RETURN 18
YIELD 18
PERFORMANCE COMPARISONS 18
Economic and Market Information 20
APPENDIX 21
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Vision Group of Funds, Inc. (the
`Corporation''). The Corporation was established as a Maryland Corporation
under Articles of Incorporation dated February 23, 1988.
INVESTMENT OBJECTIVE
The investment objective of the Vision Growth and Income Fund (the
`Fund'') is to provide long term growth of capital and income. The
investment objective of the Fund cannot be changed without approval of its
shareholders.
INVESTMENT POLICIES
The prospectus discusses the Fund's investment policies. Supplemental
information is set out below concerning the types of securities and other
instruments in which the Fund may invest, the investment policies and
strategies that the Fund may utilize, and certain risks attendant to those
investments, policies and strategies.
ACCEPTABLE INVESTMENTS
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations. Corporate debt
obligations may bear fixed, fixed and contingent, or variable rates of
interest. They may involve equity features such as conversion or exchange
rights, warrants for the acquisition of common stock of the same or a
different issuer, participations based on revenues, sales, or profits, or
the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt obligations, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate under
such terms, conditions, and limitations as are described in each issuer's
prospectus.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds, which may be in the form of zero
coupon convertible securities. Zero coupon bonds are debt securities which
are issued at a discount to their face amount and do not entitle the holder
to any periodic payments of interest prior to maturity. Rather, interest
earned on zero coupon bonds accretes at a stated yield until the security
reaches its face amount at maturity. Zero coupon convertible securities are
convertible into a specific number of shares of the issuer's common stock.
Zero coupon convertible bonds usually have put features that provide the
holder with the opportunity to put the bonds back to the issuer at a stated
price before maturity. Generally, the prices of zero coupon bonds may be
more sensitive to market interest rate fluctuations than conventional debt
securities.
Federal income tax law requires the holder of a zero coupon bond to
recognize income from the security prior to the receipt of cash payments.
To maintain its qualification as regulated investment companies and avoid
liability of federal income taxes, the Fund will be required to distribute
income accrued from zero coupon bonds which the Fund owns, and may have to
sell portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oThe Student Loan Marketing Association;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation; and
oFederal National Mortgage Association.
MORTGAGE-BACKED SECURITIES
Privately issued mortgage-related securities which the Fund may purchase
generally represent an ownership interest in federal agency mortgage pass-
through securities such as those issued by Governmental National Mortgage
Association. The terms and characteristics of the mortgage instruments may
vary among pass-through mortgage loan pools. The market for such mortgage-
related securities has expanded considerably since its inception. The size
of the primary issuance market and the active participation in the
secondary market by securities dealers and other investors makes
government-related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the
Fund may invest generally are readjusted at intervals of one year or
less to an increment over some predetermined interest rate index.
There are two main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such as a cost
of funds index or a moving average of mortgage rates. Commonly
utilized indices include the one-year and five-year constant maturity
Treasury Note rates, the three-month Treasury Bill rate, the 180-day
Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant
maturity Treasury Note rate, closely mirror changes in market interest
rate levels. Other tend to lag changes in market rate levels and tend
to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate
changes than a fixed rate debt security of the same stated maturity.
Hence, adjustable rate mortgage securities which use indices that lag
changes in market rates should experience greater price volatility
than adjustable rate mortgage securities that closely mirror the
market. Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to
correspondingly increased price volatility. In the event the Fund
purchases such residual interest mortgage securities, it will factor
in the increased interest and price volatility of such securities when
determining its dollar-weighted average duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and
REMICs in which the Fund invests will frequently have caps and floors
which limit the maximum amount by which the loan rate to the
residential borrower may change up or down: (1) per reset or
adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may
result in negative amortization.
The value of mortgage securities in which the Fund invests may be
affected if market interest rates rise or fall faster and farther than
the allowable caps or floors on the underlying residential mortgage
loans. Additionally, even though the interest rates on the underlying
residential mortgages are adjustable, amortization and prepayments may
occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities
stated in the underlying mortgages.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
oinstruments of domestic and foreign banks and savings and loans if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
federally insured;
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);
otime and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund (``BIF''), or institutions whose accounts are insured
by the Savings Association Insurance Fund (``SAIF''), including
certificates of deposit issued by, and other time deposits in,
foreign branches of BIF-insured banks which, if negotiable, mature
in six months or less or if not negotiable, either mature in ninety
days or less, or are withdrawable upon notice not exceeding ninety
days; and
obankers' acceptances.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in securities of foreign issuers. Securities of foreign
issuers may include debt obligations of supranational entities, which
include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and
international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank
for Reconstruction and Development (World Bank), European Investment Bank
and InterAmerican Development Bank.
Securities of a foreign issuer may present greater risks than
investments in U.S. securities, including higher transaction costs as well
as the imposition of additional taxes by foreign governments. In addition,
investments in foreign issuers may include additional risks associated with
less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest
income, the possible seizure or nationalization of foreign holdings, the
possible establishment of exchange controls, or the adoption of other
governmental restrictions, might adversely affect the payment of principal
and interest on securities of foreign issuers. As a matter of practice, the
Fund will not invest in the securities of a foreign issuer if any risk
appears to 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 futures contracts to hedge
against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates and market conditions
without necessarily buying or selling the securities. The Fund also
may purchase and sell stock index futures to hedge against changes in
prices. The Fund will not engage in futures transactions for
speculative purposes. A futures contract is a firm commitment by two
parties: the seller who agrees to make delivery of the specific type
of security called for in the contract (`going short'') and the buyer
who agrees to take delivery of the security (`going long'') at a
certain time in the future.
For example, in the fixed income securities market, prices move
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates means a rise in price. In order to hedge
its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., `go short'') to protect
itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period.
The Fund would `go long'' (i.e., agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the issuers included in the indices.
An index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to
the differences between the value of the index at the close of the
last trading day of the contract and the price at which the index
contract was originally written.
``MARGIN''IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Fund is also
required to deposit and maintain margin when it writes call options on
futures contracts.
The Fund will comply with the following restrictions when
purchasing and selling futures contracts. 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% o 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 CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options on securities either held
in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash in the
amount of any additional consideration. As the writer of a call
option, the Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of
the exercise price. Covered call options generally do not present
investment risks different from those associated with a security
purchase. For example, a security may be sold before it reaches its
maximum potential value, or it may be retained even though its current
market price has dropped below its purchase price. Similarly, a
covered call option presents these risks. For example, when the option
purchaser acquires the security at the predetermined exercise price,
the Fund could be giving up any capital appreciation above the
exercise price that is not offset by the option premium paid by the
option purchaser to the Fund. Conversely, if the underlying security
decreases in price and the option purchaser decides not to carry out
the transaction, the Fund keeps the premium and the Fund can sell the
security or hold onto it for future price appreciation. The Fund may
only sell call options either on securities held in its portfolio or
on securities which it has the right to obtain without payment of
further consideration or for which it has segregated cash in the
amount of any additional consideration. Writing of call options by the
Fund is intended to generate income for the Fund and thereby protect
against price movements in particular securities in the Fund's
portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyer or writers of the
options for those options on portfolio securities held by the Funds
and not traded on an exchange.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stock
included in the index.
The effectiveness of purchasing stock index options will depend
upon the extent to which price movements in the Fund's portfolio
correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock
indices will be subject to the ability of 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 objectives, 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. For the fiscal years ended April 30, 1997 and
1996, the Fund's portfolio turnover rates were % and 77%,
----
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, except as described below and other than in connection with
buying futures contracts and put options, and writing covered call
options, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities.
The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
The Fund may purchase and dispose of U.S. Government securities
and CMOs before they are issued and may also purchase and dispose of
them on a delayed delivery basis.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, the Fund may mortgage,
pledge, or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of the borrowing. For purposes of this limitation,
the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options and
segregation or collateral arrangements made in connection with
options, futures, options on futures, reverse repurchase agreements,
lending of portfolio securities, or the purchase of securities on a
when-issued basis.
UNDERWRITING
The Fund will not underwrite any issue of securities except as they
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests although it may invest in securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities,
the market value of which does not exceed one-third of the value of
the Fund's total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and
limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except that the Fund may purchase and
sell futures contracts and related options.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry, except that the Fund may invest 25% or more of
the value of its total assets in cash or cash items (including
instruments issued by a U.S. branch of a domestic bank or savings and
loan association and bankers' acceptances), securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
and repurchase agreements collateralized by such securities.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of its total assets would be invested
in the securities of that issuer. Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations are fundamental policies of the Fund and
cannot be changed without shareholder approval. The following limitations,
however, may be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN 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.''
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.
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).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Tice & Co., Buffalo, New York,
owned approximately 1,868,402 shares (24.91%) and Reho & Co., Buffalo, New
York, owned approximately 2,553,527 shares (34.05%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank''). The advisory services provided and
the expenses assumed by M&T Bank, as well as the advisory fees payable to
it, are described in the 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.
For the fiscal years ended April 30, 1997, 1996, and 1995, M&T Bank earned
$ , $ , and $ , respectively, of which $ , $ , and
----- ----- ----- ----- -----
$ , respectively, were voluntarily waived.
