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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.
| CONTENTS | ||
| Fund Goals, Strategies, Risks and Performance | 1 | |
| What are the Funds' Fees and Expenses? | 5 | |
| What are the Funds' Main Investments and Investment Techniques? | 6 | |
| What are the Specific Risks of Investing in the Fund? | 9 | |
| What Do Shares Cost? | 11 | |
| How are the Funds Sold? | 14 | |
| How to Purchase Shares | 14 | |
| How to Redeem Shares | 15 | |
| How to Exchange Shares | 17 | |
| Account and Share Information | 18 | |
| Who Manages the Funds? | 19 | |
| Financial Information | 20 |
This Prospectus of the Vision Group of Funds (the "Trust") offers Class A Shares of five portfolios, including two Income Funds and three Managed Allocation Funds and Class A and Class B Shares of two Equity Funds . Under separate prospectuses, the Trust offers 11 other portfolios, including Class A Shares of four money market funds and three income funds, and Class A and Class B Shares of four equity funds. Vision Treasury Money Market Fund and Vision Money Market Fund offer Class S Shares under a separate prospectus. The following describes the investment goals (objectives), strategies and principal risks of each Fund. There can be no assurance that a Fund will achieve its goal. However, each Fund endeavors to do so by following the strategies and policies described in this prospectus.
The Vision Intermediate Term Bond Fund seeks current income with long-term growth of capital as a secondary objective.
The Fund normally invests substantially all, but under normal market conditions no less than 65%, of its total assets in investment grade fixed income securities. These include bonds, debentures, notes, mortgage-backed and asset-backed securities, state, municipal or industrial revenue bonds, variable and floating rate securities, variable master demand notes, obligations issued or supported as to principal and interest by the U.S. Government or its agencies or instrumentalities and debt securities convertible into, or exchangeable for, common stocks. Unrated obligations will be purchased only if they are determined by the Adviser to be at least comparable in quality at the time of purchase to eligible rated securities. The Fund will have a dollar-weighted average maturity of 3 to 10 years.
The Adviser selects securities based on current yield, maturity, yield to maturity, anticipated changes in interest rates, and the overall credit quality of the investment.
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.
The Vision Pennsylvania Municipal Income Fund seeks income exempt from both federal and Pennsylvania state income taxes, and preservation of capital.
The Fund primarily invests in municipal securities issued by Pennsylvania and its local governments ("Pennsylvania Municipal Securities"), and in debt obligations issued by the government of Puerto Rico and other governmental entities whose debt obligations provide interest income exempt from federal and Pennsylvania state income taxes. The Fund is nondiversified, which means that it can invest a large percentage of its assets in a small number of issuers. The Fund expects that the dollar-weighted average maturity of its investments will be 3 to 10 years. The Fund invests in investment grade municipal securities.
During normal market conditions the Fund normally will invest at least:
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.
The Vision Managed Allocation Fund--Conservative Growth seeks capital appreciation and income. The Vision Managed Allocation Fund--Moderate Growth seeks capital appreciation and, secondarily, income. The Vision Managed Allocation Fund--Aggressive Growth seeks capital appreciation.
Each Managed Allocation Fund seeks to achieve its objective by investing in a combination of underlying funds managed by the Adviser.
The underlying funds in which each Managed Allocation Fund may invest include Vision Funds' Institutional Prime Money Market Fund and U.S. Treasury Money Market Fund . Both the Institutional Prime Money Market Fund and Treasury Money Market Fund seek current income with liquidity and stability of principal by investing in high quality money market instruments. The Institutional Prime Money Market Fund and the Treasury Money Market Fund seek to maintain a constant net asset value of $1.00 per share for purchases and redemptions.
The Vision Managed Allocation Fund--Conservative Growth currently plans to generally invest the largest proportion of its assets in Vision Funds that invest primarily in investment grade fixed income securities of various maturities. The Fund's remaining assets may be invested in shares of underlying Vision Funds that invest primarily in equity securities and in money market instruments.
The Fund currently plans to invest in shares of the following underlying Vision Funds within the percentage ranges indicated:
| Asset Class |
|
Investment Range (Percentage of the Managed Allocation Fund--Conservative Growth Assets) |
| Money Market Funds |
|
5-50% |
| Institutional Prime Money Market Fund |
|
|
| Treasury Money Market Fund |
|
|
| Fixed Income Funds |
|
35-70% |
| Institutional Limited
Duration Government Securities Fund |
|
|
| Intermediate Term Bond Fund |
|
|
| U.S. Government Securities Fund |
|
|
| Equity Funds |
|
5-35% |
| Large Cap Growth Fund |
|
|
| Small Cap Stock Fund |
|
|
| International Equity Fund |
|
|
| Mid Cap Stock Fund |
|
|
| Large Cap Core Fund |
|
|
| Large Cap Value Fund |
|
The Vision Managed Allocation Fund--Moderate Growth generally invests at least 55% of its assets in Vision Funds that invest primarily in either equity securities or fixed income securities. The Fund's remaining assets may be invested in shares of underlying Vision Funds that invest primarily in money market instruments.
The Fund currently plans to invest in shares of the following underlying Vision Funds within the percentage ranges indicated:
| Asset Class |
|
Investment Range (Percentage of the Managed Allocation Fund--Moderate Growth Assets) |
| Money Market Funds |
|
5-45% |
| Institutional Prime Money Market Fund |
|
|
| Treasury Money Market Fund |
|
|
| Fixed Income Funds |
|
15-50% |
| Institutional Limited
Duration Government Securities Fund |
|
|
| Intermediate Term Bond Fund |
|
|
| U.S. Government Securities Fund |
|
|
| Equity Funds |
|
40-70% |
| Large Cap Growth Fund |
|
|
| Small Cap Stock Fund |
|
|
| International Equity Fund |
|
|
| Mid Cap Stock Fund |
|
|
| Large Cap Core Fund |
|
|
| Large Cap Value Fund |
|
The Vision Managed Allocation Fund--Aggressive Growth currently plans to generally invest 70% to 100% of its assets in Vision Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in shares of underlying Vision Funds that invest primarily in fixed income securities and money market instruments.
The Fund currently plans to invest in shares of the following underlying Vision Funds within the percentage ranges indicated:
| Asset Class |
|
Investment Range (Percentage of the Managed Allocation Fund--Aggressive Growth Assets) |
| Money Market Funds |
|
0-20% |
| Institutional Prime Money Market Fund |
|
|
| Treasury Money Market Fund |
|
|
| Fixed Income Funds |
|
0-30% |
| Institutional Limited
Duration Government Securities Fund |
|
|
| Intermediate Term Bond Fund |
|
|
| U.S. Government Securities Fund |
|
|
| Equity Funds |
|
70-100% |
| Large Cap Growth Fund |
|
|
| Small Cap Stock Fund |
|
|
| International Equity Fund |
|
|
| Mid Cap Stock Fund |
|
|
| Large Cap Core Fund |
|
|
| Large Cap Value Fund |
|
The Vision Small Cap Stock Fund seeks growth of capital.
The Fund will invest substantially all, but under normal market conditions no less than 65%, of its total assets in common stocks and securities convertible into common stocks of companies with market capitalizations at the time of purchase under $2 billion. The Fund intends to invest 90% or more of its assets in common stocks and securities convertible to common stocks under normal market conditions. Stocks purchased by the Fund generally will be traded on established U.S. markets and exchanges.
The Fund attempts to invest primarily in small-capitalization companies (although the Fund will invest to a lesser extent in mid-capitalization stocks) that its sub-adviser believes have demonstrated one or more of the following characteristics: strong growth, solid management, innovative products, and a steady revenue and earnings history. The sub-adviser emphasizes company specific factors rather than industry factors when deciding to buy or sell securities.
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.
The Vision International Equity Fund seeks long-term capital appreciation, primarily through a diversified portfolio of non-U.S. equity securities.
The Fund will invest substantially all, but under normal market conditions in no event less than 65%, of its total assets in equity or convertible securities in at least eight countries other than the United States. Although it may invest anywhere in the world, the Fund invests primarily in the equity markets listed in the Morgan Stanley Capital International European, Australasia, Far East ("MSCI EAFE") Index® , the benchmark against which the Fund measures the performance of its portfolio. The Fund may also invest in foreign forward currency contracts to achieve allocation strategies. The International Equity Fund Sub-Adviser's investment perspective for the Fund is to invest in the equity securities of non-U.S. markets and companies which are believed to be undervalued based upon internal research and proprietary valuation systems. These processes utilized by the Fund's sub-adviser incorporate internal analysts' considerations of company management, competitive advantage, and each company's core competencies, to determine a stock's fundamental value, which is then compared to the stock's current market price.
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.
The Funds and the Shares offered by this prospectus 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 Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
Each Managed Allocation Fund is also subject to affiliated persons risk. In managing the Managed Allocation Funds , the Advisor and Sub-Advisor will have the authority to select and substitute the underlying funds in which the Managed Allocation Funds will invest. The Adviser and sub-adviser are subject to conflicts of interest in allocating Fund assets among the various underlying funds both because the fees payable to it and/or its affiliates by some underlying funds are higher than the fees payable by other underlying funds and because the Adviser and sub-adviser and their affiliates are also responsible for managing the underlying funds. The Trustees and officers of the Funds may also have conflicting interests in fulfilling their fiduciary duties to both the Funds and the underlying funds.
| Risks |
|
Intermediate Term Bond Fund |
Pennsylvania Municipal Bond Fund |
Managed Allocation Fund- Conservative Growth |
Managed Allocation Fund- Moderate Growth |
Managed Allocation Fund- Aggressive Growth |
Small Cap Stock Fund |
International Equity Fund |
||||||
| Stock Market Risks1 |
|
X | X | X | X | X | ||||||||
| Risks Related to Investing for Growth2 |
|
X | X | X | X | |||||||||
| Risks Related to Investing for Value3 |
|
X | X | X | X | |||||||||
| Risks Related to Company Size4 |
|
X | X | X | X | |||||||||
| Interest Rate Risks5 |
|
X | X | X | ||||||||||
| Credit Risks6 |
|
X | X | X | X | |||||||||
| Call Risks7 |
|
X | X | X | X | |||||||||
| Prepayment Risks8 |
|
X | X | X | X | |||||||||
| Tax Risks9 |
|
X | ||||||||||||
| Risks of Non-diversification10 |
|
X | ||||||||||||
| Pennsylvania Investment Risks11 |
|
X | ||||||||||||
| Risks of Foreign Investing12 |
|
X | X | X | X |
1 The risk posed by the fact that the value of equity securities rise and fall.
2 Due to their relatively high valuations, growth stocks are typically more volatile than value stocks.
3 Due to their relatively low valuations, value stocks are typically less volatile than growth stocks and therefore may lag behind growth stocks in an up market.
4 The risk posed by mid- and small-market capitalization companies tending to have fewer shareholders, less liquidity, more volatility, unproven track records, limited product or service base and limited access to capital. These risks are greater for small-market capitalization stocks.
5 The risk posed by the fact that prices of fixed income securities rise and fall in response to interest rate changes. In addition, this risk increases with the length of the maturity of the debt. Generally, prices of fixed income securities fall when interest rates rise and vice versa.
6 The possibility that an issuer will default on a security by failing to pay interest or principal when due.
7 The possibility that an issuer may redeem a fixed income security before maturity at a price below its current market price.
8 The risk posed by the relative volatility of mortgage-backed securities. The likelihood of prepayments increases in a declining interest rate environment and decrease in a rising interest rate environment. This adversely affects the value of these securities.
9 Failure of a municipal security to meet certain legal requirements may cause the interest received and distributed by the Fund to shareholders to be taxable.
10 Since this Fund is non-diversified, there is a risk that any one issuer may have a greater impact on the Fund's Share price and performance compared to that of a diversified fund.
11 These Funds emphasize investments in Pennsylvania and are more subject to events that may adversely affect Pennsylvania issuers.
12 Foreign, economic, political or regulatory conditions may be less favorable than those of the United States.
This table describes the fees and expenses that you may pay if you buy and hold Class A and Class B Shares of the Funds.
| Shareholder Fees Fees Paid Directly From Your Investment |
Intermediate Term Bond Fund Class A |
Pennsylvania Municipal Income Fund Class A |
Managed Allocation Fund - Conservative Growth Class A |
Managed Allocation Fund - Moderate Growth Class A |
Managed Allocation Fund - Aggressive Growth Class A |
Small Cap Stock Fund |
International Equity Fund |
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| Class A | Class B | Class A | Class B | |||||||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | 4.50% | 4.50% | 5.00% | 5.00% | 5.00% | 5.50% | None | 5.50% | None | |||||||||
| Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) | None | None | None | None | None | None | 5.00% | None | 5.00% | |||||||||
| Expenses That
are Deducted From Fund Assets (as a percentage of projected average net assets) |
||||||||||||||||||
| Management Fee1 | 0.70% | 0.70% | 0.25% | 0.25% | 0.25% | 0.85% | 0.85% | 1.00% | 1.00% | |||||||||
| Distribution (12b-1) Fee2 | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.75% | 0.25% | 0.75% | |||||||||
| Shareholder Services Fee3 | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | |||||||||
| Other Expenses4 | 0.24% | 0.32% | 38.07% | 8.40% | 7.91% | 0.28% | 0.28% | 0.56% | 0.56% | |||||||||
| Total Annual Fund Operating Expenses | 1.44% | 1.52% | 38.82% | 9.15% | 8.66% | 1.63% | 2.13% | 2.06% | 2.56% | |||||||||
| Total Waiver of Fund Expenses | 0.73% | 0.56% | 37.82% | 8.15% | 7.66% | 0.30% | 0.00% | 0.35% | 0.10% | |||||||||
| Total Annual Operating Expenses (After Waivers and Reimbursements) | 0.71% | 0.96% | 1.00% | 1.00% | 1.00% | 1.33% | 2.13% | 1.71% | 2.46% | |||||||||
| 1 The Adviser expects to contractually waive a portion of the management fee. The management fee paid by Intermediate Term Bond Fund, Pennsylvania Municipal Income Fund, Managed Allocation Fund--Conservative Growth, Managed Allocation Fund--Moderate Growth, Managed Allocation Fund--Aggressive Growth and International Equity Fund will be 0.47%, 0.64%, 0.00%, 0.00%, 0.00% and 0.90%, respectively for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000. | ||||||||||||||||||
| 2 The Funds do not expect to pay or accrue the distribution (12b-1) fee for Class A Shares for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000, pursuant to a contractual agreement with the distributor. If the Funds were to accrue or pay distribution (12b-1) fees, they would be able to pay up to 0.25% of each Fund's Class A Shares average daily net assets. | ||||||||||||||||||
| 3 Pursuant to a contractual agreement between the shareholder services provider and the Funds, the Intermediate Term Bond Fund and Pennsylvania Municipal Income Fund will not pay or accrue the shareholder services fee during the period ending December 18, 2001 and the Small Cap Stock Fund Class A Shares will accrue and pay (after the contractual waiver) 0.20% for the period ending December 18, 2001. If the Funds were to accrue or pay shareholders services fees, they would be able to pay up to 0.25% of each Fund's Class A Shares average daily net assets. | ||||||||||||||||||
| 4 In addition to the contractual advisory fee waiver stated in footnote 1, the Adviser expects to reimburse certain operating expenses pursuant to a contractual agreement so that Total Annual Operating Expenses expected to be paid by the Managed Allocation Fund--Conservative Growth, Managed Allocation Fund--Moderate Growth, and Managed Allocation Fund--Aggressive Growth will be 1.00% for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000. | ||||||||||||||||||
The following example is intended to help you compare the cost of investing in the Fund's Class A Shares and Class B Shares with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund's Class A Shares and Class B Shares for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's Class A Shares and Class B Shares operating expenses are before waivers and reimbursements 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:
| Class A Shares | 1 Year | 3 Years | ||
| Intermediate Term Bond Fund | $519 | $771 | ||
| Pennsylvania Municipal Income Fund | $544 | $822 | ||
| Managed Allocation Fund--Conservative Growth | $597 | $4,866 | ||
| Managed Allocation Fund--Moderate Growth | $597 | $1,887 | ||
| Managed Allocation Fund--Aggressive Growth | $597 | $1,826 | ||
| Small Cap Stock Fund | $678 | $990 | ||
| International Equity Fund |
|
$714 |
|
$1,107 |
| Class B Shares | 1 Year | 3 Years | ||
| Small Cap Stock Fund | ||||
| Expenses assuming redemption | $730 | $1,211 | ||
| Expenses assuming no redemption | $216 | $667 | ||
| International Equity Fund | ||||
| Expenses assuming redemption | $762 | $1,319 | ||
| Expenses assuming no redemption | $249 | $781 |
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 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 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.
Entities such as limited partnerships, limited liability companies, business trusts and companies organized outside the United States may issue securities comparable to common or preferred stock.
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 principal types of fixed income securities in which a Fund may invest.
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 are issued or guaranteed by a federal agency or other government sponsored entity (a GSE) acting under federal authority. 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 interest rate and prepayment risks of these mortgage backed 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.
Municipal securities are issued by states, counties, cities and other political subdivisions and authorities. Although many municipal securities are exempt from federal income tax, the Fund may invest in taxable municipal 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 pre-payment risks of the underlying mortgages.
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 pre-payment and interest rate risks for each CMO class.
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.
Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a coupon payment). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate and credit risks of a zero coupon security.
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.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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. Interest income on such securities may be subject to the federal alternative minimum tax (AMT) for individuals and corporations.
Foreign securities are securities of issuers based outside the United States. The Fund considers an issuer to be based outside the United States if:
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.
Depositary 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 outside 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. The foreign securities underlying European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are traded globally or outside the United States. Depositary receipts involve many of the same risks of investing directly in foreign securities, including currency risks and risks of foreign investing.
In order to convert U.S. dollars into the currency needed to buy a foreign security, or to convert foreign currency received from the sale of a foreign security into U.S. dollars, the Fund may enter into spot currency trades. In a spot trade, the Fund agrees to exchange one currency for another at the current exchange rate. The Fund may also enter into derivative contracts in which a foreign currency is an underlying asset. The exchange rate for currency derivative contracts may be higher or lower than the spot exchange rate. Use of these derivative contracts may increase or decrease the Fund's exposure to currency risks.
Foreign government securities generally consist of fixed income securities supported by national, state or provincial governments or similar political subdivisions. Foreign government securities also include debt obligations of supranational entities, such as international organizations designed or supported by governmental entities to promote economic reconstruction or development, international banking institutions and related government agencies. Examples of these include, but are not limited to, the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, the European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of quasi-governmental agencies that are either issued by entities owned by a national, state or equivalent government or are obligations of a political unit that are not backed by the national government's full faith and credit. Further, foreign government securities include mortgage-related securities issued or guaranteed by national, state or provincial governmental instrumentalities, including quasi-governmental agencies.
Repurchase agreements are transactions in which a 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 Funds will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser or sub-adviser.
The Funds' custodian will take possession of the securities subject to repurchase agreements. The Adviser or sub-adviser 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.
The portfolio turnover rate for each Fund will be included in the Financial Highlights section of this prospectus once the Funds begin operations. The Funds are actively managed and, in some cases in response to market conditions, a Fund's portfolio turnover rate may exceed 100%. A higher rate of portfolio turnover increases brokerage and other expenses, which must be borne by the fund and its shareholders. High portfolio turnover also may result in the realization of substantial net short-term capital gains, which are taxable when distributed to shareholders.
Each Fund may temporarily hold investments that are not part of its main investment strategy to try to avoid losses during unfavorable market conditions. These investments may include cash (which will not earn any income). In addition, the Intermediate Term Income Fund may hold money market instruments, including short-term debt securities issued or guaranteed by the U.S. Government or its agencies and securities of money market funds, and the Pennsylvania Municipal Bond Fund may hold taxable municipal obligations of other states, and taxable obligations. These strategies could prevent a Fund from achieving its investment objective and, if utilized by an equity fund, could reduce the Fund's return and affect its performance during a market upswing.
This prospectus describes each Fund's principal investment strategies and the particular types of securities in which each Fund principally invests. Each Fund may, from time to time, make other types of investments and pursue other investment strategies in support of its overall investment goal. These supplemental investment strategies--and the risks involved--are described in detail in the Statement of Additional Information ("SAI"), which is referred to on the back cover of this prospectus.
The Adviser or sub-adviser will determine whether a security is investment grade based upon the credit ratings given by one or more nationally recognized rating services. For example, Standard and Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. 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 or sub-adviser's credit assessment that the security is comparable to investment grade.
The Funds may invest their 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.
The value of equity securities in a Fund's portfolio will rise and fall. These fluctuations could be a sustained trend or a drastic movement. A 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 or sub-adviser attempts to manage market risk by limiting the amount a Fund invests in each company's equity securities. However, diversification will not protect a Fund against widespread or prolonged declines in the stock market.
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.
Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
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. 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.
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 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, a 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, a Fund must rely entirely upon the Adviser's or sub-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 a Fund will fail to meet its obligations. This could cause a Fund to lose the benefit of the transaction or prevent a Fund from selling or buying other securities to implement its investment strategy.
Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, a Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks, or other less favorable characteristics.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage-backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage-backed securities.
For example, when interest rates decline, the values of mortgage-backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage-backed securities.
Conversely, when interest rates rise, the values of mortgage-backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage-backed securities, and cause their value to decline more than traditional fixed income securities.
Generally, mortgage-backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by 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). An increase in the spread will cause the price of the mortgage-backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
In order to be tax-exempt, municipal securities must meet certain legal requirements. Failure to meet such requirements may cause the interest received and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of municipal securities to fall.
Since the Pennsylvania Municipal Income Fund is non-diversified, there is a risk that any one issuer may have a greater impact on the Fund's Share price and performance compared to that of a diversified fund.
The Pennsylvania Municipal Income Fund emphasizes investments in Pennsylvania and is more subject to events that may adversely affect Pennsylvania issuers.
Pennsylvania's economy historically has been dependent upon heavy industry, but has diversified recently into various services, particularly into medical and health services, education and financial services. Agricultural industries continue to be an important part of the economy, including not only the production of diversified food and livestock products, but substantial economic activity in agribusiness and food-related industries. Service industries currently employ the greatest share of nonagricultural workers, followed by the categories of trade and manufacturing. Future economic difficulties in any of these industries could have an adverse impact on the finances of the Commonwealth or its municipalities, and could adversely affect the market value of the Pennsylvania Exempt Securities in the Pennsylvania Municipal Income Fund or the ability of the respective obligors to make payments of interest and principal due on such Securities.
Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent a Fund and its Adviser and sub-adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
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. All of the Funds offer Class A Shares. Only the Vision Small Cap Stock Fund and Vision International Equity Fund offer Class B Shares. The differences between the two classes relate to the timing and amount of asset based sales charge an investor bears directly or indirectly as a shareholder. When the Funds receive your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). The Class B Shares of the Vision Small Cap Stock Fund and Vision International Equity Fund do not charge front-end sales charges.
The value of Shares of the Funds is generally determined based upon the market value of portfolio securities. However, the Funds' Board may determine in good faith that another method of valuing investments is necessary to appraise their fair market value. If an Equity 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 Funds is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Equity Funds generally value 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). The Funds generally value fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
Each 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 each 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 the Funds.
The maximum front-end sales charge that you will pay on an investment in Class A Shares is 5.50% on the Equity Funds, 5.00% on the Asset Allocation Funds, and 4.50% on the Income Funds. The Class B Shares have no front-end sales charge. 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.
Class A Shares of Vision Small Cap Stock Fund and Vision International Equity Fund are sold at their NAV next determined after an order is received, plus a sales charge as follows:
| Purchase Amount | Sales Charge as a Percentage of Public Offering Price |
Sales Charge as a Percentage of NAV |
||
| 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% |
Class A Shares of Vision Managed Allocation Fund--Conservative Growth, Vision Managed Allocation Fund--Moderate Growth and Vision Managed Allocation Fund--Aggressive Growth are sold at their NAV next determined after an order is received, plus a sales charge as follows:
| Purchase Amount | Sales Charge as a Percentage of Public Offering Price |
Sales Charge as a Percentage of NAV |
||
| Less than $50,000 | 5.00% | 5.26% | ||
| $50,000 but less than $100,000 | 4.00% | 4.17% | ||
| $100,000 but less than $250,000 | 3.00% | 3.09% | ||
| $250,000 but less than $500,000 | 2.00% | 2.04% | ||
| $500,000 but less than $1 million | 1.00% | 1.01% | ||
| $1 million or greater | 0.00% | 0.00% |
Class A Shares of Intermediate Term Bond Fund and Pennsylvania Municipal Income Fund are sold at their NAV next determined after an order is received, plus a sales charge as follows:
| Purchase Amount | Sales Charge as a Percentage of Public Offering Price |
Sales Charge as a Percentage of NAV |
||
| Less than $100,000 | 4.50% | 4.71% | ||
| $100,000 but less than $250,000 | 3.75% | 3.90% | ||
| $250,000 but less than $500,000 | 3.00% | 3.09% | ||
| $500,000 but less than $1 million | 2.00% | 2.04% | ||
| $1 million or greater | 0.00% | 0.00% |
The sales charge at purchase may be reduced by:
The sales charge may be eliminated when you purchase Shares:
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.
Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC), as follows:
| Shares Held Up To: | CDSC | |
| 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. | ||
You will not be charged a CDSC when redeeming Class B Shares:
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:
The CDSC is then calculated using the share price at the time of purchase or redemption, whichever is lower.
Vision Small Cap Stock Fund and Vision International Equity Fund offer two share classes: Class A Shares and Class B Shares. Vision Intermediate Term Bond Fund, Vision Pennsylvania Municipal Income Fund, Vision Managed Allocation Fund--Conservative Growth, Vision Managed Allocation Fund--Moderate Growth and Vision Managed Allocation Fund--Aggressive Growth offer one share class: Class A Shares. Each class represents interests in a single portfolio of securities.
This prospectus relates to both Class A Shares and Class B Shares. Each share class has different sales charges and other expenses, which affect their performance.
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).
Each 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 Funds' 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 sub-adviser, 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 Funds have 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 Funds, providing shareholder assistance, communicating or facilitating purchases and redemptions of Shares, and distributing prospectuses and other information.
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 for the Funds must be received by 4:00 p.m. (Eastern time) in order to receive that day's closing 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.
Where a Fund offers more than one Share Class and you do not specify the Class choice on your form of payment, you automatically will receive Class A Shares.
The Funds reserve the right to reject any purchase request. The Funds do not issue share certificates.
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).
To purchase Shares through a representative of M&T Securities, Inc. (M&T Securities) call (800) 724-5445.
Contact your Authorized Dealer for specific instructions on how to purchase Shares.
To purchase Shares of the Funds 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
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.
You may purchase Shares by Federal Reserve wire, whereby your bank sends money to the Funds' bank through the Federal Reserve System. Wire orders will only be accepted on days on which the Funds, M&T Bank and the Federal Reserve wire system are open. Some financial institutions may charge a fee for wire services.
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. Some financial institutions may charge a fee for wire services.
To purchase Shares of the Funds 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.
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.
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.
You may purchase Shares of the Funds 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.
Shares of the Funds can be purchased as an investment for retirement plans or IRA accounts. You may be subject to an annual IRA account fee. Vision Pennsylvania Municipal Income Fund is generally not appropriate for retirement plans or IRA accounts. For further details, contact the Funds and consult a tax adviser.
Each Fund redeems Shares at its NAV next determined after the Fund receives the redemption request in proper form, subject to daily cut off times, less any applicable CDSC. Shares may be redeemed directly from the Funds by telephone or by mail.
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 Funds are 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 Funds reserve 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 Vision Group of Funds 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 Funds, they may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may redeem Shares by sending your written request to:
Vision Group of Funds
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 business days, after receipt of a proper written redemption request.
You must have a signature guarantee on written redemption requests:
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.
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:
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.
A CDSC will not be charged on SWP redemptions of Class B Shares if:
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 SWP 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.
Although the Funds intend to pay Share redemptions in cash, each Fund reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
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.
You may exchange Shares of a Fund for the same share class of another Vision Fund at the NAV next determined after the Funds receive the exchange in proper form.
In order to exchange Shares you must:
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.
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.
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.
You may exchange Class B Shares from one Fund to another 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 Funds may modify or terminate the exchange privilege at any time, and shareholders will be notified prior to any modification or termination. The Funds' 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, limit the number of exchanges allowed, and may bar that shareholder from purchasing other Vision Funds.
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 Vision Funds 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 Funds, the shareholder may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may exchange Shares by mail by sending your written request to:
Vision Group of Funds
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.
You may exchange Shares from one Fund into another Fund on a monthly, quarterly or annual basis. Exchanges must be at least $25 and are subject to 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.
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.
| Fund | Dividends
Declared/ Dividends Paid |
|
| Income Funds | Monthly/Monthly | |
| Equity Funds | Quarterly/Quarterly | |
| International Equity Fund | Annually/Annually |
Dividends (if any) are paid to shareholders invested in a Fund on the record date.
In addition, each 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 a Fund declares a dividend (other than a Fund that declares dividends daily) 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.
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.
The Funds send 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 a Fund holds its assets.
Fund distributions for the Vision Small Cap Stock Fund, Vision International Equity Fund, Vision Managed Allocation Fund--Conservative Growth, Vision Managed Allocation Fund--Moderate Growth andVision Managed Allocation Fund--Aggressive Growth are expected to be primarily capital gains. Fund distributions for the Vision Intermediate Term Income Fund are expected to be primarily dividends.
The Vision Pennsylvania Municipal Income Fund anticipates that substantially all of its income dividends will be "exempt interest dividends," which are exempt from federal income taxes. However, some dividends may be taxable, such as any dividends that are derived from occasional taxable investments, and any distributions of short and long-term capital gains.
Interest on indebtedness incurred by a shareholder to purchase or carry shares of the Pennsylvania Municipal Income Fund generally will not be deductible for federal income tax purposes. Also, if you receive an exempt-interest dividend with respect to any share and the share is held by you for six months or less, any loss on the sale or exchange of the share will be disallowed to the extent of such dividend amount.
You should note that a portion of the exempt-interest dividends paid by the Vision Pennsylvania Municipal Income Fund may constitute an item of tax preference for purposes of determining federal alternative minimum tax liability. Exempt-interest dividends will also be considered along with other adjusted gross income in determining whether any Social Security or railroad retirement payments received by you are subject to federal income taxes.
Shareowners may also be subject to state and local taxes on distributions and redemptions. State income taxes may not apply, however, to the portions of each Fund's distributions, if any, that are attributable to interest on federal securities or interest on securities of the particular state or localities within the state.
Shareholders will not be subject to Pennsylvania Personal Income Tax on distributions from the Vision Pennsylvania Municipal Income Fund attributable to interest income from Pennsylvania Exempt Securities or from obligations of the United States, its territories and certain of its agencies and instrumentalities ("Federal Exempt Securities," and, together with Pennsylvania Municipal Securities, called "Exempt Securities"). However, Pennsylvania personal income tax will apply to distributions to Pennsylvania shareholders from the Vision Pennsylvania Municipal Income Fund attributable to gain realized on the disposition of any investment, including Exempt Securities, or to interest income from investments other than Exempt Securities. Pennsylvania shareholders also will be subject to the Pennsylvania personal income tax on any gain they realize on the disposition of shares in the Vision Pennsylvania Municipal Income Fund .
Distributions attributable to interest from Exempt Securities are not subject to the Philadelphia School District Net Income Tax. However, for Philadelphia residents, distributions attributable to gain from the disposition of Exempt Securities are subject to the Philadelphia School District Net Income Tax, except that distributions attributable to gain on any investment held for more than six months are exempt. A shareholder's gain on the disposition of shares in the Vision Pennsylvania Municipal Income Fund that he or she has held for more than six months will not be subject to the Philadelphia School District Net Income Tax.
Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.
The Board of Trustees governs the Funds. The Board selects and oversees the Adviser, M&T Bank. The Adviser manages the Funds' 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 $4.8 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 funds and $244.9 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 each Fund, equal to a percentage of each Fund's average daily net assets as follows:
| Fund Name | Advisory Fee | |
| Vision Intermediate Term Bond Fund | 0.70% | |
| Vision Pennsylvania Municipal Income Fund | 0.70% | |
| Vision Managed Allocation Funds | 0.25% | |
| Vision Small Cap Stock Fund | 0.85% | |
| Vision International Equity Fund | 1.00% |
The Adviser may voluntarily waive a portion of its fee or reimburse the Funds for certain operating expenses.
The Adviser has entered into a Sub-Advisory Agreement with Martindale Andres & Company, Inc. ("Martindale"), Four Falls Corporate Center, Suite 200, West Conshohocken, Pennsylvania 19428, which subadvises the Small Cap Stock Fund . Martindale is also a wholly-owned subsidiary of the Adviser. Martindale was organized in 1989 and was acquired by the Adviser in October, 2000. Subject to the supervision of the Adviser and the Board of Trustees of the Funds and in accordance with the investment objective and restrictions of each Fund, Martindale manages the Small Cap Stock Fund , makes decisions with respect to and places orders for all purchases and sales of its portfolio securities, and maintains each such Fund's records relating to such purchases and sales. For its services, Martindale receives from the Adviser a fee based on a percentage of the Small Cap Stock Fund's average daily net assets.
The Adviser has entered into a Sub-Advisory agreement with Brinson Partners, Inc., 209 South LaSalle Street, Chicago, Illinois 60604 ("Brinson"), which subadvises the International Equity Fund . Brinson is a wholly owned subsidiary of UBS AG. Brinson was organized in 1989 and was acquired by Swiss Bank Corporation, a predecessor company of UBS AG. Subject to the supervision of the Adviser and the Board of Trustees of the Funds and in accordance with the investment objective and restrictions of the International Equity Fund , Brinson manages the International Equity Fund , makes decisions with respect to and places orders for all purchases and sales of its portfolio securities, and maintains the records relating to such purchases and sales. For its services, Brinson receives a fee from the Adviser based on a percentage of the International Equity Fund's average daily net assets.
William C. Martindale, Jr. is responsible for the day-to-day management of the Small Cap Stock Fund's portfolio and has over 25 years of equity investment experience. Mr. Martindale also managed the predecessor collective investment fund and common trust fund to the Small Cap Stock Fund since July 1, 1994. Mr. Martindale co-founded Martindale in 1989 and serves as its Chief Investment Officer. Prior to 1989, Mr. Martindale served in various investment-related capacities with Dean Witter Reynolds.
Robert J. Truesdell co-manages the Intermediate Term Bond Fund . In addition to his responsibilities with respect to this Fund, Mr. Truesdell manages individual investment accounts and oversees the investment activities of M&T Bank's money market and fixed income products as well as the money market funds in the Vision Group of Funds. Mr. Truesdell joined M&T Bank as Vice President and Fixed Income Manager in 1988. Mr. Truesdell holds an MBA in Accounting from the State University of New York at Buffalo.
Colleen M. Marsh is the co-portfolio manager for both the Intermediate Term Bond Fund's portfolio and Pennsylvania Municipal Income Fund's portfolio. She joined M&T Bank as a Vice President in October 2000. Additionally, Ms. Marsh is a senior portfolio manager in the fixed income division of Martindale. She has over 12 years of experience managing fixed income portfolios and funds for clients. She spent the first 10 years of her investment management career with Keystone Financial, Inc. ("Keystone"), and has managed the Intermediate Term Income Fund (a predecessor CIF to the Intermediate Term Income Fund ) for Keystone over this time period.
Mark Tompkins is a co-portfolio manager of the Pennsylvania Municipal Income Fund's portfolio. He is a Senior Portfolio Manager in M&T Capital Advisors Group. He is responsible for managing fixed income portfolios and the trading of fixed income securities for trust accounts. Prior to joining M&T Bank in August 1998, Mr. Tompkins spent over 4 years as a Portfolio Manager with Karpus Investment Management in Rochester, New York. At Karpus, he was responsible for managing fixed income investments for various portfolios including corporations and high net worth individuals. Mr. Tompkins holds a B.S. in Mechanical Engineering from Oakland University and a M.B.A. in Finance and Accounting from Syracuse University. He is a Chartered Financial Analyst candidate and a member of the Bond Club of Buffalo.
The Managed Allocation Funds are managed by Thomas R. Pierce and Mark Stevenson. Mr. Pierce is a Vice President with M&T Bank. He joined M&T Bank in January 1995 as Vice President from Merit Investment Advisors where he acted as Director of Fixed Income Product and Trading since 1993. For the period from 1987 to 1993, Mr. Pierce served as Fixed Income Manager at ANB Investment Management Company, where he directed the management of $3.5 billion of active and passive fixed income portfolios. Mr. Pierce is a Chartered Financial Analyst and has a B.A. in Economics from Washington University, and an MBA from the University of Chicago. Mr. Stevenson is a Chartered Financial Analyst. He is a Vice President with M&T Bank. Additionally, Mr. Stevenson has been with Martindale since 1990, and for the past five years has managed retirement plan and personal trust assets for the clients of Martindale.
Brinson's Global Equity Committee is responsible for the day-to-day management of the International Equity Fund's portfolio. The Global Equity Committee is co-chaired by Richard Carr, Managing Director, who has more than 34 years experience in the investment industry, and Jeff Diermeier, Managing Director, who has more than 24 years experience in the investment industry.
Each Fund's fiscal year end is April 30. As this is the Funds' first fiscal year, financial information is not yet available.
A Statement of Additional Information (SAI) dated November 8, 2000 is incorporated by reference into this Prospectus. Additional information about each Fund's investments is available in the Funds' SAI and, after the Funds have begun operations, in their Annual and Semi-Annual Reports to shareholders. The Annual Report discusses market conditions and investment strategies that significantly affected each Fund's performance during their last fiscal year. To obtain the SAI, the Annual and Semi-Annual Reports (when available) and other information without charge, and make inquiries, call (800) 836-2211.
You can obtain information about the Funds (including the SAI) by writing to or visiting the Public Reference Room in Washington, D.C. 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 e-mail at [email protected] or by writing to the SEC's Public Reference Section, Washington D.C. 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 92830F752
Cusip 92830F745
Cusip
92830F737
Cusip 92830F729
Cusip 92830F711
Cusip 92830F695
Cusip
92830F687
Cusip 92830F679
Cusip 92830F661
25923 (11/00)
VISION GROUP OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 8, 2000
================================================================================
VISION INTERMEDIATE TERM BOND FUND
CLASS A SHARES
VISION PENNSYLVANIA MUNICIPAL INCOME FUND
CLASS A SHARES
VISION MANAGED ALLOCATION FUND - CONSERVATIVE GROWTH
CLASS A SHARES
VISION MANAGED ALLOCATION FUND - MODERATE GROWTH
CLASS A SHARES
VISION MANAGED ALLOCATION FUND - AGGRESSIVE GROWTH
CLASS A SHARES
VISION SMALL CAP STOCK FUND
CLASS A SHARES AND CLASS B SHARES
VISION INTERNATIONAL EQUITY 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 Funds dated November 8, 2000.
