PROSPECTUS
Vision Large Cap Growth Fund
(A portfolio of Vision Group of Funds, Inc.)
CLASS A SHARES
CLASS B SHARES
Mutual fund shares are not bank deposits, not FDIC insured, not guaranteed and
may lose value.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Fund Goal, Strategy, Risks and Performance 1
What are the Fund's Fees and Expenses? 2
More Information on the Fund's Strategies 3
What are the Fund's Main Investments and Investment Techniques? 3
Specific Risks of Investing in the Fund 4
What do Shares Cost? 4
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
How to Exchange Shares 8
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 10
MARCH 13, 2000
This Prospectus of the Vision Group of Funds, Inc. (the "Corporation") offers
Class A and Class B Shares of Vision Large Cap Growth Fund. The Corporation also
offers other portfolios under a separate prospectus, each advised by the
investment professionals at Manufacturers and Traders Trust Company ("M&T Bank"
or "Adviser") including:
Equity Funds
. Vision Large Cap Value Fund
. Vision Mid Cap Stock Fund
Income Funds
. Vision U.S. Government Securities Fund
. Vision New York Municipal Income Fund
Money Market Funds
. Vision Treasury Money Market Fund
. Vision Money Market Fund
. Vision New York Tax-Free Money Market Fund
For more information on the Corporation's other portfolios (collectively with
the Fund, the "Vision Funds"), please call M&T Bank's Mutual Fund Services at 1-
800-836-2211 (in the Buffalo area call 716-635-9368).
The following describes the investment goal (objective), strategies and
principal risks of the Fund. There can be no assurance that the Fund will
achieve its goal. However, the Fund endeavors to do so by following the
strategies and policies described in this prospectus.
Fund Goal, Strategy, Risks and Performance
Goal
To provide capital appreciation.
Strategy
Montag & Caldwell, Inc., the Fund's sub-adviser, uses a bottom-up approach to
selecting growth-oriented stocks. The Fund seeks to invest in high-quality, well
established large-cap companies that:
. have a strong history of earnings growth;
. are attractively priced, relative to the company's potential for above-
average, long-term earnings and revenue growth; . have strong balance sheets; .
have a sustainable competitive advantage; . are currently, or have the potential
to become industry leaders; and . have the potential to outperform during market
downturns.
Fund Risks
As with any investment, the Fund's Shares are subject to certain risks. The
Fund's Shares are not deposits or obligations of M&T Bank (Adviser), are not
endorsed or guaranteed by M&T Bank, and are not insured or guaranteed by the
U.S. government, the FDIC, the Federal Reserve Board, or any other government
agency. In addition, the Fund is subject to:
. Stock Market Risks, which are the risks posed by the fact that the value of
equity securities in which the Fund invests rise and fall.
. Risks Relating to Investing for Growth, which are risks associated with
investing in growth-oriented stocks, which are typically more volatile than
value stocks because of their relatively high valuations.
Performance
A performance bar chart and total return information for the Fund will be
provided after the Fund has been in operation for a full calendar year.
What are the Fund's Fees and Expenses?
Vision Large Cap Growth Fund
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class A and Class B Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder
Fees
Class A Class B
Shares Shares
Fees Paid Directly From Your
Investment
<S>
<C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None 5.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) (as a percentage of offering price). None None Redemption Fee (as
a percentage of amount redeemed, if applicable) None None Exchange Fee None None
Annual Fund Operating Expenses (Before
Waiver)/1/
Expenses That are Deducted From Fund Assets (as a percentage of projected average net
assets)
Management
Fee/2/
0.85% 0.85%
Distribution (12b-1)
Fee/3/
0.25% 0.75%
Shareholder Services
Fee/4/
0.25% 0.25%
Other
Expenses/5/
3.28% 3.28%
Total Annual Fund Operating
Expenses
4.63% 5.13%
1 Although not contractually obligated to do so, the adviser, distributor,
shareholder services provider and
administrator expect to waive certain amounts. These are shown below along with
the net expenses the Fund expects
to actually pay for the fiscal year ending April 30, 2000.
Total Waiver of Fund
Expenses
1.48% 0.98%
Total Actual Annual Operating Expenses (after
waiver) 3.15% 4.15%
2 The Adviser expects to voluntarily waive the management fee. The Adviser can
terminate this anticipated voluntary
waiver at any time. The management fee paid by the Fund (after the anticipated
voluntary waiver) is expected to be
0.00% for the fiscal year ending April 30, 2000.
3 The Fund's Class A Shares do not expect to pay or accrue the distribution
(12b-1) fee during the fiscal year ending
April 30, 2000. If the Fund's Class A Shares were accruing or paying the
distribution (12b-1) fee, they could pay up
to 0.25% of the Fund's Class A Shares average daily net assets. See "How is the
Fund Sold?"
4 The Fund's Class A Shares do not expect to pay or accrue the shareholder services
fee during the fiscal year ending
April 30, 2000. If the Fund's Class A Shares were accruing or paying the
shareholder services fee they could pay up
to 0.25% of the Fund's Class A Shares average daily net assets. See "How is the
Fund Sold?"
5 The administrator expects to voluntarily waive certain operating expenses. The
administrator can terminate this
anticipated voluntary waiver at any time. Total other expenses paid by the Fund
(after the anticipated voluntary
waiver) are expected to be 3.15% for the fiscal year ending April 30, 2000.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your shares at the end of those
periods. Expenses assuming no redemption are shown for Class B Shares. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Shares operating expenses are before waivers as shown in the table and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years
<S> <C> <C>
Class A Shares $ 988 $1,870
Class B Shares
Expenses assuming redemption $1,013 $1,836
Expenses assuming no redemption $ 513 $1,536
</TABLE>
More Information on the Fund's Strategies
The Fund pursues its goal by investing in a diversified portfolio of equity
securities (primarily common stocks) of the largest growth-oriented companies
traded in the U.S. stock markets. It is expected that the Fund, as a whole, will
have the overall portfolio characteristics that define it as "large cap growth."
