One Whitehall Street
Suite 1500
New York, NY 10004
Tel: (212) 859-0309
This brochure provides clients with information about Vision Investment Advisors, LLC that should be considered before becoming a client of Vision Investment Advisors Wrap Fee Program. This information has not been approved or verified by any governmental authority.
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| TABLE OF CONTENTS | |
| Pg # | |
| DESCRIPTION OF WRAP FEE PROGRAM AND FEES | 1 |
| CERTAIN CONFLICTS OF INTEREST | 6 |
| TYPE OF CLIENTS | 6 |
| TYPES OF INVESTMENTS | 7 |
| METHODS OF ANALYSIS, SOURCES OF INFORMATION AND INVESTMENT STRATEGIES | 7 |
| EDUCATION AND BUSINESS STANDARDS | 8 |
| EDUCATION AND BUSINESS BACKGROUND | 8 |
| OTHER BUSINESS | 10 |
| OTHER FINANCIAL INDUSTRY ACTIVITIES OR AFFILIATIONS | 10 |
| PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS | 11 |
| CONDITIONS FOR MANAGING ACCOUNTS | 12 |
| REVIEW OF ACCOUNTS | 12 |
| INVESTMENT OR BROKERAGE DISCRETION | 12 |
| ADDITIONAL COMPENSATION | 13 |
DESCRIPTION OF WRAP FEE PROGRAM AND FEES
The Wrap Fee Program
Vision Investment Advisors, LLC ("Vision Advisors") offers a wrap fee program ("Program") to all new clients on or after May 8, 2003 . The wrap fee program option is not available to those who have been clients of Vision Advisors prior to May 8, 2003 . Under the Program, Vision Advisors offers clients discretionary investment advice based on a client's investment objectives and risk tolerances, along with brokerage, custodial and administrative services for a single asset-based fee. Occasionally, if requested by a client, Vision Advisors may provide investment advice on a non-discretionary basis.
Investment Portfolios
Through its wrap fee program, Vision Advisors provides advisory services in equity, balanced and fixed income portfolios to individual and institutional investors. A Vision Advisors client may establish an account in one or more of its investment portfolios, which comprise accounts with similar investment objectives, portfolio construction, market exposure and tolerance for risk. The fixed income portfolio consists of a taxable and non-taxable component. These portfolios offer the investor several choices consistent with a fundamental objective of long-term capital appreciation. Vision Advisors also provides discretionary advisory services in a short put portfolio for those seeking an alternative investment strategy. These advisory services are not provided through Vision Advisors' wrap fee program. Please refer to Vision Advisors' Form ADV, Part II for more information about the short put portfolio.
The Equity Portfolio (The E-Portfolio)
Vision Advisors' principal objective in its equity portfolio is to provide returns from a diversified group of growth companies that outpace the S&P 500 Composite Stock Price Index over a broad market cycle. The adviser strongly believes that a select number of quality stocks which fit the investment characteristics displayed by seasoned companies poised for further growth are worth owning. Accordingly, the equity portfolio will be primarily comprised of 15 to 30 large cap stocks which exhibit a high level of financial strength coupled with a demonstrated record of substantial growth and with strong prospects for continued growth. A modest size account generally will incorporate less stocks and may be less diversified.
Vision Advisors' internal research efforts focus on identifying companies that have sustainable revenue (top-line) and earnings (bottom-line) growth, competitive advantages and above-average returns on equity. Vision Advisors employs proprietary screening methods to predict expected revenue and earnings over the next year to two. Upon identifying a number of issuers, the selection is further narrowed by applying other proprietary investment rules to predict price earnings ratios and evaluate future price prospects. Final winnowing of the portfolio is made through analysis of an issuer's quality of management, new product developments, potential for unabated growth, capitalization and other significant factors.
Securities in the equity portfolio may represent several sectors of the economy but, generally, will not be concentrated in any one sector or constitute more than 15% in any one issuer. Therefore, these portfolios may have less diversification at times and may be more exposed to sector trends than a fully diversified portfolio. Securities are sold when they are deemed to have reached their maximum level of growth or to make room for securities with more attractive growth potential. Other selling considerations may be deceleration in sales or earnings growth, excessive competition, over-expansion or product pricing weakness.