Obtain the Prospectus without charge by calling (800) 836-2211 (in the Buffalo
area call (716) 635-9368).
CONTENTS
================================================================================
HOW ARE THE FUNDS ORGANIZED? 2
SECURITIES IN WHICH THE FUNDS INVEST 2
NVESTMENT LIMITATIONS 27
DETERMINING MARKET VALUE OF SECURITIES 29
WHAT DO SHARES COST? 29
HOW ARE THE FUNDS SOLD? 31
EXCHANGING SECURITIES FOR SHARES 31
SUBACCOUNTING SERVICES 32
REDEMPTION IN KIND 32
ACCOUNT AND SHARE INFORMATION 32
TAX INFORMATION 32
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS? 33
HOW DO THE FUNDS MEASURE PERFORMANCE? 36
INVESTMENT RATINGS 41
ADDRESSES BACK COVER PAGE
CUSIP 92830F752
92830F745
92830F737
92830F729
92830F711
92830F695
92830F687
92830F679
92830F661
25925 (11/00)
================================================================================
HOW ARE THE FUNDS ORGANIZED?
Each Fund is a diversified portfolio of Vision Group of Funds (Trust) except for
Vision Pennsylvania Municipal Income Fund which is a non-diversified portfolio
of the Trust. The Trust is an open-end, management investment company that was
established as a trust under the laws of the State of Delaware on August 11,
2000. The Trust may offer separate series of shares representing interests in
separate portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Funds, known as Class A Shares and Class B Shares (Shares). This SAI relates to
both classes of Shares. All Funds offer Class A Shares. Only Vision Small Cap
Stock Fund and Vision International Equity Fund offer Class B Shares. The Funds'
investment adviser is Manufacturers and Traders Trust Company (M&T Bank)
(Adviser). The sub-adviser for the International Equity Fund is Brinson
Partners, Inc. and the sub-adviser for the Small Cap Stock Fund is Martindale
Andres & Company, Inc.
SECURITIES IN WHICH THE FUNDS INVEST
================================================================================
In pursuing its investment strategy, each Fund may invest in the following types
of securities for any purpose that is consistent with the Fund's investment
goal.
VISION INTERMEDIATE TERM BOND FUND
The investment objectives of the Bond Fund are current income with long-term
growth of capital as a secondary objective. Under normal market conditions, the
Bond Fund will invest substantially all, but under such conditions in no event
less than 65%, of its total assets in investment grade fixed income securities
of all types, including variable and floating rate securities and variable
amount master demand notes. A portion of the Bond Fund (but under normal market
conditions no more than 35% of its total assets) may be invested in securities
of other investment companies, preferred stocks and, for cash management
purposes, Short-Term Obligations (as described above), and the Bond Fund may
engage in other investment techniques described below. Fixed income securities
include bonds, debentures, notes, mortgage-backed and asset-backed securities,
state, municipal or industrial revenue bonds, obligations issued or supported as
to principal and interest by the U.S. Government or its agencies or
instrumentalities ("Government Obligations") and debt securities convertible
into, or exchangeable for, common stocks. In addition, a portion of the Bond
Fund may from time to time be invested in participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Bond Fund may invest up to 100% of its total assets in
Short-Term Obligations and cash when deemed appropriate for temporary defensive
purposes as determined by its Sub-Advisor to be warranted due to current or
anticipated market conditions. However, to the extent that the Bond Fund is so
invested, it may not achieve its investment objectives.
Under normal market conditions, the Bond Fund expects to invest primarily in
Government Obligations, mortgage-backed securities and in debt obligations of
United States corporations. The Bond Fund also intends that, under normal market
conditions, its portfolio will maintain a dollar-weighted average maturity of
three to ten years.
The Bond Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
Government Obligations. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association
("GNMA") and the Export-Import Bank of the United States, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the Treasury; others are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still others, such
as those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation ("FHLMC"), are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Bond Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk with respect thereto is minimal.
The Bond Fund also expects to invest in bonds, notes and debentures of a wide
range of U.S. corporate issuers. Such obligations may be secured or unsecured
promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
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.
The Bond Fund invests primarily in debt securities which are rated at the time
of purchase within the four highest rating groups assigned by one or more
appropriate NRSROs or, if unrated, which the Fund's Sub-Advisor deems to be of
comparable quality to securities so rated. Securities within the fourth highest
rating group are considered by Moody's Investors Service, Inc. ("Moody's") to
have some speculative characteristics, and while interest payments and principal
security appears adequate for the present, such securities lack certain
protective elements or may be characteristically unreliable over any great
period of time. For a description of the rating symbols of the NRSROs, see the
Appendix to the Statement of Additional Information.
The Bond Fund may also invest in U.S. dollar denominated international bonds for
which the primary trading market is in the United States ("Yankee Bonds"), or
for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
MORTGAGE-BACKED SECURITIES. The Bond Fund also invests in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by nongovernmental entities which are rated, at the time of
purchase, within the four highest bond rating categories assigned by one or more
appropriate NRSROs, or, if unrated, which its Sub-Advisor deems to be of
comparable quality to securities so rated. There are currently three basic types
of mortgage-backed securities: (1) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC; (2) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; and (3) those issued by
private issuers that represent an interest in or are collateralized by whole
mortgage loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
Such mortgage-backed securities may have mortgage obligations directly backing
such securities, including among others, conventional thirty year fixed rate
mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgage obligations vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. In addition,
prepayment rates will be used to determine a security's estimated average life
and the Bond Fund's dollar-weighted average portfolio maturity. Accelerated
prepayments have an adverse impact on yields for pass-through securities
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligations are repaid. The opposite is
true for pass-through securities purchased at a discount. The Bond Fund may
purchase mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Bond Fund may also acquire
collateralized mortgage obligations or "CMOs" and stripped mortgage-backed
securities. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively referred
to as "Mortgage Assets"). Payments of principal or interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs. CMOs may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans.
IOS AND POS. Stripped mortgage-backed securities are securities representing
interests in a pool of mortgages the cash flow from which has been separated
into interest and principal components. "IOs" (interest only securities) receive
the interest portion of the cash flow while "POs" (principal only securities)
receive the principal portion. Stripped mortgage-backed securities may be issued
by U.S. Government agencies or by private issuers, such as mortgage banks,
commercial banks, investment banks, savings and loan associations and special
purpose subsidiaries of the foregoing. As interest rates rise and fall, the
value of IOs tends to move in the same direction as interest rates. The value of
other mortgage-backed securities described herein, like other debt instruments,
will tend to move in the opposite direction compared to interest rates. POs
perform best when prepayments on the underlying mortgages rise since this
increases the rate at which the investment is returned and the yield to maturity
on the PO. When payments on mortgages underlying a PO are slow, the life of the
PO is lengthened and the yield to maturity is reduced.
The Bond Fund may purchase stripped mortgage-backed securities for hedging
purposes to protect the Bond Fund against interest rate fluctuations. For
example, since an IO will tend to increase in value as interest rates rise, it
may be utilized to hedge against a decrease in value of other fixed-income
securities in a rising interest rate environment. If the Income Fund purchases a
mortgage-related security at a premium, all or part of the premium may be lost
if there is a decline in the market value of the security, whether resulting
from changes in interest rates or prepayments in the underlying mortgage
collateral. Moreover, with respect to stripped mortgage-backed securities, if
the underlying mortgage securities experience greater than anticipated
prepayments of principal, the Bond Fund may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category by an NRSRO. Stripped mortgage-backed securities may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. The market value
of the class consisting entirely of principal payments can be extremely volatile
in response to changes in interest rates. The yields on stripped mortgage-backed
securities that receive all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their cash
flow patterns are also volatile and there is a greater risk that the initial
investment will not be fully recouped. No more than 10% of the Bond Fund's total
assets will be invested in IOs and in POs.
ASSET-BACKED SECURITIES. Asset-backed securities are similar to mortgage-backed
securities except that instead of using mortgages to collateralize the
obligations, a broad range of other assets may be used as collateral, primarily
automobile and credit card receivables and home equity loans. Such receivables
and loans are securitized in pass-through structures similar to the mortgage
pass-through or pay-through structures described above.
Certain debt securities such as, but not limited to, mortgage-backed securities,
CMOs and asset-backed securities, as well as other securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of compliance with stated maturity policies and calculation of the Bond
Fund's dollar-weighted average maturity, the effective maturity of such
securities will be used.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Bond Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and that provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between the Bond Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, the
Bond Fund may demand payment of principal and accrued interest at any time.
While the notes are not typically rated by NRSROs, the Fund's Adviser must
determine them to be of comparable credit quality to commercial paper in which
the Bond Fund could invest. The Fund's Adviser will consider the earning power,
cash flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining dollar-weighted average portfolio maturity, a variable
amount master demand note will be deemed to have a maturity equal to the period
of time remaining until the principal amount can be recovered from the issuer
through demand.
INTEREST RATE SWAPS. The Intermediate Term Bond Fund may engage in interest rate
swaps in order to attempt to protect its investments from interest rate
fluctuations. The Intermediate Term Bond Fund intends to use interest rate swaps
as a hedge and not as a speculative investment. Interest rate swaps involve the
exchange of the Intermediate Term Bond Fund with another party of their
respective rights to receive interest (e.g., an exchange of fixed rate payments
for floating rate payments). For example, if the Intermediate Term Bond Fund
holds an interest paying security whose interest rate is reset once a year, it
may swap the right to receive at a rate that is reset daily. Such a swap
position would offset changes in the value of the underlying security because of
subsequent changes in interest rates. This would protect the Intermediate Term
Bond Fund from a decline in the value of the underlying security due to rising
rates, but would also limit its ability to benefit from falling interest rates.
The Intermediate Term Bond Fund will enter into interest rate swaps only on a
net basis (i.e., the two payments streams will be netted out, with the
Intermediate Term Bond Fund receiving or paying as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the
Intermediate Term Bond Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or liquid high grade debt securities having an aggregate net asset value at
least equal to the accrued excess, will be maintained in a segregated account by
the Intermediate Term Bond Fund's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If the Intermediate Term Bond Fund Adviser is incorrect in its forecasts of
market values, interest rates and other applicable factors, the investment
performance of the Intermediate Term Bond Fund will be less favorable than it
would have been if this investment technique were never used. Interest rate
swaps do not involve the delivery of securities or other underlying assets or
principal. Thus, if the other party to an interest rate swap defaults, the
Intermediate Term Bond Fund's risk of loss consists of the net amount of
interest payments that the Intermediate Term Bond Fund is contractually entitled
to receive.
VISION PENNSYLVANIA MUNICIPAL INCOME FUND
The investment objectives of the Pennsylvania Income Fund are income which is
exempt from federal income tax and Pennsylvania state income tax, although such
income may be subject to the federal alternative minimum tax when received by
shareholders, and preservation of capital. Under normal market conditions, at
least 80% of the net assets of the Pennsylvania Income Fund are invested in a
portfolio of debt obligations consisting of bonds, notes, commercial paper and
certificates of indebtedness, issued by or on behalf of the Commonwealth of
Pennsylvania, or any county, political subdivision or municipality thereof
(including any agency, board, authority or commission of any of the foregoing),
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal and Pennsylvania income taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax)
("Pennsylvania Exempt Securities") and in debt obligations issued by the
Government of Puerto Rico and such other governmental entities whose debt
obligations, either by law or treaty, generate interest income which is exempt
from federal and Pennsylvania state income taxes (but may be treated as a
preference item for individuals for purposes of the federal alternative minimum
tax) (together, with Pennsylvania Exempt Securities, called "Exempt
Securities"). In addition, under normal market conditions, at least 65% of the
Fund's net assets are invested in Pennsylvania Exempt Securities. As a matter of
fundamental policy, under normal market conditions, at least 80% of the net
assets of the Fund are invested in securities, the interest on which is exempt
from federal income tax but may be subject to the federal alternative minimum
tax when received by certain Shareholders. To the extent such securities are not
Pennsylvania Exempt Securities, the income therefrom may be subject to
Pennsylvania income taxes. With respect to the Fund's objective of preserving
capital, the Adviser will attempt to protect principal value in a rising
interest rate environment and enhance principal value in a declining interest
rate environment.
The two principal classifications of Exempt Securities which may be held by the
Pennsylvania Income Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund may also invest in "moral obligation" securities, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
securities is unable to meet its debt service obligations from current revenues,
it may draw on a reserve fund, the restoration of which is a moral commitment
but not a legal obligation of the state or municipality which created the
issuer.
The Fund invests in Exempt Securities which are rated at the time of purchase
within the four highest rating groups assigned by one or more NRSROs for bonds
and within the two highest rating groups for notes, tax-exempt commercial paper,
or variable rate demand obligations, as the case may be. The Fund may also
purchase Exempt Securities which are unrated at the time of purchase but are
determined to be of comparable quality by its Adviser. The applicable Exempt
Securities ratings are described in the Appendix to this Statement of Additional
Information. Securities within the fourth highest rating group are considered by
Moody's to have some speculative characteristics, and while interest payments
and principal security appears adequate for the present, such securities lack
certain protective elements or may be characteristically unreliable over any
great period of time.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
three to ten years. Within this range, the Fund's Adviser may vary the average
maturity substantially in anticipation of a change in the interest rate
environment. There is no limit as to the maturity of any individual security.
The Fund may hold uninvested cash reserves pending investment during temporary
defensive periods or if, in the opinion of its Adviser, suitable Exempt
Securities are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested. Uninvested cash reserves will not earn
income.
OTHER INVESTMENTS. Under normal market conditions, at least 80% of the net
assets of the Fund will be invested in Exempt Securities. However, up to 20% of
the net assets of the Fund may be invested in municipal obligations of other
states, and any political subdivision, county or municipality thereof, which are
not Exempt Securities and in taxable obligations if, for example, suitable
Exempt Securities are unavailable or for cash management purposes. In addition,
the Fund may invest up to 100% of its assets in such securities when deemed
appropriate for temporary defensive purposes as determined by the Fund's Adviser
to be warranted due to market conditions. Such taxable obligations consist of
Government Obligations and Short-Term Obligations (as described above). Under
such circumstances and during the period of such investment, the Fund may not
achieve its stated investment objectives.
The Fund has no limit to the extent that it may invest its net assets in Exempt
Securities, the interest income from which may be treated as a preference item
for purposes of the federal alternative minimum tax. To the extent the Fund
invests in these securities, individual Shareholders, depending on their own tax
status, may be subject to alternative minimum tax on that part of the Fund's
distributions derived from these bonds.
Opinions relating to the validity of Exempt Securities and to the exemption of
interest thereon from federal and Pennsylvania state income taxes are normally
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Fund nor the Adviser will review the proceedings relating to the
issuance of Exempt Securities or the basis for such opinions.
FLOATING AND VARIABLE RATE SECURITIES AND ZERO COUPON SECURITIES. Exempt
Securities purchased by the Fund may include rated and unrated variable and
floating rate obligations the interest on which is tax-exempt. The Fund may also
invest in zero coupon securities. Such securities are more fully described below
under "Risk Factors and Investment Techniques."
The Fund may also purchase floating and variable rate demand notes and bonds,
which are tax exempt obligations ordinarily having stated maturities in excess
of one year, but which permit the holder to demand payment of principal at any
time, or at specified intervals. Variable rate demand notes include master
demand notes which are obligations that permit the Fund to invest fluctuating
amounts, at varying rates of interest, pursuant to direct arrangements between
the Fund, as lender, and the borrower. These obligations permit daily changes in
the amount borrowed. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. Use of letters of
credit or other credit support arrangements will not adversely affect the
tax-exempt status of these obligations. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value, plus accrued interest. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund will
meet the quality criteria established for the purchase of Exempt Securities. The
Fund's Adviser will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations in the Fund's
portfolio.
PARTICIPATION INTERESTS. The Fund may purchase from financial institutions
participation interests in Exempt Securities (such as industrial development
bonds and municipal lease/purchase agreements). A participation interest gives
the Fund an undivided interest in the Exempt Security in the proportion that the
Fund's participation interest bears to the total principal amount of the Exempt
Security. These instruments may have fixed, floating or variable rates of
interest. If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Board of Trustees
has determined meets the prescribed quality standards for banks in whose
securities the Fund may invest, or the payment obligation otherwise will be
collateralized by Government Obligations. For certain participation interests,
the Fund will have the right to demand payment, on not more than seven days'
notice, for all or any part of the Fund's participation interest in the Exempt
Security, plus accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under the terms of the
Exempt Security, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio.
CUSTODIAL RECEIPTS. The Fund may purchase custodial receipts representing the
right to receive certain future principal and interest payments on Exempt
Securities which underlie the custodial receipts. A number of different
arrangements are possible. In a typical custodial receipt arrangement, an issuer
or a third party owner of Exempt Securities deposits such obligations with a
custodian in exchange for two classes of custodial receipts. The two classes
have different characteristics, but, in each case, payments on the two classes
are based on payments received on the underlying Exempt Securities. One class
has the characteristics of a typical auction rate security, where at specified
intervals its interest rate is adjusted, and ownership changes, based on an
auction mechanism. This class' interest rate generally is expected to be below
the coupon rate of the underlying Exempt Securities and generally is at a level
comparable to that of an Exempt Security of similar quality and having a
maturity equal to the period between interest rate adjustments. The second class
bears interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but in
this case inversely to changes in the rate of interest of the first class. If
the interest rate on the first class exceeds the coupon rate of the underlying
Exempt Securities, its interest rate will exceed the rate paid on the second
class. In no event will the aggregate interest paid with respect to the two
classes exceed the interest paid by the underlying Exempt Securities. The value
of the second class and similar securities should be expected to fluctuate more
than the value of an Exempt Security of comparable quality and maturity and
their purchase by the Fund should increase the volatility of its net asset value
and, thus, its price per share. These custodial receipts are sold in private
placements. The Fund also may purchase directly from issuers, and not in a
private placement, Exempt Securities having characteristics similar to custodial
receipts. These securities may be issued as part of a multi-class offering and
the interest rate on certain classes may be subject to a cap or a floor.
The Fund may use one or more of the investment techniques described in "Other
Investment Policies and Risk Considerations" below. Use of such techniques may
cause the Fund to earn income which would be taxable to its shareholders.
VISION MANAGED ALLOCATION FUNDS
The allocation of each Managed Allocation Fund's assets among the Underlying
Funds will initially be made by the Fund's Adviser within the percentage ranges
set forth in the prospectus. However, the particular Underlying Fund in which
each Managed Allocation Fund may invest, the allocation ranges, and the
investments in each Underlying Fund may be changed from time to time without
shareholder approval. The Adviser will make allocation decisions according to
its outlook for the economy, financial markets, and relative market valuation of
the Underlying Funds.
Each Managed Allocation Fund's net asset value will fluctuate with changes in
the value of the Underlying Funds in which they invest. Each Managed Allocation
Fund's investment return is diversified by its investment in the Underlying
Funds.
To the extent a Managed Allocation Fund or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Managed Allocation Funds are concentrated in the
Underlying Funds, so each Managed Allocation Fund's performance is directly
related to the performance of the Underlying Funds.
VISION SMALL CAP STOCK FUND
The investment objective of the Small Cap Stock Fund is growth of capital. Any
income earned by the Small Cap Stock Fund will be incidental to its overall
objective of growth of capital. Under normal market conditions, the Small Cap
Stock Fund will invest substantially all, but under such conditions in no event
less than 65%, of its total assets in common stocks and securities convertible
into common stocks of companies with market capitalizations ranging between $100
million and $5 billion. Under normal market conditions, the Small Cap Stock Fund
intends to operate with a fully invested philosophy, E.G., the Small Cap Stock
Fund will generally invest 90% or more of its assets in common stocks and
securities convertible into common stocks.
The Small Cap Stock Fund invests in high quality small capitalization companies
that its Sub-Advisor believes have demonstrated one or more of the following
characteristics: (1) strong management team with an ownership stake in the
business; (2) solid revenue and earnings history; (3) unique position in the
company's targeted market; (4) innovative products and solid new product
distribution channels; and (5) solid balance sheet. In addition, the Sub-Advisor
attempts to invest in companies that are selling at earnings multiples which the
Sub-Advisor believes to be less than their expected long-term growth rate. The
Fund may also invest to a lesser extent in mid capitalization companies.
The Fund's Sub-Advisor employs a "bottom-up" approach in its security selection
process. A "bottom-up" approach emphasizes company specific factors rather than
industry factors when making buy/sell decisions. As a result of this approach,
the Fund's Sub-Advisor does not utilize a sector neutral strategy. The
Sub-Advisor does not seek to have the Small Cap Stock Fund have representation
in all economic sectors; therefore, the Small Cap Stock Fund's sector weightings
may be overweighted and/or underweighted relative to its appropriate peers
and/or benchmarks.
For purposes of the foregoing, securities convertible into common stocks include
convertible bonds, convertible preferred stock, options and rights. The
securities purchased by the Small Cap Stock Fund are generally traded on
established U.S. markets and exchanges, although as discussed below, the Small
Cap Stock Fund may invest in restricted or privately placed securities. Under
normal market conditions, the Small Cap Stock Fund may also invest up to 35% of
its total assets in warrants, foreign securities through sponsored ADRs,
securities of other investment companies and REITs, cash and Short-Term
Obligations and may engage in other investment techniques described below.
VISION INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is capital
appreciation, primarily through a diversified portfolio of non-U.S. equity
securities. Under normal market conditions, the International Equity Fund will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in equity securities of companies domiciled outside the
United States. That portion of the Fund not invested in equity securities is, in
normal circumstances, invested in U.S. and foreign government securities,
high-grade commercial paper, certificates of deposit, foreign currency, bankers
acceptances, cash and cash equivalents, time deposits, repurchase agreements and
similar money market instruments, both foreign and domestic. The Fund may invest
in convertible debt securities of foreign issuers which are convertible into
equity securities at such time as a market for equity securities is established
in the country involved.
The International Equity Fund Sub-Advisor is Brinson Partners, Inc. (Brinson).
Brinson's investment perspective for the Fund is to invest in the equity
securities of non-U.S. markets and companies which Brinson believes are
undervalued based upon internal research and proprietary valuation systems. This
international equity strategy reflects Brinson's decisions concerning the
relative attractiveness of asset classes, the individual international equity
markets, industries across and within those markets, other common risk factors
within those markets and individual international companies. Brinson initially
identifies those securities which it believes to be undervalued in relation to
the issuer's assets, cash flow, earnings and revenues. The relative performance
of foreign currencies is an important factor in the Fund's performance. Brinson
may attempt to manage the Fund's exposure to various currencies to take
advantage of different yield, risk and return characteristics. Brinson's
proprietary valuation model determines which securities are potential candidates
for inclusion in the Fund.
The benchmark for the Fund's performance is the Morgan Stanley Capital
International Europe, Australasia, Far East ("EAFE") Index(R) (the "Benchmark").
The Benchmark is a market driven, broad based index which includes non-U.S.
equity markets in terms of capitalization and performance. The Benchmark is
designed to provide a representative total return for all major stock exchanges
located outside the U.S. From time to time, Brinson may substitute securities in
an equivalent index when it believes that such securities in the index more
accurately reflect the relevant international market.
As a general matter, Brinson will purchase for the Fund only securities
contained in the underlying index relevant to the Benchmark. Brinson will
attempt to enhance the long-term risk and return performance of the Fund
relative to the Benchmark by deviating from the normal Benchmark mix of country
allocation and currencies in reaction to discrepancies between current market
prices and fundamental values. The active management process is intended to
produce a superior performance relative to the Benchmark index.
The Fund will under normal market conditions generally purchase securities of
companies domiciled in a minimum of eight countries outside the United States.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
The investment policies described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
ability to utilize. Some of these policies may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular policy,
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
EQUITIES. Equity securities such as those in which the Small Cap Stock Fund and
International Equity Fund may invest are more volatile and carry more risks than
some other forms of investment, including investments in high grade fixed income
securities. Therefore, each Fund is subject to stock market risk, e.g., the
possibility that stock prices in general will decline over short or even
extended periods of time.
Equity securities of micro-cap companies may offer a greater capital
appreciation potential but are more volatile and carry more risk than some other
forms of investment, including investments in equity securities of larger, more
established companies or high grade fixed income securities. Investments in
micro-cap companies represent some of the smaller and least liquid equity
securities in the U.S. markets.
GROWTH-ORIENTED COMPANIES. The Small Cap Stock Fund is intended for investors
who have a long-term investment time horizon and who can accept the higher risks
involved in seeking potentially higher capital appreciation through investments
in growth oriented companies. A growth oriented company typically invests most
of its net income in its enterprise and does not pay out much, if any, in
dividends. Accordingly, the Small Cap Stock Fund does not anticipate any
significant distributions to Shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Small Cap Stock Fund. In addition, smaller
capitalized companies generally have limited product lines, markets and
financial resources and are dependent upon a limited management group. The
securities of less seasoned companies and/or smaller capitalized companies may
have limited marketability, which may affect or limit their liquidity and
therefore the ability of the Small Cap Stock Fund to sell such securities at the
time and price they deem advisable. In addition, such securities may be subject
to more abrupt or erratic market movements over time than securities of more
seasoned and/or larger capitalized companies or the market as a whole.
BONDS. Since the Bond Fund and Pennsylvania Income Fund each invests in bonds,
investors in such a Fund are exposed to bond market risk, i.e., fluctuations in
the market value of bonds. Bond prices are influenced primarily by changes in
the level of interest rates. When interest rates rise, the prices of bonds
generally fall; conversely, when interest rates fall, bond prices generally rise
although certain types of bonds are subject to the risks of prepayment as
described above when interest rates fall. The values of debt securities also may
be affected by change in the credit rating or financial condition of the issuing
entities. While bonds normally fluctuate less in price than stocks, there have
been in the recent past extended periods of cyclical increases in interest rates
that have caused significant declines in bond prices and have caused the
effective maturity of securities with prepayment features to be extended, thus
effectively converting short or intermediate term securities (which generally
have less market risk and less fluctuation in market value) into longer term
securities (the prices of which generally are more volatile).
Depending upon the prevailing market conditions, the Funds' Adviser may purchase
debt securities at a discount from face value, which produces a yield greater
than the coupon rate. Conversely, if debt securities are purchased at a premium
over face value, the yield will be lower than the coupon rate. In making
investment decisions, the Funds' Adviser will consider many factors other than
current yield, including the preservation of capital, maturity, and yield to
maturity.
NET ASSET VALUE. Each Fund's net asset value generally will not be stable and
should fluctuate based upon changes in the value of such Fund's portfolio
securities. Depending upon the performance of each Funds' investments, the net
asset value per share of a Fund may decrease instead of increase.
The Adviser and/or sub-advisers manage the Funds generally without regard to
restrictions on portfolio turnover. Especially with respect to the Income Fund,
the Adviser intends to manage actively those Funds' portfolios, which may result
in high portfolio turnover rates. For more information regarding the effects of
high portfolio turnover see "Portfolio Turnover" below. DERIVATIVES. The Bond
Fund and Pennsylvania Income Fund may invest in any one or more of the following
securities: certain variable or floating rate securities, and, as described
below, the Income Fund may invest in mortgage-backed securities, and the Small
Cap Stock Fund, International Equity Fund, the Bond Fund and the Pennsylvania
Income Fund may invest in put and call options and futures. Such instruments are
considered to be "derivatives." A derivative is generally defined as an
instrument whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates), security, commodity or other asset.
Certain derivatives that may be purchased by a Fund, such as those with interest
rates that fluctuate directly or indirectly based on multiples of a stated
index, are designed to be highly sensitive to changes in interest rates and can
subject the holders thereof to extreme reductions of yield and possibly loss of
principal. The Small Cap Stock Fund, International Equity Fund, and the Bond
Fund each will not invest more than 20% of its total assets in any such
derivatives at any one time, except that there is no limitation on the amount of
a Fund's total assets which may be invested in variable or floating rate
obligations. There is no limit on the amount of the Pennsylvania Income Fund's
assets that may be invested in derivatives.
SECURITIES LENDING. In order to generate additional income, each Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Fund's Adviser. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and exercise the right to vote if that is considered important with respect to
the investment. In the event the borrower would default in its obligations, a
Fund bears the risk of delay in recovery of the portfolio securities and the
loss of rights in the collateral. A Fund will enter into loan agreements only
with broker-dealers, banks, or other institutions that the Fund's Adviser has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees. No Fund will lend more than 33% of the total value of its portfolio
securities at any one time.
CONVERTIBLE SECURITIES. The Small Cap Stock Fund, International Equity Fund and
Bond Fund each may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. Convertible securities rank senior to common stocks in a corporation's
capital structure and, therefore, entail less risk than the corporation's common
stock. The value of a convertible security is a function of its "investment
value" (its value as if it did not have a conversion privilege) and its
"conversion value" (the security's worth if it were to be exchanged for the
underlying security, at market value, pursuant to its conversion privilege).
WRITING COVERED CALL AND PUT OPTIONS. The Small Cap Stock Fund, International
Equity Fund, Bond Fund and Pennsylvania Income Fund may write covered call and
put options on securities, or futures contracts regarding securities, in which
such Fund may invest, in an effort to realize additional income. A put option
gives the purchaser the right to sell, and a writer has the obligation to
purchase, the underlying security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market price of the
security. A call option gives the purchaser of the option the right to buy, and
a writer has the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. Such
options will be listed on national securities or futures exchanges. Each Fund
may write covered call options as a means of seeking to enhance its income
through the receipt of premiums in instances in which the Fund's Adviser
determines that the underlying securities or futures contracts are not likely to
increase in value above the exercise price. Each Fund also may seek to earn
additional income through the receipt of premiums by writing put options. By
writing a call option, a Fund limits its opportunity to profit from any increase
in the market value of the underlying security above the exercise price of the
option; by writing a put option, a Fund assumes the risk that it may be required
to purchase the underlying security at a price in excess of its then current
market value.
Each of the Small Cap Stock Fund, International Equity Fund, Bond Fund and
Pennsylvania Income Fund, as part of its option transactions, also may write
index put and call options. Through the writing of index options a Fund can
achieve many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
When a Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by that Fund is included in the liability section
of the Fund's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. The current value of the traded option
is the last sale price or, in the absence of a sale, the mean between bid and
asked price. If an option expires on the stipulated expiration date or if the
Fund enters into a closing purchase transaction, it will realize a gain (or a
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Fund may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss. The Small Cap Stock Fund, International Equity Fund,
Bond Fund and Pennsylvania Income Fund will each limit its writing of options
such that at no time will more than 25% of its total assets be subject to such
options transactions.
PURCHASING OPTIONS. The Small Cap Stock Fund, International Equity Fund, Bond
Fund and Pennsylvania Income Fund may each purchase put and call options written
by third parties covering indices and those types of financial instruments or
securities in which the Fund may invest to attempt to provide protection against
adverse price effects from anticipated changes in prevailing prices for such
instruments. The purchase of a put option is intended to protect the value of a
Fund's holdings in a falling market while the purchase of a call option is
intended to protect the value of a Fund's positions in a rising market. Put and
call options purchased by a Fund will be valued at the last sale price, or in
the absence of such a price, at the mean between bid and asked price. Such
options will be listed on national securities or futures exchanges.
In purchasing a call option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security, index or futures
contract increased by an amount in excess of the premium paid for the call
option. It would realize a loss if the price of the underlying security, index
or futures contract declined or remained the same or did not increase during the
period by more than the amount of the premium. By purchasing a put option, the
Fund would be in a position to realize a gain if, during the option period, the
price of the security, index or futures contract declined by an amount in excess
of the premium paid. It would realize a loss if the price of the security, index
or futures contract increased or remained the same or did not decrease during
that period by more than the amount of the premium. If a put or call option
purchased by the Fund were permitted to expire without being sold or exercised,
its premium would represent a realized loss to the Fund.
PUTS. The Pennsylvania Income Fund also may require "puts" with respect to
Exempt Securities held in its portfolio. The Pennsylvania Income Fund may sell,
transfer, or assign a put in conjunction with the sale, transfer, or assignment
of the underlying security or securities.
The amount payable to the Pennsylvania Income Fund upon its exercise of a "put"
is normally (i) the Fund's acquisition cost of the Exempt Securities (excluding
any accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by the Pennsylvania Income Fund to facilitate the liquidity
of its portfolio assets. Puts may also be used to facilitate the reinvestment of
the Fund's assets at a rate of return more favorable than that of the underlying
security. Puts may, under certain circumstances, also be used to shorten the
maturity of underlying variable rate or floating rate securities for purposes of
calculating the remaining maturity of those securities.
The Pennsylvania Income Fund expects that it will generally acquire this type of
put only where the put is available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Fund may pay for
such puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
The Pennsylvania Income Fund intends to enter into such puts only with dealers,
banks, and broker-dealers which, in its Adviser's opinion, present minimal
credit risks.
FUTURES CONTRACTS. The Small Cap Stock Fund, International Equity Fund, Bond
Fund and Pennsylvania Income Fund may each purchase or sell contracts for the
future delivery of the specific financial instruments or securities in which
that Fund may invest, and indices based upon the types of securities in which
that Fund may invest (collectively, "Futures Contracts"). Each such Fund may use
this investment technique as a substitute for a comparable market position in
the underlying securities or to hedge against anticipated future changes in
market prices, which otherwise might adversely affect either the value of such
Fund's securities or the prices of securities which such Fund intends to
purchase at a later date. In addition, the Bond Fund and the Pennsylvania Income
Fund may purchase or sell futures contracts to hedge against changes in market
interest rates which may result in the premature call at par value of certain
securities which that Fund has purchased at a premium.
To the extent a Fund is engaging in a futures transaction as a hedging device,
because of the risk of an imperfect correlation between securities in the Fund's
portfolio that are the subject of a hedging transaction and the futures contract
used as a hedging device, it is possible that the hedge will not be fully
effective if, for example, losses on the portfolio securities exceed gains on
the futures contract or losses on the futures contract exceed gains on the
portfolio securities. For futures contracts based on indices, the risk of
imperfect correlation increases as the composition of a Fund's portfolio varies
from the composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the future contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect a Fund's net investment results if the market does
not move as anticipated when the hedge is established.
Successful use of futures by a Fund also is subject to the Fund's Adviser's or
Sub-Adviser's ability to predict correctly movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting the value of securities held in its portfolio
and prices increase instead, the Fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
Call options sold by a Fund with respect to futures contracts will be covered
by, among other things, entering into a long position in the same contract at a
price no higher than the strike price of the call option, or by ownership of the
instruments underlying, or instruments the prices of which are expected to move
relatively consistently with the instruments underlying, the futures contract.
Put options sold by a Fund with respect to futures contracts will be covered
when, among other things, cash or liquid securities are placed in a segregated
account to fulfill the obligation undertaken.
The Small Cap Stock Fund, International Equity Fund, Bond Fund and Pennsylvania
Income Fund may each utilize various index futures to protect against changes in
the market value of the securities in its portfolio or which it intends to
acquire. Securities index futures contracts are based on an index of various
types of securities, E.G., stocks or long-term corporate bonds. The index
assigns relative values to the securities included in an index, and fluctuates
with changes in the market value of such securities. The contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash based upon the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. The acquisition or sale of an index futures
contract enables a Fund to protect its assets from fluctuations in prices of
certain securities without actually buying or selling such securities.
In general, the value of futures contracts sold by a Fund to offset declines in
its portfolio securities will not exceed the total market value of the portfolio
securities to be hedged, and futures contracts purchased by a Fund will be
covered by a segregated account consisting of cash or liquid securities in an
amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or liquid securities in an
amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
INTEREST RATE SWAPS. The International Equity Fund may engage in interest rate
swaps in order to attempt to protect its investments from interest rate
fluctuations. The International Equity Fund intends to use interest rate swaps
as a hedge and not as a speculative investment. Interest rate swaps involve the
exchange of the International Equity Fund with another party of their respective
rights to receive interest (e.g., an exchange of fixed rate payments for
floating rate payments). For example, if the International Equity Fund holds an
interest paying security whose interest rate is reset once a year, it may swap
the right to receive at a rate that is reset daily. Such a swap position would
offset changes in the value of the underlying security because of subsequent
changes in interest rates. This would protect the International Equity Fund from
a decline in the value of the underlying security due to rising rates, but would
also limit its ability to benefit from falling interest rates.
The International Equity Fund will enter into interest rate swaps only on a net
basis (i.e., the two payments streams will be netted out, with the International
Equity Fund receiving or paying as the case may be, only the net amount of the
two payments). The net amount of the excess, if any, of the International Equity
Fund's obligations over its entitlements with respect to each interest rate swap
will be accrued on a daily basis, and an amount of cash or liquid high grade
debt securities having an aggregate net asset value at least equal to the
accrued excess, will be maintained in a segregated account by the International
Equity Fund's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If Brinson is incorrect in its forecasts of market values, interest rates and
other applicable factors, the investment performance of the International Equity
Fund will be less favorable than it would have been if this investment technique
were never used. Interest rate swaps do not involve the delivery of securities
or other underlying assets or principal. Thus, if the other party to an interest
rate swap defaults, the International Equity Fund's risk of loss consists of the
net amount of interest payments that the International Equity Fund is
contractually entitled to receive.
ZERO COUPON SECURITIES. The Bond Fund and Pennsylvania Income Fund may each
invest in zero coupon securities which are debt securities issued or sold at a
discount from their face value which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. Zero coupon securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The market
prices of zero coupon securities generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit qualities. Federal income tax law requires the
holder of a zero coupon security or of certain pay-in-kind bonds to accrue
income with respect to these securities prior to the receipt of cash payments.
To maintain its qualification as a regulated investment company and avoid
liability for federal income taxes, a Fund may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
SHORT SALES. The Bond Fund and Pennsylvania Income Fund may from time to time
sell securities short. Short sales are effected when the Fund's Adviser or
Sub-Adviser believes that the price of a particular security will decline, and
involve the sale of a security which a Fund does not own in the hope of
purchasing the same security at a later date at a lower price. When a Fund sells
a security short, it will borrow the same security from a broker or other
institution to complete the sale. A Fund may make a profit or incur a loss
depending upon whether the market price of the security sold short decreases or
increases between the date of the short sale and the date on which the Fund must
replace the borrowed security. An increase in the value of a security sold short
by a Fund over the price at which it was sold short will result in a loss to
that Fund, and there can be no assurance that a Fund will be able to close out
the position at any particular time or at an acceptable price.
All short sales must be fully collateralized, and the Bond Fund and Pennsylvania
Income Fund will not sell securities short if, immediately after and as a result
of the sale, the value of all securities sold short by that Fund exceeds 25% of
its total assets.