Large capitalization companies have a market capitalization of $10 billion or
more at the time of investment. The Fund may also invest, to a lesser extent, in
mid-cap or small-cap companies which are generally companies with a market
capitalization under $10 billion.
Montag & Caldwell's strategy for the Fund is "growth at a price," a strategy
that simply means the Fund invests in stocks of companies with long-term
earnings growth potential but which are currently selling at a discount to their
estimated true long-term value.
Growth stocks, in general, tend to be highly valued relative to their current
earnings. These companies may include those that the market is willing to pay
more for because they are recognized leaders or well-known household names with
the potential for powerful, consistent earnings growth and which may be worth
more in the future. Montag & Caldwell (Subadviser) will attempt to identify
similar stocks which, for whatever reason, are currently out of favor and
selling at a discount to their fair value as defined by their disciplines. The
Subadviser summarizes this strategy as buying the right company at the right
price at the right time.
The Subadviser follows an "add or delete" strategy when determining when to sell
a stock. Basically, this means that a stock whose earnings fall short of
expectations will be sold (i.e., "deleted") if the Subadviser determines it is
not willing to "add" to the Fund's current position. Fund portfolio securities
are also cut back or sold entirely once the Subadviser determines they have
become overvalued--typically companies which have met or exceeded expectations
and whose prices have risen commensurately.
Under normal market conditions, the Fund intends to invest at least 65% of the
value of its total assets in large-cap equity securities that are expected to
produce growth or capital appreciation. The Fund will also consider to a lesser
extent whether the securities offer the opportunity for current income.
What are the Fund's Main Investments and Investment Techniques?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Funds may also treat
such redeemable preferred stock as a fixed income security.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance. The Fund does
not anticipate exceeding a portfolio turnover rate of 100%.
Specific Risks of Investing in the Fund
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Subadviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
RISKS RELATED TO INVESTING FOR GROWTH
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
What Do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. Purchases and redemptions by wire will not be available on days
the Federal Reserve wire system is closed. The Fund offers two classes of
shares, Class A Shares and Class B Shares. The differences between the two
relate to the timing and amount of asset based sales charge an investor bears
directly or indirectly as a shareholder. When the Fund receives your transaction
request in proper form (as described in the prospectus), it is processed at the
next calculated net asset value (NAV) plus any applicable front-end sales charge
(public offering price).
The value of the Fund's Shares is generally determined based upon the market
value of portfolio securities. However, the Fund's Board may determine in good
faith that another method of valuing investments is necessary to appraise their
fair market value. If the Fund owns foreign securities that trade in foreign
markets on days the NYSE is closed, the value of a Fund's assets may change on
days you cannot purchase, redeem or exchange Shares.
NAV for the Fund is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund's current NAV and/or public
offering price may be found in the mutual funds section of certain local
newspapers under "Vision Funds."
The minimum initial investment in the Fund is $500 unless the investment is in a
retirement plan or an IRA account, in which case the minimum initial investment
is $250. Subsequent investments must be in amounts of at least $25.
The minimum initial and subsequent investment amounts may be waived or lowered
from time to time. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with all of the Vision Funds.
The maximum front-end sales charge that you will pay on an investment in Class A
Shares is 5.50% The maximum contingent deferred sales charge you will pay (at
the time of redemption) on Class B Shares is 5.00%. Keep in mind that investment
professionals may charge you additional fees for their services in connection
with your Share transactions.
SALES CHARGE WHEN YOU PURCHASE-CLASS A SHARES
Class A Shares of the Fund are sold at their NAV next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than $100,000 4.25% 4.44%
$100,000 but less than $250,000 3.25% 3.36%
$250,000 but less than $500,000 2.25% 2.30%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or greater 0.00% 0.00%
</TABLE>
The sales charge at purchase may be reduced by:
. purchasing Shares in greater quantities to reduce the applicable
sales charge;
. combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Vision Funds (other
than money market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or . signing a letter of intent to purchase a specific dollar
amount of Shares within 13 months (call your investment professional or the Fund
for more information).
The sales charge may be eliminated when you purchase Shares:
. within 90 days of redeeming Shares of an equal or lesser amount of the
redemption; . within 60 days of redeeming shares of any other mutual fund which
was sold with a sales charge or commission or fixed or variable rate annuities
of an equal or lesser amount; . by exchanging shares from the same share class
of another Vision Fund (other than a money market fund); . through wrap accounts
or other investment programs where you pay the investment professional directly
for services; . through investment professionals that receive no portion of the
sales charge; . as a current or retired Director or employee of the Fund, the
Adviser, the Distributor, the Subadviser and their affiliates, and the immediate
family members of these individuals; . as an employee of a dealer which has a
selling group agreement with the Distributor; . as an investor referred by any
subadviser to the Vision Funds.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., or M&T Bank's Mutual Fund Services at the time of
purchase. If the Distributor or Mutual Fund Services is not notified, you will
receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM-CLASS B SHARES
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC), as follows:
<TABLE>
<CAPTION>
Shares Held Up To: CDSC
<S> <C>
1 year 5.00%
2 years 4.00%
3 years 3.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
eight years after purchase. This is a non-taxable event.