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Vision Advisors also believes that it makes sound economic sense to employ from time to time a strategy of writing covered call positions against some or all of the stocks in the equity portfolio. The primary purpose of option writing is to earn additional income through premiums received from option buyers. By monitoring the option's volatility, delta and time to expiration, Vision Advisors can control the potential that future price gains may be traded off for premium income. When options are employed, Vision Advisors anticipates that the benefits of premium income received will outweigh the limitation of gains by use of the option. At the same time, the investor receives a measure of downside protection if the price of the stock declines. By means of this option writing program, Vision Advisors will attempt to enhance total returns in the portfolio by judiciously covering the options written and capturing the premium before the underlying stock price increases or decreases by more than the amount of the premium or by letting the options expire, depending on market conditions.
The Balanced Portfolio (The B-Portfolio)
The principal objective of the balanced portfolio is to provide a maximum return attainable from a combination of stocks (common and preferred), bonds and the use of cash, cash equivalents or option premium income within prudent risk parameters. The balanced portfolio, which is compared to market benchmarks with a similar composition, seeks to achieve long-term capital appreciation but with less exposure to the equity markets. The equity portion of the balanced portfolio is managed using the same methods as the accounts in the equity portfolio. Within the fixed income portion, securities are evaluated and selected based upon Vision Advisors' interest rate assumptions, the treasury yield curve, credit risk and a number of macro-economic variables that affect the relative performance of the bonds. Fixed income holdings are concentrated in preferred stocks, municipal bonds, callable U.S. Government Agency securities and other debt instruments such as investment grade corporate bonds.
The Fixed Income Portfolio (The I-Portfolio)
On the more conservative end of the spectrum, the fixed income portfolios (taxable and non-taxable) seek to provide returns from municipal bonds, U.S. government agency securities and corporate debt. Fixed income securities are selected using the same means as the fixed income segment in the balanced portfolio. The fixed income program seeks to produce total returns over complete market cycles that exceed returns that may be expected from random trading and passive management strategies.
The investment methodologies at Vision Advisors have been developed by Howard Rothman , its chief executive officer. Mr. Rothman makes the ultimate investment selections or recommendations and monitors the investment portfolio. Vision Advisors has an internet facility related to their advisory services - www.advicewithvision.com , which is expected to be available to clients beginning June 1, 2005 . Clients may access their brokerage accounts as well as obtain research and market information at https://www.fiibg.com/my/vbs.
Investment Portfolio Review
Vision Advisors also will analyze a client's investment portfolio and make investment recommendations regarding asset allocation based on a client's stated investment objectives for an hourly fee. These services are not offered through the wrap fee program. For more information about Investment Portfolio Review services, refer to Vision Advisors Form ADV, Part II.
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Program Fees
Vision Advisors charges a single asset-based fee for advisory services, which includes the cost of executing securities transactions. Its compensation is based on a combination of a one time asset-based start-up fee and an asset-based management fee. There is no separate charge for brokerage commissions; however; clients normally will be charged any mark-ups or mark-downs with respect to fixed income securities and other fees as described in the section entitled "Brokerage Commissions" on page 5. The start-up fee is payable on the date of deposit with National Financial Services LLC ("NFS"), a registered broker-dealer and New York Stock Exchange member, pursuant to Vision Advisors' investment advisory agreement. The management fee, set forth in the schedules below, is payable (in arrears) at the end of each calendar quarter based on the total value of the account (including net unrealized appreciation or depreciation of investments and cash, cash equivalents and accrued interest) on the last trading day of the quarter.
If the account starts in the middle of a quarter, we will pro rate the management fee for the number of days remaining in the quarter. If an account is terminated in the middle of a quarter, the fee will be calculated based on the value of the account on the day of withdrawal, prorated for the number of days in the quarter the account was under management. The management fee is deducted from the account before distribution of account assets to the client.