-----
In addition, for the fiscal years ended April 30, 1997, 1996, and 1995, M&T
Bank reimbursed the Fund $ , 0, and $112,828, respectively, of other
-----
operating expenses.
Prior to January 1, 1997, Harbor Capital Management (`Harbor'') served as
the Fund's sub-adviser. For the fiscal years ended April 30, 1997, 1996,
and 1995, Harbor earned $ , $ , and $ , respectively, of which
----- ----- -----
$ , $ , and $ , respectively, were voluntarily waived.
----- ----- -----
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
describedin the Prospectus. For the fiscal years ended April 30, 1997,
1996, and 1995, , the Fund incurred administrative service costs of $ ,
-----
$58,037, and $50,000, respectively, of which $ , $0, and $10,958,
-----
respectively, were voluntarily waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund 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.
For the fiscal years ended April 30, 1997, 1996, and 1995, the Fund paid
$ , $128,098, and $95,432, respectively, in commissions on brokerage
-----
transactions.
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to 10 billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F and G Common
Stock represent interests in Vision Money Market Fund, Vision Treasury
Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, and Vision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion
or exchange rights as the Board may grant in its discretion. When issued
for payment as described in the Fund's Prospectus and this Statement of
Additional Information, the Fund's shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative asset values of that Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is not affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical, or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of Directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding common stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the New York Stock Exchange and the Federal Reserve
Wire System are open for business. The procedure for purchasing shares of
the Fund is explained in the prospectus under `How to Buy Shares.''
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. M&T Bank and State
Street Bank act as the shareholders' agents in depositing checks and
converting them to federal funds.
HOW THE FUND VALUES ITS SHARES
The market value of the Fund's portfolio securities are determined as
follows:
ofor equity securities, according to the last sales price on a
national securities exchange, if applicable;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
ofor bond and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor 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, a Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends
received deduction to the Fund if the Fund were a regular corporation, and
to the extent designated by the Fund as so qualifying. Otherwise, these
dividends, and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If
the Fund realizes net long-term capital gains, it will distribute them
at least once every 12 months.
TOTAL RETURN
The Fund's average annual total returns for the one-year period ended
April 30, 1997, and for the period from November 29, 1993 (date of initial
public investment) to April 30, 1997, were % and %, respectively.
---- ----
The Fund's total returns for the above periods reflect a maximum sales
charge of 5.50%.
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, less
any applicable sales load, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and
distributions. Any applicable redemption fee is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of shares redeemed.
YIELD
The Fund's yield for the thirty-day period ended April 30, 1997, was
%.
- -----
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of shares of the Fund depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in a Fund's expenses; and
ovarious 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:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Fund will quote its Lipper rankings in the growth and
income category in advertising and sales literature.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average
maturity of nine years. It calculates total returns for one month,
three month, twelve month, and ten year periods, and year-to-date.
oLEHMAN 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.
oMERRILL 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).
oMERRILL 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).
oSALOMON 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.
oSALOMON 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.
oLEHMAN 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.
oLEHMAN 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.
oDOW 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.
oSTANDARD & 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.
oRUSSELL 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.
oWILSHIRE 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.
oCONSUMER PRICE INDEX is generally considered to be a measure of
inflation.
oNEW 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.
oVALUE 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.
oNASDAQ 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.
oAMEX 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.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than l,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as federally
insured bank products, inluding time deposits, bank savings accounts,
certificates of deposit and Treasury bills, and to money market funds using
the Lipper Analytical Services money market instruments average. Unlike
federally insured bank products, the shares of the Fund are not insured.
Unlike money market funds, which attempt to maintain a stable offering
price, the offering price of the Fund's shares fluctuates. Advertisements
may quote performance information which does not reflect the effect of the
sales load.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`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.
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.
92830F604
G01716-02 (6/97)
PROSPECTUS
VISION CAPITAL APPRECIATION FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
PROSPECTUS DATED JUNE 30, 1997
Vision Group of Funds, Inc. (the "Corporation") is an open-end management
investment company (a mutual fund) that offers you a choice of seven
separate investment portfolios with distinct investment objectives and
policies. This prospectus relates to one of the seven portfolios, Vision
Capital Appreciation Fund ("Fund").
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MANUFACTURERS AND TRADERS TRUST COMPANY, ARE NOT ENDORSED OR GUARANTEED BY
MANUFACTURERS AND TRADERS TRUST COMPANY, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THESE SHARES INVOLVE INVESTMENT RISKS INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
This prospectus gives you information about the Fund, and can help you
decide if the Fund is a suitable investment for you. Please read the
prospectus before you invest and keep it for future reference.
You can find additional facts about the Fund in the Statement of
Additional Information dated June 30, 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.
This Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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
TABLE OF CONTENTS
SYNOPSIS
INVESTMENT OBJECTIVES AND POLICIES
Vision Group of Funds, Inc. (the "Corporation") offers you a convenient,
affordable way to participate in seven separate, professionally managed
portfolios. This prospectus describes the Vision Capital Appreciation Fund.
VISION CAPITAL APPRECIATION FUND
(THE "FUND") IS A DIVERSIFIED PORTFOLIO WHICH SEEKS TO PRODUCE LONG-TERM
CAPITAL APPRECIATION. THE FUND PURSUES ITS INVESTMENT OBJECTIVE BY
INVESTING IN A DIVERSIFIED PORTFOLIO CONSISTING PRIMARILY OF COMMON STOCKS
THAT THE ADVISER BELIEVES OFFER OPPORTUNITY FOR GROWTH OF CAPITAL, ALTHOUGH
IT MAY ALSO INVEST IN OTHER SECURITIES HAVING SOME OF THE CHARACTERISTICS
OF COMMON STOCKS, SUCH AS CONVERTIBLE PREFERRED STOCKS, CONVERTIBLE BONDS
AND WARRANTS.
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 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 "Adviser"). M&T Bank is the primary banking subsidiary of
First Empire State Corporation.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily get information about your
account by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in
the Buffalo area, phone 842-4488).
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
techniques.
A SUMMARY OF THE FUND'S EXPENSES (To be filed by amendment)
VISION CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS (To be filed by amendment)
HOW THE FUND INVESTS
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to produce long-term capital
appreciation. 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
THE FUND PURSUES ITS INVESTMENT OBJECTIVE OF LONG-TERM CAPITAL APPRECIATION
BY INVESTING IN A DIVERSIFIED PORTFOLIO COMPRISED PRIMARILY OF COMMON
STOCKS OR OTHER SECURITIES THAT HAVE SOME OF THE CHARACTERISTICS OF COMMON
STOCKS, SUCH AS CONVERTIBLE PREFERRED STOCKS, CONVERTIBLE BONDS, AND
WARRANTS. THE PRINCIPAL FACTOR IN SELECTING CONVERTIBLE SECURITIES WILL BE
THE POTENTIAL OPPORTUNITY TO BENEFIT FROM MOVEMENT IN STOCK PRICE. CURRENT
INCOME IS A SECONDARY, NON-FUNDAMENTAL INVESTMENT CONSIDERATION. THE
ADVISER WILL GENERALLY SELECT COMMON STOCKS OF WELL-FINANCED ISSUERS (E.G.,
ISSUERS THAT GENERATE SUFFICENT CASH FLOW TO SUPPORT THEIR GROWTH NEEDS OR
HAVE SUFFICENT CREDIT QUALITY TO OBTAIN FINANCING TO SUPPORT THEIR GROWTH)
WHICH HAVE DEMONSTRATED PROFITABILITY IN THE PAST OR HAVE THE POTENTIAL FOR
PROFITABILITY IN THE FUTURE, AND HAVE BEEN IN BUSINESS A MINIMUM OF THREE
YEARS. IT IS ANTICIPATED THAT THE FUND'S PORTFOLIO SECURITIES IN THE
AGGREGATE WILL HAVE AN AVERAGE WEIGHTED MARKET CAPITALIZATION OF $1 BILLION
TO $10 BILLION, WHICH COULD BE CONSIDERED THE MID-CAPITALIZATION SECTOR OF
THE MARKET. THE ADVISER, MAY, HOWEVER, SELECT FOR PURCHASE COMMON STOCKS OF
WELL-KNOWN COMPANIES WITH INDIVIDUAL MARKET CAPITALIZATIONS OF OVER $10
BILLION, AS WELL AS COMPANIES THAT HAVE INDIVIDUAL MARKET CAPITALIZATIONS
AS LOW AS $250 MILLION, IF IT BELIEVES SUCH COMMON STOCKS OFFER PARTICULAR
OPPORTUNITIES FOR LONG-TERM CAPITAL APPRECIATION.
In selecting investments, the Adviser will consider various financial
characteristics of the issuer, including historical sales and net income,
debt/equity and price/earnings ratios and growth rates. Certain qualitative
factors such as product dominance, management experience, and research and
development commitment will be evaluated. 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.