</TABLE>
You will not be charged a CDSC when redeeming Class B Shares: . purchased with
reinvested dividends or capital gains; . you reinvested within 90 days of a
previous redemption; . that you exchanged into the same share class of another
Vision Fund where
the shares were held for the applicable CDSC holding period (other than
a money market fund);
. purchased through investment professionals who did not receive advanced sales
payments;
. if, after you purchase Shares, you become disabled as defined by the IRS; . of
Shares held by Directors, employees, and sales representatives of the
Vision Funds, the Distributor, or affiliates of the Vision Funds or
Distributor, employees of any investment professional that sells Shares of
the Vision Funds pursuant to a sales agreement with the Distributor, and
their immediate family members to the extent that no payments were advanced
for purchases made by these persons;
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator
has entered into certain arrangements with the Distributor or its affiliates,
or any other investment professional, to the extent that no payments were
advanced for purchases made through such entities;
. if the redemption qualified under the Systematic Withdrawal Program; . if the
Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution; . upon the
death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order: . Shares that are not subject to a CDSC; and . Shares held the
longest (to determine the number of years your Shares have been held, include
the time you held Class B shares of other Vision Funds that have been exchanged
for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
This prospectus relates only to Class A Shares and Class B Shares of Large Cap
Growth Fund. Each share class has different sales charges and other expenses,
which affect their performance. Contact your investment professional or call
(800) 836-2211 for more information concerning the other Vision Funds.
Federated Securities Corp., the Fund's Distributor, markets the Shares described
in this prospectus to institutions or individuals, directly or through an
investment professional that has an agreement with the Distributor (Authorized
Dealer). When the Distributor receives marketing fees and sales charges, it may
pay some or all of them to investment professionals. The Distributor and its
affiliates may pay out of their assets other amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor for the sale and distribution of the Fund's Class A and Class B
Shares. In the case of Class B Shares, the Plan may also be used to compensate
the Distributor, the Adviser, a subadviser, their affiliates or investment
professionals for commissions advanced on the sale of Class B Shares. The
Distributor may voluntarily waive or reduce its fees. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees. The Fund has
no present intention of paying or accruing 12b-1 fees on Class A Shares.
SHAREHOLDER SERVICES
The Fund has adopted a Shareholder Services Plan on behalf of each class of
Shares, which is administered by Federated Administrative Services. M&T Bank
acts as shareholder servicing agent for the Fund, providing shareholder
assistance, communicating or facilitating purchases and redemptions of Shares,
and distributing prospectuses and other information. The Fund has no present
intention of paying or accruing shareholder servicing fees on Class A Shares.
How to Purchase Shares
You may purchase Shares through M&T Bank, M&T Securities, Inc., or through an
Authorized Dealer at the NAV next determined after the purchase order is
received plus any applicable sales charge.
Payment may be made by check or federal funds wire or by debiting your 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 receive
that day's NAV. Purchase orders through Automated Clearing House (ACH) must be
received by 3:00 p.m. (Eastern time). For settlement of an order to occur,
payment must be received on the next business day following the order.
If you do not specify the Class choice on your form of payment, you will
automatically receive Class A Shares. The Fund reserves the right to reject any
purchase request. The Fund does not issue share certificates.
THROUGH M&T BANK
To purchase Shares through M&T Bank, contact an account representative at M&T
Bank or 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 call (716) 635-9368).
THROUGH M&T SECURITIES, INC.
To purchase Shares through a representative of M&T Securities, Inc. (M&T
Securities) call (800) 724-5445.
THROUGH AN AUTHORIZED DEALER
Contact your Authorized Dealer for specific instructions on how to purchase
Shares.
PAYMENT BY CHECK
To purchase Shares of the Fund for the first time by mail using a check as
payment, complete and sign an account application form and mail it, together
with a check payable to (Name of the Fund and Class of Shares) to:
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 is received.
PAYMENT BY WIRE
You may purchase Shares by Federal Reserve wire, whereby your bank sends money
to the Fund's bank through the Federal Reserve System. Wire orders will only be
accepted on days on which the Fund, M&T Bank and the Federal Reserve wire system
are open.
Call M&T Bank's Mutual Fund Services or a representative of M&T Securities
before 4:00 p.m. (Eastern time) to place your order. The order is considered
immediately received, provided that payment by federal funds is received before
3:00 p.m. (Eastern time) the next business day.
PAYMENT BY BANK ACCOUNT TRANSFER
To purchase Shares of the Fund by transferring money from your 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 a 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 on the next
business day.
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 Bank 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 and periodically invested in
Fund Shares at the next NAV 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.
THROUGH AN EXCHANGE
You may purchase Shares of the Fund through an exchange from the same Share
class of another Vision Fund. You must meet the minimum initial investment
requirement for purchasing Shares and both accounts must have identical
registrations. You should request and read the prospectus for the Vision Fund in
which you wish to invest. To request a prospectus, call M&T Bank's Mutual Fund
Services.
RETIREMENT INVESTMENTS
Shares of the Fund can be purchased as an investment for retirement plans or IRA
accounts. You may be subject to an annual IRA account fee. For further details,
contact the Fund and consult a tax adviser.
How to Redeem Shares
The Fund redeems Shares at its NAV next determined after the Fund receives the
redemption request in proper form less any applicable CDSC. Shares may be
redeemed directly from the Fund by telephone or by mail.
BY TELEPHONE
To redeem Shares by telephone, call M&T Bank's Mutual Fund Services at (800)
836-2211 (in the Buffalo area call (716) 635- 9368). The proceeds will be wired
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. Redemptions by wire can only be made on days the Federal Reserve
wire system, M&T Bank and the Fund is open for business.
If you call before 4:00 p.m. (Eastern time) you will receive a redemption amount
based on that day's NAV. The proceeds of your redemption request will be wired
to your account the next business day.
You are automatically eligible to make telephone redemptions unless you check
the box on your new account application form to decline the 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 the telephone redemption privilege, you must call M&T
Bank's Mutual Fund Services for authorization forms.
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.
Redemption requests for Shares held through an IRA account must be made by mail
and not by telephone.
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. Your telephone instructions may be electronically recorded for
your protection.
Shareholders who accept the telephone redemption service authorize the Fund and
its agents to act upon their telephonic instructions to redeem Shares from any
account for which they have authorized such services. If reasonable procedures
are not followed by the Fund, they may be liable for losses due to unauthorized
or fraudulent telephone transactions.
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
Your written request must include your name, the Fund's name and share class,
your account number, and the Share or dollar amount you wish to redeem. Please
call M&T Bank's Mutual Fund Services at (800) 836-2211 for specific instructions
before redeeming by mail.