Although fees may be negotiated in some instances, they are generally based upon the following schedules:
ASSET-BASED MANAGEMENT FEE:
| Equity Accounts | |
| On Amounts | Annual Fee |
| $ 25,000 - $ 50,000 | 3.00% |
| $ 50,001 - $ 100,000 | 2.75% |
| $ 100,001 - $ 250,000 | 2.50% |
| $ 250,001 - $ 500,000 | 2.25% |
| $ 500,001 - $ 750,000 | 2.00% |
| $ 750,001 - $ 1,000,000 | 1.75% |
| $ 1,000,001 - $ 3,000,000 | 1.50% |
| $ 3,000,001 - $ 5,000,000 | 1.25% |
| $ 5,000,001 - $10,000,000 | 1.00% |
| Over 10,000,000 | Negotiable |
| Fixed Income Accounts | |
| On Amounts | Annual Fee |
| $ 25,000 - $ 50,000 | 2.00% |
| $ 50,001 - $ 100,000 | 1.75% |
| $ 100,001 - $ 250,000 | 1.50% |
| $ 250,001 - $ 500,000 | 1.25% |
| $ 500,001 - $ 750,000 | 1.00% |
| $ 750,001 - $ 1,000,000 | 0.90% |
| $ 1,000,001 - $ 3,000,000 | 0.80% |
| $ 3,000,001 - $ 5,000,000 | 0.70% |
| $ 5,000,001 - $10,000,000 | 0.60% |
| Over 10,000,000 | Negotiable |
| Balanced Accounts | |
| On Amounts | Annual Fee |
| $ 25,000 - $ 50,000 | 2.75% |
| $ 50,001 - $ 100,000 | 2.50% |
| $ 100,001 - $ 250,000 | 2.25% |
| $ 250,001 - $ 500,000 | 2.00% |
| $ 500,001 - $ 750,000 | 1.75% |
| $ 750,001 - $ 1,000,000 | 1.25% |
| $ 1,000,001 - $ 3,000,000 | 1.00% |
| $ 3,000,001 - $ 5,000,000 | 0.90% |
| $ 5,000,001 - $10,000,000 | 0.80% |
| Over 10,000,000 | Negotiable |
Asset-Based Start-up Fee:
The one time start-up fee for all accounts is based on the following schedule and deducted from the client's account on the day of the initial deposit. Start up fees may be reduced in exchange for an additional increment in the management fee. Additional significant deposits in the account may, at the adviser's discretion, incur start-up fees:
| On Amounts | Fee |
| $ 25,000 - $ 50,000 | 5.00% |
| $ 50,001 - $ 100,000 | 4.50% |
| $ 100,001 - $ 250,000 | 3.50% |
| $ 250,001 - $ 500,000 | 2.50% |
| $ 500,001 - $ 750,000 | 1.75% |
| $ 750,001 - $ 1,000,000 | 1.00% |
| $ 1,000,001 - $ 3,000,000 | 0.50% |
| $ 3,000,001 - $ 5,000,000 | 0.25% |
| Over 5,000,000 | No Fee |
Vision Advisors considers the following factors in negotiating fees: clients with multiple accounts; size of the account; a prior or existing relationship with a Vision Advisors' affiliate; a client's particular needs or financial characteristics. Because fees may vary, clients with existing accounts may be charged fees which do not match precisely the foregoing fee schedules or the fees paid by other clients.
Generally, 70% to 90% of the wrap fee charged to a client is for advisory services.
Clients should also be aware that Vision Advisors' wrap fees may be higher than normally charged by other investment advisers for comparable services. There may be other investment advisers who can provide comparable types of services at a lower fee rate.
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Brokerage Commissions
In addition to the advisory services provided to clients, the Program's annual fee also includes execution of securities transactions through NFS. Clients are required to establish accounts at Vision Brokerage Services, LLC ("VBS"), an NASD member affiliated with Vision Advisors. Clients' funds and securities are held at NFS, which clears transactions on a fully-disclosed basis for VBS.
The wrap fee does not include: (i) annual account fees or other administrative fees, such as wire fees, charged by NFS; (ii) underwriting or dealer concessions or related compensation in connection with securities acquired in underwritten offerings; (iii) certain odd-lot differentials, transfer taxes, transaction fees mandated by the Securities Act of 1934, postage and handling fees, and charges imposed by law with regard to transactions in the client's account; and (iv) advisory fees and expenses of mutual funds (including money market funds), closed-end investment companies or other managed investments, if any are held in client's account.
When VBS acts as the client's agent in purchasing securities (except in purchases in underwritten offerings other than for open-end mutual funds), the client should be aware that the annual fee does not cover certain costs associated with securities transactions in the over-the-counter market where VBS must approach a dealer or market maker to purchase or sell the security. Such costs include a mark-up, mark-down or spread and odd lot differentials or transfer taxes imposed by law.