Under normal market conditions, the Fund intends to have at least 75% of
its total assets invested in securities which the Adviser believes offer
opportunity for capital appreciation. Unless indicated otherwise, this
policy and the other investment policies of the Fund may be changed by the
Directors without approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
..common or preferred stocks of U.S. companies which are either listed on
the New York or American Stock Exchange, or other domestic stock exchange,
or traded in the over-the-counter markets and are considered by the Adviser
to have an established market;
convertible securities (as described below);
investments in American Depository Receipts ("ADRs") of foreign
companies traded on the New York or American Stock Exchange, or other
domestic stock exchanges, or in the over-the-counter market. The Fund may
not invest more than 25% of its total assets in ADRs and not more than 5%
of its total assets in foreign securities directly (other than 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 (as described below);
for temporary defensive purposes, the Fund may invest up to 25% 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; and
warrants.
In addition, the Fund may purchase the investments and engage in the
investment techniques described below. For additional information about the
investments and investment techniques, please refer to the Statement of
Additional Information.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. The Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock when, in the opinion of the Adviser, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise the Fund may hold or trade
convertible securities. In selecting convertible securities for the Fund,
the Adviser evaluates primarily the investment potential of the underlying
equity security for capital appreciation and secondarily the investment
characteristics of the convertible security as a fixed income instrument.
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 at the time of purchase in the
top four rating categories (investment grade) by an NRSRO. 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) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to pay
principal and interest payments on such obligations than higher rated
obligations. A description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
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.
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
notes, bonds, and discount notes of other U.S. government
instrumentalities supported only bu 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.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements, which are arrangements in
which banks, broker/dealers, and other recognized financial institutions
sell U.S. government securities or other high quality, liquid securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
which may include restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its
investment objective and policies, but which are subject to restriction on
resale under federal securities laws. To the extent these securities are
deemed to be illiquid, the Fund will limit its purchases, together with
other securities not determined by the Corporation's Board of 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 exeed these
limitations by an exemptive order of the SEC or otherwise 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 would be subject to such duplicate expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis or both up to one-third of
the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Corporation's Board of 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 files for
bankruptcy or becomes 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.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities as a hedge to
attempt to protect these securities against fluctuations in value. The Fund
will write put and call options on securities either held in its portfolio
or 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 such
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.
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 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.
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, 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 futures or 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.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including futures and option contracts) that "derive" their value from
changes in the value of an underlying security, currency, commodity or
index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives."
The term has also been applied to securities "derived" from the cash flows
from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the
response of certain derivative contracts and securities to market changes
may differ from traditional investments, such as stock and bonds,
derivatives do not necessarily present greater market risks than
traditional investments. The Fund will only use derivative contracts for
the purposes disclosed in the applicable prospectus sections above. To the
extent that the Fund invests in securities that could be characterized as
derivatives, it will only do so in a manner consistent with its investment
objectives, policies and limitations.
INVESTMENT RISKS
As with other mutual funds that invest in equity securities, the Fund is
subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time, and the United
States equity market tends to be cyclical, experiencing both periods when
stock prices generally increase and periods when stock prices generally
decrease.
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, 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. Therefore,
investors should expect that the Fund will be slightly more volatile than,
and may fluctuate independently of, broad stock market indices such as the
S&P 500 Index.
With respect to the debt obligations which the Fund may purchase, their
prices move inversely to interest rates. A decline in market interest rates
results in a rise in the market prices of outstanding debt obligations.
Conversely, an increase in market interest rates results in a decline in
market prices of outstanding debt obligations. In either case, the amount
of change in market prices of debt obligations in response to changes in
market interest rates generally depends on the maturity of the debt
obligations: the debt obligations with the longest maturities will
experience the greatest market price changes.
The market value of debt obligations, and therefore the Fund's net asset
value, will fluctuate due to changes in economic conditions and other
market factors such as interest rates which are beyond the control of the
Adviser. The Adviser could be incorrect in its expectations about the
direction or extent of these market factors. Although debt obligations with
longer maturities offer potentially greater returns, they have greater
exposure to market price fluctuation. Consequently, to the extent the Fund
is significantly invested in debt obligations with longer maturities, there
is a greater possibility of fluctuation in the Fund's net asset value.
INVESTMENT LIMITATIONS
The Fund will not:
..borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings; and
..with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer other than cash, cash
items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
FUND MANAGEMENT, DISTRIBUTION AND ADMINISTRATION
BOARD OF DIRECTORS
THE FUND IS MANAGED BY A BOARD OF DIRECTORS.
The Directors are responsible for managing the business affairs for the
Fund and for exercising all the Fund's powers except those reserved for the
shareholders.
INVESTMENT ADVISER
INVESTMENT DECISIONS FOR THE FUND ARE MADE BY M&T BANK, SUBJECT TO
DIRECTION BY THE DIRECTORS.
The Adviser continually conducts investment research and supervision for
the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Corporation's Board of Directors and
could result in severe penalties.
ADVISORY FEES
For the services M&T Bank provides and the expenses it assumes as
investment adviser, M&T Bank is entitled to receive a fee from the Fund,
equal to an annual rate of .85% 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 primary 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 161 offices throughout New
York State and an office in Nassau, The Bahamas.
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.
The Fund is managed by John F. Moore. Mr. Moore joined M&T Bank in October,
1995 as Senior Vice President and Chief Investment Officer. His 18 years of
investment experience includes five years with Value Line Asset Management,
New York where he most recently was the Director of Asset Management and
Senior Portfolio Manager. Mr. Moore obtained his B.A. and M.B.A. from the
University of North Carolina.
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 Corporation's Board of 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 Shareholder Servicing Agent provides services.
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 Adviser.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. If the distributor pays any fees for these
services, the fees will be reimbursed by the Adviser and not the Fund.
ADMINISTRATION OF THE FUND
FEDERATED ADMINISTRATIVE SERVICES, A SUBSIDIARY OF FEDERATED INVESTORS,
PROVIDES THE FUND WITH CERTAIN ADMINISTRATIVE PERSONNEL AND SERVICES
NECESSARY TO OPERATE THE FUND.
ADMINISTRATIVE SERVICES
Such services include shareholder servicing and certain legal and
accounting services. Federated Administrative Services provides these
services for an annual fee as specified below:
ADMINISTRATIVE
AGGREGATE DAILY NET ASSETS OF FEE
VISION GROUP OF FUNDS,INC.
..150%
on the first $250 million
..125%
on the next $250 million
..100%
on the next $250 million
..075%
on assets in excess of $750 million
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.
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 an IRA account, in which case the minimum initial investment is $250.
Subsequent investments must be in amounts of at least $25. In addition, the
minimum initial and subsequent investment amounts may be waived or lowered
from time to time, such as for customers participating in the automatic
investment services described below.
WHAT FUND SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
DEALER
SALES CHARGE AS
SALES CHARGE
CONCESSION
A PERCENTAGE
AS A PERCENTAGE
AS A
OF PUBLIC
OF NET
OF PUBLIC AMOUNT OF OFFERING
AMOUNT
OFFERING TRANSACTION PRICE
INVESTED
PRICE
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%
The net asset value is determined at the close of regular trading on the
New York Stock Exchange, which is generally 4:00 p.m. (Eastern time),
Monday through Friday, except on:
(i) days when the value of the Fund's portfolio securities do not change
sufficiently to materially affect the net asset value;
(ii) days when no shares are tendered for redemption by shareholders and no
orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In connection with the sale of Fund shares, Federated Securities Corp. may
from time to time offer certain items of nominal value to any shareholder
or investor.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will
allow such exchanges only upon prior approval of the Fund and a
determination by the Fund and the Adviser that the securities to be
exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies
of the Fund, and must have a readily ascertainable market value.The market
value of any securities exchanged in an initial investment, plus any cash,
must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Any interest accrued or dividends declared but not paid on the securities
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the
securities become the property of the Fund, along with the securities.
If an exchange is permitted, it will be treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Fund shares, a gain or loss may be realized by the 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 not
paid to a broker/dealer will be retained by the distributor. However, the
distributor will uniformly and periodically offer to pay broker/dealers up
to 100% of the sales charge retained by it. Such payments may take the form
of cash, items of material value, or promotional incentives, such as
payment of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities. In some instances, these incentives will be
made available only to broker/dealers whose employees have sold or may sell
significant amounts of shares.
The distributor may pay fees to financial institutions out of the sales
charge in exchange for sales and/or administrative services performed on
behalf of their customers in connection with the initiation of customer
accounts and purchases of shares of the Fund.
In addition, the distributor will offer to pay broker/dealers an amount of
up to 1.00% of the net asset value of shares purchased for an account of
their client or customer in an amount of $1 million or more.
The distributor, M&T Bank or its affiliates, 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 a "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 be presented with satisfactory evidence
of the redemption. Redemptions of mutual fund shares that are subject to a
contingent deferred sales charge are not eligible to purchase Fund shares
under this method. The distributor will uniformly and periodically offer to
pay cash payments as incentives to broker/dealers whose customers or
clients purchase shares of the Fund under this "no-load" purchase
provision. This payment will be made out of the distributor's assets and
not by the Corporation, the Fund or its shareholders.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund
through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table under "What Shares Cost," larger purchases reduce the
sales charge paid. The Fund will combine purchases made on the same day by
the investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will
consider the previous purchases still invested in the Fund in calculating
the applicable sales charge rate. For example, if a shareholder already
owns shares which were purchased at the public offering price of $70,000
and then purchases $40,000 more at the current public offering price, the
sales charge of the additional purchase according to the schedule now in
effect would be the rate imposed on a $110,000 investment, not the rate
imposed on a $40,000 investment.
