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STATEMENT OF
ADDITIONAL INFORMATION
April 28, 2000
CHASE BALANCED FUND
CHASE CORE EQUITY FUND
CHASE EQUITY GROWTH FUND
CHASE EQUITY INCOME FUND
CHASE INCOME FUND
CHASE INTERMEDIATE TERM BOND FUND
CHASE INTERNATIONAL EQUITY FUND
CHASE MID CAP GROWTH FUND
CHASE MONEY MARKET FUND
CHASE NEW YORK TAX FREE INCOME FUND
CHASE SHORT-INTERMEDIATE TERM U.S. GOVERNMENT SECURITIES FUND
CHASE SMALL CAPITALIZATION FUND
CHASE TAX FREE INCOME FUND
CHASE TAX FREE MONEY MARKET FUND
CHASE U.S. GOVERNMENT SECURITIES FUND
CHASE EQUITY GROWTH II FUND
1211 Avenue of the Americas, 41st Floor, New York, NY 10036
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering
Premier and Investor shares of Chase Money Market Fund and Chase Tax Free Money
Market Fund (collectively the "Money Market Funds"), Chase Income Fund, Chase
Intermediate Term Bond Fund, Chase New York Tax Free Income Fund, Chase
Short-Intermediate Term U.S. Government Securities Fund, Chase Tax Free Income
Fund and Chase U.S. Government Securities Fund (collectively the "Income
Funds"), and Chase Balanced Fund, Chase Core Equity Fund, Chase Equity Income
Fund, Chase Equity Growth Fund, Chase International Equity Fund, Chase Mid Cap
Growth Fund, Chase Small Capitalization Fund and Chase Equity Growth II Fund
(collectively the "Equity Funds"). The Chase Tax Free Money Market Fund, Chase
Tax Free Income Fund and Chase New York Tax Free Income Fund are collectively
known as the "Tax Free Funds." Any references to a "Prospectus" in this
Statement of Additional Information is a reference to one or more of the
foregoing Prospectuses, as the context requires. Copies of each Prospectus may
be obtained by an investor without charge by contacting CFD Fund Distributors,
Inc. ("CFD"), the Funds' distributor (the "Distributor"), at the above-listed
address.
The Chase Mid Cap Growth Fund, the Chase International Equity Fund and the Tax
Free Funds are not currently available for investment.
This Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by an
effective prospectus.
For more information about your account, simply call or write the Chase Funds
Service Center at:
1-800-5-CHASE-0
Chase Funds Service Center
P.O. Box 419392
Kansas City, MO 64141
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The Funds ................................................................................ 3
Investment Policies and Restrictions ..................................................... 3
Performance Information .................................................................. 24
Determination of Net Asset Value ......................................................... 30
Purchases, Redemptions and Exchanges ..................................................... 32
Tax Matters .............................................................................. 32
Management of the Trusts and the Funds and Portfolios .................................... 38
Independent Accountants .................................................................. 50
Certain Regulatory Matters ............................................................... 50
General Information ...................................................................... 51
APPENDIX A--Description of Certain Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities ......................................................... A-1
APPENDIX B--Description of Ratings ....................................................... B-1
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THE FUNDS
Mutual Fund Investment Trust (the "Trust") is an open-end management
investment company which was organized as a business trust under the laws of
the Commonwealth of Massachusetts on September 23, 1997. The Trust presently
consists of 16 separate series (the "Funds"). Certain of the Funds are
diversified and other Funds are non-diversified, as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The shares of the
Funds are collectively referred to in this Statement of Additional Information
as the "Shares."
Effective January 1, 1998, the Money Market, Short-Intermediate Term U.S.
Government Securities, U.S. Government Securities, Intermediate Term Bond,
Income, Balanced, Equity Income, Core Equity, Equity Growth and Small
Capitalization Funds of the AVESTA Trust, a collective investment trust, were
converted and redomiciled into the corresponding portfolios of the Trust (the
"Avesta Conversion").