A client may transfer securities into a wrap fee account on which the client previously has paid a brokerage commission or similar fee for the purchase of those securities. The wrap fee will be applied to such securities even though a commission or fee previously has been paid by the client. In some cases, a client may have paid VBS compensation for the purchase of the securities. Prior to effecting such a transfer, the client should consider whether it is appropriate to make such a transfer and should consult Vision Advisors prior to doing so.
Clients should understand that mutual funds or closed-end investment companies purchased for an account may pay VBS a proportionate share of such fees or expenses (i.e. 12b-1 or shareholder servicing fees). However, if VBS receives any such compensation from a mutual fund or other issuer related to a security or other asset that is included in calculating the client's wrap fee, the wrap fee otherwise payable by the client will be reduced by the amount of that compensation. Such reductions normally appear in the account in the calendar quarter after VBS' actual receipt of compensation from the issuer. Shareholder servicing or 12b-1 fees or the equivalent received by VBS on assets not held in the wrap fee account will be retained by VBS.
Clients also should be aware that Vision Advisors' exclusive use of NFS may result in the client receiving less favorable execution on some transactions.
In determining whether to establish a Program account, a client should be aware that the overall cost to the client of the Program may be higher or lower than the client might incur by purchasing separately the types of securities available in the Program. To meaningfully compare the cost of the Program with unbundled services, the client should consider the turnover rate in Vision Advisors' investment strategies (described above), trading activity in the account and standard advisory fees and brokerage commissions that would be charged at NFS, or at other broker-dealers and investment advisers. Accordingly, the Program may not be suitable for clients whose accounts have less than a certain number of transactions per year, for clients choosing to have assets of the Program account held in custody by an organization other than NFS, or for clients who simply want to purchase individual securities.
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Proxy Voting
For all client accounts which are not subject to the Employee Retirement Income Security Act ("ERISA"), unless client directs Vision Advisors in writing to vote proxies pertaining to investments in client's account, client should understand that Vision Advisors will not vote any proxies for securities or exercise voting rights pertaining to investments in a client's account (including without limitation matters relating to conversions, exchanges, mergers, stock splits, rights offerings, recapitalizations and reorganizations). Vision Advisors also will not act for clients in any legal proceedings, including bankruptcies or class actions, involving securities held or previously held by a client's account. It is client's responsibility to vote any proxies for securities, exercise voting rights, or take any legal actions pertaining to investments in his or her account. Ordinarily, NFS will forward proxies or other communications pertaining to investments in client's account to client. Client should contact NFS if he or she does not receive proxies or other mailings pertaining to the investments in the account.
For those accounts which are subject to ERISA, unless client directs Vision Advisors in writing to the contrary, or the documents of an employee benefit plan reserve the right to vote proxies to the plan's trustees or named fiduciary, Vision Advisors will vote all proxies for securities and exercise voting rights pertaining to investments in client's account (including without limitation matters relating to conversions, exchanges, mergers, stock splits, rights offerings, recapitalizations and reorganizations).
Vision Advisors may retain a third party to advise it in making proxy decisions and to process the return of proxies. Client also should understand that Vision Advisors will not be responsible or liable for failing to vote any proxies where it has not received such proxies or related communications on a timely basis from NFS.
CERTAIN CONFLICTS OF INTEREST
Because Vision Advisors' may receive more compensation from a client from the client's participation in the Program than if the client received advisory services and brokerage services separately, Vision Advisors may have a financial incentive to recommend the Program to clients over other types of advisory services.
Because of the single fee charged to a Program account, Vision Advisors may be regarded as having a conflict of interest in that it may realize a greater profit on a Program account with a relatively low rate of portfolio turnover compared to other types of accounts, assuming the same level of fees.
Vision Advisors may give advice to others that may differ from advice given to Program clients.
TYPE OF CLIENTS
Vision Advisors caters primarily to affluent individuals and their retirement accounts, family offices and family investment vehicles who seek an approach to capital appreciation by investing in established stocks with demonstrable prospects for growth coupled with a strategic covered call writing program. Vision Advisors' investment programs are also suitable for institutional investors such as corporate pension plans, trusts, endowments and charitable organizations with similar investment objectives. Vision Advisors also currently manages a substantial customer segregated funds account for its affiliated futures commission merchant, Vision L.P.
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TYPES OF INVESTMENTS
Vision Advisors' primary investments in the equity portion of its portfolios are concentrated in large cap stocks with market capitalization generally over $8 billion. These stocks may be listed on exchanges or in the NASDAQ National Market System and typically comprise seasoned companies with a history of earnings displaying particular growth characteristics. Vision Advisors may also purchase mid-cap stocks that exhibit similar characteristics and preferred stocks.