To receive the sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the shareholder in writing at the time
the purchase is made that Fund shares are already owned or that purchases
are being combined. The Fund will reduce the sales charge after it confirms
the purchase.
LETTER OF INTENT
If a shareholder intends to purchase shares of the Fund equal in value to
at least $50,000 over the next 13 months, the sales charge may be reduced
by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the
Custodian to hold 5.50% of the total amount intended to be purchased in
escrow (in shares of the Fund) until such purchase is completed.
The 5.50% held in escrow will be applied to the shareholder's account at
the end of the 13-month period, unless the amount specified in the letter
of intent is not purchased. In this event, an appropriate number of
escrowed shares may be redeemed in order to realize the difference in the
sales charge. This letter of intent will not obligate the shareholder to
purchase shares, but if the shareholder does, each purchase during the
period will be at the sales charge applicable to the total amount intended
to be purchased. This letter may be dated as of a prior date to include any
purchases made within the past 90 days; however, these previous purchases
will not receive the reduced sales charge.
REINVESTMENT PRIVILEGE
If shares in the Fund have been redeemed, the shareholder has a one-time
right to reinvest, within 90 days, the redemption proceeds in the Fund at
the next-determined net asset value without any sales charge. M&T Bank's
Mutual Fund Services or the distributor must be notified by the shareholder
in writing or by the shareholder's financial institution of the
reinvestment in order to eliminate the sales charge. If the shareholder
redeems his or her shares in the Fund, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Vision Group of Funds, Inc., the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $70,000 in one
of the funds with a sales charge, and $40,000 in another fund with a sales
charge, the sales charge imposed on each purchase would be reduced to the
sales charge rate in effect for a $110,000 investment in the respective
fund.
To receive this sales charge reduction, M&T Bank's Mutual Fund Services or
the distributor must be notified by the agent placing the order at the time
the concurrent purchases are made. The sales charge will be reduced after
the purchase is confirmed.
HOW TO BUY SHARES
YOU CAN BUY SHARES OF THE FUND ON ANY BUSINESS DAY, EXCEPT ON DAYS WHICH
THE NEW YORK STOCK EXCHANGE OR M&T BANK IS CLOSED OR ON HOLIDAYS WHEN WIRE
TRANSFERS ARE RESTRICTED (COLUMBUS DAY, VETERANS' DAY AND MARTIN LUTHER
KING DAY).
Shares may be purchased either by wire, mail or transfer. The Fund reserves
the right to reject any purchase request.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573.
THROUGH THE BANK You may purchase shares through M&T Bank. To do so,
contact an account representative at M&T Bank or those affiliates of M&T
Bank which make shares available 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 Capital Appreciation Fund" in an amount of $500 (or $250 for IRA
accounts) or more, to the address below:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Current shareholders can purchase shares by mail by sending a check to the
same address. Orders by mail are considered received after payment by check
has been converted into federal funds. This is normally the next business
day after the check has been received.
BUYING SHARES BY TRANSFER
To purchase shares of the Fund by transferring money from a bank account,
you must maintain a checking or NOW deposit account at M&T Bank or any of
its affiliate banks. To place an order, call M&T Bank's Mutual Fund
Services or any representative of M&T Securities before 4:00 p.m. (Eastern
time). The money will be transferred from your checking or NOW deposit
account to your Fund account by the next business day and your purchase of
shares will be effected on the day the order is placed.
CUSTOMER AGREEMENTS
Shareholders normally purchase shares through different types of customer
accounts at M&T Bank and its affiliates. You should read this prospectus
together with any agreements between you and the institution to learn about
the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once you have opened a Fund account, you can add to your investment on a
regular basis in amounts of $25 or more through automatic deductions from
your checking or NOW deposit account. The money may be withdrawn
periodically and invested in Fund shares at the net asset value next
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 IRA accounts. For
further details, contact the Fund and consult a tax adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. The Fund will not issue
certificates for your shares unless you make a written request to the Fund.
Federated Shareholder Services Company is a subsidiary of Federated
Investors.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Confirmations are sent to shareholders of the Fund to report
dividends paid during the quarter.
HOW TO EXCHANGE SHARES
ALL SHAREHOLDERS IN ANY OF THE FUNDS ARE SHAREHOLDERS OF VISION GROUP OF
FUNDS, INC. AND HAVE ACCESS TO THE OTHER FUNDS OF THE CORPORATION (REFERRED
TO AS "PAR- TICIPATING FUNDS") THROUGH AN EXCHANGE PROGRAM. YOU MAY
EXCHANGE SHARES OF THE FUND FOR SHARES OF OTHER PARTICIPATING FUNDS AT NET
ASSET VALUE, PLUS ANY APPLICABLE SALES CHARGE.
When exchanging into and out of Participating Funds with a sales charge
and Participating Funds without a sales charge, shareholders who have paid
a sales charge once upon purchasing shares of any Participating Fund,
including those shares acquired by the reinvestment of dividends, will not
have to pay a sales charge again on an exchange. 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. However, shares
of Participating Funds with no sales charge that were acquired by the
reinvestment of dividends will not be subject to a sales charge upon an
exchange into shares of a Participating Fund with a sales charge. Instead,
such exchanges will be made at net asset value.
To be eligible for this exchange privilege, you must exchange shares with a
net asset value of at least the minimum initial investment required by the
Participating Fund into which you are exchanging if it is a new account.
You may exchange your shares only for shares of Participating Funds that
may legally be sold in your state of residence. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the
Participating Fund into which an exchange is to be made.
Once the transfer agent has received proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next net asset value calculated. If you do not have an account in the
Participating Fund whose shares you want to acquire, you must establish a
new account. Unless you specify otherwise, this account will be registered
in the same name and have the same dividend and capital gains payment
options as you selected with your existing account. If the new account
registration (name, address, and taxpayer identification number) is not
identical to your existing account, you must provide a signature guarantee
to verify your signature. Please see the "Signature Guarantees" section
later in this prospectus for more information about signature guarantees.
Each exchange is considered a sale of shares of one fund and a purchase of
shares of another fund, and depending on the circumstances, may generate a
short or long-term capital gain or loss for federal income tax purposes.
The Fund reserves the right to modify or terminate the exchange privilege
at any time. Shareholders will be notified prior to any modification or
termination.
To find out more about the exchange privilege, call M&T Bank's Mutual Fund
Services at the number listed below.
EXCHANGING SHARES BY TELEPHONE
You may exchange shares between Participating Funds by calling M&T Bank's
Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone 842-
4488). To sign up for telephone exchanges, you must select the telephone
exchange option on the new account application. It is recommended that you
request this privilege on your initial application. If you do not and later
wish to take advantage of telephone exchanges, you may call M&T Bank's
Mutual Fund Services for authorization forms.
You can only exchange shares by telephone between fund accounts with
identical shareholder registrations (names, addresses, and taxpayer
identification numbers).
Telephone exchange instructions must be received by M&T Bank's Mutual Fund
Services by 4:00 p.m. (Eastern time) and transmitted to Federated
Shareholder Services Company before 4:00 p.m. (Eastern time) for shares to
be exchanged that same day. You will not receive a dividend from the fund
into which you are exchanging on the date of the exchange.
You may have difficulty making exchanges by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written exchange request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
If you have certificates for the shares you want to exchange, you cannot
make a telephone exchange. Instead, the certificates must be properly
endorsed and should be sent by registered or certified mail, along with
your written exchange request, to the Vision Group of Funds, Inc. at the
address shown below. M&T Bank's Mutual Fund Services will then forward the
certificate to the transfer agent, Federated Shareholder Services Company,
and the shares will be deposited into your account before the exchange is
made.
Shareholders requesting the telephone exchange service authorize the
Corporation and its agents to act upon their telephonic instructions to
exchange shares from any account for which they have authorized such
services. Exchange instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
EXCHANGING SHARES BY MAIL
You may exchange shares by mail by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
HOW TO REDEEM SHARES
THE FUND REDEEMS YOUR SHARES AT THE NET ASSET VALUE PER SHARE NEXT
CALCULATED AFTER THE FUND RECEIVES YOUR REDEMPTION REQUEST. WHEN FUND
SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
You may redeem shares only on days when the Fund computes its net asset
value. You cannot redeem shares on days when the New York Stock Exchange or
M&T Bank are closed, or on holidays when wire transfers are restricted
(Columbus Day, Veterans' Day, and Martin Luther King Day). While you may
redeem various amounts by telephone or written request, you can close your
account only by written request.
TELEPHONE REDEMPTIONS
You may redeem your shares by calling M&T Bank's Mutual Fund Services at
(800) 836-2211 (in the Buffalo area, phone 842-4488) before 4:00 p.m.
(Eastern time). The proceeds will be wired the next business day directly
to your account at M&T Bank or an affiliate or to another account you
previously designated at a domestic commercial bank that is a member of the
Federal Reserve System. M&T Bank reserves the right to charge a fee for a
wire transfer from a customer checking account, which may contain
redemption proceeds, to another commercial bank.