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.
ADDITIONAL CONDITIONS
Signature Guarantees
You must have a signature guarantee on written redemption requests: . when you
are requesting a redemption of $50,000 or more; . when you want a redemption to
be sent to an address other than the one you have on record with the Fund; or .
when you want the redemption payable to someone other than the shareholder of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker-dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds for Shares redeemed by mail are normally mailed within one
business day after receiving a request in proper form. However, payment may be
delayed up to seven days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
SYSTEMATIC WITHDRAWAL PROGRAMS
Class A Shares
You may automatically redeem Class A Shares in a minimum amount of $50 on a
regular basis. Your account must be worth at least $10,000 at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Class A Shares subject to a sales charge while
redeeming Shares using this program. For more information and an application
form for this program call M&T Bank's Mutual Fund Services at (800) 836-2211.
Class B Shares
A CDSC will not be charged on Systematic Withdrawal Program redemptions of Class
B Shares if: . Shares redeemed are 12% or less of the account value in a single
year; . the account is at least one year old; . all dividends and capital gains
distributions are reinvested; and . the account has at least a $10,000 balance
when the Systematic Withdrawal Program is established (multiple Class B Share
accounts cannot be aggregated to meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the Systematic Withdrawal Program and then annually at calendar year-
end.
This program may reduce, and eventually deplete, your account. Payments should
not be considered yield or income. For more information and an application form
for this program call M&T Bank's Mutual Fund Services at (800) 836-2211.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, the Fund reserves
the right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
REDEMPTION FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
How to Exchange Shares
You may exchange Shares of the Fund for the same share class of another Vision
Fund at the NAV next determined after the Fund receives the exchange in proper
form. In addition, you may exchange Class A Shares of the Fund into Class A
Shares of Federated International Equity Fund at NAV plus any applicable sales
charge.
In order to exchange Shares you must:
. meet the minimum initial investment requirements (if the exchange results in
the establishment of a new account); . establish an account into the Fund you
want to acquire if you do not have an account in that Fund; . ensure that the
account registrations are identical; . receive a prospectus for the Fund into
which you wish to exchange; and . only exchange into Funds that may be legally
sold in your state of residence. An exchange is treated as a redemption and
subsequent purchase and is a taxable transaction. For additional information
about the exchange privilege, call M&T Bank's Mutual Fund Services at (800)
836-2211.
CLASS A SHARE EXCHANGES
Exchanges at NAV
If you exchange between Funds with different sales charges, the exchange will be
made at NAV.
If you paid a sales charge once (included Shares acquired through reinvestment
of dividends and capital gains) you will not have to pay the sales charge again
upon exchange. This is true even if you exchange out of a Fund with a sales
charge, then into a Fund without a sales charge and back into a Fund with a
sales charge.
Exchanges Subject to a Sales Charge
If you purchased into a Fund without a sales charge, and exchange into a Fund
with a sales charge, you will be assessed the applicable sales charge when you
make the exchange. However, the sales charge will not be applied to any Shares
that you acquired through reinvestment of dividends and capital gains.
CLASS B SHARE EXCHANGES
You may exchange Class B Shares from the Fund to another Vision Fund at NAV
without any sales charge. The time you held the original Class B Shares will be
added to the time you held the exchanged-for Class B Shares for purposes of
calculating any applicable CDSC when you ultimately redeem those Shares.
The Fund may modify or terminate the exchange privilege at any time, and
shareholders will be notified prior to any modification or termination. The
Fund's management or adviser may determine from the amount, frequency, and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to a Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Vision Funds.
EXCHANGING SHARES BY TELEPHONE
You may exchange Shares between Funds by calling M&T Bank's Mutual Fund Services
at (800) 836-2211 (in Buffalo, (716) 635-9368).
Exchange instructions must be received by M&T Bank's Mutual Fund Services and
transmitted to Federated Shareholder Services Company by 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 will automatically be eligible for telephone exchanges, 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
exchange option on your initial application. If you do not do this and later
wish to take advantage of the privilege, you may call M&T Bank's Mutual Fund
Services for authorization forms.
Shareholders who accept the telephone exchange service authorize the Fund and
its agents to act upon their telephonic instructions to exchange Shares from any
account for which they have authorized such services. If reasonable procedures
are not followed by the Fund, they may be liable for losses due to unauthorized
or fraudulent telephone transactions.
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
All written requests must include your name, the Fund's name and Share class,
your account number, and the share or dollar amount you wish to exchange and the
name of the Fund into which the exchange is to be made.
SYSTEMATIC EXCHANGE PROGRAM
You may exchange Shares of a predetermined amount of at least $25 from one Fund
into another Fund on a monthly, quarterly or annual basis. Exchanges are subject
to investment minimums, limitations and any applicable sales charges as
described above. For more information and an application form for the Systematic
Exchange Program, call M&T Bank's Mutual Fund Services at (800) 836-2211.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Dividends (if any) are paid to shareholders invested in a Fund on the record
date, and are declared and paid quarterly.
If capital gains or losses were to occur, they could result in an increase or
decrease in dividends. In addition, the Fund intends to pay any capital gains at
least annually. Your dividends and capital gains distributions will be
automatically reinvested in additional Shares without a sales charge, unless you
elect cash payments.
If you purchase shares just before the Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below $250. Before an account is closed, you will be notified and allowed
30 days to purchase additional Shares to meet the minimum account balance
required.
TAX INFORMATION
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in a Fund. Capital gains distributions are taxable at different rates
depending upon the length of time the Fund holds its assets.