Vision Advisors' offers advice on equity securities (exchange-listed, over-the-counter and foreign issuers), corporate debt securities, commercial paper, municipal securities, mutual funds, U.S. government securities and option contracts on securities. If client circumstances warrant, Vision Advisors may also recommend an independent commodity trading advisor to manage a portion of a client's account in managed futures.
METHODS OF ANALYSIS, SOURCES OF INFORMATION AND INVESTMENT STRATEGIES
Although Vision Advisors' security analysis methods include charting and fundamental, technical and cyclical analysis, it focuses primarily on long-term investing with a growth-oriented approach supported by proprietary trading methods to determine a stock's target prices in its equity and balanced portfolios. Drawing from traditional and electronic information sources such as financial newspapers and magazines, financial reports, SEC filings, company press releases, the Bloomberg computer system, various rating services and nationally recognized research services such as Value Line and Standard & Poor's, Vision Advisors conducts primary research. A heavy emphasis is placed on a number of factors such as (i) revenues and income growth, (ii) dominant position in its industry, (iii) large cap status, (iv) return on equity, and (v) companies which favor stock purchase programs. In addition, enhanced yield and a measure of downside protection is sought through closely monitored covered call option writing. Vision Advisors also provides advisory services to other accounts not based on the above portfolios.
Vision Advisors may use one or more of these investment strategies: (a) long term purchases (securities held at least a year); (b) short term purchases (securities sold within a year); margin transactions; and (d) option writing, including covered options, uncovered options, or spreading strategies.
Special Considerations
Although the stocks selected in the equity and balanced portfolios are generally established companies in their industry, there are a number of counterbalancing factors in considering an investment in these portfolios:
- Many of the companies selected for purchase are growth companies or are poised for active growth and tend to exhibit higher price earnings ratios than the market as a whole. Such stocks may be more vulnerable to market declines from earnings disappointments or adverse factors that inhibit a company's ability to carry out the plan on which the growth prospects were anticipated.
- The equity portfolios will be largely concentrated in pharmaceuticals, technology, telecommunications and financial services companies. There are no obligations to diversify and, at times, the portfolios may be overly concentrated in one or more companies or industry sectors and thus considered non-diversified.
- Because the companies in the equity portfolios will typically conduct business globally and have significant operations or product distribution in countries outside the U.S., their earnings can be impacted by fluctuations in foreign currency rates.
- The adviser may purchase securities on margin, which entails borrowing substantial amounts in the normal course of its trading. By virtue of the use of borrowed funds and the leverage employed in the portfolio, the returns must exceed interest expense. Moreover, any losses will be increased in magnitude in direct proportion to the amount of margin debt incurred.
- There are certain risks associated with the option writing strategies employed in the equity portfolios:
- In a rising market, an option written to protect the portfolio, or an individual stock position within the portfolio, may reduce upside potential above the strike price of the option.
- As options expire or experience increased market volatility, it may be more difficult to manage the covered call position for maximum economic advantage.
- Likewise, market volatility may drop around the time of expiration and result in lower premium income attainable in "rolling over" the options position.
- Smaller accounts have a much greater impact from option commissions than larger accounts.
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EDUCATION AND BUSINESS STANDARDS
Vision Advisors seeks investment personnel who share the firm's investment philosophy and are committed to a disciplined growth-oriented investment approach. Although successful investment management does not require any particular type of investment background, Vision Advisors looks for individuals with a degree from an accredited college or university and practical experience through association or employment in the financial, economic or investment advisory field. Advanced qualifications or degrees such as a Masters of Business Administration, Chartered Financial Analyst or Certified Financial Planner designations or courses in personal finance are desirable but not required. Vision Advisors may also draw upon personnel in its financial services affiliates who exhibit an interest and talent for the firm's investment programs.
EDUCATION AND BUSINESS BACKGROUND
The educational and business background for at least the past five years of Vision Advisors' executive officers, investment personnel, and certain principals are described below:
Howard M. Rothman is chief executive officer and chief investment officer of Vision Advisors. Mr. Rothman, born in 1961, received his Bachelor of Science in Accounting in 1983 from New York University. During the past ten years, Mr. Rothman has been affiliated with Vision L.P., a full service futures firm registered with the Commodity Futures Trading Commission as a futures commission merchant, and its related companies in many different roles.