You will be automatically eligible for telephone redemptions, unless you
check the box on the new account application form to decline this
privilege. It is recommended that you provide the necessary information for
the telephone/ wire redemption option on your initial application. If you
do not do this and later wish to take advantage of telephone redemptions,
you must call M&T Bank's Mutual Fund Services for authorization forms.
You may have difficulty redeeming shares by telephone in times of unusual
economic or market changes when the volume of telephone requests may be
exceptionally high. If you cannot contact M&T Bank's Mutual Fund Services
by telephone, please send a written redemption request by mail for next day
delivery to the Vision Group of Funds, Inc. at the address shown below.
The Fund reserves the right to modify or terminate the telephone redemption
privilege at any time. Shareholders will be notified prior to any
modification or termination.
If you hold shares in certificate form or hold Fund shares through an IRA
account, you cannot redeem those shares by phone, but instead must redeem
them in writing as explained below.
Shareholders who accept the telephone redemption service authorize the
Corporation and its agents to act upon their telephonic instructions to
redeem shares from any account for which they have authorized such
services. Redemption instructions given by telephone may be electronically
recorded for your protection. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING SHARES BY MAIL
You may redeem shares by sending your written request to:
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
Please call M&T Bank's Mutual Fund Services for specific instructions
before redeeming by letter. Your written request must include your name,
the Fund's name, your account number, and the share or dollar amount you
want to redeem. If share certificates have been issued to you, those
certificates must be properly endorsed and should be sent by registered or
certified mail along with your redemption request.
SIGNATURE GUARANTEES
A signature guarantee verifies the authenticity of your signature. For your
protection, you must have your signature guaranteed on written redemption
requests in the following instances:
if you are redeeming shares worth $50,000 or more;
if you want a redemption of any amount sent to an address other than
your address on record with the Fund;
if you want a redemption of any amount payable to someone other than
yourself as the shareholder of record; or
if you want to transfer the registration of the Fund shares.
The signature guarantee must be provided by:
a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
.. a savings bank or savings associations whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which also is administered
by the FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request, provided the Fund or its agents have received payment
for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
If you own Fund shares worth $10,000 or more, you can have regular payments
of $50 or more sent from your Fund account to you, another person you
designate or your checking or NOW deposit account. Fund shares are redeemed
to provide periodic payments in the amount you specify.
Depending on the amount you are withdrawing, the amount of dividends or any
capital gains distributions paid on the Fund shares, and any possible
fluctuations in the Fund's net asset value per share, these redemptions may
reduce and eventually exhaust your investment in the Fund. For this reason,
you should not consider systematic withdrawal payments as yield or income
received from your investment in the Fund. Due to the fact that shares are
sold subject to sales charge, it may not be advisable for shareholders to
be purchasing shares while participating in this program.
For more information and an application form for the Systematic Withdrawal
Program, call M&T Bank's Mutual Fund Services.
INVOLUNTARY REDEMPTIONS
Because of the high cost of maintaining accounts with low balances, the
Fund may redeem your shares and send you the proceeds if your account
balance falls below a minimum value of $250 due to shareholder redemptions.
Shareholders who make large or frequent withdrawals may be particularly
vulnerable to this involuntary redemption process. However, before shares
are redeemed to close an account, the shareholder will be notified in
writing and given 30 days to purchase additional shares to meet the minimum
balance requirement.
Further, the Fund reserves the right to redeem shares involuntarily or make
payment for redemptions in the form of securities if it appears appropriate
to do so in light of the Fund's responsibilities under the Investment
Company Act of 1940.
TAX INFORMATION
BELOW IS A GENERAL DISCUSSION OF TAX CONSIDERATIONS FOR THE FUND. NO
ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF THE INCOME TAX
TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
The tax consequences discussed here apply whether you receive dividends in
cash or reinvest them in additional shares. The Fund will send you tax
information annually regarding the federal income tax consequences of
distributions made during the year. You should definitely consult your own
tax adviser about any state or local taxes that may apply.
The Fund will be treated as a separate entity for federal income tax
purposes. Income earned by the Fund, including any capital gains or losses
realized, is not combined with income earned on the Corporation's other
portfolios.
The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code so that it is not required to pay federal
income taxes on the income and capital gains distributed to shareholders.
FEDERAL INCOME TAXES
Unless shareholders of the Fund are otherwise exempt from taxes, they are
required to pay federal income taxes on dividends and other distributions
received (including capital gains distributions, if any) from the Fund.
DESCRIPTION OF FUND SHARES
Vision Group of Funds, Inc. was organized as a Maryland corporation on
February 23, 1988, and consists of seven available portfolios: Vision Money
Market Fund, Vision Treasury Money Market Fund, Vision New York Tax-Free
Money Market Fund, Vision U.S. Government Securities Fund, Vision Growth
and Income Fund, Vision Capital Appreciation Fund, and Vision New York Tax-
Free Fund. The Corporation's Articles of Incorporation permit the
Corporation to offer separate series of shares in these funds or other
future portfolios.
Each Fund share represents an equal proportionate interest in the Fund with
other shares and participates equally in the dividends and any other
distributions that are declared at the discretion of the 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 Corporation's
Board of Directors determines that the matter to be voted upon affects only
the interests of shareholders of a particular class. (See the "Description
of Fund Shares" in the Statement of Additional Information for examples of
when the Investment Company Act of 1940 requires that shareholders vote by
class.) As of April 18, 1997, Reho & Co., Buffalo, New York, acting in
various capacities for numerous accounts, was the owner of record of 61.26%
of the voting securities of the Fund, and, therefore, may for certain
purposes be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
The Fund is not required to hold annual shareholder meetings, unless
matters arise that require a vote of the shareholders under the Investment
Company Act of 1940. That law requires a vote of the shareholders to
approve changes in the Fund's investment advisory agreement, to replace the
Fund's independent certified public accountants and, under certain
circumstances, to elect members to the Board of Directors. Directors may be
removed by the Board of Directors or by a vote of shareholders at a special
meeting. The Board of Directors will promptly call a special meeting of
shareholders upon the written request of shareholders owning at least 10%
of any Fund's outstanding shares.
As used in this prospectus, "assets belonging to the Fund" means the money
received by the Corporation upon the issuance or sale of shares in the
Fund, together with all income, earnings, profits, and proceeds derived
from the investment of that money. This includes any proceeds from the
sale, exchange, or liquidation of these investments, any funds or payments
derived from the reinvestment of these proceeds, and a portion of the
general assets of the Corporation that do not otherwise belong to the Fund.
Assets belonging to the Fund are charged with the direct expenses and
liabilities of the Fund and with a share of the general expenses and
liabilities of the Corporation. The general expenses and liabilities of the
Corporation are allocated in proportion to the relative asset values of all
the Corporation's portfolios at the time the expense or liability is
incurred.
The management of the Corporation determines the Fund's direct and
allocable liabilities at the time the expense or liability is incurred as
well as the Fund's allocable share of any general assets at the time the
asset is acquired. These determinations are reviewed and approved annually
by the Corporation's Board of Directors and are conclusive.
HOW THE FUND SHOWS PERFORMANCE
From time to time, 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.
ADDRESSES
Vision Group of Funds, Inc.
P.O. Box 4556
Buffalo, New York 14240-4556
(800) 836-2211 (716) 842-4488
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02103
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Vision Capital Appreciation Fund
Prospectus dated June 30, 1997
92830F703
G01627-01 (6/97)
TRG01627-01 (6/97)
VISION CAPITAL APPRECIATION FUND
(A PORTFOLIO OF VISION GROUP OF FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the prospectus
of one portfolio of the Vision Group of Funds, Inc., referred to as the
Vision Capital Appreciation Fund (the ``Fund') dated June 30, 1997.
This Statement of Additional Information is not a prospectus itself,
but should be read in conjunction with the Fund's current prospectus
dated June 30, 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 future reference.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement of Additional Information dated June 30, 1997
MANUFACTURERS AND TRADERS
TRUST COMPANY
Investment Adviser
A subsidiary of First Empire State Corporation
Federated Securities Corp. is distributor of the Fund.
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE 1
INVESTMENT POLICIES 1
ACCEPTABLE INVESTMENTS 1
Corporate Debt Obligations 1
U.S. Government Securities 1
Money Market Instruments 2
Securities of Foreign Issuers 2
Repurchase Agreements 2
When-Issued and Delayed Delivery Transactions 2
Illiquid and Restricted Securities 3
Lending of Portfolio Securities 3
Reverse Repurchase Agreements 3
Futures and Options Transactions 3
Short Sales 7
Warrants 7
Portfolio Turnover 7
INVESTMENT LIMITATIONS 7
VISION GROUP OF FUNDS, INC. MANAGEMENT 9
Fund Ownership 11
Directors' Compensation 11
Director Liability 11
INVESTMENT ADVISORY SERVICES 12
Adviser to the Fund 12
Advisory Fees 12
OTHER SERVICES 12
Administrative Services 12
Custodian and Portfolio Accountant 12
Transfer Agent and Dividend Disbursing Agent 12
Independent Auditors 12
BROKERAGE TRANSACTIONS 12
DESCRIPTION OF FUND SHARES 13
HOW TO BUY SHARES 14
HOW THE FUND VALUES ITS SHARES 14
HOW TO REDEEM SHARES 14
Redemption in Kind 14
DETERMINING NET ASSET VALUE 14
BANKING LAWS 15
TAX STATUS 15
The Fund's Tax Status 15
Shareholders' Tax Status 15
TOTAL RETURN 15
YIELD 16
PERFORMANCE COMPARISONS 16
Economic and Market Information 17
APPENDIX 18
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 Fund (the `Fund'') is to provide
long-term capital appreciation. The investment objective of the Fund cannot
be changed without approval of its shareholders.