Fund distributions for the Large Cap Growth Fund are expected to be primarily
capital gains. Redemptions and exchanges are taxable sales. Please consult your
tax adviser regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, M&T Bank. The Adviser has overall responsibility for managing the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is One M&T Plaza, Buffalo, New York 14240. The Adviser is the principal
banking subsidiary of M&T Bank Corporation, a regional bank holding company in
existence since 1969. M&T Bank was founded in 1856 and provides comprehensive
banking and financial services to individuals, governmental entities and
businesses throughout New York State. As of December 31, 1999, M&T Bank had over
$6 billion in assets under management. M&T Bank has served as investment adviser
to the Funds since 1988. As of December 31, 1999, M&T Bank managed $1.8 billion
in net assets of money market fund and $300 million in net assets of fluctuating
mutual 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 Funds
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.
For its services under an Advisory Contract, the Adviser receives an annual
Advisory Fee from the Fund, equal to 0.85% of the Fund's average daily net
assets.
The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses.
SUB-ADVISER
The Adviser has delegated daily management of the Fund to the subadviser, Montag
& Caldwell, Inc. (Montag & Caldwell). Montag & Caldwell has complete discretion
to manage portfolio securities of the Fund, subject to the Fund's investment
objective, policies and limitations and subject to supervision of and oversight
by the Adviser and the Fund's Board. Montag & Caldwell and its predecessors have
been engaged in the business of providing investment counseling to individuals
and institutions since 1945. Total assets under management for all clients
(including two other mutual funds) were approximately $33 billion as of December
31, 1999. For its services, Montag & Caldwell receives a fee based upon a
percentage of each Fund's average daily net assets which is paid by the Adviser
and not by the Fund. The Subadviser's address is 3455 Peachtree Road, N.E.,
Suite 1200, Atlanta, Georgia 30326-3248.
PORTFOLIO MANAGER
David L. Watson
David L. Watson, Vice President and Senior Portfolio Manager of Montag &
Caldwell, Inc. since 1998, has over eighteen years of equity and fixed income
investment management experience. He established an office for Merrill Lynch
Asset Management in Atlanta in 1997 and was employed there through 1998. Prior
to 1997 David was employed as a senior portfolio manager with Trusco Capital
Management in Atlanta. David received his Bachelor's degree in Finance from
Mississippi State University and his M.B.A. from the Goizueta Business School of
Emory University. He is a Chartered Financial Analyst and member of the Atlanta
Society of Financial Analysts. David has taught and spoken on many investment
topics for various industry associations and regulatory agencies. He also serves
on the Regulatory Content Committee of the New York Stock Exchange and is a
member of the Professional Qualifications Committee of the Municipal Securities
Rulemaking Board.
Financial Information
FINANCIAL HIGHLIGHTS
Financial highlights are not presented for Vision Large Cap Growth Fund since it
did not have any operations prior to the date of this Prospectus.
[Vision logo appears here]
Vision Large Cap Growth Fund
(A portfolio of Vision Group of Funds, Inc.)
CLASS A SHARES
CLASS B SHARES
MARCH 13, 2000
A Statement of Additional Information (SAI) dated March 13, 2000, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge, and make inquiries, call (800) 836-2211.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
SEC File No. 811-5514
Cusip 92830F851
Cusip 92830F844
25252 (3/00)
VISION GROUP OF FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
MARCH 13, 2000
VISION LARGE CAP GROWTH FUND
CLASS A SHARES AND CLASS B SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for the Fund dated March 13, 2000.
Obtain the prospectus without charge by calling (800) 836-2211 (in the Buffalo
area call (716) 635-9368).
CONTENTS
HOW IS THE FUND ORGANIZED? 1
SECURITIES IN WHICH THE FUND INVESTS 1
SECURITIES DESCRIPTIONS AND TECHNIQUES 2
INVESTMENT RISKS 7
FUNDAMENTAL INVESTMENT OBJECTIVE 10
INVESTMENT LIMITATIONS 10
DETERMINING MARKET VALUE OF SECURITIES 11
WHAT DO SHARES COST? 11
HOW IS THE FUND SOLD? 13
EXCHANGING SECURITIES FOR SHARES 13
SUBACCOUNTING SERVICES 14
REDEMPTION IN KIND 14
ACCOUNT AND SHARE INFORMATION 14
TAX INFORMATION 14
WHO MANAGES AND PROVIDES SERVICES TO THE FUND? 14
HOW DOES THE FUND MEASURE PERFORMANCE? 17
INVESTMENT RATINGS 19
ADDRESSES BACK COVER PAGE
CUSIP 92830F851
92830F844
25254 (3/00)
4
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Vision Group of Funds, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established as a Corporation under the laws of the State of Maryland on
February 23, 1988. The Corporation may offer separate series of shares
representing interests in separate portfolios of securities.
The Board of Directors (the Board) has established two classes of shares of the
Fund, known as Class A Shares and Class B Shares (Shares). This SAI relates to
both classes of Shares. The Fund's investment adviser is Manufacturers and
Traders Trust Company (M&T Bank) (Adviser). The Fund's sub-adviser is Montag &
Caldwell, Inc. (sub-adviser).
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following types
of securities for any purpose that is consistent with the Fund's investment
goal. Following is a table that indicates which types of securities are a:
P = Principal investment of the Fund;
A = Acceptable (but not principal) investment of the Fund; or N = Not an
acceptable investment of the Fund.
- --------------------------------------------------------------------
LARGE CAP GROWTH
FUND
- --------------------------------------------------------------------
EQUITY SECURITIES P
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Common Stocks P
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Preferred Stocks P
- --------------------------------------------------------------------
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Real Estate Investment Trusts A
- --------------------------------------------------------------------
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Warrants3 A
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FIXED INCOME SECURITIES A
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Treasury Securities A
- --------------------------------------------------------------------
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Agency Securities A
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Corporate Debt Securities1 A
- --------------------------------------------------------------------
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Commercial Paper A
- --------------------------------------------------------------------
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Demand Instruments A
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Mortgage Backed Securities A
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Asset Backed Securities1 A
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Zero Coupon Securities A
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Bank Instruments A
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CONVERTIBLE SECURITIES4 A
- --------------------------------------------------------------------
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TAX EXEMPT SECURITIES1 A
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Variable Rate Demand Instruments A
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FOREIGN SECURITIES A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
American Depositary Receipts A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
DERIVATIVE CONTRACTS A
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Futures Contracts A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Options A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
SPECIAL TRANSACTIONS A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Repurchase Agreements A
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Reverse Repurchase Agreements A
- --------------------------------------------------------------------
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Delayed Delivery Transactions2 A
- --------------------------------------------------------------------
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Securities Lending A
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Asset Coverage A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
INVESTING IN SECURITIES OF OTHER INVESTMENT A
COMPANIES
- --------------------------------------------------------------------
1. Rated in the top four rating categories of an NRSRO, or, if unrated, of
comparable quality as determined by the Adviser or sub-adviser.