The Chase Core Equity Fund and Chase Equity Growth Fund converted to a
master/feeder fund structure on August 12, 1999. Under this structure, each of
these Funds seeks to achieve its investment objective by investing all of its
investable assets in an open-end management investment company which has the
same investment objective as that Fund. Chase Core Equity and Chase Equity
Growth invest in Core Equity Portfolio and Equity Growth Portfolio,
respectively. Core Equity Portfolio and Equity Growth Portfolio are hereafter
collectively referred to as the "Portfolios". Core Equity Portfolio and Equity
Growth Portfolio are separate series of Mutual Fund Master Investment Trust
(the "Master Trust", and with the Trust, the "Trusts"), an open-end management
investment company that was organized as a business trust under the laws of the
Commonwealth of Massachusetts. Certain qualified investors, in addition to a
Fund, may invest in a Portfolio. For purposes of this Statement of Additional
Information, any information or references to the Portfolios refer to the
operations and activities after implementation of the master fund/feeder fund
structure.
The Chase Equity Growth II Fund commenced operations on July 1, 1999. This
Fund may be purchased only by participating employee benefit plans that meet
the minimum investment requirement.
The Boards of Trustees of the Trusts provide broad supervision over the
affairs of the Trusts including the Funds or the Portfolios, as the case may
be. The Chase Manhattan Bank ("Chase") is the investment adviser for the Funds.
Chase also serves as the Trusts' administrator (the "Administrator") and
supervises the overall administration of the Trusts, including the Funds and
Portfolios. A majority of the Trustees of the Trusts are not affiliated with
the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies of each Fund.
The following information supplements and should be read in conjunction with
the related sections of the Prospectuses. As used in this Statement of
Additional Information, with respect to those Funds and policies for which it
applies, the term "Municipal Obligations" has the meaning given to it in the
Prospectuses. For descriptions of the securities ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch
Investors Service, Inc. ("Fitch"), see Appendix B. Unless otherwise indicated,
a reference to a "Fund" or an "Equity Fund" (or their plurals) in this
Statement of Additional Information shall also apply to the Portfolios.
References to a "Money Market Fund", "Income Fund" or "Tax Free Fund" shall not
apply to the Portfolios.
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including: U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to ten years) and
U.S. Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit
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from the U.S. Treasury, (c) discretionary authority of the U.S. Government to
purchase certain obligations of the U.S. Government agency or instrumentality
or (d) the credit of the agency or instrumentality. Agencies and
instrumentalities of the U.S. Government include but are not limited to:
Federal Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Student
Loan Marketing Association, United States Postal Service, Chrysler Corporate
Loan Guarantee Board, Small Business Administration, Tennessee Valley Authority
and any other enterprise established or sponsored by the U.S. Government.
Certain U.S. Government Securities, including U.S. Treasury bills, notes and
bonds, Government National Mortgage Association certificates and Federal
Housing Administration debentures, are supported by the full faith and credit
of the United States. Other U.S. Government Securities are issued or guaranteed
by federal agencies or government sponsored enterprises and are not supported
by the full faith and credit of the United States. These securities include
obligations that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of the Federal Home Loan Banks, and
obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small Business
Administration, Federal Aviation Administration, Department of Defense, Bureau
of Indian Affairs and Private Export Funding Corporation, which often provide
higher yields than are available from the more common types of
government-backed instruments. However, such specialized instruments may only
be available from a few sources, in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if a Fund were required to liquidate any of them,
it might not be able to do so advantageously; accordingly, each Fund investing
in such securities normally to hold such securities to maturity or pursuant to
repurchase agreements, and would treat such securities (including repurchase
agreements maturing in more than seven days) as illiquid for purposes of its
limitation on investment in illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are insured
by either the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation, and foreign banks (including their
U.S. branches) having total assets in excess of $10 billion (or the equivalent
in other currencies), and such other U.S. and foreign commercial banks which
are judged by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank
by a borrower, usually in connection with an international commercial
transaction. The borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Fixed time deposits are obligations of branches of United States banks or
foreign banks which are payable at a stated maturity date and bear a fixed rate
of interest. Although fixed time deposits do not have a market, there are no
contractual restrictions on the right to transfer a beneficial interest in the
deposit to a third party. Fixed time deposits subject to withdrawal penalties
and with respect to which a Fund cannot realize the proceeds thereon within
seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by
commercial banks which generally bear fixed rates of interest and typically
have original maturities ranging from eighteen months to five years.