INVESTMENT POLICIES
The prospectus discusses the Fund's investment policies. Supplemental
information is set out below concerning the types of securities and other
instruments in which the Fund may invest, the investment policies and
strategies that the Fund may utilize, and certain risks attendant to those
investments, policies and strategies.
ACCEPTABLE INVESTMENTS
CORPORATE DEBT OBLIGATIONS
The Fund may invest in corporate debt obligations. Corporate debt
obligations may bear fixed, fixed and contingent, or variable rates of
interest. They may involve equity features such as conversion or exchange
rights, warrants for the acquisition of common stock of the same or a
different issuer, participations based on revenues, sales, or profits, or
the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt obligations, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate under
such terms, conditions, and limitations as are described in each issuer's
prospectus.
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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oThe Student Loan Marketing Association;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation; and
oFederal National Mortgage Association.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
oinstruments of domestic and foreign banks and savings and loans if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
federally insured;
ocommercial paper rated, at the time of purchase, not less than A-1
by Standard & Poor's Ratings Group (``S&P''), Prime-1 by Moody's
Investors Services, Inc. (``Moody's''), or F-1 by Fitch Investors
Service, Inc. (``Fitch''), or if not rated are determined to be of
comparable quality by the Fund's Adviser (see Appendix for a
description of the basis of those ratings);
otime and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund (``BIF''), or institutions whose accounts are insured
by the Savings Association Insurance Fund (``SAIF''), including
certificates of deposit issued by, and other time deposits in,
foreign branches of BIF-insured banks which, if negotiable, mature
in six months or less or if not negotiable, either mature in ninety
days or less, or are withdrawable upon notice not exceeding ninety
days; and
obankers' acceptances.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in securities of foreign issuers. Securities of foreign
issuers may include debt obligations of supranational entities, which
include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and
international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank
for Reconstruction and Development (World Bank), European Investment Bank
and InterAmerican Development Bank.
Securities of a foreign issuer may present greater risks than investments
in U.S. securities, including higher transaction costs as well as the
imposition of additional taxes by foreign government. 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 adopt 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 the Adviser 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 the
Adviser 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, the Adviser 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 agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the 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
the Adviser, as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the 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 portfolio by
buying and selling futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase current income.
The Fund will maintain its position in securities, options and segregated
cash subject to puts and calls until the options are exercised, closed, or
have expired. An option position of futures transactions may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. The Fund currently does
not intend to invest more than 5% of its total assets in options
transactions.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates and market conditions
without necessarily buying or selling the securities. The Fund also
may purchase and sell stock index futures to hedge against changes in
prices. The Fund will not engage in futures transactions for
speculative purposes. A futures contract is a firm commitment by two
parties: the seller who agrees to make delivery of the specific type
of security called for in the contract (`going short'') and the buyer
who agrees to take delivery of the security (`going long'') at a
certain time in the future.
For example, in the fixed income securities market, prices move
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates means a rise in price. In order to hedge
its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., `go short'') to protect
itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period.
The Fund would `go long'' (i.e., agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the issuers included in the indices.
An index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to
the differences between the value of the index at the close of the
last trading day of the contract and the price at which the index
contract was originally written.
``MARGIN''IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Fund is also
required to deposit and maintain margin when it writes call options on
futures contracts.
The Fund will comply with the following restrictions when
purchasing and selling futures contracts. 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 CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options on securities either held
in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash in the
amount of any additional consideration. As the writer of a call
option, the Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of
the exercise price. Covered call options generally do not present
investment risks different from those associated with a security
purchase. For example, a security may be sold before it reaches its
maximum potential value, or it may be retained even though its current
market price has dropped below its purchase price. Similarly, a
covered call option presents these risks. For example, when the option
purchaser acquires the security at the predetermined exercise price,
the Fund could be giving up any capital appreciation above the
exercise price that is not offset by the option premium paid by the
option purchaser to the Fund. Conversely, if the underlying security
decreases in price and the option purchaser decides not to carry out
the transaction, the Fund keeps the premium and the Fund can sell the
security or hold onto it for future price appreciation. The Fund may
only sell call options either on securities held in its portfolio or
on securities which it has the right to obtain without payment of
further consideration or for which it has segregated cash in the
amount of any additional consideration. Writing of call options by the
Fund is intended to generate income for the Fund and thereby protect
against price movements in particular securities in the Fund's
portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyer or writers of the
options for those options on portfolio securities held by the Funds
and not traded on an exchange.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stock
included in the index.
The effectiveness of purchasing stock index options will depend upon
the extent to which price movements in the Fund's portfolio correlate
with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of options on an index
depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock
indices will be subject to the ability of the Adviser 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, the Adviser 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 the Adviser
will consider liquidity before entering into these transactions, there
is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at
any particular time. 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
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. 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.
SHORT SALES
The Fund may sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a security which the Fund does not
own is sold in anticipation of a decline in its price. If the decline
occurs, shares equal in number to those sold short can be purchased at the
lower price. If the price increases, the higher price must be paid. The
purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When the Fund
enters into a short sale, assets that are equal to the market price of the
securities sold short or any lesser price at which the Fund can obtain such
securities, are segregated on the Fund's records and maintained until the
Fund meets its obligations under the short sale.
The Fund will not sell securities short unless (1) it owns, or has a right
to acquire, an equal amount of such securities, or (2) it has segregated an
amount of its other liquid assets equal to the lesser of the market value
of the securities sold short or the amount required to acquire such
securities. While in a short position, the Fund will retain the securities,
rights, or segregated assets.
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. The Adviser does not anticipate that
the Fund's annual portfolio rate will exceed 100% under normal market
conditions. Securities in its portfolio will be sold whenever he Adviser
believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may
have been held. For the period from July 3, 1996 (date of initial public
investment) to April 30, 1997, the portfolio turnover rate of the Fund was
%.
- ---
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund may sell securities short, but will not purchase any
securities on margin, other than in connection with buying futures
contracts and put options, and writing covered call options, but may
obtain such short-term credits as are necessary for clearance of
purchases and sales of securities.
The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
The Fund may purchase and dispose of U.S. government securities before
they are issued and may also purchase and dispose of them on a delayed
delivery basis.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, the Fund may mortgage,
pledge, or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of the borrowing. For purposes of this limitation,
the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options and
segregation or collateral arrangements made in connection with
options, futures, options on futures, reverse repurchase agreements,
lending of portfolio securities, or the purchase of securities on a
when-issued basis.
UNDERWRITING
The Fund will not underwrite any issue of securities except as they
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests although it may invest in securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities,
the market value of which does not exceed one-third of the value of
the Fund's total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and
limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except that the Fund may purchase and
sell futures contracts and related options.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry, except that the Fund may invest 25% or more of
the value of its total assets in cash or cash items (including
instruments issued by a U.S. branch of a domestic bank or savings and
loan association and bankers' acceptances), securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
and repurchase agreements collateralized by such securities.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of its total assets would be invested
in the securities of that issuer. 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.''
VISION GROUP OF FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, 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 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.
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:
Secretary
Corporate Counsel and Vice President, Federated Administrative Services;
formerly Attorney, Morrison & Foerster (law firm).
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of April 18, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Tice & Co., Buffalo, New York,
owned approximately 585,868 shares (18.61%) and Reho & Co., Buffalo, New
York, owned approximately 1,764,258 shares (61.26%).
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 seven portfolios.
DIRECTOR LIABILITY
With respect to the removal of a Director of the Corporation, the
Corporation's By-Laws provide, in accordance with applicable law, that a
Director may be removed from the Board at a meeting of shareholders called
for that purpose upon the majority vote of the shareholders of the
Corporation entitled to vote at such meeting. Such a meeting shall be
called by the President or the Board of Directors or at the request in
writing of shareholders entitled to cast at least ten percent (10%) of the
votes entitled to be cast at such meeting. Such shareholders' request shall
state the purpose of the proposed meeting, and the Corporation shall inform
those shareholders of the reasonably estimated cost of preparing and
mailing a notice of the meeting to the other shareholders and, on payment
of these costs, shall notify each shareholder entitled to notice of the
meeting.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
Investment advisory services are provided to the Fund by Manufacturers and
Traders Trust Company (`M&T Bank''). The advisory services provided and
the expenses assumed by M&T Bank, as well as the advisory fees payable to
it, are described in the 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.
For the period from July 3, 1996 (date of initial public investment) to
April 30, 1997, M&T Bank earned advisory fees of $ .
-------
OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee set
forth in the prospectus. For the period from July 3, 1996 (date of initial
public investment) to April 30, 1997, the Fund incurred $ in
--------
administrative services.