Since January 1988, Mr. Rothman has been president and chief financial officer of Vision L.P. He is also president, secretary and a major shareholder of its general partner, Vision Capital Management, Inc.
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("Vision Capital") and other Vision affiliates that are engaged in various financial services activities. From its inception in July 1999, he has been president of Vision Brokerage Services, L.L.C., a registered broker-dealer, of which he acts as the general securities, options and financial principal.
Among his various treasury functions as chief financial officer of Vision L.P., Mr. Rothman has been responsible for the investment of both customer equity and firm capital. This involves the investment management of approximately 275 million dollars invested in short-term government securities, U.S. government agency instruments, overnight repos. and other money market instruments. Mr. Rothman also sets and monitors all credit and margin policies on behalf of the firm.
As one of the trustees of Vision L.P.'s profit sharing and pension plan, Mr. Rothman has directed a substantial portion of the trust funds in both large cap growth and fixed income (concentrating in preferred stock) investment programs.
From June 1996 to August 2001, Mr. Rothman served as president and designated registered futures and options principal of a Toronto based investment dealer registered with the Investment Dealers Association of Canada.
Over the past seventeen years, Mr. Rothman has been the principal of the general partner and sponsor of several public and privately offered limited partnerships, which have been engaged in derivatives trading and medical equipment leasing. He has served three consecutive terms on the Board of Directors of the National Futures Association and was a founder and past director of the National Introducing Brokers Association.
Mr. Rothman is currently President of a 100-year old non-profit organization in Stamford , Connecticut.
Mr. Rothman holds the following NASD qualifications:
- Series 3 National Commodity Futures
- Series 4 Registered Options Principal
- Series 7 General Securities Representative
- Series 22 Direct Participation Programs Limited Representative
- Series 24 General Securities Principal
- Series 27 Financial and Operations Principal
- Series 39 Direct Participation Programs Principal
- Series 63 Uniform Securities Agent State Law
Lloyd G. King is Senior Vice President, Administration, for Vision Advisors. Mr. King has been associated with Vision Limited Partnership since February 1988, and is currently a senior vice president in charge of administration. Mr. King is also associated with Vision Brokerage Services as a registered options and municipal securities principal. Mr. King holds the following NASD qualifications: general securities representative (Series 7);options (Series 4); municipal securities (Series 53); general securities principal (Series 24); and Uniform Securities Agent State Law (Series 63). He was born in 1945 and received a Bachelor of Business Administration from Baruch College of New York in 1977.
Jeffrey R Notaro is a portfolio strategist and order placement specialist with Vision Advisors. He has been associated with Vision L.P. since January 1991 as a senior futures trading specialist and from May 1995 to May 2000, was president of The Option Advantage, Inc., a registered commodity trading advisor. Mr. Notaro, who holds NASD qualifications as a registered representative (Series 7) and general securities principal (Series 24), has been associated with Vision Brokerage Services, L.L.C. since January 2001. He was born in 1963 and received a Bachelor of Science in Finance from West Virginia University in 1986.
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Robert Boshnack is a principal of Vision Advisors, and currently has no administrative responsibilities with Vision Advisors. He has served as chairman, chief executive officer, and registered principal of Vision L.P. and as chairman and principal shareholder of Vision Capital since January 1988. In addition, Mr. Boshnack is president, sole shareholder and director of Super Fund Financial Group, Inc., a registered introducing broker, since November 1984. Mr. Boshnack, born in 1947, graduated with a Bachelor of Arts degree in education from Queens College in New York in 1969, and a Master of Science degree from Queens College in 1971.
OTHER BUSINESS
All of the executive officers of Vision Advisors are engaged in other endeavors and business ventures. As noted, Mr. Rothman has managerial responsibilities in operating Vision L.P., a futures commission merchant which acts as a clearing firm for foreign correspondents and U.S. based introducing brokers. He is also an officer of other firms engaged in the commodity futures business and spends a portion of his time running Vision Brokerage Services. Mr. Rothman expects that he will devote the majority of his time to those other activities but will have sufficient time to conduct the investment activities and manage the affairs of Vision Advisors. As the firm grows, Mr. Rothman intends to employ additional supervisory and investment personnel to assist him in the operation of the advisory business.