FOREIGN INVESTMENTS. Investments in foreign securities (including Yankee Bonds,
Eurodollar Bonds and Supranational Bonds for the Small Cap Stock Fund,
International Equity Fund and Bond Fund) may subject these Funds to investment
risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. Such risks include future adverse political
and economic developments, the possible imposition of withholding taxes on
interest or other investment income, possible seizure, nationalization, or
expropriation of foreign deposits or investments, the possible establishment of
exchange controls or taxation at the source, less stringent disclosure
requirements, less liquid or developed securities markets or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal, interest or dividends on such securities or the purchase or sale
thereof. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. The Bond Fund will acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Fund's Sub-Advisor believes that the risks associated with such
instruments are minimal.
Investments in foreign securities will usually involve currencies of foreign
countries, and the value of the assets of a Fund that may invest in foreign
securities as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. Many European countries have adopted a single European
currency, the euro. On January 1, 1999, the euro became legal tender for all
countries participating in the Economic and Monetary Union ("EMU"). A new
European Central Bank has been created to manage the monetary policy of the new
unified region. On the same date, the exchange rates were irrevocably fixed
between the EMU member countries. National currencies will continue to circulate
until they are replaced by euro coins and bank notes by the middle of 2002. This
change is likely to significantly impact the European capital markets in which
the Fund invests and may result in the Fund facing additional risks in pursuing
its investment objective. These risks, which include, but are not limited to,
uncertainty as to proper tax treatment of the currency conversion, volatility of
currency exchange rates as a result of the conversion, uncertainty as to capital
market reaction, conversion costs that may affect issuer profitability and
creditworthiness, and lack of participation by some European countries, may
increase the volatility of the Fund's net asset value per share. These or other
factors, including political and economic risks, could cause market disruptions
after the introduction of the euro, and could adversely affect the value of
securities held by the Funds.
The normal currency allocation of the International Equity Fund is identical to
the currency mix of the Benchmark. The International Equity Fund expects to
maintain this normal currency exposure when global currency markets are fairly
priced relative to each other and relative to associated risks. The
International Equity Fund may actively deviate from such normal currency
allocations to take advantage of or to seek to protect the International Equity
Fund from risk and return characteristics of the currencies and short-term
interest rates when those prices deviate significantly from fundamental value.
Deviations from the Benchmark are determined by the International Equity Fund
Sub-Advisor based upon its research.
To manage exposure to currency fluctuations, the International Equity Fund may
alter equity or money market exposures (in its normal asset allocation mix as
previously identified), enter into forward currency exchange contracts, buy or
sell options, futures or options on futures relating to foreign currencies and
may purchase securities indexed to currency baskets. The International Equity
Fund will also use these currency exchange techniques in the normal course of
business to hedge against adverse changes in exchange rates in connection with
purchases and sales of securities. Some of these strategies may require the
International Equity Fund to set aside liquid assets in a segregated custodial
account to cover its obligations. These techniques are further described below.
The International Equity Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., "forward foreign currency"
contract or "forward" contract). A forward contact involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. The International Equity Fund will
convert currency on a spot basis from time to time and investors should be aware
of the potential costs of currency conversion.
When Brinson believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the International Equity Fund's
securities denominated in such foreign currency.
At the maturity of a forward contract, the International Equity Fund may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by repurchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. The International Equity Fund may realize a gain or loss
from currency transactions.
The International Equity Fund also may purchase and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter
markets) to manage the Fund's exposure to changes in currency exchange rates.
Call options on foreign currency written by the International Equity Fund will
be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by the International Equity Fund, the Fund will establish a segregated
account with its custodian bank consisting of cash, U.S. government securities
or other high-grade liquid debt securities in an amount equal to the amount the
Fund would be required to pay upon exercise of the put.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES Contracts.
The Bond Fund and the Pennsylvania Income Fund may purchase and sell interest
rate futures contracts and options on interest rate futures contracts as a
substitute for a comparable market position or to hedge against adverse
movements in interest rates.
To the extent such Fund has invested in interest rate futures contracts or
options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the investment risks of having
purchased the securities underlying the contract.
The Bond Fund and the Pennsylvania Income Fund may each also purchase call
options on interest rate futures contracts to hedge against a decline in
interest rates and may purchase put options on interest rate futures contracts
to hedge its portfolio securities against the risk of rising interest rates.
If a Fund has hedged against the possibility of an increase in interest rates
adversely affecting the value of securities held in that Fund's portfolio and
rates decrease instead, such Fund will lose part or all of the benefit of the
increased value of the securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
These sales of securities may, but will not necessarily, be at increased prices
which reflect the decline in interest rates.
The Bond Fund and the Pennsylvania Income Fund may sell call options on interest
rate futures contracts to partially hedge against declining prices of its
portfolio securities. If the futures price at expiration of the option is below
the exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
that Fund's portfolio holdings. A Fund may sell put options on interest rate
futures contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contracts. If the futures price at
expiration of the option is higher than the exercise price, the Fund will retain
the full amount of the option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to purchase. If a put
or call option sold by a Fund is exercised, the Fund will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, a Fund's losses from existing
options on futures may to some extent be reduced or increased by changes in the
value of its portfolio securities.
The Bond Fund and the Pennsylvania Income Fund also may each sell options on
interest rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or that there will be a correlation between price
movements in the options on interest rate futures and price movements in that
Fund's portfolio securities which are the subject of the hedge. In addition, a
Fund's purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
In general, the value of futures contracts sold by a Fund to offset declines in
its portfolio securities will not exceed the total market value of the portfolio
securities to be hedged, and futures contracts purchased by a Fund will be
covered by a segregated account consisting of cash or liquid securities in an
amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or liquid securities in an
amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
THE FOLLOWING RISKS APPLY TO THE PENNSYLVANIA INCOME FUND.
RISKS OF NON-DIVERSIFICATION. Potential Shareholders should consider the fact
that the Pennsylvania Income Fund's portfolio consists primarily of securities
issued by the Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize that the Pennsylvania Income
Fund's performance is closely tied to general economic conditions within the
Commonwealth as a whole and to economic conditions within particular industries
and geographic areas located within the Commonwealth.
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal years 1990 and 1991, tax
increases and spending decreases have resulted in surpluses the last several
years; as of June 30, 1999, the General Fund had a surplus of $2,863.4 million.
Pennsylvania's economy historically has been dependent upon heavy industry, but
has diversified recently into various services, particularly into medical and
health services, education and financial services. Agricultural industries
continue to be an important part of the economy, including not only the
production of diversified food and livestock products, but substantial economic
activity in agribusiness and food-related industries. Service industries
currently employ the greatest share of nonagricultural workers, followed by the
categories of trade and manufacturing. Future economic difficulties in any of
these industries could have an adverse impact on the finances of the
Commonwealth or its municipalities, and could adversely affect the market value
of the Pennsylvania Exempt Securities in the Pennsylvania Income Fund or the
ability of the respective obligors to make payments of interest and principal
due on such Securities.
Certain litigation is pending against the Commonwealth that could adversely
affect the ability of the Commonwealth to pay debt service on its obligations,
including, as of October 13, 2000, suits relating to the following matters: (i)
In February 1999, a taxpayer filed a petition for review in the Pennsylvania
Commonwealth Court asking the court to declare that Chapter 5 (relating to
Sports Facilities Financing) of the Capital Facilities Debt Enabling Act
violates the Pennsylvania Constitution. The Commonwealth Court dismissed the
action with prejudice, and the Supreme Court of Pennsylvania affirmed the
Commonwealth Court's decision. The petitioner has filed a petition for a writ of
certiorari with the United State Supreme Court. (ii) In 1987, the Pennsylvania
Supreme Court held the statutory scheme for county funding of the judicial
system to be in conflict with the Pennsylvania Constitution, but it stayed its
judgment to permit enactment by the legislature of funding legislation
consistent with the opinion. The Court appointed a special master to submit a
plan for implementation, and the special master recommended a four-phase
transition to state funding of a unified judicial system, during each of which
specified court employees would transfer into the state payroll system. Phase 1,
involving the transfer of approximately 165 county-level court administrators,
was implemented in legislation enacted in 1999. The remainder of the
recommendation for later phases remains pending before the Supreme Court of
Pennsylvania. (iii) In March 1998, certain Philadelphia residents, the School
District of Philadelphia and others brought suit in the United States District
Court for the Eastern District of Pennsylvania against the Governor, the
Secretary of Education and others alleging that the defendants were violating a
regulation of the U.S. Department of Education promulgated under Title VI of the
Civil Rights Act of 1964 and certain other provisions in that the Commonwealth's
system for funding public schools has the effect of discriminating on the basis
of race. The district court dismissed the complaint, but in August 1999 the
Third Circuit Court of Appeals reversed and remanded for further proceedings. On
June 23, 2000, by agreement of the parties, the district court stayed all
proceedings and placed the case in civil suspense until approximately June 8,
2001. (vi) PPG Industries has challenged the constitutionality of the
manufacturing exemption from the capital stock/franchise tax insofar as it
limits the exemption for headquarters property and payroll only to headquarters
property and payroll attributable to manufacturing in Pennsylvania. On appeal,
the Pennsylvania Supreme Court held that this limitation discriminates against
interstate commerce, and it remanded the case to Commonwealth Court for a
determination whether the tax is a "compensatory tax" justifying the
discrimination or, failing that, a recommendation for a remedy. In November
1999, the Commonwealth Court recommended that (1) for the duration of the
contested period, the limitation be invalidated and (2) prospectively, the
manufacturing exemption be invalidated in its entirety, leaving to the
Pennsylvania legislature the task of amending the statute to restore any
exemption it chooses to adopt in a constitutional manner. The legislature
subsequently amended the state tax law to provide that for the years 1999 and
2000 the manufacturing exemption will apply to both in-state and out-of-state
property and payroll. The Pennsylvania Supreme Court is considering the
Commonwealth Court's recommendation and the position of the parties. (v) Unisys
Corporation has challenged the three-factor apportionment formula used for the
apportionment of capital stock value in the Pennsylvania franchise tax. In a
decision issued in March 1999, the Commonwealth Court held for the taxpayer on
statutory grounds, but denied its constitutional claims. Both the Commonwealth
and the taxpayer appealed to the Pennsylvania Supreme Court. Briefs were filed
during 1999. Recently, the Supreme Court ordered the filing of supplemental
briefs and scheduled oral argument for the week of December 4, 2000.
Although there can be no assurance that such conditions will continue, the
Commonwealth's General Obligation Bonds are currently rated AA by Standard &
Poor's Corporation ("S&P") and Aa3 by Moody's, and Philadelphia's General
Obligation Bonds are currently rated BBB and BBB respectively by S&P and Baa2
and Baa1 respectively by Moody's.
The City of Philadelphia (the "City") experienced a series of General Fund
deficits for fiscal years 1988 through 1992 and, while its general financial
situation has improved, the City is still seeking a long-term solution for its
economic difficulties. The audited balance of the City's General Fund as of June
30, 1998 was a surplus of $169.2 million up from a surplus of approximately
$128.8 million as of June 30, 1997.
In recent years an authority of the Commonwealth, the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), has issued approximately $1.76
billion of Special Revenue Bonds on behalf of the City to cover budget
shortfalls, to eliminate projected deficits and to fund capital spending. As one
of the conditions of issuing bonds on behalf of the City, PICA exercises
oversight of the City's finances. The City is currently operating under a five
year plan approved by PICA in 2000. PICA's power to issue further bonds to
finance capital projects expired on December 31, 1994. PICA's authority to issue
bonds to finance cash flow deficits expired December 31, 1996, but its authority
to refund outstanding debt is unrestricted. PICA had approximately $959 million
in special revenue bonds outstanding as of June 30, 2000.
The Pennsylvania Income Fund's classification as "non-diversified" means that
the proportion of the Pennsylvania Income Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Pennsylvania Income Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which requires the Pennsylvania Income Fund
generally to invest as of the end of each fiscal quarter, with respect to 50% of
its total assets, not more than 5% of such assets in the obligations of a single
issuer; as to the remaining 50% of its total assets, the Pennsylvania Income
Fund is not so restricted. In no event, however, may the Pennsylvania Income
Fund invest more than 25% of its total assets in the obligations of any one
issuer as of the end of each fiscal quarter. Since a relatively high percentage
of the Pennsylvania Income Fund's assets may be invested in the obligations of a
limited number of issuers, some of which may be within the same economic sector,
the Pennsylvania Income Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
MUNICIPAL LEASE OBLIGATIONS. Certain municipal lease/purchase obligations in
which the Pennsylvania Income Fund may invest may contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease/purchase obligations are
secured by the leased property, disposition of the leased property in the event
of foreclosure might prove difficult. In evaluating the credit quality of a
municipal lease/purchase obligation that is unrated, the Advisor will consider,
on an ongoing basis, a number of factors including the likelihood that the
issuing municipality will discontinue appropriating funding for the leased
property.
THE FOLLOWING RISK APPLIES TO THE MANAGED ALLOCATION FUNDS.
AFFILIATED PERSONS. In managing the Funds, the Adviser will have the authority
to select and substitute Underlying Funds. The Adviser is subject to conflicts
of interest in allocating Fund assets among the various Underlying Funds both
because the fees payable to it and/or its affiliates by some Underlying Funds
are higher than the fees payable by other Underlying Funds and because the
Adviser and its affiliates are also responsible for managing the Underlying
Funds. The Trustees and officers of the Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Funds and the
Underlying Funds.
BANK OBLIGATIONS. Each Fund may invest in bank obligations such as bankers'
----------------
acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Bankers' acceptances invested in by
the Funds will be those guaranteed by domestic and foreign banks having, at the
time of investment, capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and
demand and time deposits will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Small Cap Stock Fund, International Equity Fund, and the Bond Fund may also
invest in ECDs, Yankee CDs, ETDs, and Canadian Time Deposits, which are
basically the same as ETDs except they are issued by Canadian offices of major
Canadian banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Funds will purchase commercial paper consisting of issues rated at the time
of purchase by one or more NRSROs in one of the two highest rating categories
for short-term debt obligations. Each such Fund may also invest in commercial
paper that is not rated but that is determined by the Adviser or a Sub-Adviser
to be of comparable quality to instruments that are so rated by an NRSRO. For a
description of the rating symbols of the NRSROs, see the Appendix.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Bond Fund and the Pennsylvania Income Fund may invest are unsecured
demand notes that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate according to the terms of the
instrument. Because master demand notes are direct lending arrangements between
a Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time within 30 days. While such notes are not typically
rated by credit rating agencies, issuers of variable amount master demand notes
(which are normally manufacturing, retail, financial and other business
concerns), must satisfy, for purchase by a Fund, the same criteria as set forth
above for commercial paper. The Adviser will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a long-term variable
amount master demand note will be deemed to have a maturity equal to the longer
of the period of time remaining until the next interest rate adjustment or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued or
---------------------------
guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government
are supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Each Fund may also invest in the following types of U.S. Treasury securities:
direct obligations issued by the U.S. Treasury including bills, notes and bonds
which differ from each other only in interest rates, maturities and times of
issuance; U.S. Treasury securities that have been stripped of their unmatured
interest coupons (which typically provide for interest payments semi-annually);
interest coupons that have been stripped from such U.S. Treasury securities;
receipts and certificates for such stripped debt obligations and stripped
coupons (collectively, "Stripped Treasury Securities"); and in repurchase
agreements collateralized by such securities. Stripped Treasury Securities will
include (1) coupons that have been stripped from U.S. Treasury bonds, which may
be held through the Federal Reserve Bank's book-entry system called "Separate
Trading of Registered Interest and Principal of Securities" ("STRIPS") or
through a program entitled "Coupon Under Book-Entry Safekeeping" ("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment (representing principal or interest) on the security and
does not receive any rights to periodic interest payments on the security.
EXEMPT SECURITIES. The assets of the Pennsylvania Income Fund will be primarily
invested in Exempt Securities. Exempt Securities include debt obligations issued
by governmental entities to obtain funds for various public purposes, such as
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to other public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Exempt Securities,
only if the interest paid thereon is exempt from both Pennsylvania income taxes
and federal taxes, although such interest may be treated as a preference item
for purposes of the federal alternative minimum tax.
Among other types of Exempt Securities, the Pennsylvania Income Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Pennsylvania Income Fund may invest in other
types of tax-exempt instruments, such as municipal bonds, private activity
bonds, and pollution control bonds.
Project Notes are issued by a state or local housing agency and are sold by the
Department of Housing and Urban Development. While the issuing agency has the
primary obligation with respect to its Project Notes, they are also secured by
the full faith and credit of the United States through agreements with the
issuing authority which provide that, if required, the federal government will
lend the issuer an amount equal to the principal of and interest on the Project
Notes.
The two principal classifications of Exempt Securities consist of "general
obligation" and "revenue" issues. The Pennsylvania Income Fund may also acquire
"moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Exempt
Securities, both within a particular classification and between classifications,
and the yields on Exempt Securities depend upon a variety of factors, including
the financial condition of the issuer, general conditions of the municipal bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Ratings represent the opinions of an NRSRO as to the
quality of Exempt Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Exempt Securities with
the same maturity, interest rate and rating may have different yields, while
Exempt Securities of the same maturity and interest rate with different ratings
may have the same yield. Subsequent to purchase, an issue of Exempt Securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase. The Adviser will consider such an event in determining
whether the Pennsylvania Income Fund should continue to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
The Pennsylvania Income Fund may also invest in municipal lease obligations or
installment purchase contract obligations. Municipal lease obligations or
installment purchase contract obligations (collectively, "lease obligations")
have special risks not ordinarily associated with Exempt Securities. Although
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation ordinarily
is based by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The staff of the Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made by the
Adviser. The Pennsylvania Income Fund will not invest more than 15% of the value
of its net assets in lease obligations that are illiquid and in other illiquid
securities.
VARIABLE AND FLOATING RATE SECURITIES. The Bond Fund and Pennsylvania Income
Fund may acquire variable and floating rate securities, subject to such Fund's
investment objectives, policies and restrictions. A variable rate security is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value or amortized cost, as the case may be. A
floating rate security is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value or amortized cost, as the case may be. Such securities, that are not
obligations of the U.S. Government or its agencies or instrumentalities, are
frequently not rated by NRSROs, however, unrated variable and floating rate
securities purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to rated instruments eligible for
purchase under that Fund's investment policies. In making such determinations,
the Adviser will consider the earning power, cash flow and other liquidity
ratios of the issuers of such securities (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate security purchased by a Fund,
the Fund may resell the security at any time to a third party. The absence of an
active secondary market, however, could make it difficult for the Fund to
dispose of a variable or floating rate security in the event the issuer of the
security defaulted on its payment obligations and the Fund could, as a result or
for other reasons, suffer a loss to the extent of the default. To the extent
that there exists no readily available market for such security and the Fund is
not entitled to receive the principal amount of a security within seven days,
such a security will be treated as an illiquid security for purposes of
calculation of that Fund's limitation on investments in illiquid securities, as
set forth in its investment restrictions. Variable or floating rate securities
may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists and which are not subject to a demand feature that will permit the Bond
and Pennsylvania Income Funds to receive payment of the principal within seven
days after demand by that Fund, will be considered illiquid and therefore,
together with other illiquid securities held by such Fund, will not exceed 15%
of such Fund's net assets.
RESTRICTED SECURITIES. Securities in which the Small Cap Stock Fund, the
International Equity Fund and the Bond Fund may invest include securities issued
by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), such as securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as a Fund who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Any such
restricted securities will be considered to be illiquid for purposes of a Fund's
limitations on investments in illiquid securities unless the Adviser or
Sub-Adviser has determined such securities to be liquid.
Pursuant to procedures adopted by the Board of Trustees of the Trust, an Adviser
or Sub-Adviser may determine Section 4(2) securities to be liquid if such
securities are eligible for resale under Rule 144A under the 1933 Act and are
readily saleable. Rule 144A permits the Small Cap Stock Fund, the International
Equity Fund and the Bond Fund to purchase securities which have been privately
placed and resell such securities to certain qualified institutional buyers
without restriction. For purposes of determining whether a Rule 144A security is
readily saleable, and therefore liquid, an Adviser or Sub-Adviser must consider,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to purchase or sell the security and the number of
potential purchasers, dealer undertakings to make a market in the security, and
the nature of the security and marketplace trades of such security. However,
investing in Rule 144A securities, even if such securities are initially
determined to be liquid, could have the effect of increasing the level of the
Small Cap Stock Fund's, the International Equity Fund's and the Bond Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Bond Fund may, consistent with
its investment objective and policies, invest in mortgage-related securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. In addition, the Bond Fund may also invest in
mortgage-related securities issued by non-governmental entities.
Mortgage-backed securities, for purposes of the Bond Fund's Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as GNMA and
government-related organizations such as the FNMA and FHLMC, as well as by
non-governmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies in the
case of the Income Fund. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to a Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
The Bond Fund may invest in mortgage-backed securities which are CMOs structured
on pools of mortgage pass-through certificates or mortgage loans.
Mortgage-backed securities will be purchased only if rated in the four highest
bond rating categories assigned by one or more appropriate NRSROs, or, if
unrated, which the Sub-Advisor deems to be of comparable quality to securities
so rated.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-backed securities issued by FHLMC include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
Mortgage-backed and asset-based securities have certain characteristics which
are different from traditional debt securities. Among the major differences are
that interest and principal payments are made more frequently, usually monthly,
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. As a result, if a
Fund purchases such a security at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Alternatively, if a Fund purchases these securities at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will reduce, yield to maturity. The Income Fund may invest a portion
of its assets in derivative mortgage-backed securities such as stripped
mortgage-backed securities which are highly sensitive to changes in prepayment
and interest rates.
Mortgage-backed securities and asset-backed securities, like all fixed income
securities, generally decrease in value as a result of increases in interest
rates. In addition, although generally the value of fixed-income securities
increases during periods of falling interest rates and, as stated above,
decreases during periods of rising interest rates, as a result of prepayments
and other factors, this is not always the case with respect to mortgage-backed
securities and asset-backed securities.
Although the extent of prepayments of a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of declining interest rates.
Accordingly, amounts available for reinvestment by a Fund are likely to be
greater during a period of declining interest rates and, as a result, likely to
be reinvested at lower interest rates than during a period of rising interest
rates. Asset-backed securities, although less likely to experience the same
prepayment rates as mortgage-backed securities, may respond to certain of the
same factors influencing prepayments, while at other times different factors,
such as changes in credit use and payment patterns resulting from social, legal
and economic factors, will predominate. Mortgage-backed securities and
asset-backed securities generally decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, as stated above, the Income Fund will
invest only in CMOs which are rated in one of the four highest rating categories
by an NRSRO or, if unrated, are determined by the Adviser to be of comparable
quality. Also, a number of different factors, including the extent of prepayment
of principal of the underlying obligations, affect the availability of cash for
principal payments by the CMO issuer on any payment date and, accordingly,
affect the timing of principal payments on each CMO class.
Asset-backed securities involve certain risks that are not posed by
mortgage-backed securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
The cash flows and yields on IOs and POs are extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying
obligations. For example, a rapid or slow rate of principal payments may have a
material adverse effect on the yield of IOs or POs, respectively. If the
underlying obligations experience greater than anticipated prepayments of
principal, an investor may fail to recoup fully its initial investment in an IO.
Furthermore, if the underlying obligations experience slower than anticipated
prepayments of principal, the yield of a PO will be affected more severely than
would be the case with a traditional mortgage-backed security. IOs and POs have
exhibited large price changes in response to changes in interest rates and are
considered to be volatile in nature.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a "when-issued"
basis (I.E., for delivery beyond the normal settlement date at a stated price
and yield). When a Fund agrees to purchase securities on a "when-issued" basis,
the Fund's custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, a Fund's custodian
will set aside portfolio securities to satisfy the purchase commitment, and in
such a case, the Fund may be required subsequently to place additional assets in
the separate account in order to assure that the value of the account remains
equal to the amount of that Fund's commitment. It may be expected that a Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. In
addition, because a Fund will set aside cash or liquid portfolio securities to
satisfy its purchase commitments in the manner described above, such Fund's
liquidity and the ability of the Adviser or Sub-Adviser to manage it might be
affected in the event its commitments to purchase "when-issued" securities ever
exceeded 25% of its total assets. Under normal market conditions, however, each
Fund's commitment to purchase "when-issued" or "delayed-delivery" securities
will not exceed 25% of its total assets.
When a Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in that Fund's
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. Each Fund will engage in "when-issued" delivery transactions only
for the purpose of acquiring portfolio securities consistent with such Fund's
investment objectives and policies and not for investment leverage. If the
Pennsylvania Bond Fund sells a "when-issued" or "delayed-delivery" security
before delivery, any gain would not be tax-exempt.
REAL ESTATE INVESTMENT TRUSTS. The Small Cap Stock Fund may invest in equity
REITs. REITs pool investors' funds for investment primarily in commercial real
estate properties. Investment in REITs may subject the Funds to certain risks.
REITs may be affected by changes in the value of the underlying property owned
by the trust. REITs are dependent upon specialized management skill, may not be
diversified and are subject to the risks of financing projects. REITs are also
subject to heavy cash flow dependency, defaults by borrowers, self liquidation
and the possibility of failing to qualify for the beneficial tax treatment
available to REITs under the Internal Revenue Code and to maintain its exemption
from the 1940 Act. As a shareholder in a REIT, the Fund would bear, along with
other shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses the Fund bears
directly in connection with its own operations.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from banks and registered broker-dealers which the Adviser or
Sub-Adviser deems creditworthy under guidelines approved by the Trust's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller under a repurchase agreement will be required
to maintain continually the value of collateral held pursuant to the agreement
at not less than the repurchase price (including accrued interest). This
requirement will be continually monitored by the Adviser or Sub-Adviser. If the
seller were to default on its repurchase obligation or become insolvent, the
Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by such Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities. Securities subject to repurchase agreements must be of the same type
and quality as those in which a Fund may invest directly. Securities subject to
repurchase agreements will be held by the Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with its investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid securities
consistent with that Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest), and will subsequently continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which that Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act and therefore a form of
leveraging. A Fund may experience a negative impact on its net asset value if
interest rates rise during the term of a reverse repurchase agreement. A Fund
generally will invest the proceeds of such borrowings only when such borrowings
will enhance the Fund's liquidity or when the Fund reasonably expects that the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction.
Except as permitted by the 1940 Act, the Trust will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with the
Adviser, Sub-Advisers, or their affiliates.
SHORT SALES. Each of the Bond Fund and the Pennsylvania Income Fund may from
time to time sell securities short. Short sales are effected when it is believed
that the price of a particular security will decline, and involves the sale of a
security which the Fund does not own in the hope of purchasing the same security
at a later date at a lower price. To make delivery to the buyer, the Fund must
borrow the security, and the Fund is obligated to return the security to the
lender, which is accomplished by a later purchase of the security by that Fund.
The frequency of short sales will vary substantially in different periods, and
it is not intended that any specified portion of a Fund's assets will as a
matter of practice be invested in short sales.
At any time that a Fund has an open short sale position, such Fund is required
to segregate with its custodian (and to maintain such amount until the Fund
replaces the borrowed security) an amount of cash or U.S. Government securities
or other liquid securities equal to the difference between (i) the current
market value of the securities sold short and (ii) any cash or securities
required to be deposited with the broker in connection with the short sale (not
including the proceeds from the short sale). As a result of these requirements,
a Fund will not gain any leverage merely by selling short, except to the extent
that it earns interest on the immobilized cash or securities while also being
subject to the possibility of gain or loss from the securities sold short. A
Fund's possible losses may exceed the total amount of cash or liquid securities
deposited with the broker (not including the proceeds of the short sale) and
segregated by the Fund.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund purchases the security to replace the borrowed security. A Fund will
realize a gain if the security declines in price between those dates. The amount
of any gain will be decreased and the amount of any loss increased by any
premium or interest the Fund may be required to pay in connection with a short
sale. It should be noted that possible losses from short sales differ from those
that could arise from a cash investment in a security in that the former may be
limitless while the latter can only equal the total amount of the Fund's
investment in the security.
HEDGING TRANSACTIONS. Hedging transactions, including the use of options and
futures, in which certain of the Funds are authorized to engage, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's or Sub-Adviser's view
as to certain market movements is incorrect, the risk that the use of such
hedging transactions could result in losses greater than if they had not been
used.
Use of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation a Fund can realize on its
investments or cause a Fund to hold a security it might otherwise sell. The use
of options and futures transactions entails certain other risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the related portfolio position of a Fund create the
possibility that losses on the hedging instrument may be greater than gains in
the value of such Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Funds might not be able to
close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of hedging
transactions would reduce net asset value, and possible income, and such losses
can be greater than if the hedging transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many hedging transactions involving
options require segregation of a Fund's assets in special accounts, as described
further below.
With certain exceptions, exchange-listed options generally settle by physical
delivery of the underlying security or currency, although in the future cash
settlement may become available. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the value of
the underlying instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the option) at the time
the option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option. A Fund's ability to close out
its position as a purchaser or seller of a put or call option is dependent in
part, upon the liquidity of the option market. In addition, the hours of trading
for listed options may not coincide with the hours during which the underlying
financial instruments are traded. To the extent that the options markets close
before the markets for the underlying financial instruments, significant price
and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Exchange-listed options generally have standardized terms and performance
mechanics unlike over-the-counter traded options. The Funds currently expect to
purchase and sell only exchange-traded options. Exchange-traded options
generally are guaranteed by the clearing agency which is the issuer or
counterparty to such options. This guarantee usually is supported by a daily
payment system (i.e., variation margin requirements) operated by the clearing
agency in order to reduce overall credit risk. As a result, unless the clearing
agency defaults, there is generally relatively little counterparty credit risk
associated with options purchased on an exchange.
All options written by a Fund must be "covered" (i.e., a Fund must own the
securities or futures contract subject to a call option or must meet the asset
segregation requirements) as long as the call is outstanding. Even though a Fund
will receive the option premium to help protect it against loss, a call option
written by a Fund exposes such Fund during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require such Fund to hold a security
or instrument which it might otherwise have sold. With respect to put options
written by a Fund, such Fund will place liquid securities in a segregated
account to cover its obligations under such put option and will monitor the
value of the assets in such account and its obligations under the put option
daily.
FUTURES CONTRACTS. The Small Cap Stock, International Equity, Bond, and
Pennsylvania Income Funds may each enter into futures contracts. This investment
technique is designed primarily to act as a substitute for a position in the
underlying security and to hedge against anticipated future changes in market
conditions or interest rates which otherwise might adversely affect the value of
securities which such Fund holds or intends to purchase. For example, when
interest rates are expected to rise or market values of portfolio securities are
expected to fall, a Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for
such Fund than might later be available in the market when it effects
anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Futures transactions involve brokerage costs and require a Fund to segregate
liquid assets, such as cash, U.S. Government securities or other liquid
obligations, to cover its performance under such contracts. A Fund may lose the
expected benefit of futures transactions if interest rates, securities prices or
foreign exchange rates move in an unanticipated manner. Such unanticipated
changes may also result in poorer overall performance than if such Fund had not
entered into any futures transactions. In addition, the value of a Fund's
futures positions may not prove to be perfectly or even highly correlated with
the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with Securities and
Exchange Commission Release No. IC-10666, when purchasing a futures contract or
writing a put option, each Fund will maintain in a segregated account cash or
liquid securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being classified as a "commodity pool
operator," a Fund will not enter into a futures contract or purchase an option
thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of the liquidation value of such Fund's total assets after
taking into account unrealized profits and unrealized losses on any contracts
entered into. The Funds will not engage in transactions in futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities which such Fund holds or
intends to purchase.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in securities
issued by other investment companies to the extent allowed by the 1940 Act. In
addition, each Fund may invest in money market funds advised by the Advisors.
Each Fund other than the Managed Allocation Funds currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which the Funds may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by such Fund and, therefore, will be borne directly by shareholders of such
Fund.
INVESTMENT LIMITATIONS
================================================================================
The Funds' investment objectives are fundamental policies and may not be changed
without a vote of the shareholders of the applicable Fund.
The following investment restrictions may be changed only by a vote of the
majority of the outstanding Shares of a Fund (as defined under "ADDITIONAL
INFORMATION - Vote of a Majority of the Outstanding Shares").
The Small Cap Stock, International Equity, Bond, and Managed Allocation Funds
will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government (and "regulated investment companies" as
defined in the Code for each Managed Allocation Fund and the International
Equity Fund), its agencies or instrumentalities, if, immediately after such
purchase, more than 5% of the Fund's total assets would be invested in such
issuer or the Fund would hold more than 10% of the outstanding voting securities
of the issuer, except that 25% or less of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the percentage
of assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's total
assets at the time of purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities (and "regulated investment companies" as defined
in the Code for each Managed Allocation Fund and the International Equity Fund);
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents; (c) with respect to the International Equity Fund
and the Income Fund, utilities will be divided according to their services (for
example, gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry); and (d) with respect to the Small Cap
Stock Fund, technology companies will be divided according to their services
(for example, medical devices, biotechnology, semi-conductor, software and
communications will each be considered a separate industry).
The Pennsylvania Income Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if at the
end of each fiscal quarter, (a) more than 5% of the Fund's total assets (taken
at current value) would be invested in such issuer (except that up to 50% of the
Fund's total assets may be invested without regard to such 5% limitation), and
(b) more than 25% of its total assets (taken at current value) would be invested
in securities of a single issuer. There is no limit to the percentage of assets
that may be invested in U.S. Treasury bills, notes, or other obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. For
purposes of this limitation, a security is considered to be issued by the
governmental entity (or entities) whose assets and revenues back the security,
or, with respect to a private activity bond that is backed only by the assets
and revenues of a non-governmental user, such non-governmental user.
2. 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
Investment Company Act of 1940, any rule or order thereunder, or any SEC staff
interpretation thereof. Government securities and municipal securities, except
industrial development bonds, will not be deemed to constitute an industry.
In addition, the Small Cap Stock, International Equity, Bond, Pennsylvania
Income and Managed Allocation Funds will not:
1.Borrow money or issue senior securities except that each Fund may enter into
reverse repurchase agreements and may otherwise borrow money or issue senior
securities as and to the extent permitted by the 1940 Act or any rule, order or
interpretation thereunder. (The 1940 Act currently permits each Fund to borrow
up to one-third the value of its total assets at the time of such borrowing.)
2. Make loans, except that the Fund may purchase or hold debt instruments and
lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
3. Purchase securities on margin, except for use of short-term credit necessary
for clearance of purchases of portfolio securities, except as may be necessary
to make margin payments in connection with derivative securities transactions,
and except to the extent disclosed in the current prospectus or statement of
additional information of such Fund;
4. Underwrite the securities issued by other persons, except to the extent that the
Fund may be deemed to be an underwriter under certain securities laws in the
disposition of "restricted securities";
5. Purchase or sell real estate (although investments in marketable securities
of companies engaged in such activities and securities secured by real estate or
interests therein are not prohibited by this restriction); and
6. Purchase or sell commodities or commodities contracts, except to the extent
disclosed in the current prospectus or statement of additional information of
such Fund.
The following investment restrictions may be changed without the vote of a
majority of the outstanding Shares of the Funds. Each Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of
its net assets would be invested in securities that are illiquid.
2. Purchase securities of other investment companies, except (a) in connection
with a merger, consolidation, acquisition or reorganization, and (b) to the
extent permitted by the 1940 Act, or pursuant to any exemptions therefrom.
3. Mortgage or hypothecate the Fund's assets in excess of one-third of such Fund's
total assets.
4. Neither the Small Cap Stock Fund nor the International Equity Fund may engage
in any short sales. However, each of the Bond Fund and Pennsylvania Income Fund
may not engage in short sales of any securities at any time if, immediately
after and as a result of the short sale, the market value of securities sold
short by such Fund would exceed 25% of the value of that Fund's total assets.
In applying the Pennsylvania Income Fund's concentration restriction,
investments in certain industrial development bonds funded by activities in a
single industry will be deemed to constitute investment in an industry. In
addition, (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.
If any percentage restriction or requirement described above is satisfied at the
time of investment, a later increase or decrease in such percentage resulting
from a change in asset value will not constitute a violation of such restriction
or requirement. However, should a change in net asset value or other external
events cause a Fund's investments in illiquid securities to exceed the limit set
forth in this Statement of Additional Information for its investment in illiquid
securities, such Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, no Fund would be required to liquidate any portfolio securities where
such Fund would suffer a loss on the sale of such securities.
The Underlying Funds in which the Managed Allocation Funds may invest have
adopted certain investment restrictions which may be more or less restrictive
than those listed above, thereby allowing a Managed Allocation Fund to
participate in certain investment strategies indirectly that may be prohibited
under the fundamental and non-fundamental investment restrictions and policies
listed above.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition were one year or less.
The portfolio turnover rate for a Fund may vary greatly from year to year, and
may also be affected by cash management requirements for share redemptions. High
portfolio turnover rates will generally result in higher transaction costs,
including brokerage commissions, to a Fund and may result in tax consequences to
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
DETERMINING MARKET VALUE OF SECURITIES
================================================================================
Market values of the Funds' portfolio securities are determined as follows:
| 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;
| in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
| 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;
| for fixed income securities, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that fixed
income securities with remaining maturities of less than 60 days at the time
of purchase may be valued at amortized cost; and
| 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.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Funds' Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
================================================================================
Each 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 Funds' 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 FUNDS
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 and their subsidiaries;
| current and former Trustees of the Trust;
| 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 Funds' distributor and consents to such
purchases;
| current and retired employees of any sub-adviser to the Vision Funds; and
| investors referred by any sub-adviser to the Vision Funds. 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 each of the Funds 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 a
Fund under this "no-load" purchase provision. This payment will be made out of
the distributor's assets and not by the Trust, the Funds or a 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 Funds' 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 Trustees, 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 a 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 ARE THE FUNDS 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 certain 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 PLANS
As compensation type plans, the Rule 12b-1 Plans are designed to pay the
Distributor (who may then pay investment professionals such as banks (including
M&T Bank and its affiliates, 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 Funds achieve economies of scale, reduce
per share expenses, and provide cash for orderly portfolio management and Share
redemptions. In addition, the Funds' service providers that receive asset-based
fees also benefit from stable or increasing Fund assets.
The Funds 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 Funds 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 may be paid fees out of the assets of the Distributor
(but not out of Fund assets) or Adviser. The Distributor may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon 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 Funds reserve the right to determine whether to accept
your securities and the minimum market value to accept. The Funds 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 each 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 a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, each 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 Funds' 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 Funds' 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 a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust 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.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
TAX INFORMATION
================================================================================
FEDERAL INCOME TAX
Each 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.
Each 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
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If a Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Funds intend to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
PENNSYLVANIA TAXES
The Pennsylvania Municipal Income Fund intends to invest all, or substantially
all, of its assets in debt obligations the interest on which is exempt for
federal income tax purposes. In order for the Fund to pay tax-exempt dividends
for any taxable year, at least 50% of the aggregate value of the Fund's assets
at the close of each quarter of the Fund's taxable year must consist of
exempt-interest obligations.