2. The Fund does not intend to engaged in such transactions to an extent that
would cause the segregation of more than 20% of the total value of its
assets.
3. The Fund does not have a present intent to invest more than 5% or its net
assets in warrants.
4. The Fund may invest in convertible securities rated below investment grade.
See "Risks Associated with Non-investment Grade Securities" herein.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. The Fund may also treat such redeemable preferred stock as a fixed
income security.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS
Warrants give a Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Agency
securities are generally regarded as having low credit risks, but not as low
as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. If the issuer cannot
continue to obtain liquidity in this fashion, its commercial paper may
default. The short maturity of commercial paper reduces both the market and
credit risks as compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the underlying
mortgages. As a result, the holders assume all the prepayment risks of the
underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class.
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for
each sequential class of CMO. As a result, each class of sequential pay
CMOs reduces the prepayment risks of subsequent classes.
PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and
prepayments at a specified rate. The companion classes receive
principal payments and prepayments in excess of the specified rate. In
addition, PACs will receive the companion classes' share of principal
payments, if necessary, to cover a shortfall in the prepayment rate.
This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.
IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs)
and principal payments to another class (Principal Only or POs). POs
increase in value when prepayment rates increase. In contrast, IOs
decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs tend to
increase in value when interest rates rise (and prepayments decrease),
making IOs a useful hedge against interest rate risks.
FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of
CMOs. One class (Floaters) receives a share of interest payments based
upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages.
Floater classes receive more interest (and Inverse Floater classes
receive correspondingly less interest) as interest rates rise. This
shifts prepayment and interest rate risks from the Floater to the
Inverse Floater class, reducing the price volatility of the Floater
class and increasing the price volatility of the Inverse Floater class.
Z CLASSES AND RESIDUAL CLASSES
CMOs must allocate all payments received from the underlying mortgages
to some class. To capture any unallocated payments, CMOs generally have
an accrual (Z) class. Z classes do not receive any payments from the
underlying mortgages until all other CMO classes have been paid off.
Once this happens, holders of Z class CMOs receive all payments and
prepayments. Similarly, REMICs have residual interests that receive any
mortgage payments not allocated to another REMIC class.
The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment. The Fund may invest
in commercial paper rated below investment grade. See "Risks Associated with
Non-investment Grade Securities" herein.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a
variable rate intended to cause the securities to trade at their face value.
The Fund treat demand instruments as short-term securities, because their
variable interest rate adjusts in response to changes in market rates, even
though their stated maturity may extend beyond thirteen months.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
AMERICAN DEPOSITARY RECEIPTS
American Depository Receipts represent interests in underlying securities issued
by a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy/sell financial futures contracts. The Fund may also buy/sell
stock index futures contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
| Buy call options on portfolio securities in anticipation of an increase in
the value of the underlying asset;
| Buy put options on portfolio securities in anticipation of a decrease in
the value of the underlying asset.
The Fund may also write call options on all or any portion of its portfolio
securities and on financial or stock index futures contracts (as permitted)
to generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an increase
in the market price of the underlying asset over the exercise price plus the
premium received.
The Fund may also write put options on all or a portion of its portfolio
securities and on financial or stock index futures contracts (as permitted)
to generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset. In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying
asset when its current market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the
interest rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor
the value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the
price of its shares. Settlement dates may be a month or more after entering
into these transactions so that the market values of the securities bought
may vary from the purchase prices. Therefore, delayed delivery transactions
create interest rate risks for the Fund. Delayed delivery transactions also
involve credit risks in the event of a counterparty default.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to accept
any security that meets specified terms. For example, in a TBA mortgage
backed transaction, the Fund and the seller would agree upon the issuer,
interest rate and terms of the underlying mortgages. The seller would not
identify the specific underlying mortgages until it issues the security.
TBA mortgage backed securities increase interest rate risks because the
underlying mortgages may be less favorable than anticipated by the Fund.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if
the market value of the loaned securities increases. Also, the borrower must
pay the Fund the equivalent of any dividends or interest received on the
loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on
loan, but it will terminate a loan in anticipation of any important vote. The
Fund may pay administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts
or special transactions, the Fund will either own the underlying assets,
enter into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations. Unless
the Fund has other readily marketable assets to set aside, it cannot trade
assets used to secure such obligations without entering into an offsetting
derivative contract or terminating a special transaction. This may cause the
Fund to miss favorable trading opportunities or to realize losses on
derivative contracts or special transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS RELATED TO INVESTING FOR GROWTH
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. For example, medium capitalization stocks may be less liquid and more
volatile than stocks of larger, well-known companies. Market capitalization is
determined by multiplying the number of its outstanding shares by the current
market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.
RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS
Because the Fund may invest in American Depositary Receipts issued by foreign
companies, the Fund's share price may be more affected by foreign economic and
political conditions, taxation policies, and accounting and auditing standards,
than would otherwise be the case.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
PREPAYMENT RISKS
Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.
Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security is perceived to have an
increased prepayment risk or perceived to have less market demand. An increase
in the spread will cause the price of the security to decline.