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Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may be
made and the interest rates and fees that may be charged. The profitability of
this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations. Bank obligations may be general obligations of the parent
bank or may be limited to the issuing branch by the terms of the specific
obligations or by government regulation. Investors should also be aware that
securities of foreign banks and foreign branches of United States banks may
involve foreign investment risks in addition to those relating to domestic bank
obligations.
Depositary Receipts. A Fund will limit its investment in Depositary
Receipts not sponsored by the issuer of the underlying security to no more than
5% of the value of its net assets (at the time of investment). A purchaser of
an unsponsored Depositary Receipt may not have unlimited voting rights and may
not receive as much information about the issuer of the underlying securities
as with a sponsored Depositary Receipt.
ECU Obligations. The specific amounts of currencies comprising the ECU may
be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Trustees do not
believe that such adjustments will adversely affect holders of ECU-denominated
securities or the marketability of such securities.
Supranational Obligations. Supranational organizations, include
organizations such as The World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union
of various European nations steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations of the Asian and Pacific regions.
Corporate Reorganizations. In general, securities that are the subject of
a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal.
The increased market price of these securities may also discount what the
stated or appraised value of the security would be if the contemplated action
were approved or consummated. These investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility that
the offer or proposal may be replaced or superseded by an offer or proposal of
greater value. The evaluation of these contingencies requires unusually broad
knowledge and experience on the part of the advisers that must appraise not
only the value of the issuer and its component businesses as well as the assets
or securities to be received as a result of the contemplated transaction, but
also the financial resources and business motivation of the offeror as well as
the dynamics of the business climate when the offer or proposal is in progress.
Investments in reorganization securities may tend to increase the turnover
ratio of a Fund and increase its brokerage and other transaction expenses.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants but normally have a shorter duration and are
distributed directly by the issuer to shareholders. Rights and warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount
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master demand note (which is a type of commercial paper) represents a direct
borrowing arrangement involving periodically fluctuating rates of interest
under a letter agreement between a commercial paper issuer and an institutional
lender pursuant to which the lender may determine to invest varying amounts.
The commercial paper and other short-term obligations of U.S. and foreign
corporations which may be purchased by the Money Market Fund, other than those
of bank holding companies, include obligations which are (i) rated Prime-1 by
Moody's, A-1 by S&P, or F-1 by Fitch, or comparably rated by another NRO; or
(ii) determined by the advisers to be of comparable quality to those rated
obligations which may be purchased by the Money Market Fund at the date of
purchase or which at the date of purchase have an outstanding debt issue rated
in the highest rating category by Moody's, S&P, Fitch or another NRO. The
commercial paper and other short-term obligations of U.S. banks holding
companies which may be purchased by Money Market Fund include obligations
issued or guaranteed by bank holding companies with total assets exceeding $1
billion. For purposes of the size standards with respect to banks and bank
holding companies, "total deposits" and "total assets" are determined on an
annual basis by reference to an institution's then most recent annual financial
statements.
Repurchase Agreements. A Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and securities dealers believed
creditworthy, and only if fully collateralized by securities in which such Fund
is permitted to invest. Under the terms of a typical repurchase agreement, a
Fund would acquire an underlying instrument for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase the instrument and the Fund to resell the instrument at a fixed
price and time, thereby determining the yield during the Fund's holding period.