As described in its Prospectus, the Pennsylvania Municipal Income Fund is
designed to provide investors with tax-exempt interest income. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Internal Revenue Code (the "Code"), H.R. 10 plans and
individual retirement accounts since such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the Fund's
dividends being tax-exempt. In addition, the Fund may not be an appropriate
investment for persons or entities that are "substantial users" of facilities
financed by private activity bonds or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
which regularly uses a part of such facilities in its trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, which occupies more than 5% of the usable area of such
facilities or for which such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, partnerships and its partners
and an S corporation and its shareholders.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
================================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, and total compensation received as a Trustee from the Trust for
its most recent fiscal year. The Trust is comprised of eighteen funds and is the
only investment company in the Fund Complex.
-------------------------------------------------------------- ------------
NAME TOTAL
BIRTH DATE -- COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH TRUST FOR PAST FIVE YEARS TRUST*
RANDALL I. BENDERSON President and Chief Operating Officer, $8,000
-------------------- Benderson Development Company, Inc.
570 Delaware Avenue (construction).
Buffalo, NY
Birth date: January
12, 1955
TRUSTEE
-------------------------------------------------------------- ------------
JOSEPH J. CASTIGLIA Director, The Energy East Corp., and $8,000
Roycroft Campus its subsidiary New York State Electric
21 South Grove & Gas Corp.; Sevenson Environmental
Street, Suite 291 Services, Inc.; Blue Cross & Blue
East Aurora, NY Shield of Western New York, a division
14052 of HealthNow New York, Inc.; and
Birth date: July Former President, Chief Executive
20, 1934 Officer and Vice Chairman, Pratt &
Lambert United, Inc. (manufacturer of
TRUSTEE paints and chemical specialties).
---------------------
------------------------------------------ ------------
MARK J. CZARNECKI#+ Executive Vice President, M&T Bank, $0 5122 Eastbrooke
division head for M&T Bank's Place investment area, M&T Investment Group.
Williamsville, NY
14221
Birth date:
November 3, 1955
TRUSTEE
------------------------------------------ ------------
DANIEL R. GERNATT, President and CFO of Gernatt Asphalt $8,000
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
TRUSTEE
-------------------------------------------------------------- ------------
GEORGE K. Retired President, Brand Name Sales, $7,500
HAMBLETON, JR. Inc. (catalog showroom business);
1003 Admiral's Walk Retired President, Hambleton & Carr,
Buffalo, NY Inc. (catalog showroom business).
Birth date:
February 8, 1933
TRUSTEE
-------------------------------------------------------------- ------------
EDWARD C. GONZALES President, Executive Vice President $0
Federated Investors and Treasurer of other funds
Tower distributed by Federated Securities
Pittsburgh, PA Corp.; Vice Chairman, Federated
Birth date: October Investors, Inc.; Trustee, Federated
22, 1930 Administrative Services; formerly:
Trustee or Director of other funds
PRESIDENT AND distributed by Federated Securities
TREASURER Corp.; CEO and Chairman, 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
-------------------------------------------------------------- ------------
C. TODD GIBSON Corporate Counsel, Federated $0
Federated Investors Investors, Inc.; Assistant Vice
Tower President, Federated Services Company.
Pittsburgh, PA
Birth date: May 17,
1967
SECRETARY
-------------------------------------------------------------- ------------
* This compensation reflects payments made to the Trust's Trustees by Vision
Group of Funds, Inc. (Corporation) in their capacity as Directors of the
Corporation. The Corporation reorganized into the Trust on November 8, 2000 (See
"How are the Funds Organized?")
# Denotes a Trustee who is deemed to be an interested person as defined in the
1940 Act.
+ Mr. Czarnecki became a member of the Board of Trustees on October 23, 2000.
He did not receive any fees as of the fiscal year end of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Funds.
The Adviser shall not be liable to the Trust 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 Trust.
SUB-ADVISERS
BRINSON PARTNERS, INC.
The Adviser has delegated daily management of the International Equity Fund to
the sub-adviser, Brinson Partners, Inc.(Brinson). For its services under the
Sub-Advisory Agreement, Brinson receives an allocable portion of the advisory
fee the Adviser receives from the International Equity Fund. The allocation is
based on the amount of securities which Brinson manages for the Fund. This fee
is paid by the Adviser out of the fees it receives and is not a Fund expense.
Brinson is paid by the Adviser as follows:
SUB-ADVISORY FEE AVERAGE DAILY NET ASSETS OF THE FUND
---------------------------------------------------------
0.40% on the first $50 million average
daily net assets
---------------------------------------------------------
0.35% on the next $150 million average
daily net assets
---------------------------------------------------------
0.30% on average daily net assets over $200
million
---------------------------------------------------------
MARTINDALE ANDRES & COMPANY, INC.
The Adviser has delegated daily management of the Small Cap Stock Fund to the
sub-adviser, Martindale Andres & Company, Inc. (Martindale). For its services
under the Sub-Advisory Agreement, Martindale receives an allocable portion of
the advisory fee the Adviser receives from the Small Cap Stock Fund. The
allocation is based on the amount of securities which Martindale manages for the
Fund. This fee is paid by the Adviser out of the fees it receives and is not a
Fund expense. Martindale 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
0.20% on average daily net assets over $200
million
---------------------------------------------------------
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Funds, their Adviser, subadvisers and Distributor
have adopted codes of ethics. These codes govern securities trading activities
of investment personnel, Trustees, and certain other employees. Although they do
permit these people to trade in securities, including those that the Funds could
buy, they also contain significant safeguards designed to protect the Funds and
their 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 and sub-advisers look for prompt execution of the order
at a favorable price. The Adviser and sub-advisers 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-advisers 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-advisers 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-advisers
make decisions on portfolio transactions and selects brokers and dealers subject
to review by the Funds' 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-advisers in advising other accounts.
To the extent that receipt of these services may replace services for which the
Adviser, the sub-advisers or their affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser, the sub-advisers and their
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 Funds are made independently from those of other
accounts managed by the Adviser or sub-advisers. When the Funds 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 or sub-adviser to be equitable.
While the coordination and ability to participate in volume transactions may
benefit the Funds, it is possible that this procedure could adversely impact the
price paid or received and/or the position obtained or disposed of by the Funds.
CO-ADMINISTRATORS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated
Services Company (FSC) and M&T Bank serve as co-administrators to the Trust and
provide the Funds with certain administrative personnel and services necessary
to operate the Funds. Administrative services are provided for an aggregate
annual fee as specified below:
Fees Payable to FSC
AVERAGE AGGREGATE DAILY NET
---------------------------ASSETS OF THE VISION GROUP
MAXIMUM FEE OF FUNDS
0.06% on the first $2 billion
0.03% on the next $3 billion
0.015% on assets in excess of $5
billion
--------------------------------------------------------------------------------
Fees Payable to M&T
AVERAGE AGGREGATE DAILY NET
---------------------------ASSETS OF THE VISION GROUP
MAXIMUM FEE OF FUNDS
0.04% on the first $5 billion
0.015% on assets in excess of $5
billion
--------------------------------------------------------------------------------
FSC, through its affiliate Federated Shareholder Services Company (FSSC), a
registered transfer agent, also serves as transfer and dividend disbursing agent
to the Trust, and receives a separate fee from the Funds for these transfer
agency services.
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds. Foreign instruments purchased by a Fund are
held by foreign banks participating in a global custody network coordinated by
State Street Bank. State Street Bank also provides financial administration and
fund accounting services to the Funds for an aggregate annual fee of 0.045% of
the Funds' average daily net assets.
INDEPENDENT AUDITORS
The independent auditors for the Fund, Ernst & Young LLP, plans and performs its
audit so it may provide an opinion as to whether each Fund's financial
statements and financial highlights are free of material misstatement.
HOW DO THE FUNDS MEASURE PERFORMANCE?
================================================================================
The Funds 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 a 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 Funds 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.
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.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Vision
Pennsylvania Municipal BondFund. The interest earned by the municipal securities
owned by the Vision Pennsylvania Municipal Bond Fund generally remains free from
federal regular income tax and is often free from state and local taxes as well.
However, some of the Vision Pennsylvania Municipal Bond Fund's income may be
subject to the federal alternative minimum tax and state and/or local taxes.
TAXABLE YIELD EQUIVALENT FOR 2000 - STATE OF PENNSYLVANIA
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND 17.800% 30.800% 33.800% 38.800% 42.400%
STATE:
---------------------------------------------------------------------------------
Joint Return $1-43,85$43,851-105, $105, $161,451-288,Over
950 951-161,450 288,350
Single Return $1-26,25$26,251-63,5$63,551-132,6$132,601-288,Over
288,350
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.00% 1.22% 1.45% 1.51% 1.63% 1.74%
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
6.50% 7.91% 9.39% 9.82% 10.62% 11.28%
7.00% 8.525 10.12% 10.57% 11.44% 12.15%
7.50% 9.12% 10.84% 11.33% 12.25% 13.02%
8.00% 9.73% 11.56% 12.08% 13.07% 13.89%
8.50% 10.34% 12.28% 12.84% 13.89% 14.76%
9.00% 10.95% 13.01% 13.605 14.71% 15.63%
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING
THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES
PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL
DEDUCTIONS.
--------------------------------------------------------------------------------
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 Funds' 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 Funds; and
| information about the mutual fund industry from sources such as the
Investment Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
Investors may judge the performance of the Funds by comparing them to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and S&P and to data prepared by
Lipper Inc., a widely recognized independent service which monitors the
performance of mutual funds. Comparisons may also be made to indices or data
published in MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL,
MORNINGSTAR, INC., IBBOTSON ASSOCIATES, CDA/WIESENBERGER, THE NEW YORK TIMES,
BUSINESS WEEK, U.S.A. TODAY and local periodicals. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above may be included in advertisements, sales
literature and reports to shareholders. The Funds may also include in
advertisements and reports to shareholders information discussing the
performance of the Advisor or Sub-Advisors in comparison to other investment
Advisors and to other institutions.
| LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time. From time to time, the Government Fund and the NY Municipal Income Fund
will quote their Lipper rankings in the "General U.S. Government Funds" and
the "New York Municipal Bond Funds" categories, respectively, in advertising
and sales literature.
| 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.
| 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.
| STANDARD & POOR'S DAILY STOCK PRICE INDICES of 500 And 400 Common Stocks are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's indices assume reinvestment of all dividends
paid by stocks listed on its indices. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the Standard
& Poor's figures.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, a Fund can compare
its performance, or performance for the types of securities in which it invests,
to a variety of other investments, such as federally insured bank products,
including time deposits, bank savings accounts, certificates of deposit, and
Treasury bills, and to money market funds using the Lipper Analytical Services
money market instruments average. Unlike federally insured bank products, the
Shares of the Funds are not insured. Unlike money market funds, which attempt to
maintain a stable net asset value, the net asset value of the Income and Equity
Funds' Shares fluctuates. Advertisements may quote performance information which
does not reflect the effect of any applicable sales charges.
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 INTERMEDIATE TERM INCOME FUND
Class A Shares
VISION PENNSYLVANIA MUNICIPAL BOND FUND
Class A Shares
VISION MANAGED ALLOCATION FUND - CONSERVATIVE GROWTH
Class A Shares
VISION MANAGED ALLOCATION FUND - MODERATE GROWTH
Class A Shares
VISION MANAGED ALLOCATION FUND - AGGRESSIVE GROWTH
Class A Shares
VISION SMALL CAP STOCK FUND
Class A Shares and Class B Shares
VISION INTERNATIONAL EQUITY FUND
Class A Shares and Class B Shares
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER AND CO-ADMINISTRATOR
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, NY 14203
SUB-ADVISER TO VISION INTERNATIONAL EQUITY FUND
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, IL 60604
SUB-ADVISER TO VISION SMALL CAP STOCK FUND
Martindale Andres & Company, Inc.
Four Falls Corporate Center
Suite 200
West Conshohocken, PA 19428
CO-ADMINISTRATOR
Federated Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company
P.O. Box 8609
Boston, MA 02266-8609
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
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 Goals, Strategies, Risks and Performance |
1 | |
| What are the Funds' Fees and Expenses? | 3 | |
| What are the Funds' Main Investments and Investment Techniques? | 4 | |
| What are the Specific Risks of Investing in the Funds? | 6 | |
| What do Shares Cost? | 7 | |
| How are the Funds Sold? | 8 | |
| How to Purchase Shares | 9 | |
| How to Redeem Shares | 10 | |
| How to Exchange Shares | 11 | |
| Account and Share Information | 11 | |
| Who Manages the Funds? | 12 | |
| Financial Information | 13 |
This Prospectus of the Vision Group of Funds (the "Trust") relates only to the Vision Institutional Limited Duration U.S. Government Fund (the "Government Fund" ) and the Vision Institutional Prime Money Market Fund (the "Money Market Fund" ). Under separate prospectuses, the Trust offers 16 other portfolios, including Class A Shares of three Money Market Funds , four Income Funds , and three Managed Allocation Funds , and Class A and Class B Shares of six Equity Funds . Vision Treasury Money Market Fund and Vision Money Market Fund offer another class of shares, Class S Shares, under a separate prospectus. The following describes the investment goal (objective), strategy and principal risks of each Fund. There can be no assurance that a Fund will achieve its goal. However, each Fund endeavors to do so by following the strategies and policies described in this prospectus.
The Fund seeks current income, with preservation of capital as a secondary objective.
The Fund normally invests substantially all, but under normal market conditions no less than 65%, of its total assets in obligations issued or supported as to principal and interest by the U.S. Government or its agencies and instrumentalities including mortgage-backed securities, asset-backed securities, variable and floating rate securities and zero coupon securities, and in repurchase agreements backed by such securities. The Fund expects to maintain a duration of less than three years under normal market conditions.
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.
The Fund Shares offered by this prospectus 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 Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Following are additional risks associated with investment in the Fund.
The Fund seeks current income with liquidity and stability of principal.
The Fund is a "money market fund" that seeks to maintain a stable net asset value of $1.00 per share. The Fund invests primarily in bank certificates of deposit, bankers' acceptances, prime commercial paper, corporate obligations, municipal obligations, asset-backed securities, securities issued or guaranteed by the U.S. government or its agencies and repurchase agreements backed by such obligations. The Fund may also invest in certain U.S. dollar denominated foreign securities.
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.
The Fund Shares offered by this prospectus are not deposits or obligations of the Adviser, are not endorsed or guaranteed by the Adviser and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Although the Fund attempts to preserve the value of your investment at $1.00 per Share, it is possible to lose money by investing in any of the Vision Funds. The Following are additional risks associated with investments in the Fund.
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Funds.
|
Shareholder Fees |
|
Institutional |
|
Institutional |
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
|
3.00% |
|
None |
|
|
|
|
|
|
|
Annual Fund Operating Expenses |
|
|
|
|
|
Management Fee1 |
|
0.60% |
|
0.50% |
|
Distribution (12b-1) Fee2 |
|
0.25% |
|
0.25% |
|
Shareholder Services Fee3 |
|
0.25% |
|
0.25% |
|
Other Expenses |
|
0.36% |
|
0.23% |
|
Total Annual Fund Operating Expenses |
|
1.46% |
|
1.23% |
|
Total Waivers of Fund Expenses |
|
0.70% |
|
0.80% |
|
Total Actual Annual Fund Operating Expenses (After Waivers) |
|
0.76% |
|
0.43% |
|
1 Pursuant to a contractual agreement between the Advisor and the Funds, the advisor agrees for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000, to waive its fees so that the Institutional Limited Duration U.S. Government Fund's Management Fee does not exceed 0.40% and the Institutional Prime Money Market Fund's Management Fee does not exceed 0.20%. |
||||
|
2 The Funds will not pay or accrue distribution (12b-1) fees for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000, pursuant to a contractual agreement by the distributor. If a Fund were to accrue or pay distribution (12b-1) fees, it would be able to pay up to 0.25% of the Fund's average daily net assets. See "Fund Management, Distribution and Administration". |
||||
|
3 The Funds will not pay or accrue shareholder services fees for a one year period starting from the commencement of the Funds' operation, which is anticipated to occur on or about December 18, 2000, pursuant to a contractual agreement by the shareholder servicing agent. If a Fund were to accrue or pay shareholder services fees, it would be able to pay up to 0.25% of the Fund's average daily net assets. |
||||
This Example is intended to help you compare the cost of investing in the Fund's with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's 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:
|
FUND |
|
1 Year |
|
3 Years |
|
Vision Institutional Limited Duration |
|
$375 |
|
$637 |
|
Vision Institutional Prime Money Market Fund |
|
$44 |
|
$258 |
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 principal types of fixed income securities in which a Fund may invest.
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 are issued or guaranteed by a federal agency or other government sponsored entity (a GSE) acting under federal authority. 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 interest rate and prepayment risks of these mortgage backed 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.
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.
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.
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.
Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a coupon payment). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate and credit risks of a zero coupon security.
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.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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 Funds 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 will take possession of the securities subject to repurchase agreements. The Adviser 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.
Foreign government securities generally consist of fixed income securities supported by national, state or provincial governments or similar political subdivisions. Foreign government securities also include debt obligations of supranational entities, such as international organizations designed or supported by governmental entities to promote economic reconstruction or development, international banking institutions and related government agencies. Examples of these include, but are not limited to, the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, the European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of quasi-governmental agencies that are either issued by entities owned by a national, state or equivalent government or are obligations of a political unit that are not backed by the national government's full faith and credit. Further, foreign government securities include mortgage-related securities issued or guaranteed by national, state or provincial governmental instrumentalities, including quasi-governmental agencies.
The Government 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 Government Fund may temporarily depart from its principal investment strategy by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders. Interest income from temporary investments may be taxable to shareholders as ordinary income.
The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more nationally recognized rating services. For example, Standard and Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. 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 that the security is comparable to investment grade.
An investment in the Funds is neither insured nor guaranteed by the U.S. Government. Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, the Adviser or any bank, and the shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
There can be no assurance that the investment objective of each Fund will be achieved. In addition, the Fund's investment policies, as well as the relatively short maturity of obligations purchased by the Funds, may result in frequent changes in the Fund's portfolio, which may give rise to taxable gains.
The Money Market Fund expects to maintain a net asset value of $1.00 per share, but there is no assurance that the Fund will be able to do so on a continuous basis. The Fund's performance per share will change daily based on many factors, including fluctuation in interest rates, the quality of the instruments in the Fund's investment portfolio, national and international economic conditions and general market conditions.
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 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.
Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks, or other less favorable characteristics.
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.
Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
Shares of each Fund are for institutional investors that are not natural persons (e.g., corporations, financial institutions, etc.), and that invest on their own behalf. To open an account, the first investment must be at least $100,000 for the Government Fund and $1 million for the Money Market Fund . The minimum investment amount to add to your existing Government Fund account is $1,000. No minimum is required to add to your existing Money Market Fund account. An account may be opened with a smaller amount as long as the minimum is reached within 90 days. In special circumstances, these minimums may be waived or lowered at the Fund's discretion.
You can buy Shares of the Money Market Fund at net asset value (NAV), without a sales charge, on any day the New York Stock Exchange (NYSE) is open for business. When a Fund receives your transaction request in proper form, it is processed at the next determined NAV. The NAV for a Fund is determined twice daily at 12:00 Noon (Eastern Time) and 3:00 p.m. (Eastern Time). In calculating NAV, the Fund's portfolio is valued using market prices.
The per share net asset value ("NAV") for the Government Fund is determined and its shares are priced at the close of regular trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time, on days the New York Stock Exchange is open for business.
Your order for purchase, sale or exchange of shares is priced at the next NAV calculated after your order is received in good order and accepted by the Fund less any applicable sales charges as noted in the section on "How Do I Purchase Shares?" on any day that the New York Stock Exchange is open for business. For example: If you place a purchase order to buy shares of the Institutional Limited Duration U.S. Government Fund, it must be received by 4:00 p.m. Eastern time in order to receive the NAV calculated at 4:00 p.m. Eastern time. If your order is received after 4:00 p.m. Eastern time, you will receive the NAV calculated on the next day at 4:00 p.m. Eastern time.
You may purchase shares directly from a Fund by completing and mailing the Account Application and sending your payment to the Fund by check or wire.
You may also purchase shares through a broker/dealer, investment professional, or financial institution (Authorized Dealers). Some Authorized Dealers may charge a transaction fee for this service. If you purchase shares of a Fund through a program of services offered or administered by an Authorized Dealer or other service provider, you should read the program materials, including information relating to fees, in conjunction with the Fund's prospectus. Certain features of a Fund may not be available or may be modified in connection with the program of services provided.
Your purchase order must be received by the Fund by 3:00 p.m. (Eastern Time) to receive dividends on that day. Each Fund reserves the right to reject any purchase request. However, you are not the owner of Fund shares (and therefore will not receive dividends) until payment for the shares is received.
In order to purchase shares, you must reside in a jurisdiction where Fund shares may lawfully be offered for sale. In addition, you must have a federal tax identification number.
Institutional Shares of Vision Institutional Limited Duration U.S. Government Fund are sold at the NAV next determined after an order is received, plus a sales charge as follows:
|
Purchase Amount |
|
Sales Charge |
|
Sales Charge |
|
$0 but less than $250,000 |
|
3.00% |
|
3.09% |
|
$250,000 but less than $500,000 |
|
2.00% |
|
2.04% |
|
$500,000 but less than |
|
1.00% |
|
1.01% |
|
$1 million or greater |
|
0.00%, but 1% |
|
0.00%, but 1% |
The sales charge at purchase may be reduced by:
The sales charge may be eliminated when you purchase Shares:
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.
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 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).
Each 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 Funds' 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 Funds have no present intention of paying or accruing 12b-1 fees on Class A Shares.
The Funds have 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 Funds, providing shareholder assistance, communicating or facilitating purchases and redemptions of Shares, and distributing prospectuses and other information.
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, federal funds wire or Automated Clearing House (ACH).
Purchase orders for the Government Fund must be received by 4:00 p.m. (Eastern time) in order to receive that day's closing 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.
The Fund reserves the right to reject any purchase request. The Fund does not issue share certificates.
Purchase orders for the Money Market Fund must be received by 3:00 p.m. (Eastern time) to receive that day's closing Fund's NAV and to begin earning dividends the next day. For settlement of an order to occur, payment must be received by wire by 3:00 p.m. (Eastern time) that same day.
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).
To purchase Shares through a representative of M&T Securities, Inc. (M&T Securities) call (800) 724-5445.
Contact your Authorized Dealer for specific instructions on how to purchase Shares.
To purchase Shares of a 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) to:
Vision Group of Funds
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.
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 Funds, 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. Some financial institutions may charge a fee for wire services.
To place an order, call M&T Bank's Mutual Fund Services. Purchase orders for which payment will be made via ACH must be received by 3:00 p.m. (Eastern Time). This purchase option can be established by completing the appropriate sections of the account application.
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.
Once you have opened a Fund account, you can add to your investment on a regular basis in amounts of $1,000 or more through automatic deductions from your checking or NOW deposit account. If you were a shareholder of the Governor Funds Limited Duration Government Securities Fund and had previously participated in a Systematic Investment Program, your minimum additional investment will continue to be $25.
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.
You may purchase Shares of a 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.
The Funds redeem Shares at their NAV next determined after the Fund receives the redemption request in proper form, subject to daily cut off times. Shares may be redeemed directly from the Funds by telephone or by mail.
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 sent via ACH to the account you previously designated at a domestic commercial bank that is a member of the Federal Reserve System.
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.
To redeem shares, call by 3:00 p.m. (Eastern time). Proceeds will be sent via ACH or check.
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 Vision Group of Funds 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, it may be liable for losses due to unauthorized or fraudulent telephone transactions.
Proceeds of a wire order 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 Funds are open for business. Some financial institutions may charge a fee for wire services.
You may redeem Shares by sending your written request to:
Vision Group of Funds
P.O. Box 4556
Buffalo, New York 14240-4556
Your written request must include your name, the Fund's name, 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 business days, after receipt of a proper written redemption request.
You must have a signature guarantee on written redemption requests:
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.
when a shareholder's trade activity or amount adversely impacts a Funds ability to manage its assets.
Although the Funds intend to pay Share redemptions in cash, the Funds reserve the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
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.
You may exchange Shares of the Funds for shares of another Vision Fund at the NAV next determined after the Fund receives the exchange in proper form, plus any applicable sales charge.
In order to exchange Shares you must:
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.
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.
Your telephone instructions must be received by M&T Bank by 11:00 a.m. (Eastern time) and transmitted to Federated Shareholder Services Company by 4:00 p.m. (Eastern time) for Shares to be exchanged that same day.
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 Vision Group of Funds 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, the shareholder may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may exchange Shares by mail by sending your written request to:
Vision Group of Funds
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.
Corporations, trusts and institutional organizations may be required to furnish evidence of the authority of persons designated on the account application to effect transaction on behalf of the organization.
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.
|
Fund |
|
Dividends Declared/ |
|
Institutional Limited Duration |
|
Monthly/Monthly |
|
Institutional Prime Money Market Fund |
|
Daily/Monthly |
Dividends (if any) are paid to shareholders invested in a Fund on the record date.
The Money Market Fund does not expect to realize any capital gains or losses. 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.
The Government 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 a Fund declares a dividend (other than a Fund that declares dividends daily) 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 a Fund declares a dividend or capital gain.
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.
The Funds send 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 a Fund holds its assets.
The Funds' distributions are expected to be primarily dividends.
Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.
The Board of Trustees governs the Funds. The Board selects and oversees the Adviser, M&T Bank. The Adviser manages 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 $6.0 billion in assets under management. M&T Bank has served as investment adviser to the Funds since 2000. As of December 31, 1999, M&T Bank managed $1.8 billion in net assets of money market funds 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 Fund's 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 a percentage of each Fund's average daily net assets as follows:
|
Fund |
|
Advisory Fee |
|
Institutional Limited Duration U.S. Government Fund |
|
0.60% |
|
Institutional Prime Money Market Fund |
|
0.50% |
The Adviser may voluntarily waive a portion of its fee or reimburse a Fund for certain operating expenses.
Robert J. Truesdell and Mark Tompkins are responsible for the day-to-day management of the Institutional Limited Duration U.S. Government Fund . In addition to his responsibilities with respect to this Fund, Mr. Truesdell manages individual investment accounts and oversees the investment activities of M&T Bank's money market and fixed income products as well as the money market funds in the Vision Group of Funds. Mr. Truesdell joined M&T Bank as Vice President and Fixed Income Manager in 1988. Mr. Truesdell holds an MBA in Accounting from the State University of New York at Buffalo.
Mark Tompkins is a Senior Portfolio Manager in M&T Capital Advisors Group. He is responsible for managing fixed income portfolios and the trading of fixed income securities for trust accounts. Prior to joining M&T Bank in August 1998, Mr. Tompkins spent over 4 years as a Portfolio Manager with Karpus Investment Management in Rochester, New York. At Karpus, he was responsible for managing fixed income investments for various portfolios including corporations and high net worth individuals. Mr. Tompkins holds a B.S. in Mechanical Engineering from Oakland University and a M.B.A. in Finance and Accounting from Syracuse University. He is a Chartered Financial Analyst candidate and a member of the Bond Club of Buffalo.
Each Fund's fiscal year end is April 30. As this is the Funds' first fiscal year, financial information is not yet available.
A Statement of Additional Information (SAI) dated November 8, 2000 is incorporated by reference into this Prospectus. Additional information about the Fund's investments is available in the Funds' SAI and, after the Funds have begun operations, in their Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, the Annual and Semi-Annual Reports (when available) 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, D.C. 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 e-mail at [email protected] or by writing to the SEC's Public Reference Section, Washington D.C. 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 92830F653
Cusip 92830F646
25924 (11/00)
VISION GROUP OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 8, 2000
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VISION INSTITUTIONAL PRIME MONEY MARKET FUND
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VISION INSTITUTIONAL LIMITED DURATION U.S. GOVERNMENT FUND
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This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Prospectus for the Funds dated November 8, 2000.
Obtain the Prospectus without charge by calling (800) 836-2211 (in the Buffalo
area call (716) 635-9368).
CONTENTS
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HOW ARE THE FUNDS ORGANIZED? 1
SECURITIES IN WHICH THE FUNDS INVEST 1
INVESTMENT RISKS 8
FUNDAMENTAL INVESTMENT OBJECTIVES 10
INVESTMENT LIMITATIONS 11
DETERMINING MARKET VALUE OF SECURITIES 13
WHAT DO SHARES COST? 14
HOW ARE THE FUNDS SOLD? 15
EXCHANGING SECURITIES FOR SHARES 15
SUBACCOUNTING SERVICES 15
REDEMPTION IN KIND 15
ACCOUNT AND SHARE INFORMATION 16
TAX INFORMATION 16
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS? 16
HOW DO THE FUNDS MEASURE PERFORMANCE? 20
INVESTMENT RATINGS 23
ADDRESSES BACK COVER PAGE
CUSIP 92830F653
CUSIP 92830F646
25926 (11/00)
HOW ARE THE FUNDS ORGANIZED?
====================================================================================
The Vision Institutional Prime Money Market Fund (the "Money Market Fund") and
the Vision Institutional Limited Duration U.S. Government Fund (the "Government
Securities Fund") are diversified portfolios of Vision Group of Funds (Trust).
The Trust is an open-end, management investment company that was established as
a business trust under the laws of the State of Delaware on August 11, 2000. The
Trust may offer separate series of shares representing interests in separate
portfolios of securities.
The Funds' investment adviser is Manufacturers and Traders Trust Company (M&T
Bank) (Adviser).
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SECURITIES IN WHICH THE FUNDS INVEST
====================================================================================
In pursuing its investment strategy, each 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 area:
P = Principal investment of a Fund;
A = Acceptable (but not principal) investment of a Fund; or N = Not an
acceptable investment of a Fund.
MONEY MARKET FUND AND GOVERNMENT SECURITIES FUND
-----------------------------------------------------------
INSTITUTIONAL INSTITUTIONAL
PRIME MONEY LIMITED
MARKET FUND DURATION
U.S.
GOVERNMENT
FUND
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FIXED INCOME SECURITIES P P
-------------------------------
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Treasury Securities P P
-------------------------------
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Agency Securities A P
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Corporate Debt Securities1 A A
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Commercial Paper2 A A
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Demand Instruments3 A A
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Taxable Municipal Securities A A
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Mortgage Backed Securities A P
---------------------------------------------
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Asset Backed Securities4 A A
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Zero Coupon Securities A A
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Bank Instruments5 A A
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Foreign Government A N
Securities
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TAX EXEMPT SECURITIES6 A N
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Variable Rate Demand A A
Instruments
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DERIVATIVE CONTRACTS N A
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Futures Contracts N A
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Options N A
------------------------------- --------------
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SPECIAL TRANSACTIONS P A
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Repurchase Agreements P A
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Reverse Repurchase A A
Agreements
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Delayed Delivery A A
Transactions
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Securities Lending N A
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Asset Coverage A A
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INVESTING IN SECURITIES OF A A
OTHER INVESTMENT COMPANIES
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1. Rated in the top four rating categories (with respect to the Money Market
Fund, rated in the top two rating categories) of a nationally recognized
statistical rating organization (NRSRO), or, if unrated, of comparable
quality as determined by the Adviser. If a security's rating is lowered, the
Adviser will assess whether to sell the security, but is not required to do
so.
------------------------------------------------------------------------------------
2. With respect to the Government Securities Fund, rated at the time of purchase
in the top three ratings categories by Moody's Investors Service (Moody's),
Standard & Poor's (S&P) or Fitch IBCA, Inc. (Fitch), respectively, or, if
unrated, of comparable quality as determined by the Adviser. With respect to
the Money Market Fund, rated at the time of purchase A-2 or better by S&P or
Prime-2 or better by Moody's or, if unrated, of comparable quality as
determined by the Adviser. If a security's rating is lowered, the Adviser
will assess whether to sell the security, but is not required to do so.
3. With respect to the Government Securities Fund, rated at the time of purchase
Aaa, Aa, or A by Moody's, or AAA, AA, or A by S&P's or by Fitch, or, if
unrated, of comparable quality as determined by the Adviser. If a security's
rating is lowered, the Adviser will assess whether to sell the security, but
is not required to do so.
4. The Government Securities Fund may invest in asset backed securities which,
at the time of purchase, are rated in the top three rating categories by an
NRSRO. If a security's rating is lowered, the Adviser will assess whether to
sell the security, but is not required to do so.
5. The Money Market Fund may make interest-bearing savings deposits in
commercial banks and savings banks not in excess of 5% of the Fund's total
assets. The Money Market Fund may not invest more than 25% of the value of
its total assets at the time of purchase in U.S. dollar-denominated
obligations of foreign banks and foreign branches of U.S. banks.
6. Which are in one of the top two rating categories of an NRSRO.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Following are descriptions of securities and techniques that each Fund may or
may not pursue, as noted in the preceding table.
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 a 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.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities
are exempt from federal income tax, a Fund may invest in taxable municipal
securities.
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. Like CMOs, asset backed securities may be
structured like Floaters, Inverse Floaters, IOs and POs.
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.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred
to as a coupon payment). Investors buy zero coupon securities at a price
below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. Investors must wait until maturity to receive interest and
principal, which increases the market and credit risks of a zero coupon
security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs
are the most common forms of stripped zero coupon securities. In addition,
some securities give the issuer the option to deliver additional securities
in place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that a 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 Equity Funds may
invest in commercial paper rated below investment grade. See "Risks Associated
with Non-investment Grade Securities" herein.
The Funds treat 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 Funds 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 GOVERNMENT SECURITIES AND FOREIGN MONEY MARKET INSTRUMENTS Foreign
government securities generally consist of fixed income securities supported by
national, state or provincial governments or similar political subdivisions.
Foreign government securities also include debt obligations of supranational
entities, such as international organizations designed or supported by
governmental entities to promote economic reconstruction or development,
international banking institutions and related government agencies. Examples of
these include, but are not limited to, the International Bank for Reconstruction
and Development (the World Bank), the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
The Prime Money Market Fund may also invest in Eurodollar Certificates of
Deposit ("ECDs") which are U.S. dollar denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by U.S. branches of a
foreign bank denominated in U.S. dollars and held in the United States; Canadian
Commercial Paper ("CCP"), which is U.S. dollar denominated commercial paper
issued by a Canadian corporation or a Canadian subsidiary of a U.S. corporation;
and in Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer which, in each case, is rated at the time of purchase by one or more
appropriate NRSROs in one of the two highest rating categories for short-term
debt obligations or, if not rated, determined by the Adviser to be of comparable
quality to instruments that are so rated. Under normal market conditions, the
Prime Money Market Fund will not invest more than 20% of its total assets in
such foreign securities.
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 Funds 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 a 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 Government Securities 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.
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 Funds 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.
Each 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.
Each 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.
INVESTMENT RATINGS FOR THE MONEY MARKET FUND
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+,
F-1, or F-2 by Fitch Investors Service, Inc. ("Fitch") are all considered rated
in one of the two highest short-term rating categories. The Money Market Funds
will follow applicable regulations in determining whether a security rated by
more than one rating service can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
rating services in one of their two highest rating categories. See "Regulatory
Compliance."
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. A Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Funds' 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 Funds 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 their investment policies and managing any uninvested cash.
INVESTMENT RISKS
====================================================================================
There are many factors which may affect an investment in the Funds. The Funds'
principal risks are described in the prospectus. Additional risk factors are
outlined below.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features 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.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risk tends to make securities traded in foreign markets more volatile
than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
The Euro is the new single currency of the European Monetary Union (EMU). With
the advent of the Euro, the participating countries in the EMU can no longer
follow independent monetary policies. This may limit these countries' ability to
respond to economic downturns or political upheavals, and consequently reduce
the value of their foreign government securities.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies and banks may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of a Fund's investments.
To the extent the Money Market Fund invests in foreign securities, its portfolio
securities 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 a 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.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.
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 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 OBJECTIVES
====================================================================================
The Money Market Fund's investment objective is to seek current income with
liquidity and stability of principal.
The Government Securities Fund's investment objective is to seek current income,
with preservation of capital as a secondary objective.
The Funds' investment objectives are fundamental policies and may not be changed
without a vote of the shareholders of the applicable Fund.
INVESTMENT LIMITATIONS - INSTITUTIONAL PRIME MONEY MARKET FUND AND INSTITUTIONAL
LIMITED DURATION U.S. GOVERNMENT FUND
====================================================================================
The following investment restrictions may be changed only by a vote of the
majority of the outstanding Shares of a Fund.
The Money Market Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities; (b) there is no limitation with respect to
domestic bank certificates of deposit or bankers' acceptances, and repurchase
agreements secured by bank instruments; (c) wholly owned finance companies will
be considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (d)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
3. Borrow money or issue senior securities except that the Fund may enter
into reverse repurchase agreements and may otherwise borrow money or issue
senior securities as and to the extent permitted by the 1940 Act or any rule,
order or interpretation thereunder. (The 1940 Act currently permits the Fund to
borrow up to one-third the value of its total assets at the time of such
borrowing.) So long as the Fund's borrowings, including reverse repurchase
agreements and dollar roll agreements, exceed 5% of such Fund's total assets,
the Fund will not acquire any portfolio securities.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
5. Underwrite the securities issued by other persons, except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities";
6. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
7. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current prospectus or statement of additional
information of such Fund.
The Government Securities Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services (for example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry).
3. Borrow money or issue senior securities except that the Fund may enter
into reverse repurchase agreements and may otherwise borrow money or issue
senior securities as and to the extent permitted by the 1940 Act or any rule,
order or interpretation thereunder. (The 1940 Act currently permits each Fund to
borrow up to one-third the value of its total assets at the time of such
borrowing.)
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
5. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities, except as may be
necessary to make margin payments in connection with derivative securities
transactions, and except to the extent disclosed in the current prospectus or
statement of additional information of such Fund;
6. Underwrite the securities issued by other persons, except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities";
7. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
8. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current prospectus or statement of additional
information of such Fund.
The following investment restrictions may be changed without the vote of a
majority of the outstanding Shares of a Fund.
1. Both Funds may not purchase securities of other investment companies,
except (a) in connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940 Act, or pursuant to
any exemptions therefrom;
2. Both Funds may not mortgage or hypothecate the Fund's assets in excess
of one-third of such Fund's total assets.
3. The Money Market Fund may not engage in any short sales. However, the
Government Securities Fund may not engage in short sales of any securities at
any time if, immediately after and as a result of the short sale, the market
value of securities sold short by such Fund would exceed 25% of the value of
that Fund's total assets.
4. The Money Market Fund will limit investments in the securities of any
single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
collateralized by such securities) to not more than 5% of the value of its total
assets at the time of purchase, except for 25% of the value of their total
assets which may be invested in First Tier Securities of any one issuer for a
period of up to three business days, in order to comply with Securities and
Exchange Commission regulations relating to money market funds.