The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
The convertible securities in which the Fund may invest may be rated below
investment grade. Convertible securities rated below investment grade may be
subject to the same risks as those inherent in corporate debt obligations that
are rated below investment grade, also known as junk bonds. Junk bonds generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
RISKS ASSOCIATED WITH COMPLEX CMOS
CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
market, prepayment and liquidity risks than other mortgage backed securities.
For example, their prices are more volatile and their trading market may be more
limited.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide capital appreciation. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
The Fund may, in the future, seek to achieve the Fund's investment objective by
investing all of the Fund's assets in a no-load, open-end management investment
company having substantially the same investment objective as the Fund. The
Fund's investment policies permit such an investment. Shareholders will receive
prior written notice with respect to any such investment.
DIVERSIFICATION
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
CONCENTRATION
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
For purposes of this restriction, the term concentration has the meaning set
forth in the 1940 Act, any rule or order thereunder, or any SEC staff
interpretation thereof. Government securities and municipal securities will not
be deemed to constitute an industry.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities. For purposes of
this restriction, investments in transactions involving futures contracts and
options, forward currency contracts, swap transactions and other financial
contracts that settle by payment of cash are not deemed to be investments in
commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act, any rule or order
thereunder, or any SEC staff interpretation thereof.
LENDING
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
INVESTMENT COMPANY ACT OF 1940 (1940 ACT). THE FOLLOWING LIMITATIONS, HOWEVER,
MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE
NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
INVESTING IN OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Fund expects
that its investments in other investment companies may include shares of money
market funds, including funds affiliated with the Fund's investment adviser.
PURCHASES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the SEC that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limits as long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute "concentration."
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitations 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
limitation.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
P. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
P. in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
P. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
| futures contracts and options are valued at market values established by
the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued
according to the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that
another method of valuing such investments is necessary to appraise their
fair market value;
P. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
P. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE-CLASS A SHARES You can reduce
or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce the sales charge you pay. You
can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Vision Funds in calculating the applicable sales charge.
LETTER OF INTENT
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 90 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
| current and retired employees and directors of M&T Bank, M&T Bank
Corporation, Federated Investors, Inc. and their subsidiaries;
| current and former Directors of the Corporation;
| clients of the M&T Capital Advisers and Trust Groups of M&T Bank;
| employees (including registered representatives) of a dealer which has a
selling group agreement with the Fund's distributor and consents to such
purchases;
| current and retired employees of any sub-adviser to the M&T Funds, Inc.;
and
| investors referred by any sub-adviser to the M&T Funds, Inc. Immediate
relatives include grandparents, parents, siblings, children, and
grandchildren of a qualified investor, and the spouse of any immediate
relative.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF MUTUAL FUND SHARES OR ANNUITIES
Investors may purchase Class A 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 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 the Fund's
shareholders.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
| following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
| representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
| of Shares that represent a reinvestment within 90 days of a previous
redemption;
| of Shares held by the Directors, employees, and sales representatives of
the Fund, the Adviser, the Distributor and their affiliates; employees of
any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the
above persons;
| of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third party
administrator has entered into certain arrangements with the Distributor or
its affiliates, or any other investment professional, to the extent that no
payments were advanced for purchases made through these entities;
| which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
| which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on Class A Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay M&T Bank for providing shareholder services and maintaining
shareholder accounts. M&T Bank may select others to perform these services for
their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals (such as broker-dealers or banks) may be paid
significant amounts of fees out of the assets of the Distributor (these fees do
not come out of Fund assets). The Distributor may be reimbursed by the Adviser
or its affiliates.
Investment professionals receive such fees for providing distribution-related
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts. These payments may be based upon such factors
as the amount of Shares the investment professional sells or may sell; the
amount of client assets invested; and/or the type and nature of sales or
marketing support furnished by the investment professional.
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.
All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year. The Corporation is comprised of ten
funds and is the only investment company in the Fund Complex.
- -------------------------------------------------------------- ------------
NAME TOTAL
BIRTH DATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH FOR PAST FIVE YEARS CORPORATION
CORPORATION
- ---------------------
RANDALL I. BENDERSON President and Chief Operating Officer, $8,000
570 Delaware Avenue Benderson Development Company, Inc.
Buffalo, NY (construction).
Birth date: January
12, 1955
DIRECTOR
- -------------------------------------------------------------- ------------
JOSEPH J. CASTIGLIA Director, New York State Electric & $8,000
Roycroft Campus Gas Corp.; Sevenson Environmental
21 South Grove Services, Inc.; Blue Cross & Blue
Street, Suite 291 Shield of Western New York; and Former
East Aurora, NY President, Chief Executive Officer and
14052 Vice Chairman, Pratt & Lambert United,
Birth date: July Inc. (manufacturer of paints and
20, 1934 chemical specialties).
DIRECTOR
- ---------------------
- -------------------------------------------------------------- ------------
DANIEL R. GERNATT, President and CFO of Gernatt Asphalt $7,500
JR. Products, Inc.; Executive Vice
Richardson & Taylor President, Dan Gernatt Gravel
Hollow Roads Products, Inc.; Vice President,
Collins, NY Countryside Sand & Gravel, Inc.
Birth date: July
14, 1940
DIRECTOR
- -------------------------------------------------------------- ------------
GEORGE K. President, Brand Name Sales, Inc. $8,000
HAMBLETON, JR. (catalog showroom business);
670 Young Street President, Hambleton & Carr, Inc.
Tonawanda, NY (catalog showroom business).
Birth date:
February 8, 1933
DIRECTOR
- -------------------------------------------------------------- ------------
President, Executive Vice President $0
EDWARD C. GONZALES and Treasurer of other funds
Federated Investors distributed by Federated Securities
Tower Corp.; Vice Chairman, Federated
Pittsburgh, PA Investors, Inc.; Trustee, Federated
Birth date: October Administrative Services;
22, 1930 formerly: Trustee or Director of other
funds distributed by Federated
PRESIDENT AND Securities Corp.; CEO and Chairman,
TREASURER Federated Administrative Services;
Vice President, Federated Investment
Management Company, Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Director and
Executive Vice President, Federated
Securities Corp.; Director, Federated
Services Company; Trustee, Federated
Shareholder Services Company.