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
Pursuant to the Fund's Advisory Contract, 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,
the Fund may not necessarily pay the lowest spread or commission available
on each transaction for reasons discussed below.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Directors. The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the Adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The Adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, 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 the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
For the period from July 3, 1996 (date of initial public investment) to
April 30, 1997, the Fund paid brokerage commissions in the amount of
$ .
---------
DESCRIPTION OF FUND SHARES
The Corporation's Articles of Incorporation authorize the Board of
Directors to issue up to ten billion full and fractional shares of Common
Stock, of which seven billion shares have been classified into seven
classes of one billion shares each. Three billion shares remain
unclassified at this time. Shares of Classes A, B, C, D, E, F and G Common
Stock represent interests in Vision Money Market Fund, Vision Treasury
Money Market Fund, Vision New York Tax-Free Money Market Fund, Vision U.S.
Government Securities Fund, Vision New York Tax-Free Fund, Vision Growth
and Income Fund, and Vision Capital Appreciation Fund, respectively.
The Board of Directors may classify or reclassify any unissued shares of
the Corporation into one or more additional classes by setting or changing
in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such conversion
or exchange rights as the Board may grant in its discretion. When issued
for payment as described in the Fund's prospectus and this Statement of
Additional Information, the Fund's shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the
Corporation, shares of the Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative asset values of that Fund and the
Corporation's other portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Corporation shall not be
deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each portfolio affected by the
matter. A portfolio is not affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical, or that the matter
does not affect any interest of the portfolio. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, Rule 18f-2 provides that the ratification of
independent certified public accountants, the approval of principal
underwriting contracts and the election of Directors may be effectively
acted upon by shareholders of the Corporation voting without regard to
class.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Corporation shares (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example,
by Rule 18f-2) or by the Corporation's Articles of Incorporation, the
Corporation may take or authorize such action upon the favorable vote of
the holders of more than 50% of the outstanding common stock of the Fund
and the Corporation's other portfolios (voting together without regard to
class).
HOW TO BUY SHARES
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the New York Stock Exchange, M&T Bank, and the
Federal Reserve Wire System are open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under `How to
Buy Shares.''
HOW THE FUND VALUES ITS SHARES
The market value of the Fund's portfolio securities are determined as
follows:
ofor equity securities, according to the last sales price on a
national securities exchange, if applicable;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
ofor bond and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor 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 net asset value next calculated 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 a company as agent for and upon the order of
their customers.
Some entities providing services to the Fund are subject to such banking
laws and regulations. They believe that they may perform those services for
the Fund contemplated by any agreement entered into with the Fund without
violating those laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes
and regulations, could prevent these entities from continuing to perform
all or a part of the above services. If this happens, the 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, a Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends
received deduction to the Fund if the Fund were a regular corporation, and
to the extent designated by the Fund as so qualifying. Otherwise, these
dividends, and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If the
Fund realizes net long-term capital gains, it will distribute them at least
once every 12 months.
TOTAL RETURN
The Fund's cumulative total return for the period from July 3, 1996
(date of initial public investment) to April 30, 1997, was %.
----
Cumulative total return reflects the Fund's total performance over a
specific period of time. This total return assumes and is reduced by the
payment of the maximum sales charge. The Fund's total return is
representative of only ten months of investment activity since the Fund's
effective date.
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, less
any applicable sales load, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and
distributions. Any applicable redemption fee is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of shares redeemed.
YIELD
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of shares of the Fund depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in a Fund's expenses; and
ovarious 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:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Fund will quote its Lipper rankings in the growth and mid-
cap categories in advertising and sales literature.
oDOW 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.
oSTANDARD & 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.
oRUSSELL 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.
oRUSSELL 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.
oWILSHIRE 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.
oCONSUMER PRICE INDEX is generally considered to be a measure of
inflation.
oNEW 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.
oVALUE 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.
oNASDAQ 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.
oAMEX 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.
oMORNINGSTAR, 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 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 the Fund's portfolio manager 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 the more than 6,000 mutual funds available.
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.
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 92830F703
G01627-02 (6/97)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Portfolios 1-7) (To be filed by
Amendment)
(b)
Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant (11);
(i) Conformed Copy of Articles Supplementary (8);
(ii) Conformed copy of Articles Supplementary dated May 29,
1996 (15);
(2) Copy of By-Laws of the Registrant (11);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital Stock of
the Registrant (8);
(i) Copy of Specimen Certificate for Shares of Capital
Stock of the Vision Capital Appreciation Fund (15);
(5) (i) Conformed Copy of Investment Advisory Contract of the
Registrant (9);
(ii) Conformed Copy of Sub-Advisory Contract (10);
(iii) Conformed Copy of Exhibit B to Investment
Advisory Contract;(14)
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant (9);
(a) Conformed copy of Distribution Plan of the
Registrant (9);
(ii) Conformed Copy of Administrative Services Agreement of
the Registrant (9);
(iii)................Conformed Copy of Shareholder Services
Plan of Registrant (9);
(iv) Conformed Copy of Exhibit C to Distributor's
Contract;(14)
(v) Copy of Amendment No. 1 to Exhibit A to Shareholder
Services Agreement;(14)
(vi) Conformed Copy of Amended and Restated Shareholder
Services Agreement (13);
(vii)................Copy of Amendment No. 1 to Exhibit A
to Shareholder Services Agreement;(14)
(7) Not applicable;
+ All Exhibits have been filed electronically.
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed September 3, l993. (File Nos. 33-
20673 and 811-5514)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed December 27, 1993 (File Nos. 33-
20673 and 811-5514)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed March 31, 1994 (File Nos. 33-20673
and 811-5514)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed June 27, 1994. (File Nos. 33-
20673 and 811-5514)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed May 3, 1996. (File Nos. 33-20673
and 811-5514)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed June 27, 1996. (File Nos. 33-
20673 and 811-5514)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed December 20, 1996. (File Nos. 33-
20673 and 811-5514)
(8) Conformed Copy of Custodian Agreement of the Registrant
(12);
(i) Copy of Amendment No. 2 to Exhibit A to
Custodian Contract;(14)
(9) Conformed Copy of Assignment of Transfer Agency and Service
Agreement of the Registrant (11);
(i)
Copy of Amendment No. 2 to Exhibit A to
Transfer Agency and Service Agreement;(14)
(ii)
Conformed Copy of Exhibit B to the Transfer
Agency and Service Agreement; +
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered (11);
(11) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (11);
(14) Not applicable;
(15) (i) Copy of Rule 12b-1 Plan (7);
(a) Conformed Copy of Exhibit B to Rule
12b-1 Plan; (14)
(ii) Copy of Rule 12b-1 Agreement (7);
(a) Copy of Exhibit B to Rule
..........
12b-1 Agreement; (14)
(iii) Copy of Dealer (Sales) Agreement (7);
(16) Copy of Schedule for Computation of Fund Performance Data
(12);
(i)
Copy of Schedule for Computation of Fund Performance Date
for the Vision Capital Appreciation Fund (15);
(17) Financial Data Schedules (14);
(18)
Not Applicable
(19)
Conformed Copy of Power of Attorney (14);
Item 25. Persons Controlled by or Under Common Control with Registrant
None
+ All Exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed June 17, 1993. (File Nos. 33-20673
and 811-5514)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed June 27, 1994. (File Nos. 33-
20673 and 811-5514)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed June 26, 1995. (File Nos. 33-20673
and 811-5514)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed June 27, 1996. (File Nos. 33-
20673 and 811-5514)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed December 20, 1996. (File Nos. 33-
20673 and 811-5514)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 18, 1997
Shares of capital stock
($0.001 per Share par value)
Vision Money Market Fund
10,637
Vision New York Tax-Free Money Market Fund
493
Vision Treasury Money Market Fund
740
Vision U.S. Government Securities Fund
1,097
Vision New York Tax-Free Fund
1,505
Vision Growth and Income Fund
5,729
Vision Capital Appreciation Fund
1,834
Item 27. Indemnification: (7)
Item 28. Business and Other Connections of Investment Adviser:
(a) Manufacturers & Traders Trust Company (`M&T Bank'') performs
investment advisory services for the Registrant. M&T Bank is the
principal banking subsidiary of First Empire State Corporation, a
$12 billion bank holding company, as of December 31, 1995,
headquartered in Buffalo, New York. As of December 3l, l995, M&T
Bank (consolidated) had $10.2 billion in assets, and has 121
offices throughout Western New York State and New York's southern
tier, 22 offices in the Hudson Valley region of New York State,
plus offices in New York City, Albany, Syracuse, and Nassau, the
Bahamas.
M&T Bank was founded in 1856 and provides comprehensive banking
and financial services to individuals, governmental entities and
businesses throughout western New York. Registrant's investments
are managed through the Trust and Investment Services Division of
M&T Bank. As of December 31, 1996, M&T Bank had $1.8 billion in
assets under management for which it has investment discretion
(which includes employee benefits, personal trusts, estates,
agencies and other accounts). As of December 3l, 1995, M&T Bank
managed over $885 million in VISION money market mutual fund
assets. Except for Vision Group of Funds, Inc., M&T Bank does
not presently provide investment advisory services to any other
registered investment companies. The Funds' investments are
managed through the Trust & Investment Services Division of M&T
Bank.