5. The Money Market Fund may not purchase or otherwise acquire any
security if, as a result, more than 10% of its net assets would be invested in
securities that are illiquid.
6. The Government Securities Fund may not purchase or otherwise acquire
any security if, as a result, more than 15% of its net assets would be invested
in securities that are illiquid.
If any percentage restriction or requirement described above is satisfied
at the time of investment, a later increase or decrease in such percentage
resulting from a change in asset value will not constitute a violation of such
restriction or requirement. However, should a change in net asset value or other
external events cause a Fund's investments in illiquid securities to exceed the
limit set forth in this Statement of Additional Information for its investment
in illiquid securities, such Fund will act to cause the aggregate amount of such
securities to come within such limit as soon as reasonably practicable. In such
an event, however, no Fund would be required to liquidate any portfolio
securities where such Fund would suffer a loss on the sale of such securities.
PORTFOLIO TURNOVER
The portfolio turnover rate for Government Securities Fund is calculated
by dividing the lesser of a Fund's purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
Securities and Exchange Commission requires that the calculation exclude all
securities whose remaining maturities at the time of acquisition were one year
or less.
The portfolio turnover rate for the Government Securities Fund may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of Shares. High portfolio turnover
rates will generally result in higher transaction costs, including brokerage
commissions, to the Government Securities Fund and may result in additional tax
consequences to the Fund's Shareholders. Portfolio turnover will not be a
limiting factor in making investment decisions.
REGULATORY COMPLIANCE
The Money Market Fund may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
the prospectus and this statement of additional information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Money
Market Fund will comply with the various requirements of Rule 2a-7 (the Rule),
which regulates money market mutual funds. The Money Market Fund will determine
the effective maturity of their investments according to the Rule. The Money
Market Fund may change these operational policies to reflect changes in the laws
and regulations without the approval of their shareholders.
DETERMINING MARKET VALUE OF SECURITIES
====================================================================================
MONEY MARKET FUND
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
GOVERNMENT SECURITIES FUND
Market values of the Government Securities Fund's portfolio securities are
determined as follows:
| 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;
| for fixed income securities, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that fixed
income securities with remaining maturities of less than 60 days at the time
of purchase may be valued at amortized cost; and
| 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 Government Securities 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.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
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 Funds' 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 FUNDS
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
and their subsidiaries;
| current and former Trustees of the Trust;
| 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 Funds' distributor and consents to such
purchases;
| current and retired employees of any sub-adviser to the Vision Funds; and
| investors referred by any sub-adviser to the Vision Funds. 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 Shares of each 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 a Fund under this
"no-load" purchase provision. This payment will be made out of the distributor's
assets and not by the Trust, the Funds or a Fund's shareholders.
HOW ARE THE FUNDS SOLD?
====================================================================================
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Funds 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 may be paid fees out of the assets of the Distributor
(but not out of Fund assets) or Adviser. The Distributor may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon 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 Funds reserve the right to determine whether to accept
your securities and the minimum market value to accept. The Funds 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 each 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 a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, each 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 Funds' 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 Funds' 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 a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust 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.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
TAX INFORMATION
====================================================================================
FEDERAL INCOME TAX
Each 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.
Each 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
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Money Market Fund purchases foreign securities, their investment income
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to which
the Fund would be subject. The effective rate of foreign tax cannot be predicted
since the amount of Fund assets to be invested within various countries is
uncertain. However, the Fund intends to operate so as to qualify for
treaty-reduced tax rates when applicable.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
====================================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, and total compensation received as a Trustee from the Trust for
its most recent fiscal year. The Trust is comprised of eight funds and is the
only investment company in the Fund Complex.
-------------------------------------------------------------- ------------
NAME PRINCIPAL OCCUPATIONS TOTAL
BIRTH DATE --FOR PAST FIVE YEARS COMPENSATION
ADDRESS --------------------------------------- FROM
POSITION WITH TRUST TRUST*
---------------------------------------
RANDALL I. BENDERSON President and Chief Operating Officer, $8,000
-------------------- Benderson Development Company, Inc.
570 Delaware Avenue (construction).
Buffalo, NY
Birth date: January
12, 1955
TRUSTEE
-------------------------------------------------------------- ------------
JOSEPH J. CASTIGLIA Director, The Energy East Corp., and $8,000
Roycroft Campus its subsidiary New York State Electric
21 South Grove & Gas Corp.; Sevenson Environmental
Street, Suite 291 Services, Inc.; Blue Cross & Blue
East Aurora, NY Shield of Western New York, a division
14052 of HealthNow New York, Inc.; and
Birth date: July Former President, Chief Executive
20, 1934 Officer and Vice Chairman, Pratt &
Lambert United, Inc. (manufacturer of
TRUSTEE paints and chemical specialties).
---------------------
------------------------------------------ ------------
MARK J. CZARNECKI#+ Executive Vice President, M&T Bank, $0 5122 Eastbrooke
division head for M&T Bank's Place investment area, M&T Investment Group.
Williamsville, NY
14221
Birth date:
November 3, 1955
TRUSTEE
------------------------------------------ ------------
DANIEL R. GERNATT, President and CFO of Gernatt Asphalt $8,000
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
TRUSTEE
-------------------------------------------------------------- ------------
GEORGE K. Retired President, Brand Name Sales, $7,500
HAMBLETON, JR. Inc. (catalog showroom business);
1003 Admiral's Walk Retired President, Hambleton & Carr,
Buffalo, NY Inc. (catalog showroom business).
Birth date:
February 8, 1933
TRUSTEE
-------------------------------------------------------------- ------------
EDWARD C. GONZALES President, Executive Vice President $0
Federated Investors and Treasurer of other funds
Tower distributed by Federated Securities
Pittsburgh, PA Corp.; Vice Chairman, Federated
Birth date: October Investors, Inc.; Trustee, Federated
22, 1930 Administrative Services; formerly:
Trustee or Director of other funds
PRESIDENT AND distributed by Federated Securities
TREASURER Corp.; CEO and Chairman, 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
-------------------------------------------------------------- ------------
C. TODD GIBSON Corporate Counsel, Federated $0
Federated Investors Investors, Inc.; Assistant Vice
Tower President, Federated Services Company.
Pittsburgh, PA
Birth date: May 17,
1967
SECRETARY
-------------------------------------------------------------- ------------
* This compensation reflects payments made to the Trust's Trustees by Vision
Group of Funds, Inc. (Corporation) in their capacity as Directors of the
Corporation. The Corporation reorganized into the Trust on November 8, 2000 (See
"How are the Funds Organized?")
# Denotes a Trustee who is deemed to be an interested person as defined in the
1940 Act.
+ Mr. Czarnecki became a member of the Board of Trustees on October 23, 2000. He
did not receive any fees as of the fiscal year end of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Funds.
The Adviser shall not be liable to the Trust 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 Trust.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Funds, their Adviser and Distributor have adopted
codes of ethics. These codes govern securities trading activities of investment
personnel, Trustees, and certain other employees. Although they do permit these
people to trade in securities, including those that the Funds could buy, they
also contain significant safeguards designed to protect the Funds and their
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 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 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 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
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Funds' 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 in advising other accounts. To the extent
that receipt of these services may replace services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The Adviserand 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 Funds are made independently from those of other
accounts managed by the Adviser. When the Funds 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 Funds, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Funds.
CO-ADMINISTRATORS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company (FSC) and M&T Bank serve as co-administrators to the
Trust and provide the Funds with certain administrative personnel and services
necessary to operate the Funds. Administrative services are provided for an
aggregate annual fee as specified below:
Fees Payable to FSC
AVERAGE AGGREGATE DAILY NET
---------------------------ASSETS OF THE VISION GROUP
MAXIMUM FEE OF FUNDS
0.06% on the first $2 billion
0.03% on the next $3 billion
0.015% on assets in excess of $5
billion
------------------------------------------------------------------------------------
Fees Payable to M&T
AVERAGE AGGREGATE DAILY NET
---------------------------ASSETS OF THE VISION GROUP
MAXIMUM FEE OF FUNDS
0.04% on the first $5 billion
0.015% on assets in excess of $5
billion
------------------------------------------------------------------------------------
FSC, through its affiliate Federated Shareholder Services Company (FSSC), a
registered transfer agent, also serves as transfer and dividend disbursing agent
to the Trust, and receives a separate fee from the Funds for these transfer
agency services.
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds. Foreign instruments purchased by a Fund are
held by foreign banks participating in a global custody network coordinated by
State Street Bank. State Street Bank also provides financial administration and
fund accounting services to the Funds for an aggregate annual fee of 0.045% of
the Funds' average daily net assets.
INDEPENDENT AUDITORS
The independent auditors for the Fund, Ernst & Young LLP, plans and performs its
audit so it may provide an opinion as to whether each Fund's financial
statements and financial highlights are free of material misstatement.
HOW DO THE FUNDS MEASURE PERFORMANCE?
====================================================================================
The Funds 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 a 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 Government Securities Fund are 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 of Shares of the Money Market Fund are based upon the seven days
ending on the day of the calculation, called the "base period." This yield is
calculated by: determining the net change in the value of a hypothetical account
with a balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased Shares; dividing the net
change in the account's value by the value of the account at the beginning of
the base period to determine the base period return; and multiplying the base
period return by 365/7. The effective yield of the Money Market Funds is
calculated by compounding the unannualized base-period return by: adding one to
the base-period return, raising the sum to the 365/7th power; and subtracting
one from the result. 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 Funds' 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 Funds; and
| information about the mutual fund industry from sources such as the
Investment Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds 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 Funds use in advertising may include:
| LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Government Fund and the NY Municipal Income Fund will quote
their Lipper rankings in the "General U.S. Government Funds" and the "New York
Municipal Bond Funds" categories, respectively, in advertising and sales
literature. (All Funds)
| LEHMAN BROTHERS GOVERNMENT (LT) INDEX is an index composed of bonds issued by
the U.S. government or its agencies which have at least $1 million outstanding
in principal and which have maturities of ten years or longer. Index figures are
total return figures calculated monthly. (Government Securities Fund)
| LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average maturity of nine
years. It calculates total returns for one month, three months, twelve months,
and ten year periods, and year-to-date. (Government Securities Fund)
| LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; foreign obligations, U.S.
investment-grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum rating of BBB by S&P or
Fitch, or a minimum rating of Baa by Moody's. (Government Securities Fund)
| MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX is an unmanaged index comprised
of approximately 4,821 issues which include corporate debt obligations rated BBB
or better and publicly issued, non-convertible domestic debt of the U.S.
government or any agency thereof. These quality parameters are based on
composites of ratings assigned by Standard and Poor's Ratings Group and Moody's
Investors Service, Inc. Only notes and bonds with a minimum maturity of one
year are included. (Government Securities Fund)
| AMEX MARKET less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or by
Moody's as investment grade issues (i.e., BBB/Baa or better). (Government
Securities Fund)
| MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form
of publicly placed, nonconvertible, coupon-bearing domestic debt and must
carry a term to maturity of at least one year. Par amounts outstanding must
be no less than $10 million at the start and at the close of the performance
measurement period. The Domestic Master Index is a broader index than the
Merrill Lynch Corporate and Government Index and includes, for example,
mortgage related securities. The mortgage market is divided by agency, type
of mortgage and coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than $200 million at the start and at the close
of the performance measurement period. Corporate instruments must be rated by
S&P or by Moody's as investment grade issues (i.e., BBB/Baa or better).
(Government Securities Fund)
| SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance. (Government Securities
Fund)
| SALOMON BROTHERS LONG-TERM HIGH GRADE CORPORATE BOND INDEX is an unmanaged
index of long-term high grade corporate bonds issued by U.S. corporations with
maturities ranging from 10 to 20 years. (Government Securities Fund)
| LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization. (Government Securities Fund)
| THE SALOMON BROTHERS TOTAL RATE-OF-RETURN INDEX for mortgage pass-through
securities reflects the entire mortgage pass-through market and reflects their
special characteristics. The index represents data aggregated by mortgage pool
and coupon within a given sector. A market-weighted portfolio is constructed
considering all newly created pools and coupons. (Government Securities Fund)
| THE MERRILL LYNCH TAXABLE BOND INDICES include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market. (Government Securities
Fund)
| LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included. (Government Securities Fund)
| CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
(All Funds)
| SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S. Treasury
maturing in 30 days.
| BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks
and thrift institution money market deposit accounts. The rates published in
the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical Areas.
Account minimums range upward from $2,500 in each institution and compounding
methods vary. If more than one rate is offered, the lowest rate is used.
Rates are subject to change at any time specified by the institution.
| DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its MONEY MARKET INSIGHT
publication reports monthly and year-to-date investment results for the same
money funds.
| 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. (All Funds)
From time to time, the Money Market Fund will quote their Lipper rankings in the
"money market instrument funds" category in advertising and sales literature.
Investors may use such a reporting service in addition to the Funds'
prospectuses to obtain a more complete view of the Funds' performance before
investing. Of course, when comparing Fund performance to any reporting service,
factors such as composition of the reporting service and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, a Fund can compare
its performance, or performance for the types of securities in which it invests,
to a variety of other investments, such as federally insured bank products,
including time deposits, bank savings accounts, certificates of deposit, and
Treasury bills, and to money market funds using the Lipper Analytical Services
money market instruments average. Unlike federally insured bank products, the
Shares of the Funds are not insured. Unlike money market funds, which attempt to
maintain a stable net asset value, the net asset value of the Income and Equity
Funds' Shares fluctuates. Advertisements may quote performance information which
does not reflect the effect of any applicable sales charges.
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 INSTITUTIONAL PRIME MONEY MARKET FUND
VISION INSTITUTIONAL LIMITED DURATION U.S. GOVERNMENT FUND
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER AND CO-ADMINISTRATOR
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, NY 14203
CO-ADMINISTRATOR
Federated Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company
P.O. Box 8609
Boston, MA 02266-8609
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Vision Treasury Money Market Fund
Vision Money Market Fund
Vision New
York Tax-Free Money Market Fund
Vision U.S. Government Securities Fund
Vision
New York Municipal Income Fund
Vision Large Cap Value Fund (formerly, Vision Equity Income Fund)
Vision Mid
Cap Stock Fund
Vision Large Cap Growth Fund
Vision Large Cap Core Fund
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 Goals, Strategies, Risks and Performance | 1 |
| What are the Funds' Fees and Expenses? | 11 |
| What are the Equity Funds' Investment Strategies? | 13 |
| What are the Funds' Main Investments and Investment Techniques? | 15 |
| Specific Risks of Investing in the Funds | 17 |
| What do Shares Cost? | 19 |
| How are the Funds Sold? | 21 |
| How to Purchase Shares | 21 |
| How to Redeem Shares | 23 |
| How to Exchange Shares | 24 |
| Account and Share Information | 25 |
| Who Manages the Funds? | 26 |
| Financial Information | 28 |
This Prospectus of the Vision Group of Funds (the "Trust") offers Class A Shares of five portfolios, including three Money Market Funds and two Income Funds and Class A and Class B Shares of four Equity Funds. Under separate prospectuses, the Trust offers 9 portfolios, including one Money Market Fund, three Income Funds and five Equity Funds. Vision Treasury Money Market Fund and Vision Money Market Fund offer another class of shares, Class S Shares, under a separate prospectus. The following describes the investment goals (objectives), strategies and principal risks of each Fund. There can be no assurance that a Fund will achieve its goal. However, each Fund endeavors to do so by following the strategies and policies described in this prospectus.
On the following pages are performance information for each Fund and its Class A Shares and Class B Shares, if applicable. This information gives you some indication of the risks of an investment in a Fund by comparing each Fund's performance with a broad measure of market performance. While past performance of a Fund does not necessarily predict future performance, the following information provides you with the historical performance information to assist you in analyzing how each Fund's investment risks may be balanced by their potential rewards. For more current performance information, including the current 7-Day Net Yields of the Money Market Funds, call (800) 836-2211.
For Funds that offer both Class A and B Shares (Large Cap Value Fund, Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap Core Fund ), the SEC requires us to show Class A Shares because it has the longest operating history.
The bar chart represents the (historical) calendar year performance of Class A Shares of each Fund without reflecting the applicable sales charge imposed on Class A Shares. If these charges or fees had been included, the return would have been lower. Following the bar chart is the year-to-date performance of Class A Shares through the most recent calendar quarter, again, without reflecting any applicable sales charge imposed on Class A Shares. Also provided is the best and worst calendar quarter performance for Class A Shares.
Following the bar chart is a performance table showing the Average Annual Total Return for Class A Shares and Class B Shares, if applicable of the Funds as compared to an appropriate broad-based securities market index for certain periods ended December 31, 1999. The Funds' total return figures reflect the maximum sales charge that could apply (except for the Money Market Funds, which do not impose a sales charge). The market indices are unmanaged and are not adjusted for any sales charge, expenses or other fees the SEC requires to be reflected in the Fund's performance. You cannot invest directly in an index.
Money Market Funds are subject to strict regulatory limitations on their permissible investments, which are designed to allow the Funds to maintain a stable share price of $1.00. These limitations govern diversification (how much of their assets can be invested in any one issuer), credit quality, and length of maturity. For example the securities in which the Funds invest must be rated in one of the two highest short-term rating categories by one or more nationally recognized rating services or be of comparable quality to securities having such ratings.
To seek current income with liquidity and stability of principal.
The Fund pursues its goal by investing primarily in a diversified portfolio of direct obligations of the U.S. Treasury, such as Treasury bills and notes, and repurchase agreements secured by these obligations. These obligations are high quality, short-term investments that generally mature and come due for repayment by the issuer in 397 days or less. The dollar-weighted average maturity of the Fund will not exceed 90 days.
[Graphic Representation Omitted--See Appendix]
Historically the Fund has maintained a constant $1.00 net asset value per share. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-end basis.
The Fund's Class A Shares are sold without a sales charge (load).
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.24%.
Within the periods shown in the Chart, the Fund's Class A Shares highest quarterly return was 1.86% (quarter ended September 30, 1990). Its lowest quarterly return was 0.68% (quarter ended June 30, 1993).
The following table represents the Fund's Class A Shares Average Annual Total Return for the calendar periods ended December 31, 1999.
| Class A Shares | ||
|---|---|---|
| 1 Year | 4.38% | |
| 5 Years | 4.88% | |
| 10 Years | 4.70% |
The Fund's Class A Shares 7-Day Net Yield as of December 31, 1999 was 4.51%.
Investors may call the Fund at 1-800-836-2211 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To seek current income with liquidity and stability of principal.
The Fund pursues its goal by investing in a diversified portfolio of high quality, short-term debt obligations issued by the U.S. government, banks and corporations. These obligations generally mature and come due for repayment by the issuer in 397 days or less. The dollar-weighted average maturity of the Fund will not exceed 90 days.
[Graphic Representation Omitted--See Appendix]
Historically the Fund has maintained a constant $1.00 net asset value per share. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-end basis.
The Fund's Class A Shares are sold without a sales charge (load).
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.32%.
Within the periods shown in the Chart, the Fund's Class A Shares highest quarterly return was 1.95% (quarter ended June 30, 1990). Its lowest quarterly return was 0.71% (quarter ended June 30, 1993).
The following table represents the Fund's Class A Shares Average Annual Total Return for the calendar periods ended December 31, 1999.
| Class A Shares | ||
| 1 Year | 4.61% | |
| 5 Years | 5.03% | |
| 10 Years | 4.87% |
The Fund's Class A Shares 7-Day Net Yield as of December 31, 1999 was 5.12%.
Investors may call the Fund at 1-800-836-2211 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To seek a high level of current interest income that is exempt from federal regular income tax as is consistent with liquidity and relative stability of principal.
The Fund pursues its goal by investing in a portfolio of high-quality, short-term tax-exempt debt obligations (municipal securities) that generally mature in 397 days or less from the time of investment. The dollar-weighted average maturity of the Fund will not exceed 90 days. Under normal market conditions, the Fund intends to invest at least 80% of its net assets in debt obligations that pay interest exempt from federal regular income tax. When possible, the Fund intends to invest, under normal market conditions, at least 80% of its net assets in securities issued by the State of New York and its political subdivisions (New York municipal securities). If the Fund pays dividends from interest it earns on its New York municipal securities investments, the dividends will be exempt from federal regular income tax, as well as New York State and New York City income taxes.
[Graphic Representation Omitted--See Appendix]
Historically the Fund has maintained a constant $1.00 net asset value per share. The bar chart shows the variability of the Fund's total returns on a calendar year-end basis.
The Fund's shares are sold without a sales charge (load).
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 0.76%.
Within the periods shown in the Chart, the Fund's highest quarterly return was 1.29% (quarter ended September 30, 1990). Its lowest quarterly return was 0.38% (quarters ended September 30, 1992 and March 31, 1993).
The following table represents the Fund's Average Annual Total Return for the calendar periods ended December 31, 1999.
| Fund | ||
|---|---|---|
| 1 Year | 2.71% | |
| 5 Years | 3.02% | |
| 10 Years | 2.97% |
The Fund's 7-Day Net Yield as of December 31, 1999 was 4.04%.
Investors may call the Fund at 1-800-836-2211 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To provide current income. Capital appreciation is a secondary, non-fundamental investment consideration.
The Fund pursues its goal by investing, under normal market conditions, at least 65% of its total assets in a diversified portfolio consisting of securities that are guaranteed as to payment of principal and interest by the U.S. government or its agencies or instrumentalities, including mortgage-backed securities issued by U.S. government agencies. The Fund anticipates that most of its assets will be invested in fixed income securities having maturities greater than one year. Certain mortgage-backed securities, including Adjustable Rate Mortgage Securities (ARMS) and Collateralized Mortgage Obligations (CMOs) are included within the definition of "U.S. Government Securities." The Fund may invest at times to a limited extent in other types of debt obligations to enhance total return (e.g., corporate debt obligations, taxable municipal securities, asset-backed securities, etc.).
[Graphic Representation Omitted--See Appendix]
The bar chart shows the variability of the Fund's total returns on a calendar year-end basis.
The total returns displayed for the Fund do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 3.13%.
Within the period shown in the Chart, the Fund's highest quarterly return was 6.45% (quarter ended June 30, 1995). Its lowest quarterly return was (2.81%) (quarter ended June 30, 1994).
The following table represents the Fund's Average Annual Total Returns, reduced to reflect applicable sales charges for the calendar periods ended December 31, 1999. The table shows the Fund's total returns averaged over a period of years relative to the Lehman Brothers Aggregate Bond Index (LBABI), a broad-based market index. LBABI is an index measuring both the capital price changes and income provided by the underlying universe of securities, comprised of U.S. Treasury obligations, U.S. Agency obligations, foreign obligations, U.S. investment grade corporate debt and mortgage backed obligations. Total returns for the index shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
| Class A | LBABI | |||
|---|---|---|---|---|
| 1 Year | (6.74%) | (0.82%) | ||
| 5 Years | 5.85% | 7.73% | ||
| Start of Performance1 | 3.68% | 5.67% |
1 The Fund's start of performance date was September 22, 1993.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To provide current income which is exempt from federal regular income tax and the personal income taxes imposed by the State of New York and New York municipalities and is consistent with the preservation of capital.
The Fund pursues its goal by investing primarily in securities that pay interest which is exempt from federal regular income tax and personal income taxes imposed by the State of New York and New York municipalities. Under normal market conditions, at least 80% of the Fund's net assets will be invested in securities that pay interest which is exempt from federal regular income tax. However, the interest on these securities may be subject to the federal alternative minimum tax or "AMT." Under normal market conditions, at least 65% of the value of the Fund's total assets will be invested in obligations issued by or on behalf of the State of New York, its political subdivisions or agencies that pay interest which is exempt from the personal income tax imposed by the State of New York and New York municipalities.
[Graphic Representation Omitted--See Appendix]
The bar chart shows the variability of the Fund's total returns on a calendar year-end basis.
The total returns displayed for the Fund do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 3.83%.
Within the period shown in the Chart, the Fund's highest quarterly return was 6.57% (quarter ended March 31, 1995). Its lowest quarterly return was (4.48%) (quarter ended March 31, 1994).
The following table represents the Fund's Average Annual Total Returns, reduced to reflect applicable sales charges for the calendar periods ended December 31, 1999. The table shows the Fund's total returns averaged over a period of years relative to the Lehman Brothers State General Obligation Bond Index (LSGOBI), and the Lehman Brothers New York Tax-Exempt Index (LBNYTEI), broad-based market indexes. LSGOBI is an index comprised of all state obligation debt issues. LBNYTEI is a total return performance benchmark for the New York long-term, investment grade, tax-exempt bond market. Total returns for the index shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged, and it is not possible to invest directly in an index.
| Class A | LSGOBI | LBNYTEI | ||||
|---|---|---|---|---|---|---|
| 1 Year | (9.07%) | (1.13%) | (2.04%) | |||
| 5 Years | 4.93% | 6.75% | 7.15% | |||
| Start of Performance1 | 3.49% | 4.79% | 5.07% |
1 The Fund's start of performance date was September 22, 1993.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To provide current income. Capital appreciation is a secondary, non-fundamental consideration.
The Fund pursues its goal by investing primarily in a diversified portfolio of income-producing equity securities of U.S. companies that are considered "large cap." Equity securities include common and preferred stocks, as well as convertible securities. The adviser uses a value-oriented approach to select those companies with unrecognized or undervalued assets. Such a value approach seeks companies whose stock prices do not appear to reflect their underlying value as measured by assets, earnings, cash flow, business franchises, or other quantitative or qualitative measurements.
[Graphic Representation Omitted--See Appendix]
The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was (0.64%).
Within the period shown in the Chart, the Fund's Class A Shares highest quarterly return was 18.26% (quarter ended December 31, 1998). Its lowest quarterly return was (11.14%) (quarter ended September 30, 1998).
The following table represents the Fund's Class A Shares and Class B Shares Average Annual Total Returns, reduced to reflect applicable sales charges, for the calendar periods ended December 31, 1999.
The table shows the Fund's Class A Shares and Class B Shares total returns averaged over a period of years relative to the Standard & Poor's 500/Barra Value Index ("S&P BV"), a broad-based market index. The S&P BV is constructed by sorting the S&P 500 based on their price/book ratios, with the low price/book companies forming the index. The S&P 500 is an index of large cap common stocks. Total returns for the index shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged, and it is not possible to invest directly in an index.
| Class A | Class B | S&P BV | ||||
|---|---|---|---|---|---|---|
| 1 Year | (9.63%) | N/A | 12.38% | |||
| Start of Performance1 | 4.03% | (4.76%) | 12.68% |
1 The Fund's Class A Shares and Class B Shares start of performance dates were September 26, 1997 and December 10, 1999, respectively.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To provide total return.
The Fund pursues its goal by investing primarily in a diversified portfolio of mid-cap stocks. These stocks will be of comparable size to those that comprise the S&P Mid Cap 400 Index. Independence Investment Associates, Inc., the Fund's sub-adviser ("IIA" or "sub-adviser"), will select stocks based upon both their relative value and potential for growth. The Fund's total return will result mostly from capital appreciation rather than income.
Vision Mid Cap Stock Fund commenced operations on October 15, 1999, when it acquired both Vision Growth and Income Fund and Vision Capital Appreciation Fund (the "Acquired Funds") in a reorganization. In order to comply with comments made by the staff of the SEC, the Mid Cap Stock Fund had to become an "accounting survivor" of one of the Acquired Funds, despite the differences in the investment objective, strategies, policies and expenses of the Acquired Funds, and the fact that Mid Cap Stock Fund's subadviser never managed, or provided any investment advice to, the Acquired Funds. Accordingly, the following financial and performance information presented for the Mid Cap Stock Fund in reality reflects the historical operations of Vision Growth and Income Fund in all periods prior to October 15, 1999. This past performance is not predictive of future performance of the Mid Cap Stock Fund and should be evaluated in light of the Fund's organization and the differences noted above.
[Graphic Representation Omitted--See Appendix]
The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 14.19%.
Within the period shown in the Chart, the Fund's Class A Shares highest quarterly return was 27.55% (quarter ended June 30, 1999). Its lowest quarterly return was (25.98%) (quarter ended September 30, 1998).
The following table represents the Fund's Average Annual Total Returns, reduced to reflect applicable sales charges, for the calendar periods ended December 31, 1999.
The table shows the Fund's Class A Shares total returns averaged over a period of years relative to the Standard & Poor's Mid Cap 400 Index (S&P 400) and the Russell Midcap Value Index (RMVI), broad-based market indexes. S&P 400 is a capitalization weighted index that measures the performance of the mid-range of the U.S. stock market. RMVI measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 35% of the market capitalization of the Russell 1000 Index. Total returns for the index shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged, and it is not possible to invest directly in an index.
| Class A | S&P 400 | RMVI | ||||
|---|---|---|---|---|---|---|
| 1 Year | 8.12% | 14.74% | (0.11%) | |||
| 5 Years | 14.78% | 23.05% | 18.01% | |||
| Start of Performance1 | 11.85% | 18.69% | 14.34% |
1 The Fund's Class A Shares start of performance date was November 29, 1993.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
To provide capital appreciation.
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:
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.
To provide long-term capital appreciation. Current income is a secondary, non-fundamental investment consideration.
The Fund invests primarily in a diversified portfolio of equity securities (primarily common stocks) of companies that have a market capitalization of at least $10 billion, which are generally considered "large cap" stocks. The Adviser utilizes a blended style of investing by using a growth-based strategy or value-based strategy (or both), as market conditions dictate. Under normal market conditions, the Fund intends to invest at least 65% of its assets in these large-cap equity securities that are expected to produce capital appreciation. The Fund will also consider to a lesser extent whether a stock offers the opportunity for income.
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.
The Funds and the Shares offered by this prospectus 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 Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Although the Money Market Funds attempt to preserve the value of your investment at $1.00 per Share, it is possible to lose money by investing in any of the Vision Funds. Following are additional risks associated with investments in the Funds.
| Risks | Treasury Money Market Fund |
Money Market Fund |
NY Tax-Free Money Market Fund |
U.S. Government Securities Fund |
NY Municipal Income Fund |
Large Cap Value Fund |
Mid Cap Stock Fund |
Large Cap Growth Fund |
Large Cap Core Fund |
|||||||||
| Stock Market Risks1 | X | X | X | X | ||||||||||||||
| Risks Related to Investing for Growth2 | X | X | X | |||||||||||||||
| Risks Related to Investing for Value3 | X | X | X | |||||||||||||||
| Risks Related to Company Size4 | X | |||||||||||||||||
| Interest Rate Risks5 | X | X | X | X | X | |||||||||||||
| Credit Risks6 | X | X | X | X | X | |||||||||||||
| Call Risks7 | X | X | X | X | ||||||||||||||
| Prepayment Risks8 | X | X | X | |||||||||||||||
| Tax Risks9 | X | X | ||||||||||||||||
| Risks of Non-diversification10 | X | |||||||||||||||||
| New York Investment Risks11 | X | X |
1 The risk posed by the fact that the value of equity securities rise and fall.
2 Due to their relatively high valuations, growth stocks are typically more volatile than value stocks.
3 Due to their relatively low valuations, value stocks are typically less volatile than growth stocks and therefore may lag behind growth stocks in an up market.
4 The risk posed by mid- and small-market capitalization companies tending to have fewer shareholders, less liquidity, more volatility, unproven track records, limited product or service base and limited access to capital. These risks are greater for small-market capitalization stocks.
5 The risk posed by the fact that prices of fixed income securities rise and fall inversely in response to interest rate changes. In addition, this risk increases with the length of the maturity of the debt.
6 The possibility that an issuer will default on a security by failing to pay interest or principal when due.
7 The possibility that an issuer may redeem a fixed income security before maturity at a price below its current market price.
8 The risk posed by the relative volatility of mortgage-backed securities. The likelihood of prepayments increases in a declining interest rate environment and decrease in a rising interest rate environment. This adversely affects the value of these securities.
9 Failure of a municipal security to meet certain legal requirements may cause the interest received and distributed by the Fund to shareholders to be taxable.
10 Since this Fund is non-diversified, there is a risk that any one issuer may have a greater impact on the Fund's Share price and performance compared to that of a diversified fund.
11 These Funds emphasize investments in New York and are more subject to events that may adversely affect New York issuers.
This table describes the fees and expenses that you may pay if you buy and hold Class A Shares and Class B Shares of the Funds.
| Shareholder Fees | Treasury Money Market Fund |
Money Market Fund |
NY Tax-Free Money Market Fund |
U.S. Government Securities Fund |
NY Municipal Income Fund |
||||||
| Fees Paid Directly From Your Investment | Class A | Class A | Class A | Class A | Class A | ||||||
| Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
None | None | None | 4.50% | 4.50% | ||||||
| Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) | None | None | None | None | None | ||||||
| Maximum Sales Charge (Load) Imposed on Reinvested
Dividends (and other Distributions) (as a percentage of offering price) |
None | None | None | None | None | ||||||
| Redemption Fee (as a percentage of amount redeemed, if applicable) | None | None | None | None | None | ||||||
| Exchange Fee | None | None | None | None | None | ||||||
| Annual Fund Operating Expenses (Before Waivers and Reimbursements)1 |
|||||||||||
| Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
|||||||||||
| Management Fee2 | 0.50% | 0.50% | 0.50% | 0.70% | 0.70% | ||||||
| Distribution (12b-1) Fee3 | None | None | None | 0.25% | 0.25% | ||||||
| Shareholder Services Fee4 | 0.25%4 | 0.25%5 | 0.25%5 | 0.25%5 | 0.25%5 | ||||||
| Other Expenses | 0.16% | 0.18% | 0.19% | 0.28% | 0.35% | ||||||
| Total Annual Fund Operating Expenses | 0.91% | 0.93% | 0.94% | 1.48% | 1.55% | ||||||
| Total Contractual Waiver of Fund Expenses | 0.25% | 0.00% | 0.00% | 0.00% | 0.00% | ||||||
| Total Annual Operating Expenses (After
Contractual Waivers and Reimbursements) |
0.66% | 0.93% | 0.94% | 1.48% | 1.55% | ||||||
| 1 | Although not contractually obligated to do so, the Adviser, distributor and shareholder services provider waived certain amounts. These are shown below along with the net expenses the Funds actually paid for the fiscal year ended April 30, 2000. | ||||||||||
| Total Waiver of Fund Expenses | 0.08% | 0.30% | 0.34% | 0.55% | 0.70% | ||||||
| Total Actual Annual Operating Expenses (After Waivers and Reimbursements) |
0.58% | 0.63% | 0.60% | 0.93% | 0.85% | ||||||
| 2 | The Adviser voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary waiver at any time. The management fee paid by Treasury Money Market Fund, Money Market Fund, NY Tax Free Money Market Fund, U.S. Government Securities Fund and New York Municipal Income Fund (after the voluntary waiver) was 0.42%, 0.45%, 0.41%, 0.65% and 0.50%, respectively for the fiscal year ended April 30, 2000. | ||||||||||
| 3 | The Funds did not pay or accrue the distribution (12b-1) fee for Class A Shares during the fiscal year ended April 30, 2000. If the Funds were paying or accruing the distribution (12b-1) fee, they would be able to pay up to 0.25% of each Fund's average daily net assets. See "Fund Management, Distribution and Administration." | ||||||||||
| 4 | Pursuant to a contractual agreement between the shareholder services provider and the Funds, the Treasury Money Market Fund will not pay or accrue the shareholder services fee during the period ending December 18, 2001. See "Fund Management, Distribution and Administration." The shareholder services provider agrees that this obligation shall constitute a contractual commitment enforceable by the Funds and that the shareholder services provider shall not assert any right to reimbursements of amounts so waived. | ||||||||||
| 5 | The Money Market Fund, NY Tax Free Money Market Fund, U.S. Government Securities Fund and New York Municipal Income Fund did not pay or accrue shareholder services fee for Class A Shares during the fiscal year ended April 30, 2000. If the Funds were accruing or paying the shareholder services fee, they would be able to pay up to 0.25% of each Fund's average daily net assets. See "Fund Management, Distribution and Administration." | ||||||||||
| Shareholder Fees | Large Cap Value Fund |
Mid Cap Stock Fund |
Large Cap Growth Fund |
Large Cap Core Fund |
|||||||||||||
| Fees Paid Directly From Your Investment | Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | 5.50% | None | 5.50% | None | 5.50% | None | 5.50% | None | |||||||||
| Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) | None | 5.00% | None | 5.00% | None | 5.00% | None | 5.00% | |||||||||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price). | None | None | None | None | None | None | None | None | |||||||||
| Redemption Fee (as a percentage of amount redeemed, if applicable) | None | None | None | None | None | None | None | None | |||||||||
| Exchange Fee | None | None | None | None | None | None | None | None | |||||||||
| Annual Fund Operating Expenses (Before Waivers and Reimbursements)1 |
|||||||||||||||||
| Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
|||||||||||||||||
| Management Fee | 0.70% | 0.70% | 0.85% | 0.85% | 0.85%2 | 0.85%2 | 0.85% | 0.85% | |||||||||
| Distribution (12b-1) Fee | 0.25%3 | 0.75% | 0.25%3 | 0.75% | 0.25%3 | 0.75%5 | 0.25%3 | 0.75% | |||||||||
| Shareholder Services Fee | 0.25%4 | 0.25% | 0.25% | 0.25% | 0.25%4 | 0.25%5 | 0.25%4 | 0.25% | |||||||||
| Other Expenses5 | 0.48% | 0.48% | 0.29% | 0.29% | 0.82% | 0.82% | 0.22% | 0.22% | |||||||||
| Total Annual Fund Operating Expenses | 1.68% | 2.18% | 1.64% | 2.14% | 2.17% | 2.67% | 1.57% | 2.07% | |||||||||
| Total Contractual Waiver of Fund Expenses | N/A | N/A | N/A | N/A | N/A | N/A | 0.50% | 0.00% | |||||||||
| Total Annual Operating Expenses (After
Contractual Waivers and Reimbursements) |
N/A | N/A | N/A | N/A | N/A | N/A | 1.07% | 2.07% | |||||||||
| 1 | Although not contractually obligated to do so, the distributor and shareholder services provider expect to waive certain amounts. These are shown below along with the net expenses the Funds expect to actually pay for the fiscal year ended April 30, 2001. | ||||||||||||||||
| Total Waiver of Fund Expenses | 0.50% | 0.00% | 0.25% | 0.00% | 0.50% | 0.00% | 0.00% | 0.00% | |||||||||
| Total Actual Annual Operating Expenses (After Waivers and Reimbursements) | 1.18% | 2.18% | 1.39% | 2.14% | 1.67% | 2.67% | 1.07% | 2.07% | |||||||||
| 2 | The Adviser voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary waiver at any time. The management fee paid by Large Cap Growth Fund (after the voluntary waiver) was 0.00% for the fiscal year ended April 30, 2000. The advisory fee for the Large Cap Growth Fund is expected to be 0.85% for the fiscal year ending April 30, 2001. | ||||||||||||||||
| 3 | The Funds did not pay or accrue the distribution (12b-1) fee for Class A Shares during the fiscal year ended April 30, 2000. If the Funds were accruing or paying the distribution (12b-1) fee, they would be able to pay up to 0.25% of each Fund's average daily net assets. See "Fund Management, Distribution and Administration." The Funds' Class A Shares do not expect to pay or accrue the distribution (12b-1) fee for the fiscal year ending April 30, 2001. Pursuant to a contractual agreement between the distributor and the Funds, the Large Cap Core Fund Class A Shares will not pay or accrue the distribution (12b-1) fee during the period ending December 18, 2001. See "Fund Management, Distribution, and Administration." The distributor agrees that this obligation shall constitute a contractual commitment enforceable by the Funds and that the distributor shall not assert any right to reimbursements of amounts so waived. | ||||||||||||||||
| 4 | The Large Cap Value Fund, Large Cap Growth Fund and Large Cap Core Fund did not pay or accrue shareholder services fee for Class A Shares during the fiscal year ended April 30, 2000. If the Funds were accruing or paying the shareholder services fee, they would be able to pay up to 0.25% of each Fund's average daily net assets. See "Fund Management, Distribution and Administration." The Large Cap Value Fund, Large Cap Growth Fund and Large Cap Core Fund Class A Shares, do not expect to pay or accrue the shareholder services fee for the fiscal year ending April 30, 2001. Pursuant to a contractual agreement between the shareholder services provider and the Funds, the Large Cap Core Fund Class A Shares will not pay or accrue the shareholder services fee during the period ending December 18, 2001. See "Fund Management, Distribution, and Administration." The shareholder services provider agrees that this obligation shall constitute a contractual commitment enforceable by the Funds and that the shareholder services provider shall not assert any right to reimbursement of amounts so waived. | ||||||||||||||||
| 5 | Other Expenses are based on estimated amounts for the fiscal year ending April 30, 2001. Other expenses for the Large Cap Value Fund, Mid Cap Stock Fund and Large Cap Growth Fund were 0.29%, 0.50% and 3.65%, respectively for the year ended April 30, 2000. With respect to Large Cap Growth Fund, the administrator and adviser voluntarily waived fees and reimbursed operating expenses during the fiscal year ended April 30, 2000. The administrator and adviser anticipate terminating these voluntary waivers and reimbursements on May 1, 2000. | ||||||||||||||||
The following example is intended to help you compare the cost of investing in the Fund's Class A Shares and Class B Shares with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund's Class A Shares and Class B Shares for the time periods indicated and then redeem all of your shares at the end of those periods. Expenses assuming no redemption are also shown. The example also assumes that your investment has a 5% return each year and that the Fund's Class A Shares and Class B Shares operating expenses are before waivers and reimbursements 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:
| Class A Shares | 1 Year | 3 Years | 5 Years | 10 Years | ||||
| Treasury Money Market Fund | $84 | $265 | $479 | $1,096 | ||||
| Money Market Fund | $95 | $296 | $515 | $1,143 | ||||
| NY Tax-Free Money Market Fund | $96 | $300 | $520 | $1,155 | ||||
| U.S. Government Securities Fund | $594 | $897 | $1,222 | $2,139 | ||||
| NY Municipal Income Fund | $601 | $918 | $1,257 | $2,212 | ||||
| Large Cap Value Fund | $711 | $1,050 | $1,412 | $2,428 | ||||
| Mid Cap Stock Fund | $708 | $1,039 | $1,393 | $2,387 | ||||
| Large Cap Growth Fund | $758 | $1,192 | N/A | N/A | ||||
| Large Cap Core Fund | $653 | $941 | N/A | N/A | ||||
| Class B Shares | 1 Year | 3 Years | 5 Years | 10 Years | ||||
| Large Cap Value Fund | ||||||||
| Expenses assuming redemption | $721 | $982 | N/A | N/A | ||||
| Expenses assuming no redemption | $221 | $682 | N/A | N/A | ||||
| Mid Cap Stock Fund | ||||||||
| Expenses assuming redemption | $717 | $970 | N/A | N/A | ||||
| Expenses assuming no redemption | $217 | $670 | N/A | N/A | ||||
| Large Cap Growth Fund | ||||||||
| Expenses assuming redemption | $770 | $1,129 | N/A | N/A | ||||
| Expenses assuming no redemption | $270 | $829 | N/A | N/A | ||||
| Large Cap Core Fund | ||||||||
| Expenses assuming redemption | $725 | $976 | N/A | N/A | ||||
| Expenses assuming no redemption | $210 | $649 | N/A | N/A |
Each Fund's investment strategy is described earlier under "Fund Goals, Strategies, Risks and Performance." Following is additional information on the investment strategies for certain of the Funds.