OTHER FINANCIAL INDUSTRY ACTIVITIES OR AFFILIATIONS
As noted in Item 7, Vision Advisors is affiliated, through common ownership, with a number of other financial service companies that are owned and operated by Messrs. Rothman, Boshnack and others.
Although there are no formal agreements between Vision Advisors and the Vision affiliates, Vision Advisors, through its discretionary authority, will establish brokerage accounts for its wrap fee clients at Vision Brokerage Services, L.L.C. ("VBS"), a registered broker-dealer. VBS is an affiliate of Vision Advisors and an NASD member firm. Vision Advisors will place buy and sell orders for its advisory accounts through VBS. Because of the affiliation between Vision Advisors, as the Program Sponsor, and VBS, the wrap fee charged to clients has not been negotiated at arms-length and may not be as competitive as programs offered by broker-dealer sponsors who are not affiliated with the participating adviser or advisers.
VBS conducts brokerage services for Vision Advisors' accounts on a fully-disclosed basis with NFS, which clears transactions for VBS.
Although VBS is affiliated with Vision Advisors, Vision Advisors has a duty to its clients, as their investment adviser, to obtain a combination of best price and execution for their advisory accounts. It should be understood, however, that Vision Advisors is not entirely impartial in making this appraisal in view of its affiliation with VBS.
Vision Advisors sponsors the Vision Associates Advisory Network (the "Vision Network"). The Vision Network is a network of individuals who solicit advisory clients for Vision Advisors. Through the Vision Network, Vision Advisors anticipates that it will solicit prospective clients among accounting and professional firms, correspondent firms and introducing brokers that clear their futures trades through Vision L.P.
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Vision Advisors may recommend an independent commodity trading advisor to a client for management of a portion of the client's account in managed futures. It is likely that Vision L.P., a futures commission merchant, will act as a clearing firm for such commodity trading advisor and receive brokerage commissions from the client's futures account.
PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS
VBS is a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the NASD. Messrs. Rothman and Boshnack are principal owners of VBS. Mr. Rothman is the managing member of VBS. As noted, VBS clears securities transactions for Vision Advisors' accounts on a fully-disclosed basis through NFS. Under the fully-disclosed clearing relationship between VBS and NFS, VBS receives a portion of the brokerage commission component of the Program as introducing broker.
As owners of VBS, Messrs. Rothman and Boshnack have an indirect financial interest in any brokerage commissions or other revenue generated by the securities transactions for clients of Vision Advisors. Thus, Vision Advisors may have an incentive to engage in a lower volume of trading in the Program than would be the case if brokerage commissions were paid separately with respect to each transaction.
Although Messrs. Rothman and Boshnack will not earn commissions directly from the brokerage transactions conducted through VBS, other associates of Vision Advisors who are registered representatives of VBS may earn a portion of the wrap fee charged to Program clients.
Vision Advisors may recommend and purchase in the various portfolios offered to clients, securities of issuers that are also purchased, sold or held by Vision Advisors and its officers, directors, associates, employees and affiliates and their pension or retirement plans. Certain proprietary accounts and Vision's pension and profit sharing plan may not participate in the Program and may pay lower advisory fees and commissions than paid by Program clients. Because the investment objectives and personal circumstances of those persons may differ from those of their clients, the timing of such transactions may not coincide with the timing of portfolio transactions for clients. In addition, Vision Advisors and its principals, associates, employees, affiliates and their retirement accounts may purchase or sell securities which they do not recommend to or include in client portfolios because such securities do not meet the investment guidelines established for client portfolios. In such instances, Vision Advisors is not obligated to offer clients the opportunity to invest or purchase such securities.
Vision Advisors is nonetheless mindful of its fiduciary duties and will not deprive clients of, or appropriate to its own advantage, investment opportunities that are suitable for client accounts. Because of the liquidity of the markets for the type of securities purchased in its equity and balanced portfolios, Vision Advisors does not anticipate the potential for conflicts in the personal securities transactions of its principals or employees. As a precaution, however, Vision Advisors will place proprietary orders on the same side of a transaction on the same day for the same security simultaneously with orders placed for client accounts. Where there is a difference in execution prices, Vision Advisors will give its clients the better prices or fill all orders on the average pricing method.