The principal executive Officers and Directors of M&T Bank are
set forth in the following tables. Unless otherwise noted, the
position listed under Other Substantial Business, Profession,
Vocation or Employment is with M&T Bank.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed June 17, 1993. (File Nos. 33-20673
and 811-5514)
(b)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Brent D. Baird Director Private Investor
1350 One M&T Plaza
Buffalo, NY 14203-2396
C. Angela Bontempo Director Senior V.P. & Exec. Dir.
Elm & Carlton Streets Roswell Park Cancer
Buffalo, NY 14263-0001 Institute
Robert T. Brady Director Chairman, President and
East Aurora, NY 14052-0018 C.E.O. Moog, Inc.
William A. Buckingham Executive Officer Executive Vice President
One M&T Plaza First Empire State
19th Floor Corporation and
Buffalo, NY 14203-2399 Manufacturers and
Traders Trust Company
Atwood Collins, III Executive Officer President and CEO
350 Park Avenue The East New York
6th Floor Savings Bank and
New York, NY 10022-6022 Executive Vice
President M&T Bank
Barber B. Conable, Jr. Director Former Member of
P.O. Box 218 Congress; Retired
Alexander, NY 14005-0218 President
The World Bank
Richard E. Garman Director President and Chief
2544 Clinton Street Executive Officer
Buffalo, NY 14224-1092 A.B.C. Paving Co., Inc.
and Buffalo Crushed
Stone, Inc.
James V. Glynn Director President
151 Buffalo Avenue Maid of the Mist
Suite 204 Corporation
Niagara Falls, NY 14303-1288
Brian E. Hickey Executive Officer Executive Vice President
44 Exchange Street and President-Rochester
3rd Floor Division-Manufacturers
Rochester, NY 14614-2097 and Traders Trust
Company
Patrick W.E. Hodgson Director President Cinnamon
248 Pall Mall Street Investments Limited
Suite 400
London, Ontario
CANADA N6A5P6
James L. Hoffman Executive Officer Executive Vice President
700 Corporate Blvd. and President-Hudson Suite 701
Valley Division-
Newburgh, NY 12552-6046 Manufacturers and
Traders Trust Company
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Samual T. Hubbard, Jr. Director President & CEO
1059 West Ridge Road The Alling and Cory
Rochester, NY 14615-2731 Company
Robert J. Irwin Advisory Director Chairman and CEO
Ellicott Station ASA Limited
P.O. Box 1210
Buffalo, NY 14205-1210
Wilfred J. Larson Director Retired President and
88 Oakland Place Chief Executive Officer
Buffalo, NY 14222-2030 Westwood-Squibb
Pharmaceuticals Inc.
Barbara L. Laughlin Executive Officer Executive Vice President
One M&T Plaza First Empire State
13th Floor Corporation and
Buffalo, NY 14203-2399 Manufacturers and
Traders Trust Company
Jorge G. Pereira Director Vice Chairman of the
350 Park Ave. Board First Empire State
6th Floor Corporation and
New York, NY 10022-6022 Manufacturers and
Traders Trust Company
John L. Pett Executive Officer Executive Vice President
One Fountain Plaza and Chief Credit Officer
9th Floor Manufacturers and
Buffalo, NY 14203-1495 Traders Trust Company
Michael P. Pinto Executive Officer Executive Vice President
One M&T Plaza and Chief Financial
5th Floor Officer Manufacturers
Buffalo, NY 14203-2399 and Traders Trust
Company
Donald P. Quinlan Director Retired Chairman of the
27 Pine Terrace Board and Chief
Orchard Park, NY 14127-3929 Executive Officer
Graphic Controls
Corporation
William C. Rappolt Executive Officer Executive Vice President
One M&T Plaza and Treasurer
19th Floor First Empire State
Buffalo, NY 14203-2399 Corporation and
Manufacturers and
Traders Trust Company
Melinda R. Rich Director President
P.O. Box 245 Rich Entertainment
Buffalo, NY 14240-0245 Group;
Robert E. Sadler, Jr. Executive Officer President Manufacturers
One M&T Plaza and Traders Trust
19th Floor Company and
Buffalo, NY 14203-2399 Executive Vice President
First Empire State
Corporation
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
----
Harry R. Stainrook Executive Officer Executive Vice President
One M&T Plaza First Empire State
7th Floor Corporation and
Buffalo, NY 14203-2399 Manufacturers and
Traders Trust Company
Raymond D. Stevens, Jr. Director Retired Chairman of
11 Summer Street the Board Pratt &
Suite 308 Lambert United, Inc.
Buffalo, NY 14209-2256
Herbert L. Washington Director President
3280 Monroe Avenue H.L.W. Fast Track, Inc.
Rochester, NY 14618-4608
John L. Wehle, Jr. Director Chairman of the
445 St. Paul Street Board, President &
Rochester, NY 14605-1775 Chief Executive
Officer, Genessee
Corporation
Robert G. Wilmers Director and Chairman of the Board,
One M&T Plaza Executive Officer President and Chief
19th Floor Executive Officer
Buffalo, NY 14203-2399 First Empire State
Corporation; and
Chairman of the Board
and Chief Executive
Officer
Manufacturers and Traders Trust
Company
Item 29. Principal Underwriters:
(a)
Federated Securities Corp., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: 111 Corcoran Funds; Arrow Funds; Automated Government Money
Trust; BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Independence One Mutual
Funds; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds,
Inc.; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds; The
Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst Funds
II; The Virtus Funds; Tower Mutual Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds,
Inc.; Wesmark Funds; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer,
Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive VicePresident and
Federated Investors Tower President, Federated, Treasurer
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treaurer, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
John B. Fisher President-Institutional Sales,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Vision Group of Funds, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
("Transfer Agent, Dividend
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Services
Federated Investors Tower
("Administrator") Pittsburgh, Pennsylvania 15222-3779
Manufacturers and Traders TrustOne M&T Plaza
Company Buffalo, New York 14240
("Adviser")
State Street Bank and Trust Company
P.O. Box 8600
("Custodian") Boston, Massachusetts 02266-8600
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees/Directors and the calling of special shareholder
meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VISION GROUP OF FUNDS,
INC., has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of
April, 1997.
VISION GROUP OF FUNDS, INC.
BY: /s/Victor R. Siclari
Victor R. Siclari, Secretary
Attorney in Fact for Edward C. Gonzales
April 25, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME
TITLE
DATE
By:/s/ Victor R. Siclari
Victor R. Siclari Attorney In Fact April 25, 1997
SECRETARY For the Persons
Listed Below
NAME
TITLE
Edward C. Gonzales* President and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer)
Randall I. Benderson* Director
Joseph J. Castiglia* Director
Daniel R. Gernatt, Jr.* Director
George K. Hambleton, Jr.* Director
* By Power of Attorney
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SCHEDULE B
TRANSFER AGENCY AND SERVICE AGREEMENT
This Schedule B of the Transfer Agency and Service Agreement is made
and entered into as of February 21, 1997, by and between Vision Group of
Funds, Inc. (the `Company''), a Maryland corporation, and Federated
Services Company (`Federated'').
WHEREAS, the Company entered into Transfer Agency and Service
Agreement with State Street Bank and Trust Company (`State Street''),
dated as of July 5, 1990 (the `Agreement''); and
WHEREAS, the Agreement was assigned from State Street to Federated,
and Federated assumed the duties and obligations under such Agreement,
pursuant to an Assignment of the Transfer Agency and Service Agreement for
the Vision Group of Funds, Inc., dated as of March 31, 1994;
WHEREAS, the Company and Federated have agreed to supplement the
Agreement, as assigned, in certain respects;
NOW THEREFORE, the parties intending to be legally bound agree as
follows:
1. The Agreement, as assigned, is amended by ratifying the following
fee schedule, effective as of March 31, 1994:
FEES AND EXPENSES
TRANSFER AGENCY
I. ANNUAL MAINTENANCE CHARGE
The annual maintenance charge includes the processing of all
transactions and correspondence. The fee is billable on a monthly basis at
the rate of 1/12 of the annual fee. A charge is made for an account in the
month that an account opens or closes.
BASIC ANNUAL PER ACCOUNT FEES
The individual per account charges will be billed as follows:
-Daily Accrual $16.65
-Declared Dividend $8.75
MINIMUM CHARGES
- The monthly maintenance charge for each fund will be the actual
account fees or $2000, whichever is greater.
II. OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include but are not limited to postage (including
overnight courier service), statement stock, envelopes, telecommunication
charges (including Fax), travel, duplicating, forms, supplies, microfiche,
computer access charges, client specific enhancements, disaster recovery,
closed account fees, processing fees (including check encoding), and
expenses incurred at the specific direction of the fund. Postage for mass
mailings is due seven days in advance of the mailing date.
III. PAYMENT
Payment is due thirty days after the date of the invoice.
Witness the due execution hereof as of the 21st day of February, 1997.
Attest: VISION GROUP OF FUNDS, INC.
/S/ Victor R. Siclari By:/s/ Charles L. Davis, Jr.
Secretary Vice President
Attest: FEDERATED SERVICES COMPANY
/s/ S. Elliott Cohan By:/s/ Thomas J. Ward
Assistant Secretary Senior Vice President