The Fund pursues its investment objective by maintaining a diversified portfolio consisting primarily of income-producing equity securities of domestic companies (e.g., common and preferred stocks, convertible securities). The Fund will attempt to provide a yield greater than the average yield offered by the S&P 500 Index and a lower level of price volatility, although there is no assurance that it will be able to do so. The Adviser will invest in companies on the basis of traditional research techniques, including assessment of company's earnings and dividend growth prospects, risk/volatility of the company's industry, sound management techniques, ability to finance expected growth, and on the basis of a company's undervaluation relative to other companies in the same industry. These companies may be categorized as "seasoned" or "well-established" companies, although companies with less-established operating histories may be chosen for investment if they present opportunities for income and capital appreciation.
Under normal market conditions, the Fund intends to invest at least 65% of the value of its total assets in equity securities that are expected to produce current income. In selecting investments, the Adviser intends to focus on large capitalization (large-cap) companies which are those companies with a market capitalization of at least $10 billion or more at the time of investment. The Adviser also may invest, to a lesser extent, in medium capitalization (mid-cap) or small capitalization (small-cap) companies which are generally companies with a market capitalization under $10 billion.
The Adviser also will focus on stocks of companies with unrecognized or undervalued assets. Such a value approach seeks companies whose stock prices do not appear to reflect their underlying value as measured by assets, earnings, cash flow, business franchises, or other quantitative or qualitative measurements. Value stocks may be out of favor with or misunderstood by investors for a variety of reasons, but are considered to have inherent value or future prospects that are not currently reflected in their stock price. Accordingly, value stocks may have a price/earnings ratio less than the S&P 500 Index, lower than average price to book value, and higher than average dividend yields than competitors, and thereby offer greater income and growth potential.
The Fund pursues its goal by investing in a diversified portfolio of mid-cap stocks. The sub-adviser selects stocks of mid-cap companies from a broader universe of stocks of approximately 550 large- and mid-sized companies that evolves over time. The sub-adviser initially selects approximately 550 stocks across all industry sectors that meet its investment criteria of attractive valuation with growth potential. This is not an actual stock index, but more similar to a working list generated by the sub-adviser from which it selects appropriate portfolio securities for its clients (e.g., mid cap stocks in the case of the Fund).
For the Fund, a mid-cap company is one whose capitalization is within the S&P Mid Cap 400 Index's capitalization range. As of April 28, 2000, the index's range was $193.9 million to $24.1 billion, but frequently changes as the market value of the stocks that comprise the index changes or as stocks are added or removed from the index. Companies whose capitalizations are outside this index's range after purchase also are considered medium capitalization companies. Because the Fund invests in the same types of stocks as those that comprise the S&P Mid Cap 400 Index, it will have similar risk and volatility characteristics of the mid cap stocks that are included in the index.
The sub-adviser's investment research team is organized by industry and tracks the companies in the universe to develop earnings estimates and five-year projections for growth. A series of proprietary computer models use this in-house research to rank the stocks according to their combination of:
-- value, meaning they appear to be underpriced;
-- momentum, meaning they show potential for strong
growth.
This process, together with a risk/return analysis relative to the S&P Mid Cap 400 Index, results in a portfolio of approximately 140 to 160 medium capitalization stocks from the top 60% of the universe.
In normal market conditions, the Fund is almost entirely invested in stocks, and will invest at least 65% of its assets in mid-cap stocks. Although the Fund's goal of total return includes both capital appreciation and income, there is no requirement that it come from both. It is expected that most, if not all, of the Fund's total return will come from the appreciation of stocks in the Fund's portfolio.
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.
The Fund pursues its goal by investing in a diversified portfolio of equity securities (primarily common stocks) that are considered "large cap." It is expected that the Fund, as a whole, will have the overall portfolio characteristics that define it as "large cap core," which is an investment style that has elements of both growth and value investing. 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 and $1 billion, respectively.
The Fund's manager utilizes a strategy of "Risk Controlled, Thematic, GARP (Growth at a Reasonable Price)." This strategy attempts to control portfolio risk by utilizing investments that are larger components of the Standard & Poor's 500 Index ("S&P 500"); identify major macro forces (themes and trends) that will influence the economic environment and buy stocks that are at attractive valuations relative to their peers. The Adviser will also have the option of pursuing a growth-based or a value-based strategy as market conditions dictate.
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.
When looking for value stocks, the Adviser will attempt to identify investments which, for whatever reason, are currently out of favor and selling at a discount to their fair market value as defined by the Adviser's disciplines. These value companies' stock prices do not appear to reflect their underlying value as measured by assets, earnings, cash flow, business franchises, or other quantitative or qualitative measurements.
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.
Equity securities represent a share of an issuer's earnings and assets, after the issuer pays its liabilities. The Equity Funds 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 Equity Funds may invest.
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 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.
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 principal types of fixed income securities in which a Fund may invest.
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 are issued or guaranteed by a federal agency or other government sponsored entity (a GSE) acting under federal authority. 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 interest rate and prepayment risks of these mortgage backed 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.
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.
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.
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 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.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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. Interest income on such securities may be subject to the federal alternative minimum tax (AMT) for individuals and corporations.
Municipal notes are short-term tax exempt securities. Many municipalities issue such notes to fund their current operations before collecting taxes or other municipal revenues. Municipalities may also issue notes to fund capital projects prior to issuing long-term bonds. The issuers typically repay the notes at the end of their fiscal year, either with taxes, other revenues or proceeds from newly issued notes or bonds.
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 Funds 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 will take possession of the securities subject to repurchase agreements. The Adviser 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.
Each Fund (other than the Money Market Funds ) 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 NY Tax-Free Money Market Fund, NY Municipal Income Fund, Mid Cap Stock Fund and Large Cap Core Fund may temporarily depart from their principal investment strategies by investing their assets in cash and shorter-term debt securities and similar obligations. They may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Funds to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders. Interest income from temporary investments may be taxable to shareholders as ordinary income.
The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more nationally recognized rating services. For example, Standard and Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. 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 that the security is comparable to investment grade.
The value of equity securities in each Equity 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.
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.
Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Furthermore, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
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.
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 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.
Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks, or other less favorable characteristics.
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.
In order to be tax-exempt, municipal securities must meet certain legal requirements. Failure to meet such requirements may cause the interest received and distributed by the NY Tax-Free Money Market Fund and NY Municipal Income Fund to their shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of municipal securities to fall.
Income from the NY Municipal Income Fund and NY Tax-Free Money Market Fund may be subject to the AMT.
The NY Municipal Income Fund is non-diversified. Compared to diversified mutual funds, this Fund may invest a higher percentage of its assets among fewer issuers of portfolio securities. This increases the Fund's risk by magnifying the impact (positively or negatively) that any one issuer has on the Fund's Share price and performance.
New York's economy is large and diverse. While several upstate counties benefit from agriculture, manufacturing and high technology industries, New York City nonetheless still dominates the State's economy through its international importance in economic sectors such as advertising, finance, and banking. Any major changes to the financial conditions of New York City would ultimately have an effect on the State.
Yields on New York municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State, counties, municipalities or City of New York could impact the NY Tax-Free Money Market Fund's or NY Municipal Income Fund's portfolio. The ability of these Funds to achieve their investment goals also depends on the continuing ability of the issuers of New York municipal securities and participation interest, or the guarantors of either, to meet their obligations for the payment of interest and principal when due.
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. All of the Funds offer Class A Shares. Only the Equity Funds offer Class B Shares. The differences between the two classes relate to the timing and amount of asset based sales charge an investor bears directly or indirectly as a shareholder. When the Funds receive your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). The Money Market Funds and Class B Shares of the Equity Funds do not charge front-end sales charges. Each Money Market Fund attempts to stabilize the NAV of its Shares at $1.00 by valuing its portfolio securities using the amortized cost method. The Money Market Funds cannot guarantee that their NAV will always remain at $1.00 per Share.
The value of Shares of the Income and Equity Funds is generally determined based upon the market value of portfolio securities. However, the Funds' Board may determine in good faith that another method of valuing investments is necessary to appraise their fair market value. If an Equity 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 Income and Equity Funds is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. NAV for the Money Market Funds is determined at 12:00 p.m. (Eastern time), 3:00 p.m. (Eastern time) and at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Equity Funds generally value 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). The Funds generally value fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
Each 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 each 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 the Funds.
The maximum front-end sales charge that you will pay on an investment in Class A Shares is 5.50% on Equity Funds and 4.50% on the Income Funds. The Money Market Funds and Class B Shares of the Equity Funds have no front-end sales charge. The maximum contingent deferred sales charge you will pay (at the time of redemption) on Class B Shares of Large Cap Value Fund, Mid Cap Stock Fund, Large Cap Growth Fund andLarge Cap Core Fund is 5.00%. Keep in mind that investment professionals may charge you additional fees for their services in connection with your Share transactions.
Class A Shares of Large Cap Value Fund , Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap Core Fund are sold at their NAV next determined after an order is received, plus a sales charge as follows:
| Purchase Amount | Sales Charge as a Percentage of Public Offering Price |
Sales Charge as a Percentage of NAV |
||
| 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% |
Class A Shares of U.S. Government Securities Fund and New York Municipal Income Fund are sold at their NAV next determined after an order is received, plus a sales charge as follows:
| Purchase Amount | Sales Charge as a Percentage of Public Offering Price |
Sales Charge as a Percentage of NAV |
||
| Less than $100,000 | 4.50% | 4.71% | ||
| $100,000 but less than $250,000 | 3.75% | 3.90% | ||
| $250,000 but less than $500,000 | 3.00% | 3.09% | ||
| $500,000 but less than $1 million | 2.00% | 2.04% | ||
| $1 million or greater | 0.00% | 0.00% |
The sales charge at purchase may be reduced by:
The sales charge may be eliminated when you purchase Shares:
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.
Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC), as follows:
| Shares Held Up To: | CDSC | |
| 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. | ||
You will not be charged a CDSC when redeeming Class B Shares:
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:
The CDSC is then calculated using the share price at the time of purchase or redemption, whichever is lower.
Treasury Money Market Fund and Money Market Fund offer two share classes: Class A Shares and Class S Shares. NY Tax-Free Money Market Fund, U.S. Government Securities Fund, and NY Municipal Income Fund offer one share class: Class A Shares. Large Cap Value Fund, Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap Core Fund offer two share classes: Class A Shares and Class B Shares. Each class represents interests in a single portfolio of securities.
This prospectus relates only to Class A Shares and Class B Shares. Each share class has different sales charges and other expenses, which affect their performance. Contact your investment professional or call Mutual Fund Services at (800) 836-2211 for more information concerning Class S Shares.
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).
Each Fund (other than the Money Market Funds ) has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor for the sale and distribution of the Funds' 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 Funds have no present intention of paying or accruing 12b-1 fees on Class A Shares.
The Funds have 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 Funds, providing shareholder assistance, communicating or facilitating purchases and redemptions of Shares, and distributing prospectuses and other information. Except for Mid Cap Stock Fund , no Fund has a present intention of paying or accruing shareholder servicing fees on Class A 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, federal funds wire or Automated Clearing House (ACH).
Purchase orders for the Money Market Funds must be received by 3:00 p.m. (Eastern time) to receive the Fund's closing day NAV and to begin earning dividends the next day.
Purchase orders for the Income and Equity Funds must be received by 4:00 p.m. (Eastern time) in order to receive that day's closing 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.
Where a Fund offers more than one Share Class and you do not specify the Class choice on your form of payment, you automatically will receive Class A Shares.
The Funds reserve the right to reject any purchase request. The Funds do not issue share certificates.
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).
To purchase Shares through a representative of M&T Securities, Inc. (M&T Securities) call (800) 724-5445.
Contact your Authorized Dealer for specific instructions on how to purchase Shares.
To purchase Shares of the Funds 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
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.
Shares of the Money Market Funds purchased by check begin earning dividends on the day after the check is converted into federal funds.
You may purchase Shares by Federal Reserve wire, whereby your bank sends money to the Funds' bank through the Federal Reserve System. Wire orders will only be accepted on days on which the Funds, 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 11:00 a.m. (Eastern time) to place your order. The order is considered immediately received, provided that payment by federal funds is received that same day. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day.
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.
To place an order, call M&T Bank's Mutual Fund Services. Purchase orders for which payment will be made via ACH must be received by 3:00 p.m. (Eastern time). This purchase option can be established by completing the appropriate sections of the account application.
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.
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.
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.
You may purchase Shares of the Funds 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.
Shares of the Funds can be purchased as an investment for retirement plans or IRA accounts. You may be subject to an annual IRA account fee. NY Tax-Free Money Market Fund and NY Municipal Income Fund are generally not appropriate for retirement plans or IRA accounts. For further details, contact the Funds and consult a tax adviser.
Each Fund redeems Shares at its NAV next determined after the Fund receives the redemption request in proper form, subject to daily cut off times, less any applicable CDSC. Shares may be redeemed directly from the Funds by telephone or by mail.
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 sent via ACH to the account you previously designated at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds of a wire order 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 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 Funds are open for business.
To redeem shares, call by 3:00 p.m. (Eastern time). Proceeds will be sent via ACH or check. You will receive proceeds from an ACH redemption request two business days after such request is received.
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 Funds reserve 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 Vision Group of Funds 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 Funds, they may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may redeem Shares by sending your written request to:
Vision Group of Funds
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 business days, after receipt of a proper written redemption request.
You must have a signature guarantee on written redemption requests:
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.
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:
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.
A CDSC will not be charged on SWP redemptions of Class B Shares if:
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 SWP 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.
You may request checks to redeem Shares of the Money Market Funds . Your account will continue to receive the daily dividend declared on the Shares being redeemed until the check is presented for payment. The ability to redeem Shares by check may not be available when establishing an account through an investment professional. You should read this prospectus together with any applicable agreement between you and the institution to learn about the services provided, the fees charged for those services, and any restrictions or limitations that may be imposed. For more information, contact M&T Bank's Mutual Fund Services.
Although the Funds intend to pay Share redemptions in cash, each Fund reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
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.
You may exchange Shares of a Fund for the same share class of another Vision Fund at the NAV next determined after the Funds receive the exchange in proper form. You also would pay applicable sales charges when exchanging Shares from one of the Money Market Funds into one of the Income or Equity Funds . In addition, you may exchange Class A Shares of the Funds into Class A Shares of Federated International Equity Fund at NAV plus any applicable sales charge.
In order to exchange Shares you must:
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.
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.
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.
You may exchange Class B Shares from one Fund to another 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 Funds may modify or terminate the exchange privilege at any time, and shareholders will be notified prior to any modification or termination. The Funds' 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, limit the number of exchanges allowed, and may bar that shareholder from purchasing other Vision Funds.
You may exchange Shares between Funds by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in Buffalo, (716) 635-9368).
Your telephone instructions must be received by M&T Bank by 11:00 a.m. (Eastern time) and transmitted to Federated Shareholder Services Company by 4:00 p.m. (Eastern time) for Shares to be exchanged that same day.
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 Vision Group of Funds 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 Funds, the shareholder may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may exchange Shares by mail by sending your written request to:
Vision Group of Funds
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.
You may exchange Shares from one Fund into another Fund on a monthly, quarterly or annual basis. Exchanges must be at least $25 and are subject to 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.
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.
| Fund | Dividends Declared/ Dividends Paid |
|
| Money Market Funds and Income Funds | Daily/Monthly | |
| Large Cap Value Fund, Mid Cap Stock
Fund, Large Cap Growth Fund and Large Cap Core Fund |
Quarterly/Quarterly |
Dividends (if any) are paid to shareholders invested in a Fund on the record date.
The Money Market Funds do not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. In addition, each 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 a Fund declares a dividend (other than a Fund that declares dividends daily) 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.
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.
The Funds send 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 a Fund holds its assets.
Fund distributions for the Mid Cap Stock Fund and Large Cap Growth Fund are expected to be primarily capital gains. Fund distributions for the Large Cap Value Fund and Large Cap Core Fund are expected to be both dividends and capital gains. Fund distributions for the Treasury Money Market Fund, Money Market Fund and U.S. Government Securities Fund are expected to be primarily dividends.
It is anticipated that distributions for the NY Tax-Free Money Market Fund and the NY Municipal Income Fund will be primarily dividends that are exempt from federal income tax, although a portion of each Fund's dividends may not be exempt. Dividends may be subject to state and local taxes, although each Fund's dividends will be exempt from New York state personal income tax to the extent that they are derived from interest on obligations exempt from New York personal income taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.
The Board of Directors governs the Funds. The Board selects and oversees the Adviser, M&T Bank. The Adviser manages the Funds' 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 $4.8 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 funds and $244.9 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 each Fund, equal to a percentage of each Fund's average daily net assets as follows:
| Fund Name | Advisory Fee | |
| Each Money Market Fund | 0.50% | |
| Each Income Fund | 0.70% | |
| Large Cap Value Fund | 0.70% | |
| Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap Core Fund | 0.85% |
The Adviser may voluntarily waive a portion of its fee or reimburse the Funds for certain operating expenses.
The Adviser has delegated daily management of the NY Tax-Free Money Market Fund to the sub-adviser, Federated Investment Management Company (FIMCO). FIMCO has complete discretion to manage portfolio securities of the Fund, subject to the Fund's investment objective, policies and limitations. FIMCO is a registered investment adviser and a subsidiary of Federated. FIMCO and other subsidiaries of Federated advise more than 176 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of December 31, 1999. For its services FIMCO 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. FMICO's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser has delegated daily management of the Mid Cap Stock Fund to the sub-adviser, Independence Investment Associates, Inc. (IIA). IIA has complete discretion to manage portfolio securities of the Fund, subject to the Fund's investment objective, policies and limitations. IIA is a registered investment adviser founded in 1982 and a subsidiary of John Hancock Mutual Life Insurance Company. IIA and its subsidiaries manages over $30 billion in assets under management. IIA is a sub-adviser for over $12.0 billion in 13 mutual funds, and 7 commingled accounts. In addition, IIA is a sub-adviser to several clients with various accounts totalling more than $1.3 billion. IIA's fee is paid by the Adviser and not the Fund. IIA's address is 53 State Street, Boston, MA 02109.
The Adviser has delegated daily management of the Large Cap Growth 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.
The U.S. Government Securities Fund and Large Cap Value Fund are managed by Thomas R. Pierce. Mr. Pierce has been the portfolio manager of the U.S. Government Securities Fund since March 1995 and of the Large Cap Value Fund since December 1999. Mr. Pierce joined M&T Bank in January 1995 as Vice President from Merit Investment Advisors where he acted as Director of Fixed Income Product and Trading since 1993. For the period from 1987 to 1993, Mr. Pierce served as Fixed Income Manager at ANB Investment Management Company, where he directed the management of $3.5 billion of active and passive fixed income portfolios. Mr. Pierce is a Chartered Financial Analyst and has a B.A. in Economics from Washington University, and an MBA from the University of Chicago.
Robert J. Truesdell has supervised the investment management of the U.S. Government Securities Fund and New York Municipal Income Fund since their inception. From August 1994 through February 1995, he also served as the portfolio manager of these Funds. Effective December 1999, Mr. Truesdell assumed portfolio manager responsibilities for New York Municipal Income Fund. In addition to his responsibilities with respect to these Funds, Mr. Truesdell manages individual investment accounts and oversees the investment activities of M&T Bank's money market and fixed income products as well as the money market funds in the Vision Group of Funds. Mr. Truesdell joined M&T Bank as Vice President and Fixed Income Manager in 1988. Mr. Truesdell holds an MBA in Accounting from the State University of New York at Buffalo.
The Mid Cap Stock Fund is managed by an investment committee.
The Large Cap Growth Fund has been managed since its inception in March 2000 by David L. Watson, Vice President and Senior Portfolio Manager of Montag & Caldwell, Inc. since 1998. Mr. Watson has over 18 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.
The Large Cap Core Fund has been managed since its inception in June 2000 by William F. Dwyer. Mr. Dwyer joined M&T Investment Group in January 2000 as Senior Vice President and Chief Investment Officer. He has more than 32 years of investment experience. Most recently Mr. Dwyer served as Chief Investment Officer of Citizen's Financial Group in Rhode Island for six years. Mr. Dwyer holds a Bachelor of Arts Degree from St. Michael's College in Vermont. He earned his M.B.A. from Western New England College in Springfield, Massachusetts and is a Certified Financial Analyst.
The following financial highlights are intended to help you understand the financial performance of each Fund's Class A Shares and Class B Shares for the past five fiscal years, or since inception, if the life of a Fund is shorter. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in a Fund, assuming reinvestment of all dividends and capital gains.
This information has been audited by Ernst & Young, LLP whose report, along with the Funds' audited financial statements, is included in the Annual Report which is available upon request.
The financial information presented below reflects the operations of the Funds as portfolios of Vision Group of Funds, Inc., a Maryland Corporation organized on February 23, 1988. On November 8, 2000, all of the Funds were reorganized as and became portfolios of Vision Group of Funds, a Delaware business trust organized on August 11, 2000.
Vision Mid Cap Stock Fund commenced operations on October 15, 1999, when it acquired both Vision Growth and Income Fund and Vision Capital Appreciation Fund (the "Acquired Funds") in a reorganization. In order to comply with comments made by the staff of the SEC, the Mid Cap Stock Fund had to become an "accounting survivor" of one of the Acquired Funds, despite the differences in the investment objective, strategies, policies and expenses of the Acquired Funds, and the fact that Mid Cap Stock Fund's subadviser never managed, or provided any investment advice to, the Acquired Funds. Accordingly, the following financial and performance information presented for the Mid Cap Stock Fund in reality reflects the historical operations of Vision Growth and Income Fund in all periods prior to October 15, 1999. This past performance is not predictive of future performance of the Mid Cap Stock Fund and should be evaluated in light of the Fund's organization and the differences noted above.
| Year Ended April 30, |
Net Asset Value, beginning of period |
Net Investment Income (Operating Loss) |
Net Realized and Unrealized Gain (Loss) on Investments |
Total From Investment Operations |
Distributions From Net Investment Income |
Distributions In Excess of Net Investment Income |
Distributions From Net Realized Gains |
||||||||||
| Treasury Money Market Fund--Class A Shares | |||||||||||||||||
| 1996 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1997 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1998 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1999 | $ | 1.00 | 0.04 | -- | -- | (0.04) | -- | -- | |||||||||
| 2000 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| Money Market Fund--Class A Shares | |||||||||||||||||
| 1996 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1997 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1998 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 1999 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| 2000 | $ | 1.00 | 0.05 | -- | -- | (0.05) | -- | -- | |||||||||
| New York Tax-Free Money Market Fund | |||||||||||||||||
| 1996 | $ | 1.00 | 0.03 | -- | -- | (0.03) | -- | -- | |||||||||
| 1997 | $ | 1.00 | 0.03 | -- | -- | (0.03) | -- | -- | |||||||||
| 1998 | $ | 1.00 | 0.03 | -- | -- | (0.03) | -- | -- | |||||||||
| 1999 | $ | 1.00 | 0.03 | -- | -- | (0.03) | -- | -- | |||||||||
| 2000 | $ | 1.00 | 0.03 | -- | -- | (0.03) | -- | -- | |||||||||
| U.S. Government Securities Fund | |||||||||||||||||
| 1996 | $ | 9.09 | 0.52 | 0.22 | 0.74 | (0.52) | -- | -- | |||||||||
| 1997 | $ | 9.31 | 0.58 | (0.03) | 0.55 | (0.58) | -- | -- | |||||||||
| 1998 | $ | 9.28 | 0.60 | 0.34 | 0.94 | (0.60) | (0.01)(a) | -- | |||||||||
| 1999 | $ | 9.61 | 0.58 | (0.08) | 0.50 | (0.58) | -- | (0.02) | |||||||||
| 2000 | $ | 9.51 | 0.59 | (0.49) | 0.10 | (0.59) | -- | -- | |||||||||
| New York Municipal Income Fund | |||||||||||||||||
| 1996 | $ | 9.67 | 0.46 | 0.23 | 0.69 | (0.46) | -- | -- | |||||||||
| 1997 | $ | 9.90 | 0.48 | 0.18 | 0.66 | (0.48) | -- | -- | |||||||||
| 1998 | $ | 10.08 | 0.46 | 0.38 | 0.84 | (0.46) | -- | (0.04) | |||||||||
| 1999 | $ | 10.42 | 0.46 | 0.19 | 0.65 | (0.46) | -- | (0.09) | |||||||||
| 2000 | $ | 10.52 | 0.46 | (0.75) | (0.29) | (0.46) | -- | (0.05) | |||||||||
| Large Cap Value Fund--Class A Shares(k) | |||||||||||||||||
| 1998(b) | $ | 9.99 | 0.08 | 1.47 | 1.55 | (0.07) | -- | -- | |||||||||
| 1999 | $ | 11.47 | 0.19 | 0.78 | 0.97 | (0.19) | -- | (0.01) | |||||||||
| 2000 | $ | 12.24 | 0.18 | (0.94) | (0.76) | (0.18) | -- | (0.16) | |||||||||
| Large Cap Value Fund--Class B Shares(k) | |||||||||||||||||
| 2000(c) | $ | 11.18 | 0.05 | 0.12 | 0.17 | (0.06) | -- | (0.16) | |||||||||
| Mid Cap Stock Fund--Class A Shares(l) | |||||||||||||||||
| 1996 | $ | 10.35 | 0.13 | 2.98 | 3.11 | (0.11) | -- | -- | |||||||||
| 1997 | $ | 13.35 | 0.13 | 2.35 | 2.48 | (0.13) | -- | (0.59) | |||||||||
| 1998 | $ | 15.11 | 0.11 | 4.34 | 4.45 | (0.09) | -- | (3.34) | |||||||||
| 1999 | $ | 16.13 | 0.05 | (1.67) | (1.62) | (0.07) | -- | (0.99) | |||||||||
| 2000 | $ | 13.45 | (0.01) | 2.54 | 2.53 | (0.02) | -- | (0.45) | |||||||||
| Mid Cap Stock Fund--Class B Shares | |||||||||||||||||
| 2000(d) | $ | 14.28 | (0.03) | 1.25 | 1.22 | -- | -- | -- | |||||||||
| Large Cap Growth Fund--Class A Shares | |||||||||||||||||
| 2000(e) | $ | 10.00 | 0.01 | 0.03 | 0.04 | -- | -- | -- | |||||||||
| Large Cap Growth Fund--Class B Shares | |||||||||||||||||
| 2000(f) | $ | 10.31 | 0.00 | (0.27) | (0.27) | -- | -- | -- | |||||||||
(a) Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These distributions do not represent a return of capital for federal tax purposes.
(b) Reflects operations for the period from September 26, 1997 (date of initial public investment) to April 30, 1998.
(c) Reflects operations for the period from December 10, 1999 (date of initial public investment) to April 30, 2000.
(d) Reflects operations for the period from March 15, 2000 (date of initial public investment) to April 30, 2000.
(e) Reflects operations for the period from March 20, 2000 (date of initial public investment) to April 30, 2000.
(f) Reflects operations for the period from April 6, 2000 (date of initial public investment) to April 30, 2000.
(g) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
| Ratios to Average Net Assets | ||||||||||||||||||||
| Year Ended April 30, |
Total Distributions |
Net Asset Value, End of period |
Total Return(g) |
Expenses | Net Investment Income (Operating Loss) |
Expense Waiver/ Reimbursement(i) |
Net Assets, End of Period (000 Omitted) |
Portfolio Turnover |
||||||||||||
| Treasury Money Market Fund--Class A Shares | ||||||||||||||||||||
| 1996 | (0.05) | $ | 1.00 | 5.25% | 0.57% | 5.10% | 0.09% | $ | 372,884 | -- | ||||||||||
| 1997 | (0.05) | $ | 1.00 | 4.82% | 0.58% | 4.75% | 0.10% | $ | 373,485 | -- | ||||||||||
| 1998 | (0.08) | $ | 1.00 | 4.98% | 0.59% | 4.96% | 0.08% | $ | 441,422 | -- | ||||||||||
| 1999 | (0.04) | $ | 1.00 | 4.54% | 0.59% | 4.49% | 0.08% | $ | 498,548 | -- | ||||||||||
| 2000 | (0.05) | $ | 1.00 | 4.71% | 0.58% | 4.62% | 0.08% | $ | 423,685 | -- | ||||||||||
| Money Market Fund--Class A Shares | ||||||||||||||||||||
| 1996 | (0.05) | $ | 1.00 | 5.33% | 0.58% | 5.19% | 0.11% | $ | 489,229 | -- | ||||||||||
| 1997 | (0.05) | $ | 1.00 | 4.93% | 0.61% | 4.77% | 0.10% | $ | 599,817 | -- | ||||||||||
| 1998 | (0.05) | $ | 1.00 | 5.11% | 0.64% | 5.00% | 0.05% | $ | 686,259 | -- | ||||||||||
| 1999 | (0.05) | $ | 1.00 | 4.76% | 0.63% | 4.64% | 0.05% | $ | 932,896 | -- | ||||||||||
| 2000 | (0.05) | $ | 1.00 | 4.95% | 0.63% | 4.87% | 0.05% | $ | 1,095,128 | -- | ||||||||||
| New York Tax-Free Money Market Fund | ||||||||||||||||||||
| 1996 | (0.03) | $ | 1.00 | 3.20% | 0.48% | 3.14% | 0.38% | $ | 65,763 | -- | ||||||||||
| 1997 | (0.03) | $ | 1.00 | 2.96% | 0.50% | 2.95% | 0.35% | $ | 56,618 | -- | ||||||||||
| 1998 | (0.03) | $ | 1.00 | 3.14% | 0.50% | 3.09% | 0.28% | $ | 73,345 | -- | ||||||||||
| 1999 | (0.03) | $ | 1.00 | 2.75% | 0.58% | 2.69% | 0.14% | $ | 110,291 | -- | ||||||||||
| 2000 | (0.03) | $ | 1.00 | 2.97% | 0.60% | 3.00% | 0.09% | $ | 172,791 | -- | ||||||||||
| U.S. Government Securities Fund | ||||||||||||||||||||
| 1996 | (0.52) | $ | 9.31 | 8.10% | 1.16% | 5.41% | 0.17% | $ | 34,492 | 132% | ||||||||||
| 1997 | (0.58) | $ | 9.28 | 6.05% | 1.11% | 6.23% | 0.20% | $ | 44,485 | 121% | ||||||||||
| 1998 | (0.61) | $ | 9.61 | 10.42% | 1.03% | 6.30% | 0.09% | $ | 53,922 | 70% | ||||||||||
| 1999 | (0.60) | $ | 9.51 | 5.31% | 0.92% | 5.95% | 0.05% | $ | 64,100 | 68% | ||||||||||
| 2000 | (0.59) | $ | 9.02 | 1.11% | 0.93% | 6.36% | 0.05% | $ | 60,165 | 46% | ||||||||||
| New York Municipal Income Fund | ||||||||||||||||||||
| 1996 | (0.46) | $ | 9.90 | 7.18% | 1.04% | 4.60% | 0.34% | $ | 32,621 | 113% | ||||||||||
| 1997 | (0.48) | $ | 10.08 | 6.76% | 1.01% | 4.74% | 0.38% | $ | 35,480 | 79% | ||||||||||
| 1998 | (0.50) | $ | 10.42 | 8.37% | 0.96% | 4.35% | 0.31% | $ | 43,456 | 45% | ||||||||||
| 1999 | (0.55) | $ | 10.52 | 6.37% | 0.82% | 4.38% | 0.20% | $ | 52,860 | 44% | ||||||||||
| 2000 | (0.51) | $ | 9.72 | (2.71%) | 0.85% | 4.60% | 0.20% | $ | 48,081 | 34% | ||||||||||
| Large Cap Value Fund--Class A Shares(k) | ||||||||||||||||||||
| 1998(b) | (0.07) | $ | 11.47 | 15.51% | 1.08%(h) | 1.41%(h) | 0.52%(h) | $ | 37,403 | 11% | ||||||||||
| 1999 | (0.20) | $ | 12.24 | 8.59% | 1.02% | 1.67% | 0.00% | $ | 45,582 | 55% | ||||||||||
| 2000 | (0.34) | $ | 11.14 | (6.15%) | 0.99% | 1.53% | -- | $ | 30,721 | 88% | ||||||||||
| Large Cap Value Fund--Class B Shares(k) | ||||||||||||||||||||
| 2000(c) | (0.22) | $ | 11.13 | 1.62% | 1.99%(h) | 0.17%(h) | -- | $ | 10 | 88% | ||||||||||
| Mid Cap Stock Fund--Class A Shares(l) | ||||||||||||||||||||
| 1996 | (0.11) | $ | 13.35 | 30.18% | 1.16% | 1.09% | -- | $ | 65,119 | 77% | ||||||||||
| 1997 | (0.72) | $ | 15.11 | 18.61% | 1.14% | 0.87% | -- | $ | 114,090 | 134% | ||||||||||
| 1998 | (3.43) | $ | 16.13 | 31.40% | 1.21% | 0.65% | -- | $ | 143,404 | 88% | ||||||||||
| 1999 | (1.06) | $ | 13.45 | (9.26%) | 1.20% | 0.32% | -- | $ | 82,203 | 145% | ||||||||||
| 2000 | (0.47) | $ | 15.51 | 19.88% | 1.54% | (0.13%) | -- | $ | 110,651 | 163% | ||||||||||
| Mid Cap Stock Fund--Class B Shares | ||||||||||||||||||||
| 2000(d) | -- | $ | 15.50 | 8.54% | 2.45%(h) | (1.82%)(h) | -- | $ | 53 | 163% | ||||||||||
| Large Cap Growth Fund--Class A Shares | ||||||||||||||||||||
| 2000(e) | -- | $ | 10.04 | 0.40% | 0.00%(h)(j) | 1.23%(h) | 4.50%(h) | $ | 6,617 | 1% | ||||||||||
| Large Cap Growth Fund--Class B Shares | ||||||||||||||||||||
| 2000(f) | -- | $ | 10.04 | (2.62%) | 0.00%(h)(j) | 0.99%(h) | 5.50%(h) | $ | 42 | 1% | ||||||||||
(h) Computed on an annualized basis.