Vision Advisors has adopted a Code of Ethics that is designed to detect and prevent such conflicts of interest. The Code of Ethics contains various trading restrictions and pre-approval requirements. Access persons under the Code also are required to report any violations of the Code to Vision Advisors' Chief Compliance Officer, report on a quarterly and annual basis their personal securities transactions and holdings, and comply with all applicable Federal securities laws. The Chief Compliance Officer is required to review and monitor reports of personal securities transactions. Employees are required to certify that they have read and understand the Code of Ethics. Clients may obtain a copy of Vision's Code of Ethics at any time upon request.
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CONDITIONS FOR MANAGING PROGRAM ACCOUNTS
In order for its investment program to achieve a greater level of diversification, Vision Advisors recommends that clients deposit at least $250,000 in their account; however, Vision Advisors will accommodate clients who wish to deposit lesser amounts but with a potential loss of diversification.
REVIEW OF ACCOUNTS
Accounts generally are reviewed by senior management on at least a weekly basis. When market conditions, economic events or individual issuers prompt immediate review, accounts are reviewed more frequently and may be subject to daily monitoring. This is an ongoing process of analysis to ensure that client objectives are being met and tactical adjustments can be made to respond to changing market conditions.
Program clients receive monthly reports reflecting cash and securities positions, market value at the end of the month and the change in value from the previous period. In addition, clients receive statements from the custodians of their securities and/or the broker executing transactions for the account.
INVESTMENT OR BROKERAGE DISCRETION
Unless otherwise negotiated with the client, Vision Advisors is given total discretionary authority by its clients to invest their funds without prior consent to each transaction within the framework of the investment objectives expressed by the client. This authority also includes the authority to select brokers or dealers through which transactions will be effected and commissions paid. In certain cases, Vision Advisors may provide advisory services on a non-discretionary basis, and Vision Advisors will recommend a transaction to a client who is responsible for approving such recommendation before the transaction is effected.
Vision Advisors intends to effect virtually all brokerage transactions through VBS. Vision Advisors has the right to reject an account which directs brokerage to another firm. VBS is an NASD member firm which, as noted above, clears trades through NFS, a member of principal securities exchanges. As the clearing firm, NFS will clear and settle the transactions and hold custody of client funds and securities.
Soft-Dollar Policy
Vision Advisors generally conducts in-house research and receives data from a variety of sources. Although Vision Advisors does not have any "soft-dollar arrangements" with VBS or other brokers, it may in the future take into consideration research, comprising analytical, statistical or other information, that is obtainable in exchange for soft-dollars. Consistent with obtaining best execution, Vision Advisors may occasionally direct transactions to other brokers in recognition of such services or obtain such services from VBS. Such research services will generally be used to service all accounts, but some accounts or groups of accounts, may not always benefit from the research obtained by the commissions paid by such accounts.
The receipt of investment research enables Vision Advisors to supplement its own research and analysis. Where the research obtained through soft-dollars is believed to be valuable, Vision Advisors may pay commissions in excess of those disclosed above for effecting equity transactions if it determines in good faith that such accounts are reasonable in relation to the value of the services provided. In any case, the types of transactions directed in return for research products or services will be effected in accordance with the safe harbor in Section 28(e) of the Securities Exchange Act of 1934 and may not necessarily be used to benefit the account which pays the brokerage commission.
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ADDITIONAL COMPENSATION
Vision Advisors sponsors the Vision Associates Advisory Network (the "Vision Network"). The Vision Network is a network of individuals who solicit advisory clients for Vision Advisors and act as a liaison between those clients and Vision Advisors. Network participants may be employees of affiliates of Vision Advisors or third-party financial planners, accountants or other professionals, including correspondent brokers who clear transactions through Vision L.P., Vision Advisors' commodity industry affiliate. Network participants are subject to Vision Advisors' control and supervision when conducting these activities as a member of the Vision Network. Referrals will normally be made through arrangements to compensate the referring party or solicitor for recommending Vision Advisors' investment management services to its clients. In exchange for such referrals and assistance with clients, Vision Advisors will offer to pay the referring party a portion of the wrap fee. Such arrangements will be entered into in accordance with Rule 206(4)-3 under the Investment Advisers Act and applicable state laws, which generally provide for disclosure of the terms of the referral arrangement.
Where Vision Advisors decides to purchase mutual funds in client accounts, it will do so through VBS. Generally, Vision Advisors will purchase no-load mutual funds which do not generate sales charges, but VBS may receive Rule 12b-1 fees from the mutual fund for the period of time the assets are invested.