---
- --------------------- ---------------------------------------- ------------
BETH S. BRODERICK Vice President, Mutual Fund Services $0
Federated Investors Division, Federated Services Company.
Tower
Pittsburgh, PA
Birth date: August
2, 1965
VICE PRESIDENT AND
ASSISTANT TREASURER
- -------------------------------------------------------------- ------------
VICTOR R. SICLARI Senior Corporate Counsel and Vice $0
Federated Investors President, Federated Administrative
Tower Services; formerly Attorney, Morrison
Pittsburgh, PA & Foerster (law firm).
Birth date:
November 17, 1961
SECRETARY
- -------------------------------------------------------------- ------------
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
SUB-ADVISER
The Adviser has delegated daily management of the Fund to the sub-adviser,
Montag & Caldwell, Inc.
For its services under the Sub-Advisory Agreement, the sub-adviser receives an
allocable portion of the advisory fee the Adviser receives from the Fund. The
allocation is based on the amount of securities which the sub-adviser manages
for the Fund. This fee is paid by the Adviser out of the fees it receives and is
not a Fund expense. The sub-adviser is paid by the Adviser as follows:
SUB-ADVISORY FEE AVERAGE DAILY NET ASSETS OF
THE FUND
0.50% on the first $50 million
average daily net assets;
0.40% on the next $50 million
average daily net assets;
0.30% on the next $100 million
average daily net assets;
and,
0.20% on average daily net assets
over $200 million.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, its subadviser and its
Distributor have adopted codes of ethics. These codes govern securities trading
activities of investment personnel, Fund Directors, and certain other employees.
Although they do permit these people to trade in securities, including those
that the Fund could buy, they also contain significant safeguards designed to
protect the Fund and its shareholders from abuses in this area, such as
requirements to obtain prior approval for, and to report, particular
transactions.
BROKERAGE TRANSACTIONS
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. The Adviser and sub-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 and sub-adviser
may select brokers and dealers based on whether they also offer research
services (as described below). In selecting among firms believed to meet these
criteria, the Adviser and sub-adviser may give consideration to those firms
which have sold or are selling Shares of the Fund and other funds distributed by
the Distributor and its affiliates. The Adviser and sub-adviser makes decisions
on portfolio transactions and selects brokers and dealers subject to review by
the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or sub-adviser in advising other accounts.
To the extent that receipt of these services may replace services for which the
Adviser or sub-adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses. The Adviser or sub-adviser and its affiliates
exercise reasonable business judgment in selecting those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Administrative Services (FAS) provides the Fund with certain
administrative personnel and services necessary to operate the Fund. Federated
Services Company (FSC) and its affiliate, Federated Shareholder Services Company
(FSSC), a registered transfer agent, provide the Fund with certain financial,
administrative, transfer agency and fund accounting services. FAS, FSC and FSSC
are indirect wholly owned subsidiaries of Federated Investors, Inc. These
services are provided for an aggregate annual fee as specified below:
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE ASSETS OF THE VISION GROUP
FEE OF FUNDS, INC.
0.140% on the first $1.4 billion
0.100% on the next $750 million
0.070% on assets in excess of
$2.15 billion
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
INDEPENDENT AUDITOR
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so it may provide an opinion as to whether the Fund's financial statements
and financial highlights are free of material misstatement.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for 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 NAV 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 annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares of the Fund is calculated by dividing: (i) the net
investment income per Share earned by the Shares over a 30-day period; by (ii)
the maximum offering price per Share 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 30-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 Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
| references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
| charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
| discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
| information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
| LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time.
| DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for
the stock market as a whole.
| MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than l,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
| STANDARD & POOR'S DAILY STOCK PRICE INDICES of 500 and 400 Common Stocks are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's indices assume reinvestment of all dividends
paid by stocks listed in 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.
| CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
| NEW YORK STOCK EXCHANGE COMPOSITE INDEX is a market value weighted index
which relates all NYSE stocks to an aggregate market value as of December 31,
1965, adjusted for capitalization changes.
| VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of
the component stocks and does not include income.
MUTUAL FUND MARKET
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 $5 trillion to the more than 7,300 funds available according
to the Investment Company Institute.
INVESTMENT RATINGS
STANDARD AND POOR'S
LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess 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.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P
assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
MOODY'S INVESTORS SERVICE, INC.
LONG-TERM BOND RATING DEFINITIONS
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.
BA--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
COMMERCIAL PAPER RATINGS
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-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.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
FITCH IBCA, INC./FITCH INVESTORS SERVICE, L.P.
LONG-TERM DEBT RATING DEFINITIONS
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 credit 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
SHORT-TERM DEBT RATING DEFINITIONS
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 for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
LONG-TERM DEBT RATINGS
NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.
OTHER CONSIDERATIONS
Among the factors considered by Moody's in assigning bond, note and commercial
paper ratings are the following: (i) evaluation of the management of the issuer;
(ii) economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (iii)
evaluation of the issuer's products in relation to competition and customer
acceptance; (iv) liquidity; (v) amount and quality of long-term debt; (vi) trend
of earnings over a period of 10 years; (vii) financial strength of a parent
company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and commercial paper
ratings are the following: (i) trend of earnings and cash flow with allowances
made for unusual circumstances, (ii) stability of the issuer's industry, (iii)
the issuer's relative strength and position within the industry and (iv) the
reliability and quality of management.
ADDRESSES
VISION LARGE CAP GROWTH FUND
Class A Shares and Class B Shares
INVESTMENT ADVISER
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, NY 14203
SUB-ADVISER
Montag & Caldwell, Inc.
3455 Peachtree Road, N.E.
Suite 1200
Atlanta, GA 30326-3248
ADMINISTRATOR
Federated Administrative Services
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8609
Boston, MA 02266-8609