(i) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above.
(j) Amount represents less than 0.01%.
(k) Formerly Vision Equity Income Fund, effective August 30, 1999.
(l) Prior to October 15, 1999, reflects operations for Vision Growth and Income Fund.
[Graphic Representation Omitted--See Appendix]
(formerly, Vision Equity Income Fund)
A Statement of Additional Information (SAI) dated June 30, 2000 (Revised November 8, 2000) is incorporated by reference into this prospectus. Additional information about each Fund's investments is available in the Funds' SAI and Annual and Semi-Annual Reports to shareholders. The Annual Report discusses market conditions and investment strategies that significantly affected each Fund's performance during their last fiscal year. To obtain the SAI, the Annual and Semi-Annual Reports and other information without charge, and make inquiries, call (800) 836-2211.
You can obtain information about the Funds (including the SAI) by writing to or visiting the Public Reference Room in Washington, D.C. 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 D.C. 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 92830F109
Cusip 92830F307
Cusip
92830F208
Cusip 92830F406
Cusip 92830F505
Cusip 92830F802
Cusip
92830F810
Cusip 92830F794
Cusip 92830F786
Cusip 92830F851
Cusip
92830F844
Cusip 92830F778
Cusip 92830F760
G00157-01 (11/00)
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 has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| CONTENTS | ||
| Fund Goals, Strategies, Risks and Performance | 1 | |
| What are the Funds' Fees and Expenses? | 3 | |
| What are the Funds' Main Investments and Investment Techniques? | 3 | |
| Specific Risks of Investing in the Funds | 4 | |
| What do Shares Cost? | 5 | |
| How are the Funds Sold? | 5 | |
| How to Purchase Shares | 6 | |
| How to Redeem Shares | 7 | |
| How to Exchange Shares | 8 | |
| Account and Share Information | 9 | |
| Who Manages the Funds? | 9 | |
| Financial Information | 10 |
JUNE 30, 2000
(Revised November 8, 2000)
The Vision Group of Funds (the "Trust") offers eighteen portfolios, including four Money Market Funds, five Income Funds, six Equity Funds and three Managed Allocation Funds. The following describes the investment goals, strategies and principal risks of two of the Money Market Funds: Vision Treasury Money Market Fund and Vision Money Market Fund. There can be no assurance that a Fund will achieve its goal, however, each Fund endeavors to do so by following the strategies and policies described in this prospectus.
To seek current income with liquidity and stability of principal.
The Fund pursues its goal by investing in direct obligations of the U.S. Treasury, such as Treasury bills and notes, and repurchase agreements secured by these obligations. These obligations generally mature and come due for repayment by the issuer in 397 days or less. The dollar-weighted average maturity of the Fund will not exceed 90 days.
To seek current income with liquidity and stability of principal by investing in high quality money market instruments.
The Fund pursues its goal by investing primarily in a broad range of short-term debt obligations issued by the US government, banks and corporations. These obligations generally mature and come due for repayment by the issuer in 397 days or less. The dollar-weighted average maturity of the Fund will not exceed 90 days.
Money Market Funds are subject to strict regulatory limitations on their permissible investments, which are designed to allow the funds to maintain a stable share price of $1.00. These limitations govern diversification (how much of their assets can be invested in any one issuer), credit quality, and length of maturity. For example the securities in which the Funds invest must be rated in one of the two highest short-term rating categories by one or more nationally recognized rating services or be of comparable quality to securities having such ratings.
The Class S Shares offered by this prospectus are not deposits or obligations of M&T Bank, are not endorsed or guaranteed by M&T Bank and are not insured or guaranteed by the US government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Although the Funds attempt to preserve the value of your investment at $1.00 per Share, it is possible to lose money by investing in the Funds.
Prices of fixed income securities rise and fall in response to interest rate changes for similar securities. Generally, when interest rates rise, prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income securities with longer maturities. Money market funds try to minimize this risk by purchasing short-term securities.
A Fund can also be affected by the credit quality of the securities in its portfolio. The credit quality of a security is based upon the ability of the issuer to repay the security. Money market funds attempt to minimize this risk by investing in securities with high credit quality.
Any of these risks may have an adverse effect on a Fund's total return and yield.
On the following pages are performance information for each Fund and its Class S Shares. While past performance of a Fund does not necessarily predict future performance, the following information provides you with the historical performance information to assist you in analyzing how each Fund's investment risks may be balanced by their potential rewards. For more current performance information, including the current 7-Day Net Yields, call (800) 836-2211.
The bar chart represents the calendar year performance of Class S Shares of each Fund. Also provided is the best and worst calendar quarter performance for Class S Shares.
Following the bar chart is a performance table showing the Average Annual Total Return for the Class S Shares of the Funds.
Following the bar chart is a performance table showing the Average Annual Total Return for Class S Shares of the Funds for the calendar year ended December 31, 1999.
[Graphic Representation Omitted -- See Appendix]
Historically the Fund has maintained a constant $1.00 net asset value per share. The bar chart shows the variability of the Fund's Class S Shares total returns on a calendar year-end basis.
The Fund's Class S Shares are sold without a sales charge (load).
The Fund's Class S Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.17%.
Within the periods shown in the Chart, the Fund's Class S Shares highest quarterly return was 1.11% (quarter ended December 31, 1999). Its lowest quarterly return was 0.94% (quarter ended March 31, 1999).
The following table represents the Fund's Class S Shares Average Annual Total Return for the calendar periods ended December 31, 1999.
| Calendar Period | Class S Shares | |
| 1 Year | 4.12% | |
| Start of Performance 1 | 4.23% |
1 The Fund's Class S Shares start of performance date was June 8, 1998.
The Fund's Class S Shares 7-Day Net Yield as of December 31, 1999 was 4.26%.
Investors may call the Fund at 1-800-836-2211 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
[Graphic Representation Omitted -- See Appendix]
Historically the Fund has maintained a constant $1.00 net asset value per share. The bar chart shows the variability of the Fund's Class S Shares total returns on a calendar year-end basis.
The Fund's Class S Shares are sold without a sales charge (load).
The Fund's Class S Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.25%.
Within the periods shown in the Chart, the Fund's Class S Shares highest quarterly return was 1.18% (quarter ended December 31, 1999). Its lowest quarterly return was 1.01% (quarter ended June 30, 1999).
The following table represents the Fund's Class S Shares Average Annual Total Return for the calendar periods ended December 31, 1999.
| Calendar Period | Class S Shares | |
| 1 Year | 4.35% | |
| Start of Performance1 | 4.45% |
1 The Fund's Class S Shares start of performance date was June 8, 1998.
The Fund's Class S Shares 7-Day Net Yield as of December 31, 1999 was 4.87%.
Investors may call the Fund at 1-800-836-2211 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
These tables describe the fees and expenses that you may pay if you buy and hold Class S Shares of the Funds.
| Shareholder Fees Fees Paid Directly From Your Investment |
Treasury Money Market Fund |
Money Market Fund |
||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None | None | ||
| Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) | None | None | ||
| 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
Waivers)1 Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
||||
| Management Fee2 | 0.50% | 0.50% | ||
| Distribution (12b-1) Fee | 0.25% | 0.25% | ||
| Shareholder Services Fee3 | 0.25% | 0.25% | ||
| Other Expenses | 0.16% | 0.18% | ||
| Total Annual Fund Operating Expenses | 1.16% | 1.18% | ||
| 1 Although not contractually obligated to do so, the Adviser and Shareholder Services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended April 30, 2000. | ||||
| Total Waiver of Fund Expenses | 0.33% | 0.30% | ||
| Total Actual Annual Operating Expenses (After Waivers) | 0.83% | 0.88% | ||
| 2 The Adviser voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary waiver at any time. The management fee paid by the Treasury Money Market and Money Market (after the voluntary waiver) was 0.42% and 0.45%, respectively for the fiscal year ended April 30, 2000. | ||||
| 3 The Funds did not pay or accrue the shareholder services fee during the fiscal year ended April 30, 2000. If the Funds' Class S Shares were accruing or paying the shareholder services fee, they would be able to pay up to 0.25% of each Fund's average daily net assets. See "Fund Management, Distribution and Administration." | ||||
The following Example is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class S Shares for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Class 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:
| 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|
| Treasury Money Market Fund |
|
$118 | $368 | $638 | $1,409 | |||
| Money Market Fund |
|
$120 | $375 | $649 | $1,432 |
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 principal types of fixed income securities in which a Fund may invest.
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 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 interest rate and prepayment risks of these mortgage backed 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.
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 US dollars and issued by US branches of foreign banks. Eurodollar instruments are denominated in US dollars and issued by non-U.S. branches of US or foreign banks.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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 Funds 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 will take possession of the securities subject to repurchase agreements. The Adviser 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.
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 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 US 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.
Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks, or other less favorable characteristics.
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 US 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.
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange (NYSE) is open. Purchase and redemptions by wire will not be available on days the Federal Reserve wire system is closed. NAV for the Funds is determined at 12:00 p.m. (Eastern time), 3:00 p.m. (Eastern time) and at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Funds do not charge front-end sales charges. Each Fund attempts to stabilize the NAV of its Shares at $1.00 by valuing its portfolio securities using the amortized cost method. The Funds cannot guarantee that their NAV will always remain at $1.00 per Share.
The minimum initial investment in each 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 the Funds. Keep in mind that investment professionals may charge you additional fees for their services in connection with your Share transactions.
The Funds offer three share classes: Class A Shares, Class B Shares and Class S Shares. Each class represents interests in a single portfolio of securities. This prospectus relates only to Class S Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call Mutual Fund Services at (800) 836-2211 for more information concerning Class A Shares and Class B Shares.
The Funds' Distributor markets the Shares described in this prospectus to institutions and individuals and to customers who purchase Shares through cash management services, such as a Sweep Account offered by M&T Bank, any of its affiliates and certain other financial service organizations, such as banks or broker-dealers (Service Organizations). If you invest in Class S Shares through a Sweep Account you will receive Sweep Account materials describing the various features and operations of the Sweep Account from M&T Bank or your Service Organization. The Sweep Account materials should be reviewed in conjunction with this prospectus.
When the Distributor receives marketing fees, 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).
Each Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor, the Adviser, their affiliates or investment professionals for the sale and distribution of the Funds' Class S 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 Funds have adopted a Shareholder Services Plan on behalf of Class S Shares, which is administered by Federated Administrative Services. M&T Bank acts as shareholder servicing agent for the Funds, providing shareholder assistance, communicating or facilitating purchases and redemptions of Shares, and distributing prospectuses and other information. The Funds have no present intention of paying or accruing shareholder servicing fees on Class S Shares.
You may purchase Shares through M&T Bank or M&T Securities, Inc., at the NAV next determined after the purchase order is received.
To make an initial investment in Class S Shares of the Funds, you must open an account by completing the account application form. Sweep Account customers will also need to complete a Cash Sweep Agreement. Information needed to open your account may be taken over the telephone. To apply by phone or to get help in completing the enclosed application, call M&T Bank's Mutual Fund Services at (800) 836-2211 (in the Buffalo area, phone (716) 635-9368). Sweep Account customers may telephone (800) 724-2240.
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 for the Funds must be received by 11:00 a.m. (Eastern time) to receive that day's dividend. For settlement of an order to occur, payment must be received that same day.
The Funds reserve the right to reject any purchase request.
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).
To purchase Shares through a representative of M&T Securities, Inc. call (800) 724-5445.
To purchase Shares of the Funds 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
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.
Shares of the Funds purchased by check begin earning dividends on the day after the check is converted into federal funds.
You may purchase Shares by Federal Reserve wire, whereby your bank sends money to the Funds' bank through the Federal Reserve System. Wire orders will only be accepted on days on which the Funds, M&T Bank and the Federal Reserve wire are open.
Call M&T Bank's Mutual Fund Services or a representative of M&T Securities before 11:00 a.m. (Eastern time) to place your order. The order is considered immediately received, provided that payment by federal funds is received that same day. Shares of purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day.
To purchase Shares of the Funds 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 11:00 a.m. (Eastern time). The money will be transferred from your checking or NOW deposit account to your Fund account on that same day. Sweep Account customers should refer to their Cash Sweep Agreement.
Your purchase of Shares will be effected on the day the order is placed.
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.
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. To sign up for this program, please call M&T Bank's Mutual Fund Services for an application.
You may purchase Shares of the Funds 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.
Shares of the Funds 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 Funds and consult a tax adviser.
Each Fund redeems Shares at its NAV next determined after the Fund receives the redemption request in proper form, subject to daily cut off times. Shares may be redeemed directly from the Funds by telephone or by mail. Sweep Account customers should refer to their Cash Sweep Agreement.
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 Funds are open for business.
If you call before 11:00 a.m. (Eastern time) proceeds will be wired the same day, but you will not receive that day's dividend. If you call after 11:00 a.m. (Eastern time), you will be paid that day's dividend but proceeds will not be wired to your account until the following 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 Funds reserve 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 Vision Group of Funds 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 Funds, they may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may redeem Shares by sending your written request to:
Vision Group of Funds
PO 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 business days, after receipt of a proper written redemption request.
You must have a signature guarantee on written redemption requests:
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.
Redemption proceeds for Shares redeemed by mail are normally are mailed within one business day after receiving a request in proper form. However, payment may be delayed up to seven days:
You may automatically redeem Class S 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. For more information and an application form for this program call M&T Bank's Mutual Fund Services at (800) 836-2211.
You may request checks to redeem Shares of the Funds. Your account will continue to receive the daily dividend declared on the Shares being redeemed until the check is presented for payment. Checkwriting privileges are not available to Sweep Account customers. The ability to redeem Shares by check may not be available when establishing an account through an investment professional. You should read this prospectus together with any applicable agreement between you and the institution to learn about the services provided, the fees charged for those services, and any restrictions or limitations that may be imposed. For more information, contact M&T Bank's Mutual Fund Services.
Although the Funds intend to pay Share redemptions in cash, each Fund reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
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.
You may exchange Class S Shares of a Fund for the same share class of another Vision Fund at the NAV next determined after the Fund receives the exchange request in proper form. Presently, the only Vision Funds which offer Class S Shares are the Treasury Money Market Fund and the Money Market Fund.
In order to exchange Shares you must:
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.
The Funds may modify or terminate the exchange privilege at any time, and shareholders will be notified prior to any modification or termination. The Funds' 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.
You may exchange Shares between Funds by calling M&T Bank's Mutual Fund Services at (800) 836-2211 (in Buffalo, (716) 635-9368).
Your telephone instructions must be received by M&T Bank by 11:00 a.m. (Eastern time) 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 Vision Group of Funds 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 Funds, the shareholder may be liable for losses due to unauthorized or fraudulent telephone transactions.
You may exchange Shares by mail by sending your written request to:
Vision Group of Funds
PO 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.
You may exchange Shares from one Fund into another Fund on a monthly, quarterly or annual basis. Exchanges must be at least $25 and are subject to limitations 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.
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. The Funds declare dividends daily and pay them monthly. Dividends (if any) are paid to shareholders invested in a Fund on the record date.
The Funds do not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. In addition, each 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.
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.
The Funds send 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 a Fund holds its assets.
Fund distributions for the Funds are expected to be primarily dividends. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.
The Board of Directors governs the Funds. The Board selects and oversees the Adviser, M&T Bank. The Adviser manages the Funds' 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 through New York State. As of December 31, 1999, M&T Bank had over $6.0 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 funds and $300 million in the 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 is entitled to receive an annual Advisory Fee from the Funds, equal to 0.50% of each Fund's average daily net assets.
The following financial highlights are intended to help you understand the financial performance of each Fund's Class S Shares since inception. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in a Fund, assuming reinvestment of all dividends and capital gains.
This information has been audited by Ernst & Young, LLP whose report, along with the Funds' audited financial statements, is included in the Annual Report which is available upon request.
The financial information presented below reflects the operations of the Funds as portfolios of Vision Group of Funds, Inc., a Maryland Corporation organized on February 23, 1988. On November 8, 2000, all of the Funds were reorganized as and became portfolios of Vision Group of Funds, a Delaware business trust organized on August 11, 2000.
(For a share outstanding throughout each period)
| Year Ended April 30, |
Net Asset Value, beginning of period |
Net Investment Income |
Distributions to Shareholders from Net Investment Income |
Net Asset Value, end of period |
||||
| Treasury Money Market Fund Class S Shares | ||||||||
| 1999 (a) |
|
$1.00 |
|
0.04 |
|
(0.04) |
|
$1.00 |
| 2000 |
|
$1.00 |
|
0.04 |
|
(0.04) |
|
$1.00 |
| Money Market Fund Class S Shares | ||||||||
| 1999 (a) |
|
$1.00 |
|
0.04 |
|
(0.04) |
|
$1.00 |
| 2000 |
|
$1.00 |
|
0.05 |
|
(0.05) |
|
$1.00 |
| Year Ended April 30, |
Total Return(b) |
Ratios to Average Net Assets | Net Assets, end of period (000 omitted) |
|||||||
| Expenses | Net Investment Income |
Expense Waiver/ Reimbursement(d) |
||||||||
|
Treasury Money Market Fund Class S Shares |
||||||||||
| 1999 (a) | 3.77% | 0.84%(c) | 4.17%(c) | 0.08%(c) | $21,153 | |||||
| 2000 | 4.45% | 0.83% | 4.36% | 0.08% | $20,704 | |||||
|
Money Market Fund Class S Shares |
||||||||||
| 1999 (a) | 3.98% | 0.88%(c) | 4.42%(c) | 0.05%(c) | $16,368 | |||||
| 2000 | 4.69% | 0.88% | 4.71% |
0.05% |
$48,760 | |||||
(a) Reflects operations for the period from June 8, 1998 (date of initial public investment) to April 30, 1999.
(b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above.
[Logo of Vision Group of Funds, Inc.]
JUNE 30, 2000
(Revised November 8, 2000)
A Statement of Additional Information (SAI) dated June 30, 2000 (Revised November 8, 2000), is incorporated by reference into this prospectus. Additional information about each Fund's investments is available in the Funds' SAI and Annual and Semi-Annual Reports to shareholders. The Annual Report discusses market conditions and investment strategies that significantly affected each Fund's performance during their last fiscal year. To obtain the SAI, the Annual and Semiannual Reports and other information without charge, and make inquiries, call (800) 836-2211.
You can obtain information about the Funds (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 92830F885
Cusip 92830F877
G00157-03 (11/00)
VISION GROUP OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JUNE 30, 2000
====================================================================================
====================================================================================
(REVISED NOVEMBER 8, 2000)
====================================================================================
====================================================================================
====================================================================================
VISION TREASURY MONEY MARKET FUND
CLASS A SHARES AND CLASS S SHARES
VISION MONEY MARKET FUND
CLASS A SHARES AND CLASS S SHARES
VISION NEW YORK TAX-FREE MONEY MARKET FUND
CLASS A SHARES
VISION U.S. GOVERNMENT SECURITIES FUND
CLASS A SHARES
VISION NEW YORK MUNICIPAL INCOME FUND
CLASS A SHARES
VISION LARGE CAP VALUE FUND
(FORMERLY, VISION EQUITY INCOME FUND)
CLASS A SHARES AND CLASS B SHARES
VISION MID CAP STOCK FUND
CLASS A SHARES AND CLASS B SHARES
VISION LARGE CAP GROWTH FUND
CLASS A SHARES AND CLASS B SHARES
VISION LARGE CAP CORE 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 prospectuses for the Funds dated June 30, 2000
(Revised August 22, 2000 and November 8, 2000).
This SAI incorporates by reference the Funds' Annual Reports. Obtain the
prospectuses or the Annual Reports without charge by calling (800) 836-2211 (in
the Buffalo area call (716) 635-9368).
CONTENTS
====================================================================================
HOW ARE THE FUNDS ORGANIZED? 1
SECURITIES IN WHICH THE FUNDS INVEST 1
INVESTMENT RISKS 10
FUNDAMENTAL INVESTMENT OBJECTIVES 14
INVESTMENT LIMITATIONS 15
DETERMINING MARKET VALUE OF SECURITIES 17
WHAT DO SHARES COST? 18
HOW ARE THE FUNDS SOLD? 20
EXCHANGING SECURITIES FOR SHARES 21
SUBACCOUNTING SERVICES 21
REDEMPTION IN KIND 21
ACCOUNT AND SHARE INFORMATION 21
TAX INFORMATION 23
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS? 24
FEES PAID BY THE FUNDS FOR SERVICES 29
HOW DO THE FUNDS MEASURE PERFORMANCE? 30
FINANCIAL INFORMATION 36
INVESTMENT RATINGS 37
ADDRESSES BACK COVER PAGE
CUSIPS 92830F109 CUSIPS 92830F851
92830F307 92830F844
92830F208 92830F778
92830F406 92830F760
92830F505 92830F877
92830F802 92830F885
92830F794 92830F810
92830F786
1072302B (11/00)
2
HOW ARE THE FUNDS ORGANIZED?
====================================================================================
Each Fund is a diversified portfolio of Vision Group of Funds (the "Trust")
except for New York Municipal Income Fund, which is a non-diversified portfolio
of the Trust. On August 11, 2000, the Trust was organized to acquire all of the
assets and liabilities of the Vision Group of Funds, Inc., a Maryland
corporation (the "Corporation") that was originally incorporated under the laws
of the State of Maryland on February 23, 1988, and registered as an open-end
management investment company. On November 8, 2000, each portfolio of the
Corporation became a portfolio of the Trust. Accordingly, references in this SAI
for periods prior to November 8, 2000, relate to the Funds as portfolios of the
Corporation, and substantially identical arrangements for the Corporation. The
Trust may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established three classes of shares of the
Funds, known as Class A Shares, Class B Shares and Class S Shares (Shares). This
SAI relates to all three classes of Shares. All Funds offer Class A Shares. Only
Large Cap Value Fund, Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap
Core Fund offer Class B Shares. Only Treasury Money Market Fund and Money Market
Fund offer Class S Shares. NY Municipal Income Fund changed its name from the
Vision New York Tax Free Fund on September 29, 1997. The Large Cap Value Fund
changed its name from the Vision Equity Income Fund on August 20, 1999. The
Vision Mid Cap Stock Fund began its operations on October 15, 1999, when the
Vision Growth and Income Fund and Vision Capital Appreciation Fund merged into
it and the Vision Mid Cap Stock Fund was designated the "accounting survivor" to
the Vision Growth and Income Fund. The Funds' investment adviser is
Manufacturers and Traders Trust Company (M&T Bank) (Adviser). The sub-adviser
for the NY Tax-Free Money Market Fund is Federated Investment Management
Company. The sub-adviser for the Mid Cap Stock Fund is Independence Investment
Associates, Inc. The sub-adviser for the Large Cap Growth Fund is Montag &
Caldwell, Inc.
SECURITIES IN WHICH THE FUNDS INVEST
====================================================================================
In pursuing its investment strategy, each 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 a Fund;
A = Acceptable (but not principal) investment of a Fund; or N = Not an
acceptable investment of a Fund.
MONEY MARKET FUNDS AND INCOME FUNDS
-------------------------------------------------------------------------------------------
TREASURY MONEY NY GOVERNMENT NY
MONEY MARKET MARKET TAX-FREE SECURITIES MUNICIPAL
FUND FUND MONEY FUND INCOME FUND
MARKET FUND
-------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES P P P P A
------------------------------- ---------------------- ------------
-------------------------------------------------------------------------------------------
Treasury Securities P A A P A
------------------------------- ------------ ------------
-------------------------------------------------------------------------------------------
Agency Securities N P A P A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Corporate Debt Securities1 N P N A A
-------------------------------------------------------------------------------------------
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Commercial Paper2 N A A A A
-------------------------------------------------------------------------------------------
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Demand Instruments3 N A N A A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Taxable Municipal Securities N N N A A
-------------------------------------------------------------------------------------------
------------------------------------------------------------------- ------------
Mortgage Backed Securities N N N P N
------------------------------------------------------------------- ------------
-------------------------------------------------------------------------------------------
Asset Backed Securities4 N N N A N
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Zero Coupon Securities N N N A A
-------------------------------------------------------------------------------------------
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Bank Instruments5 N A A A A
-------------------------------------------------------------------------------------------
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Credit Enhancement N A A N N
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TAX EXEMPT SECURITIES6 N N P N P
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General Obligation Bonds N N P N A
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Special Revenue Bonds N N P N A
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Tax Increment Financing N N A N A
Bonds
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Municipal Notes N N P N A
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Variable Rate Demand A A P A A
Instruments
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Municipal Leases N N A N A
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DERIVATIVE CONTRACTS N N N A A
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Futures Contracts N N N A A
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Options N N N A A
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SPECIAL TRANSACTIONS P A A A A
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Repurchase Agreements P A A A A
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Reverse Repurchase A A A A A
Agreements
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Delayed Delivery A A A A A
Transactions7
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Securities Lending N N N A A
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Asset Coverage A A A A A
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INVESTING IN SECURITIES OF N N A A A
OTHER INVESTMENT COMPANIES
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6
EQUITY FUNDS
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LARGE CAP MID CAP LARGE CAP LARGE CAP
VALUE FUND STOCK FUND GROWTH FUND CORE FUND
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EQUITY SECURITIES P P P P
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Common Stocks P P P P
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Preferred Stocks P P P P
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Real Estate Investment A A A A
Trusts
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Warrants8 A A A A
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FIXED INCOME SECURITIES9 A A A A
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Treasury Securities A A A A
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Agency Securities A A A A
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Corporate Debt Securities1 A A A A
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Commercial Paper2 A A A A
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Demand Instruments3 A A A A
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Mortgage Backed Securities A A A A
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Asset Backed Securities4 A A A A
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Zero Coupon Securities A A A A
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Bank Instruments A A A A
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CONVERTIBLE SECURITIES10 A A A A
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TAX EXEMPT SECURITIES6 A A A A
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Variable Rate Demand A A A A
Instruments
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FOREIGN SECURITIES A A A A
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Depository Receipts11 A A A A
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DERIVATIVE CONTRACTS A A A A
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Futures Contracts A A A A
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Options A A A A
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SPECIAL TRANSACTIONS A A A A
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Repurchase Agreements A A A A
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Reverse Repurchase A A A A
Agreements
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Delayed Delivery A A A A
Transactions7
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Securities Lending A A A A
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Asset Coverage A A A A
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INVESTING IN SECURITIES OF A A A A
OTHER INVESTMENT COMPANIES
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1. Rated in the top four rating categories (with respect to the Money Market
Funds, rated in the top two rating categories) of a nationally recognized
statistical rating organization (NRSRO), or, if unrated, of comparable
quality as determined by the Adviser or sub-adviser. If a security's rating
is lowered, the Adviser will assess whether to sell the security, but is not
required to do so.
2. With respect to the Income Funds, rated at the time of purchase no less than
P-1, A-1 or F-1 by Moody's Investors Service (Moody's), Standard & Poor's
(S&P) or Fitch IBCA, Inc. (Fitch), respectively, or, if unrated, of
comparable quality as determined by the Adviser. With respect to the Money
Market Funds, rated at the time of purchase A-2 or better by S&P or Prime-2
or better by Moody's or, if unrated, of comparable quality as determined by
the Adviser or sub-adviser. If a security's rating is lowered, the Adviser
will assess whether to sell the security, but is not required to do so.
3. With respect to the Government Fund, rated at the time of purchase Aaa, Aa,
or A by Moody's, or AAA, AA, or A by S&P's or by Fitch, or, if unrated, of
comparable quality as determined by the Adviser. If a security's rating is
lowered, the Adviser will assess whether to sell the security, but is not
required to do so.
4. Government Securities Fund and Large Cap Value Fund may invest in asset
backed securities which, at the time of purchase, are rated in the top three
rating categories by an NRSRO, and the Mid Cap Stock Fund, Large Cap Growth
Fund and Large Cap Core Fund may invest in such securities, which, at the
time of purchase, are rated in the top four rating categories by an NRSRO, or
if unrated, are of comparable quality as determined by the Adviser or
subadviser. If a security's rating is lowered, the Adviser will assess
whether to sell the security, but is not required to do so.
5. The Money Market Fund may make interest-bearing savings deposits in
commercial banks and savings banks not in excess of 5% of the Fund's total
assets. The Money Market Fund may not invest more than 25% of the value of
its total assets at the time of purchase in U.S. dollar-denominated
obligations of foreign banks and foreign branches of U.S. banks.
6. Which are in one of the top four rating categories of an NRSRO (top two with
respect to NY Tax-Free Money Market Fund).
7. The Income and Equity Funds do not intend to engage in such transactions to
an extent that would cause the segregation of more than 20% of the total
value of the Funds' assets. Under normal market conditions, the Money Market
Funds will not purchase such securities in excess of 25% of the value of
their total assets.
8. The Funds do not have a present intent to invest more than 5% of their
respective net assets in warrants.
9. The Large Cap Value Fund may invest up to 35% of the value of its total
assets in debt obligations.
10. The Equity Funds may invest in convertible securities rated below investment
grade. See "Risks Associated with Non-investment Grade Securities" herein.
11.The Large Cap Value Fund and Mid Cap Stock Fund may not invest more than 25%
of its total assets in ADRs. The Large Cap Value Fund may invest up to 20% of
its total assets in other securities of foreign issuers (Non-ADRs).
SECURITIES DESCRIPTIONS AND TECHNIQUES
Following are descriptions of securities and techniques that each Fund may or
may not pursue, as noted in the preceding table.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. A 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 a 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. A 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 a 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.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities
are exempt from federal income tax, a Fund may invest in taxable municipal
securities.
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. Like CMOs, asset backed securities may be
structured like Floaters, Inverse Floaters, IOs and POs.
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.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred
to as a coupon payment). Investors buy zero coupon securities at a price
below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. Investors must wait until maturity to receive interest and
principal, which increases the market and credit risks of a zero coupon
security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs
are the most common forms of stripped zero coupon securities. In addition,
some securities give the issuer the option to deliver additional securities
in place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. If a default occurs, these assets may be sold and the
proceeds paid to security's holders. Either form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that a 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 Equity Funds may
invest in commercial paper rated below investment grade. See "Risks Associated
with Non-investment Grade Securities" herein.
The Funds treat 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.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes sufficient
to pay principal and interest on the bonds. However, the issuer's authority
to impose additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by
the issuer such as specific taxes, assessments, tolls, or fees. Bondholders
may not collect from the municipality's general taxes or revenues. For
example, a municipality may issue bonds to build a toll road, and pledge the
tolls to repay the bonds. Therefore, a shortfall in the tolls normally would
result in a default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new
factory to improve its local economy. The municipality would lend the
proceeds from its bonds to the company using the factory, and the company
would agree to make loan payments sufficient to repay the bonds. The bonds
would be payable solely from the company's loan payments, not from any
other revenues of the municipality. Therefore, any default on the loan
normally would result in a default on the bonds.
The interest on many types of private activity bonds is subject to the
federal alternative minimum tax (AMT). A Fund may invest in bonds subject
to AMT.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or
other revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF
bonds would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and
related tax collections, failed to increase as anticipated.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes or
other municipal revenues. Municipalities may also issue notes to fund capital
projects prior to issuing long-term bonds. The issuers typically repay the
notes at the end of their fiscal year, either with taxes, other revenues or
proceeds from newly issued notes or bonds.
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 Funds 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.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject
to annual appropriation. In other words, a municipality may end a lease,
without penalty, by not providing for the lease payments in its annual
budget. After the lease ends, the lessor can resell the equipment or facility
but may lose money on the sale.
A Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, a Fund may also invest directly in individual leases.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if:
| it is organized under the laws of, or has a principal office located in,
another country;
| the principal trading market for its securities is in another country; or
| 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.
DEPOSITARY RECEIPTS
Depositary 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.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
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 Funds 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 a 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 Funds (other than the Money Market Funds) 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 Funds may buy/sell financial futures contracts. Mid Cap Stock Fund and
Large Cap Value 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 Funds 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. Each 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.
Each 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.
INVESTMENT RATINGS FOR MONEY MARKET FUNDS
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+,
F-1, or F-2 by Fitch Investors Service, Inc. ("Fitch") are all considered rated
in one of the two highest short-term rating categories. The Money Market Funds
will follow applicable regulations in determining whether a security rated by
more than one rating service can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
rating services in one of their two highest rating categories. See "Regulatory
Compliance."
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. A Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Funds' 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 Funds 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 their investment policies and managing any uninvested cash.
INVESTMENT RISKS
====================================================================================
There are many factors which may affect an investment in the Funds. The Funds'
principal risks are described in the prospectus. Additional risk factors are
outlined below.
STOCK MARKET RISKS
The value of equity securities in a Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. A 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 a Fund's portfolio holdings to a particular sector, a 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.
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features 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 INVESTING FOR VALUE
Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development, or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.
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.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risk tends to make securities traded in foreign markets more volatile
than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
The Euro is the new single currency of the European Monetary Union (EMU). With
the advent of the Euro, the participating countries in the EMU can no longer
follow independent monetary policies. This may limit these countries' ability to
respond to economic downturns or political upheavals, and consequently reduce
the value of their foreign government securities.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of a Fund's investments.
To the extent a Fund invests in foreign securities, its 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 a 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.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.
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 Equity Funds 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.
TAX RISKS
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
NEW YORK INVESTMENT RISKS
The NY Tax-Free Money Market Fund and NY Municipal Income Fund invest in
obligations of New York (the "State") issuers which result in each Fund's
performance being subject to risks associated with the overall conditions
present within the State. The following information is a general summary of the
State's financial condition and a brief summary of the prevailing economic
conditions. This information is based on various sources that are believed to be
reliable but should not be considered as a complete description of all relevant
information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs, education
and Medicare expenditures have been the areas of largest growth while prudent
program cuts and increases in revenues through service fees has enabled the
State's budget to remain within balance for the last few years. The State also
benefits from a high level of per capita income that is well above the national
average and from significant amounts of international trade. While the State
still has a large accumulated deficit as a percentage of its overall budget, the
fiscal performance in recent years has demonstrated a changed political
environment that has resulted in realistic revenue and expenditure projections
to achieve financially favorable results. The recent budgets have included
personal income tax cuts and emphasized cost control. Budgets in recent years
have been delayed due to disagreements between the Governor and the New York
State legislature.
New York's economy is large and diverse. While several upstate counties benefit
from agriculture, manufacturing and high technology industries, New York City
nonetheless still dominates the State's economy through its international
importance in economic sectors such as advertising, finance, and banking. The
State's economy has been slow to recover after the late 1980's recession that
resulted in the loss of over 400,000 jobs in the New York City metropolitan area
alone. Any major changes to the financial condition of New York City would
ultimately have an effect on the State.
Obligations of issuers within the State are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights of and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by the U.S. Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations, or upon the ability of the
State or its political subdivisions to levy taxes. There is also the possibility
that, as a result of litigation or other conditions (including delays in
adopting budgets), the power or ability of any issuer to pay, when due, the
principal of and interest on its municipal securities may be materially
affected.
A substantial principal amount of bonds issued by various State agencies and
authorities are either guaranteed by the State or supported by the State through
lease-purchase arrangements, or other contractual or moral obligation
provisions. Moral obligation commitments by the State impose no immediate
financial obligations on the State and require appropriations by the legislature
before any payments can be made. Failure of the State to appropriate necessary
amounts or to take other action to permit the authorities and agencies to meet
their obligations could result in defaults on such obligations. If a default
were to occur, it would likely have a significant adverse impact on the market
price of obligations of the State and its authorities and agencies. In recent
years, the State has had to appropriate large amounts of funds to enable State
agencies to meet their financial obligations and, in some cases, prevent
default. Additional assistance is expected to be required in current and future
fiscal years since certain localities and authorities continue to experience
financial difficulties.
To the extent State agencies and local governments require State assistance to
meet their financial obligations, the ability of the State of New York to meet
its own obligations as they become due or to obtain additional financing could
be adversely affected. This financial situation could result not only in
defaults of State and agency obligations but also impairment of the
marketability of securities issued by the State, its agencies and local
governments.
The current ratings on New York State general obligation debt are A2 by Moody's
and A by S&P.
The Funds' concentration in municipal securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
FUNDAMENTAL INVESTMENT OBJECTIVES
====================================================================================
The Treasury Money Market Fund and Money Market Fund's investment objective is
to seek current income with liquidity and stability of principal.
The NY Tax-Free Money Market Fund's investment objective is to seek a high level
of current interest income that is exempt from federal regular income tax as is
consistent with liquidity and relative stability of principal.
The U.S. Government Securities Fund's investment objective is to provide current
income. Capital appreciation is a secondary, non-fundamental investment
consideration.
The NY Municipal Income Fund's investment objective is to provide current income
which is exempt from federal regular income tax and the personal income taxes
imposed by the State of New York and New York municipalities and is consistent
with preservation of capital.
The Vision Large Cap Value Fund's investment objective is to provide income.
Capital appreciation is a secondary, non-fundamental investment consideration.
The Mid Cap Stock Fund's investment objective is to provide total return.
The Large Cap Growth Fund's investment objective is to provide capital
appreciation.
The Large Cap Core Fund's investment objective is to provide long-term capital
appreciation. Current income is a secondary, non-fundamental investment
consideration.
Unless otherwise stated above, all of the investment objectives listed above are
fundamental. The investment objective may not be changed by the Funds' Trustees
without shareholder approval.
INVESTMENT LIMITATIONS
====================================================================================
The Large Cap Growth Fund and Large Cap Core Fund may, in the future, seek to
achieve the Funds' investment objectives by investing all of the Funds' assets
in a no-load, open-end management investment company having substantially the
same investment objectives as the Funds. The Funds' investment policies permit
such an investment. Shareholders will receive prior written notice with respect
to any such investment.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
Each 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.
UNDERWRITING
The Funds may not underwrite the securities of other issuers, except that the
Funds may engage in transactions involving the acquisition, disposition or
resale of their portfolio securities, under circumstances where the Funds may be
considered to be an underwriter under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Funds may not purchase or sell real estate, provided that this restriction
does not prevent the Funds 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 Funds may exercise their rights under agreements relating to such
securities, including the right to enforce security interests and hold real
estate acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.
LENDING CASH OR SECURITIES
The Funds may not make loans, provided that this restriction does not prevent
the Funds from purchasing debt obligations, entering into repurchase agreements,
lending their assets to broker/dealers or institutional investors and investing
in loans, including assignments and participation interests.
INVESTING IN COMMODITIES
The Funds may not purchase or sell physical commodities, provided that the Funds
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.
CONCENTRATION OF INVESTMENTS
The Funds will not make investments that will result in the concentration of
their 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.
DIVERSIFICATION - ALL FUNDS EXCEPT NEW YORK MUNICIPAL INCOME FUND With respect
to securities comprising 75% of the value of its total assets, the Funds 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 Funds would own more than 10% of the
outstanding voting securities of that issuer.
INVESTING IN EXEMPT-INTEREST OBLIGATIONS
The New York Tax-Free Money Market Fund will not invest less than 80% of its net
assets in securities the interest on which is exempt from federal regular income
tax, except during temporary defensive periods. AMT obligations are not counted
as securities the interest on which is exempt from federal regular income tax.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY 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.
BUYING ON MARGIN
TREASURY FUND, MONEY MARKET FUND AND NEW YORK MONEY MARKET FUND: The Funds
will not purchase securities on margin, provided that the Funds may obtain
short-term credits necessary for the clearance of purchases and sales of
securities.
MUNICIPAL INCOME FUND, GOVERNMENT SECURITIES FUND, LARGE CAP VALUE FUND,
LARGE CAP GROWTH FUND AND LARGE CAP CORE FUND: The Funds will not purchase
securities on margin, provided that the Funds may obtain short-term credits
necessary for the clearance of purchases and sales of securities, and
further provided that the Funds 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.
MID-CAP STOCK FUND: The Fund will not purchase 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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
As an operating (non-fundamental) policy, the NY Tax-Free Money Market Fund does
not anticipate entering into reverse repurchase agreements in excess of 5% of
its net assets.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid.
The Income and Equity Funds (other than Mid Cap Stock Fund, Large Cap Growth
Fund and Large Cap Core Fund) will not invest more than 15% of the value of
their respective net assets in illiquid securities including certain restricted
securities not determined to be liquid under criteria established by the
Trustees, non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice.
The Mid Cap Stock Fund, Large Cap Growth Fund and Large Cap Core 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.
Each Money Market Fund will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and restricted securities that
have not been determined to be liquid under criteria established by the Trust's
Trustees.
DEALING IN PUTS AND CALLS
The New York Tax-Free Money Market Fund will not write or purchase put or call
options.
PURCHASING SECURITIES TO EXERCISE CONTROL
The New York Tax-Free Money Market Fund will not invest in any issuer for
purposes of exercising control or management.
BORROWING MONEY
The New York Tax-Free Money Market Fund will not borrow money for investment
leverage, but rather as a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio assets is deemed to be inconvenient
or disadvantageous. The Fund will not purchase any securities while borrowings
in excess of 5% of the value of its total assets are outstanding. The New York
Tax-Free Money Market Fund does not anticipate entering into reverse repurchase
agreements in excess of 5% of its net assets.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any of their 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.
INVESTING IN OTHER INVESTMENT COMPANIES
The Funds may invest their assets in securities of other investment companies as
an efficient means of carrying out their investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Funds in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Funds expect
that its investments in other investment companies may include shares of money
market funds, including funds affiliated with the Funds' investment adviser.
In applying the Funds' 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 Funds 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 Funds'
total assets in any one industry will constitute "concentration."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. Except for the Large Cap Growth Fund and Large Cap Core Fund, none
of the Funds has any present intent to borrow money in excess of 5% of the value
of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
REGULATORY COMPLIANCE
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
the prospectus and this statement of additional information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Money
Market Funds will comply with the various requirements of Rule 2a-7 (the Rule),
which regulates money market mutual funds. The Money Market Funds will determine
the effective maturity of their investments according to the Rule. The Money
Market Funds may change these operational policies to reflect changes in the
laws and regulations without the approval of their shareholders.
DETERMINING MARKET VALUE OF SECURITIES
====================================================================================
MONEY MARKET FUNDS
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
INCOME AND EQUITY FUNDS
Market values of the Income and Equity Funds' portfolio securities are
determined as follows:
| 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;
| in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
| 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;
| for fixed income securities, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that fixed
income securities with remaining maturities of less than 60 days at the time
of purchase may be valued at amortized cost; and
| 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.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Funds' Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
====================================================================================
Each Equity and Income 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 Funds' 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 FUNDS
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
and their subsidiaries;
| current and former Trustees of the Trust;
| 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 Funds' distributor and consents to such
purchases;
| current and retired employees of any sub-adviser to the Vision Funds; and
| investors referred by any sub-adviser to the Vision Funds. 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 each of the Funds 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 a
Fund under this "no-load" purchase provision. This payment will be made out of
the distributor's assets and not by the Trust, the Funds or a 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 Funds' 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 Trustees, 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 a 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 ARE THE FUNDS 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 certain 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 PLANS
As compensation type plans, the Rule 12b-1 Plans are designed to pay the
Distributor (who may then pay investment professionals such as banks (including
M&T Bank and its affiliates), 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 Funds achieve economies of scale, reduce
per share expenses, and provide cash for orderly portfolio management and Share
redemptions. In addition, the Funds' service providers that receive asset-based
fees also benefit from stable or increasing Fund assets.
The Funds 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 Funds 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 may be paid fees out of the assets of the Distributor
(but not out of Fund assets) or Adviser. The Distributor may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon 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 Funds reserve the right to determine whether to accept
your securities and the minimum market value to accept. The Funds 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 each 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 a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, each 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 Funds' 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 Funds' 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 a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust 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.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
As of June 2, 2000, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Shares:
----------------------------------------------------------------------------------------
FUND SHAREHOLDER NAME SHARE CLASS PERCENTAGE OWNED
---------------------------
ADDRESS
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Money Market Fund Manufacturers & Traders A 18.47%
Bank, Buffalo, NY
(#1660231560-8) A 9.54%
National Financial
Services Co., New York, NY A 9.05%
Manufacturers & Traders
Bank, Buffalo, NY S 16.61%
(#19008-8) S 11.84%
Health Solutions Limited, S 5.70%
Albany, NY S 5.27%
Global Spec.com, Inc.,
Troy, NY
Osmose, Inc., Buffalo, NY
General Electric Credit
Equities, Inc.,
Albany, NY
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
New York Tax-Free Money Manufacturers & Traders A 25.35%
Market Fund Trust Co., Buffalo, NY
(#1660231560-8) A 18.77%
National Financial
Services Co., A 11.19%
New York, NY
Manufacturers & Traders A 9.10%
Trust Co.,
Buffalo, NY (#19009-1)
ABC Paving Co., Inc.,
Buffalo, NY
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Treasury Money Market Manufacturers & Traders A 75.45%
Fund Bank, Buffalo, NY
Ayelet Tours, Ltd., S 7.13%
Albany, NY S 6.01%
Joseph C. Lu Engineering,
Penfield, NY S 5.81%
University Hill Radiation
Oncology, Syracuse, NY
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
U.S. Government SEI Trust Company, Oaks, PA A 19.39%
Securities Fund Krauss & Company, Buffalo, A 17.59%
NY A 15.88%
Tice & Co., Buffalo, NY A 14.32%
(#19015-6)
Manufacturers & Traders A 13.66%
Bank,
Buffalo, NY (#19018-5)
Manufacturers & Traders
Bank, Buffalo, NY
(#136318492-1)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
New York Municipal Manufacturers & Traders A 14.24%
Income Fund Trust Co., Buffalo, NY
(#19013-0) A 13.21%
Tice & Co., Buffalo, NY A 7.49%
(#19016-9)
SEI Trust Company, Oaks, PA
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Mid Cap Stock Fund Manufacturers & Traders A 36.00%
Bank, Buffalo, NY
(#136318492-1) A 6.63%
Tice & Co., Buffalo, NY A 5.77%
SEI Trust Company, Oaks, PA B 83.55%
NFSC FEBO # 01D-479160, B 6.60%
Troy, NY B 6.41%
Donald W. Patten,
Syracuse, NY
NFSC FEBO # 01D-489280,
Buskirk,NY
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Large Cap Value Fund Tice & Co., Buffalo, NY A 18.22%
SEI Trust Company, Oaks, PA A 17.49%
Manufacturers & Traders A 16.90%
Bank, Buffalo, NY
(#27081-4) A 12.35%
Krauss & Company, Buffalo, A 5.48%
NY
Manufacturers & Traders B 40.31%
Bank, Buffalo, NY B 23.05%
(#27082-7)
John A. Berra, Buffalo, NY B 20.82%
Linda Fordyce Dehlinger,
Tonawanda, NY B 9.01%
NFSC FEBO # 01D-820407, B 5.28%
Jordan, NY
Lisa A. Trzepkowski,
Sloan, NY
State Street Bank & Trust,
Rochester, NY
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Large Cap Growth Fund Manufacturers and Traders A 92.59%
Bank, Buffalo, NY
NFSC FEBO # 01D-486752, B 41.19%
Webster, NY
NFSC FEBO # 01D-828025, B 25.74%
Newton, NJ
NFSC FEBO # CLE-109614, B 14.04%
Sparrowbush, NY
NFSC FEBO # 01D-434230, B 12.19%
Briarcliff Manor, NY
----------------------------------------------------------------------------------------
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
====================================================================================
FEDERAL INCOME TAX
Each 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.
Each 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
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If a Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Funds intend to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
NEW YORK TAXES
Under existing New York laws, shareholders of the NY Municipal Income Fund and
NY Tax-Free Money Market Fund will not be subject to New York State or New York
City personal income taxes on dividends to the extent that such dividends
qualify as "exempt interest dividends" under the Internal Revenue Code of 1986
and represent interest income attributable to obligations of the State of New
York and its political subdivisions, as well as certain other obligations, the
interest on which is exempt from New York State and New York City personal
income taxes, such as, for example, certain obligations of the Commonwealth of
Puerto Rico. To the extent that distributions are derived from other income,
such distributions will be subject to New York State or New York City personal
income tax.
The NY Municipal Income Fund and NY Tax-Free Money Market Fund cannot predict in
advance the exact portion of their dividends that will be exempt from New York
State and New York City personal income taxes. However, the Funds will report to
shareholders at least annually what percentage of the dividends they actually
paid is exempt from such taxes.
Dividends paid by the NY Municipal Income Fund and NY Tax-Free Money Market Fund
are exempt from the New York City unincorporated business tax to the same extent
that they are exempt from the New York City personal income tax.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
Income from the NY Municipal Income Fund and NY Tax-Free Money Market Fund is
not necessarily free from taxes in states other than New York. Shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
Dividends paid by the NY Municipal Income Fund and NY Tax-Free Money Market Fund
that are attributable to the net interest earned on some temporary and any
realized net short-term capital gains are taxed as ordinary income.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
====================================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, and total compensation received as a Trustee from the Trust for
its most recent fiscal year. The Trust is composed of eighteen funds and is the
only investment company in the Fund Complex.
-------------------------------------------------------------- ------------
NAME TOTAL
BIRTH DATE - COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH TRUST FOR PAST FIVE YEARS TRUST*
RANDALL I. BENDERSON President and Chief Operating Officer, $8,000
-------------------- Benderson Development Company, Inc.
570 Delaware Avenue (construction).
Buffalo, NY
Birth date: January
12, 1955
TRUSTEE
-------------------------------------------------------------- ------------
JOSEPH J. CASTIGLIA Director, The Energy East Corp., and $8,000
Roycroft Campus its subsidiary New York State Electric
21 South Grove & Gas Corp.; Sevenson Environmental
Street, Suite 291 Services, Inc.; Blue Cross & Blue
East Aurora, NY Shield of Western New York, a division
14052 of HealthNow New York, Inc.; and Former
Birth date: July President, Chief Executive Officer and
20, 1934 Vice Chairman, Pratt & Lambert United,
Inc. (manufacturer of paints and
Trustee chemical specialties).
---------------------
------------------------------------------ ------------
MARK J. CZARNECKI+# Executive Vice President, Manufacturers $0
Manufacturers and and Traders Trust Company ("M&T Bank"),
Traders Trust division head for M&T Bank's investment
Company area, M&T Investment Group.
One M&T Plaza
Buffalo, NY 14203
Birthdate:
November 3, 1955
Trustee
------------------------------------------ ------------
DANIEL R. GERNATT, President and CFO of Gernatt Asphalt $8,000
JR. Products, Inc.; Executive Vice
Richardson & Taylor President, Dan Gernatt Gravel Products,
Hollow Roads Inc.; Vice President, Countryside Sand
Collins, NY & Gravel, Inc.
Birth date: July
14, 1940
Trustee
-------------------------------------------------------------- ------------
GEORGE K. Retired President, Brand Name Sales, $7,500
HAMBLETON, JR. Inc. (catalog showroom business);
1003 Admiral's Walk Retired President, Hambleton & Carr,
Buffalo, NY Inc. (catalog showroom business).
Birth date:
February 8, 1933
Trustee
-------------------------------------------------------------- ------------
EDWARD C. GONZALES President, Executive Vice President and $0
Federated Investors Treasurer of other funds distributed by
Tower Federated Securities Corp.; Vice
Pittsburgh, PA Chairman, Federated Investors, Inc.;
Birth date: October Trustee, Federated Administrative
22, 1930 Services; 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
-------------------------------------------------------------- ------------
C. TODD GIBSON Corporate Counsel, Federated Investors, $0
Federated Investors Inc.; Assistant Vice President,
Tower Federated Administrative Services.
Pittsburgh, PA
Birth date: May 17,
1967
SECRETARY
-------------------------------------------------------------- ------------
* THIS COMPENSATION REFLECTS PAYMENTS MADE TO THE TRUST'S TRUSTEES BY VISION
GROUP OF FUNDS, INC. (CORPORATION) IN THEIR CAPACITY AS DIRECTORS OF THE
CORPORATION. THE CORPORATION REORGANIZED INTO THE TRUST ON NOVEMBER 8, 2000.
(SEE "HOW ARE THE FUNDS ORGANIZED").
+ MR. CZARNECKI BECAME A MEMBER OF THE BOARD OF TRUSTEES ON OCTOBER 23, 2000. HE
DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE TRUST.
# DENOTES A TRUSTEE WHO IS DEEMED TO BE AN INTERESTED PERSON AS DEFINED IN THE
1940 ACT.
As of June 2, 2000 the Funds' Board and Officers as a group owned less than 1%
of each Fund's outstanding Shares.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Funds.
The Adviser shall not be liable to the Trust 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-ADVISERS
NEW YORK TAX-FREE MONEY MARKET FUND
The Adviser has delegated daily management of the NY Tax-Free Money Market Fund
to the sub-adviser, Federated Investment Management Company (FIMCO). On June 21,
1999, Federated Investment Counseling (FIC) transferred its Sub-Advisory
Contract to its affiliate, Federated Investment Management Company. FIC served
as sub-adviser since September 8, 1998.
For its services under the Sub-Advisory Agreement, FIMCO receives an allocable
portion of the advisory fee the Adviser receives from the NY Tax-Free Money
Market Fund. The allocation is based on the amount of securities which FIMCO
manages for the Fund. This fee is paid by the Adviser out of the fees it
receives and is not a Fund expense. FIMCO is paid by the Adviser as follows:
SUB-ADVISORY FEE AVERAGE DAILY NET ASSETS OF THE FUND
---------------------------------------------------------
0.20% on the first $100 million average
daily net assets;
---------------------------------------------------------
0.18% on the next $100 million average
daily net assets; and
---------------------------------------------------------
0.15% on average daily net assets over $200
million.
---------------------------------------------------------
MID CAP STOCK FUND
The Adviser has delegated daily management of the Mid Cap Stock Fund to the
sub-adviser, Independence Investment Associates, Inc. (IIA).
For its services under the Sub-Advisory Agreement, IIA receives an allocable
portion of the advisory fee the Adviser receives from the Mid Cap Stock Fund.
The allocation is based on the amount of securities which IIA manages for the
Fund. This fee is paid by the Adviser out of the fees it receives and is not a
Fund expense. IIA is paid by the Adviser as follows:
SUB-ADVISORY FEE AVERAGE DAILY NET ASSETS OF THE FUND
---------------------------------------------------------
0.40% on assets up to $500 million
---------------------------------------------------------
0.35% on assets in excess of $500 million
---------------------------------------------------------
LARGE CAP GROWTH FUND
The Adviser has delegated daily management of the Large Cap Growth Fund to the
sub-adviser, Montag & Caldwell, Inc. (M&C).
For its services under the Sub-Advisory Agreement, M&C receives an allocable
portion of the advisory fee the Adviser receives from the Large Cap Growth Fund.
The allocation is based on the amount of securities which M&C manages for the
Fund. This fee is paid by the Adviser out of the fees it receives and is not a
Fund expense. M&C 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; and
---------------------------------------------------------
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 Funds, their Adviser, subadvisers and Distributor
have adopted codes of ethics. These codes govern securities trading activities
of investment personnel, Trustees, and certain other employees. Although they do
permit these people to trade in securities, including those that the Funds could
buy, they also contain significant safeguards designed to protect the Funds and
their 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-advisers 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-advisers
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-advisers 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-advisers make decisions
on portfolio transactions and select brokers and dealers subject to review by
the Funds' 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-advisers in advising other accounts.
To the extent that receipt of these services may replace services for which the
Adviser, the sub-advisers or their affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser, the sub-advisers and their
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.
On April 30, 2000, the Funds owned securities of the following regular
broker/dealers: Morgan Stanley Dean Witter & Company in the amount of $49,500,000
and J.P. Morgan Securities, Inc. in the amount of $166,887.
Investment decisions for the Funds are made independently from those of other
accounts managed by the Adviser. When the Funds 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 Funds, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Funds.
CO-ADMINISTRATORS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
As of November 1, 2000, Federated Services Company (FSC) and M&T Bank serve as
co-administrators to the Trust and provide the Funds with certain administrative
personnel and services necessary to operate the Funds. The administrative
services are provided for an aggregate annual fee as specified below:
Fees Payable to FSC:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF
ADMINISTRATIVE FEE THE VISION GROUP OF FUNDS
---------------------------------------------------------------
0.06% on the first $2 billion
---------------------------------------------------------------
0.03% on the next $3 billion
---------------------------------------------------------------
0.015% on assets in excess of $5 billion
---------------------------------------------------------------
Fees Payable to M&T:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF
ADMINISTRATIVE FEE THE VISION GROUP OF FUNDS
---------------------------------------------------------------
0.04% on the first $5 billion
---------------------------------------------------------------
0.015% on assets in excess of $5 billion
---------------------------------------------------------------
FSC, through its affiliate, Federated Shareholder Services Company (FSSC), a
registered transfer agent, also serves as transfer and dividend disbursing agent
to the Trust, and receives a separate fee from the Fund for these transfer
agency services.
SERVICE ARRANGEMENTS PRIOR TO NOVEMBER 1, 2000
Prior to November 1, 2000, different servicing arrangements were in place for
the Corporation. Federated Administrative Services (FAS) served as administrator
for the Corporation, and provided the Funds with certain administrative
personnel and services necessary to operate the Funds. FSC and its affiliate,
FSSC, served as transfer agent and fund accountant for the Corporation, and
provided the Funds 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 were provided for an
aggregate annual fee as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF
ADMINISTRATIVE FEE THE VISION GROUP OF FUNDS, INC.
---------------------------------------------------------------
0.140 of 1% on the first $1.4 billion
---------------------------------------------------------------
0.100 of 1% on the next $750 million
---------------------------------------------------------------
0.070% on assets in excess of $2.15 billion
---------------------------------------------------------------
Prior to December 1, 1997, FAS was paid an administrative fee by the Funds based
on the following schedule: MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF
ADMINISTRATIVE THE VISION GROUP OF FUNDS, INC.
FEE
---------------------------------------------------------
0.150 of 1% on the first $250 million
---------------------------------------------------------
0.125 of 1% on the next $250 million
---------------------------------------------------------
0.100 of 1% on the next $250 million
---------------------------------------------------------
0.075 of 1% on assets in excess of $750 million
---------------------------------------------------------
The minimum administrative fee received during any year was $50,000 per Fund.
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds. Foreign instruments purchased by a Fund are
held by foreign banks participating in a network coordinated by State Street
Bank. Effective November 1, 2000, State Street Bank and Trust Company provides
financial administration and fund accounting services the Funds for an aggregate
annual fee of 0.045% of the Funds' average daily net assets.
INDEPENDENT AUDITORS
The independent auditors for the Fund, Ernst & Young LLP, plans and performs its
audit so it may provide an opinion as to whether each Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUNDS FOR SERVICES
====================================================================================
-----------------------------------------------------------------------------------------
ADVISORY FEE PAID/ BROKERAGE ADMINISTRATIVE FEE
ADVISORY FEE WAIVED COMMISSIONS PAID PAID/
ADMINISTRATIVE FEE
WAIVED
-------------------------------------------------
-------------------------------------------------------------------------
FUNDS FOR THE FISCAL YEAR FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30,
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998(B)
-------------------------------------------------------------------------
----------------
TREASURY MONEY $2,792,0$2,915,6$2,304,8$0 $0 $0 $711,804 $763,444$543,332
MARKET FUND $446,722$466,502$379,597 $0 $0 $27,570
----------------
-----------------------------------------------------------------------------------------
MONEY MARKET $5,272,7$4,118,7$3,158,2$0 $0 $0 $1,344,79$1,080,9$735,499
FUND $527,275$402,495$336,623 $0 $0 $0
----------------
-----------------------------------------------------------------------------------------
NY TAX-FREE $790,870$534,508$389,766$0 $0 $0 $201,503 $139,543$91,198
MONEY MARKET $142,357$154,452$218,264 $0 $0 $5,988
FUND $147,252(d)
-----------------------------------------------------------------------------------------
----------------
U.S. $413,227$429,164$378,409$0 $0 $0 $75,305 $80,780 $64,007
GOVERNMENT $29,516 $29,915 $45,997 $0 $0 $571
SECURITIES FUND
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
NY MUNICIPAL $346,037$336,546$227,041$0 $0 $0 $63,066 $63,594 $52,701
INCOME FUND $98,868 $93,773 $117,123 $0 $0 $6,213
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
LARGE CAP $267,746$290,500$83,847($121,218 $59,210$46,309($48,813 $54,167 $21,621
VALUE FUND $0 $0 $53,453(a) $0 $0 $8,630
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
MID CAP STOCK $719,262$739,869$968,660$414,353 $676,81$259,177$116,322 $138,723$160,835
FUND $0 $0 $0 $0 $0 $0
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
LARGE CAP $5,655 N/A N/A $6,091 N/A N/A $865 N/A N/A
GROWTH FUND $5,655 N/A N/A N/A N/A $865 N/A N/A
-----------------------------------------------------------------------------------------
(a)For the period from September 26, 1997 (date of initial public investment)
to April 30, 1998.
(b)Prior to December 1, 1997 FAS was paid on a different fee schedule for
administrative services. See "Co-Administrators, Transfer Agent and Dividend
Disbursing Agent" above. The aggregate administrative, transfer agency and
fund accounting fees paid by the Funds for the period from December 1, 1997
to April 30, 1998 under the changed fee structure were $301,148; $367,315;
$47,088; $33,699; $23,384; $78,952; $35,341 and $12,991, respectively. The
fees paid by the Funds for the period from May 1, 1997 to November 30, 1997
under the prior fee structure were $242,184; $368,544; $44,110; $30,378;
$29,317; $90,371; $30,516; and $8,630 (for the period from September 25, 1997
(date of initial public investment) to November 30, 1997), respectively.
(c)For the period from September 26, 1997 (date of initial public investment)
to April 30, 1998.
(d)The Adviser paid sub-advisory fees to Federated Investment Counseling in the
amounts of $304,350 and $147,253, for the fiscal year ended April 30, 2000
and for the periods from September 8, 1998 to April 30, 1999.
--------------------------------------------------------------------
-------------- TREASURY MONEY MONEY MARKET U.S. NY
FEES PAID FOR MARKET FUND FUND GOVERNMENT MUNICIPAL
THE FISCAL SECURITIES INCOME
YEAR ENDED FUND FUND
APRIL 30, 2000
-----------------------------------------------------
-----------------------------------------------------
------- CLASS S CLASS CLASS S CLASS A CLASS A
CLASS A A
--------------------------------------------------------------------
-------------- $0 $58,833 $0 $79,772 $0 $0
12b-1 Fees
Paid
--------------------------------------------------------------------
-------------- $0 $0 $0 $0 $0 $0
Shareholder
Services Fees
Paid
--------------------------------------------------------------------
--------------------------------------------------------------------
---------------- LARGE CAP MID CAP STOCK LARGE CAP GROWTH
FEES PAID FOR VALUE FUND FUND FUND
THE FISCAL YEAR
ENDED APRIL 30,
2000
---------------------------------------------------
---------------------------------------------------
------ CLASS B CLASS A CLASS B CLASS A CLASS
CLASS B
A
--------------------------------------------------------------------
---------------- $0 $14 $0 $43 $0 $15
12b-1 Fees Paid
--------------------------------------------------------------------
---------------- $0 $5 $227,975 $14 $0 $5
Shareholder
Services Fees
Paid
--------------------------------------------------------------------
====================================================================================
HOW DO THE FUNDS MEASURE PERFORMANCE?
====================================================================================
The Funds 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 a 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 Income and Equity Funds 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 of Shares of the Money Market Funds is based upon the seven days
ending on the day of the calculation, called the "base period." This yield is
calculated by: determining the net change in the value of a hypothetical account
with a balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased Shares; dividing the net
change in the account's value by the value of the account at the beginning of
the base period to determine the base period return; and multiplying the base
period return by 365/7. The effective yield of the Money Market Funds is
calculated by compounding the unannualized base-period return by: adding one to
the base-period return, raising the sum to the 365/7th power; and subtracting
one from the result. The tax-equivalent yield of Shares of NY Tax-Free Money
Market Fund and NY Municipal Income Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that Shares would have had to earn
to equal the actual yield, assuming a specific tax rate. The yield, effective
yield and tax-equivalent yield do 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.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD*
--------------------------------------------------------------------------------------
FOR THE TREASURY MONEY MARKET FUND MONEY MARKET FUND NY TAX-FREE
FOLLOWING MONEY
PERIODS ENDED MARKET FUND
APRIL 30, 2000
--------------------------------------------------------------------------------------
----------------
CLASS A CLASS S CLASS A CLASS S CLASS A
--------------------------------------------------------------------------------------
TOTAL RETURN
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
1 Year 4.71% 4.45% 4.95% 4.69% 2.97%
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
5 Years 4.86% N/A 5.02% N/A 3.01%
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
10 Year 4.62% N/A 4.78% N/A 2.91%
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Start of N/A 4.34%(a) N/A 4.58%(b) N/A
performance
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
YIELD
------------------------------ -------------- -------------
--------------------------------------------------------------------------------------
7-day period 5.11% 4.86% 5.45% 5.20% 3.90%
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
EFFECTIVE YIELD
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
7-day period 5.24% 4.98% 5.59% 5.33% 3.98%
--------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
FOR THE U.S. NY LARGE CAP VALUE MID CAP STOCK LARGE CAP
FOLLOWING GOVERNMENT MUNICIPAL FUND FUND* GROWTH FUND
PERIODS ENDED SECURITIES INCOME
APRIL 30, 2000 FUND FUND
-------------------------------------------------------------------------------------------
CLASS A CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------------------------------------------------------------------------------------------
TOTAL RETURN
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
1 Year (3.46%) (7.13%) (11.29%) N/A 13.31% N/A N/A N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
5 Years 5.18% 4.14% N/A N/A 15.84% N/A N/A N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Start of 3.92%(c) 3.79%(d) 4.20%(e) (3.36%) 7.12%(g) 3.54% 5.10%(i)(7.85%)
performance (f) (h) (j)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
YIELD
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
30-day period 6.39% 4.86% 1.07% -- -- -- 1.11% --
-------------------------------------------------------------------------------------------
Start of performance dates are as follows: (a) June 8, 1998; (b) June 8, 1998;
(c) September 22, 1993; (d) September 22, 1993; (e) September 26, 1997; (f)
December 10, 1999; (g) November 29, 1993; (h) March 15, 2000; (i) March 20,
2000; (j) April 6, 2000.
* Vision Mid Cap Stock Fund commenced operations on October 15, 1999, when it
acquired both Vision Growth and Income Fund and Vision Capital Appreciation Fund
(the "Acquired Funds") in a reorganization. In order to comply with comments
made by the staff of the SEC, the Mid Cap Stock Fund had to become an
"accounting survivor" of one of the Acquired Funds, despite the differences in
the investment objective, strategies, policies and expenses of the Acquired
Funds, and the fact that Mid Cap Stock Fund's sub-adviser never managed, or
provided any investment advice to, the Acquired Funds. Accordingly, the
financial and performance information presented for the Mid Cap Stock Fund in
reality reflects the historical operations of Vision Growth and Income Fund in
all periods prior to October 15, 1999. This past performance is not predictive
of future performance of the Mid Cap Stock Fund and should be evaluated in light
of the Fund's organization and the differences noted above.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the NY Tax-Free Money
Market Fund and NY Municipal Income Fund. The interest earned by the municipal
securities owned by the Funds generally remains free from federal regular income
tax and is often free from state and local taxes as well. However, some of the
Funds' income may be subject to the federal alternative minimum tax and state
and/or local taxes. The tax-equivalent yield for the NY Tax-Free Money Market
Fund for the 7-day period ended April 30, 2000 was 7.28%. The tax-equivalent
yield for the NY Municipal Income Fund for the 30-day period ended April 30,
2000 was 9.51%.
TAX EQUIVALENCY TABLE
TAXABLE YIELD EQUIVALENT FOR 2000 - STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE21.850% 34.850% 37.850% 42.850% 46.450%
---------------------------------------------------------------------------------
Joint Return $1-43,85$43,851-105,$105,951-161,$161,451-288Over
----------------------------------------------------------- -- 288,350
---------
Single Return $1-26,25$26,251-63,5$63,551-132,6$132,601-288Over
--------------------------------- ----------- ----------- -- 288,350
---------
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.00% 1.28% 1.53% 1.61% 1.75% 1.87%
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
6.50% 8.32% 9.98% 10.46% 11.37% 12.14%
7.00% 8.96% 10.74% 11.26% 12.255 13.07%
7.50% 9.60% 11.51% 12.07% 13.12% 14.01%
8.00% 10.24% 12.28% 12.87% 14.00% 14.94%
8.50% 10.88% 13.05% 13.685 14.87% 15.87%
9.00% 11.52% 13.81% 14.48% 15.75% 16.81%
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE
TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES PAID ON
COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS.
------------------------------------------------------------------------------------
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 Funds' 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 Funds; and
| information about the mutual fund industry from sources such as the
Investment Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds 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 Funds use in advertising may include:
| LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Government Fund and the NY Municipal Income Fund will quote
their Lipper rankings in the "General U.S. Government Funds" and the "New York
Municipal Bond Funds" categories, respectively, in advertising and sales
literature. (All Funds)
| 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. (Equity Funds)
| LEHMAN BROTHERS GOVERNMENT (LT) INDEX is an index composed of bonds issued by
the U.S. government or its agencies which have at least $1 million outstanding
in principal and which have maturities of ten years or longer. Index figures are
total return figures calculated monthly. (Government Fund)
| LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. Tracked by Lehman Brothers, the index has an average maturity of nine
years. It calculates total returns for one month, three months, twelve months,
and ten year periods, and year-to-date. (Government Fund)
| LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; foreign obligations, U.S.
investment-grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum rating of BBB by S&P or
Fitch, or a minimum rating of Baa by Moody's. (Government Fund)
| MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX is an unmanaged index comprised
of approximately 4,821 issues which include corporate debt obligations rated BBB
or better and publicly issued, non-convertible domestic debt of the U.S.
government or any agency thereof. These quality parameters are based on
composites of ratings assigned by Standard and Poor's Ratings Group and Moody's
Investors Service, Inc. Only notes and bonds with a minimum maturity of one
year are included. (Government Fund)
| AMEX MARKET less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or by
Moody's as investment grade issues (i.e., BBB/Baa or better). (Government Fund)
| MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form
of publicly placed, nonconvertible, coupon-bearing domestic debt and must
carry a term to maturity of at least one year. Par amounts outstanding must
be no less than $10 million at the start and at the close of the performance
measurement period. The Domestic Master Index is a broader index than the
Merrill Lynch Corporate and Government Index and includes, for example,
mortgage related securities. The mortgage market is divided by agency, type
of mortgage and coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than $200 million at the start and at the close
of the performance measurement period. Corporate instruments must be rated by
S&P or by Moody's as investment grade issues (i.e., BBB/Baa or better).
(Government Fund)
| SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance. (Government Fund)
| SALOMON BROTHERS LONG-TERM HIGH GRADE CORPORATE BOND INDEX is an unmanaged
index of long-term high grade corporate bonds issued by U.S. corporations with
maturities ranging from 10 to 20 years. (Government Fund)
| LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization. (Government Fund)
| THE SALOMON BROTHERS TOTAL RATE-OF-RETURN INDEX for mortgage pass-through
securities reflects the entire mortgage pass-through market and reflects their
special characteristics. The index represents data aggregated by mortgage pool
and coupon within a given sector. A market-weighted portfolio is constructed
considering all newly created pools and coupons. (Government Fund)
| THE MERRILL LYNCH TAXABLE BOND INDICES include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market. (Government Fund)
| LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included. (Government Fund)
| STANDARD & POOR'S DAILY STOCK PRICE INDICES of 500 And 400 Common Stocks are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's indices assume reinvestment of all dividends
paid by stocks listed on its indices. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the Standard
& Poor's figures.
(Equity Funds)
| STANDARD & POOR'S MID CAP 400 INDEX is an unmanaged capitalization weighted
index that measures the performance of the mid-range of the U.S. stock
market.
(Mid Cap Stock Fund)
| STANDARD & POOR'S 500/BARRA VALUE INDEX is a market capitalization-weighted
index of the stocks in the Standard & Poor's 500 Index having the highest book
to price ratios. The index consists of approximately half of the S&P 500 on a
market capitalization basis. (Large Cap Value Fund)
| RUSSELL 1000 GROWTH INDEX consists of those Russell 1000 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values. (Mid Cap Stock Fund)
| RUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks. (Mid Cap Stock Fund)
| RUSSELL MID CAP VALUE INDEX measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 35% of the
market capitalization of the Russell 1000 Index. (Mid Cap Stock Fund)
| WILSHIRE 5000 EQUITY INDEX consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks. (Mid Cap Stock Fund)
| CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
(All Funds)
| 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. (Equity Funds)
| 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. (Equity Funds)
| NASDAQ OVER-THE-COUNTER COMPOSITE INDEX covers 4,500 stocks traded over the
counter. It represents many small company stocks but is heavily influenced by
about 100 of the largest NASDAQ stocks. It is a value-weighted index calculated
on price change only and does not include income. (Mid Cap Stock Fund)
| LEHMAN BROTHERS NEW YORK TAX-EXEMPT INDEX is a total return performance
benchmark for the New York long-term, investment grade, tax-exempt bond
market. Returns and attributes for this index are calculated semi-monthly
using approximately 22,000 municipal bonds classified as general obligation
bonds (state and local), revenue bonds (excluding insured revenue bonds),
insured bonds (includes all bond insurers with Aaa/AAA ratings), and
prerefunded bonds.
(NY Municipal Income Fund)
| LEHMAN BROTHERS STATE GENERAL OBLIGATION BOND INDEX is an index comprised of
all state obligation debt issues. (NY Municipal Income Fund)
| SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S. Treasury
maturing in 30 days.
| BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading banks
and thrift institution money market deposit accounts. The rates published in
the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical Areas.
Account minimums range upward from $2,500 in each institution and compounding
methods vary. If more than one rate is offered, the lowest rate is used.
Rates are subject to change at any time specified by the institution.
| DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its MONEY MARKET INSIGHT
publication reports monthly and year-to-date investment results for the same
money funds.
| 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. (All Funds)
From time to time, the Money Market Funds will quote their Lipper rankings in
the "money market instrument funds" category in advertising and sales
literature. Investors may use such a reporting service in addition to the Funds'
prospectuses to obtain a more complete view of the Funds' performance before
investing. Of course, when comparing Fund performance to any reporting service,
factors such as composition of the reporting service and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, a Fund can compare
its performance, or performance for the types of securities in which it invests,
to a variety of other investments, such as federally insured bank products,
including time deposits, bank savings accounts, certificates of deposit, and
Treasury bills, and to money market funds using the Lipper Analytical Services
money market instruments average. Unlike federally insured bank products, the
Shares of the Funds are not insured. Unlike money market funds, which attempt to
maintain a stable net asset value, the net asset value of the Income and Equity
Funds' Shares fluctuates. Advertisements may quote performance information which
does not reflect the effect of any applicable sales charges.
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.
FINANCIAL INFORMATION
====================================================================================
As noted earlier, the Trust was organized to acquire the assets and liabilities
of the Corporation. On November 8, 2000, the Trust adopted the registration
statement of the Corporation. Accordingly, the Financial Statements for the
Funds, as portfolios of the Corporation, for the fiscal year ended April 30,
2000 are incorporated by reference to the Annual Reports to Shareholders of the
Corporation dated April 30, 2000. Vision Mid Cap Stock Fund commenced operations
on October 15, 1999, when it acquired both Vision Growth and Income Fund and
Vision Capital Appreciation Fund (the "Acquired Funds") in a reorganization. In
order to comply with comments made by the staff of the SEC, the Mid Cap Stock
Fund had to become an "accounting survivor" of one of the Acquired Funds,
despite the differences in the investment objective, strategies, policies and
expenses of the Acquired Funds, and the fact that Mid Cap Stock Fund's
sub-adviser never managed, or provided any investment advice to, the Acquired
Funds. Accordingly, the financial and performance information presented for the
Mid Cap Stock Fund in reality reflects the historical operations of Vision
Growth and Income Fund in all periods prior to October 15, 1999. This past
performance is not predictive of future performance of the Mid Cap Stock Fund
and should be evaluated in light of the Fund's organization and the differences
noted above.
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 TREASURY MONEY MARKET FUND
Class A Shares and Class S Shares
VISION MONEY MARKET FUND
Class A Shares and Class S Shares
VISION NEW YORK TAX-FREE MONEY MARKET FUND
Class A Shares
VISION U.S. GOVERNMENT SECURITIES FUND
Class A Shares
VISION NEW YORK MUNICIPAL INCOME FUND
Class A Shares
VISION LARGE CAP VALUE FUND
(formerly Vision Equity Income Fund)
Class A Shares and Class B Shares
VISION MID CAP STOCK FUND
Class A Shares and Class B Shares
VISION LARGE CAP GROWTH FUND
Class A Shares and Class B Shares
VISION LARGE CAP CORE FUND
Class A Shares and Class B Shares
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER AND CO-ADMINISTRATOR
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, NY 14203
SUB-ADVISER TO VISION NEW YORK TAX-FREE MONEY MARKET FUND
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
SUB-ADVISER TO VISION MID CAP STOCK FUND
Independence Investment Associates, Inc.
53 State Street
Boston, MA 02109
SUB-ADVISER TO VISION LARGE CAP GROWTH FUND
Montag & Caldwell, Inc.
3455 Peachtree Road, N.E.
Suite 1200
Atlanta, GA 30326-3248
CO-ADMINISTRATOR
Federated Services Company
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
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company
P.O. Box 8609
Boston, MA 02266-8609
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
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