This procedure results in a fixed rate of return insulated from market
fluctuations during such period. A repurchase agreement is subject to the risk
that the seller may fail to repurchase the security. Repurchase agreements are
considered under the 1940 Act to be loans collateralized by the underlying
securities. All repurchase agreements entered into by a Fund will be fully
collateralized at all times during the period of the agreement in that the
value of the underlying security will be at least equal to 100% of the amount
of the loan, including the accrued interest thereon, and the Fund or its
custodian or sub-custodian will have possession of the collateral, which the
Board of Trustees believes will give it a valid, perfected security interest in
the collateral. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been conclusively established. This
might become an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities would not be
owned by the Fund, but would only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, a Fund may suffer time
delays and incur costs in connection with the disposition of the collateral.
The Board of Trustees believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
would be the case with securities owned by a Fund. Repurchase agreements
maturing in more than seven days are treated as illiquid for purposes of the
Funds' restrictions on purchases of illiquid securities. Repurchase agreements
are also subject to the risks described below with respect to stand-by
commitments.
Forward Commitments. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will
normally be purchased. Although, with respect to any Tax Free Fund, short-term
investments will normally be in tax-exempt securities or Municipal Obligations,
short-term taxable securities or obligations may be purchased if suitable
short-term tax-exempt securities or Municipal Obligations are not available.
When a commitment to purchase a security on a forward commitment basis is made,
procedures are established consistent with the General Statement of Policy of
the Securities and Exchange Commission concerning such purchases. Since that
policy currently recommends that an amount of the respective Fund's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, a separate account of such Fund consisting of cash or
liquid securities equal to the amount of such Fund's commitments securities
will be established at such Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value.
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If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
respective Fund.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the respective Fund's
portfolio are subject to changes in value based upon the public's perception of
the issuer and changes, real or anticipated, in the level of interest rates.
Purchasing securities on a forward commitment basis can involve the risk that
the yields available in the market when the delivery takes place may actually
be higher or lower than those obtained in the transaction itself. On the
settlement date of the forward commitment transaction, the respective Fund will
meet its obligations from then available cash flow, sale of securities held in
the separate account, sale of other securities or, although it would not
normally expect to do so, from sale of the forward commitment securities
themselves (which may have a value greater or lesser than such Fund's payment
obligations). The sale of securities to meet such obligations may result in the
realization of capital gains or losses which, for consideration by investors in
the Tax Free Funds, are not exempt from federal, state or local taxation.
To the extent a Fund engages in forward commitment transactions, it will
do so for the purpose of acquiring securities consistent with its investment
objective and policies and not for the purpose of investment leverage, and
settlement of such transactions will be within 90 days from the trade date.
Floating and Variable Rate Securities; Participation Certificates. Floating and
variable rate demand instruments permit the holder to demand payment upon a
specified number of days' notice of the unpaid principal balance plus accrued
interest either from the issuer or by drawing on a bank letter of credit, a
guarantee or insurance issued with respect to such instrument. Investments by
the Income Funds in floating or variable rate securities normally will involve
industrial development or revenue bonds that provide for a periodic adjustment
in the interest rate paid on the obligation and may, but need not, permit the
holder to demand payment as described above. While there is usually no
established secondary market for issues of these types of securities, the dealer
that sells an issue of such security frequently will also offer to repurchase
the securities at any time at a repurchase price which varies and may be more or
less than the amount the holder paid for them. The floating or variable rate
demand instruments in which the Money Market Funds may invest are payable on
demand on not more than seven calendar days' notice.
The terms of these types of securities provide that interest rates are
adjustable at intervals ranging from daily to up to six months and the
adjustments are based upon the prime rate of a bank or other short-term rates,
such as Treasury Bills or LIBOR (London Interbank Offered Rate), as provided in
the respective instruments. The Funds will decide which floating or variable
rate securities to purchase in accordance with procedures prescribed by Board
of Trustees of the Trust in order to minimize credit risks.
In the case of a Money Market Fund, the Board of Trustees may determine
that an unrated floating or variable rate security meets the Fund's high
quality criteria if it is backed by a letter of credit or guarantee or is
insured by an insurer that meets such quality criteria, or on the basis of a
credit evaluation of the underlying obligor. If the credit of the obligor is of
"high quality", no credit support from a bank or other financial institution
will be necessary. The Board of Trustees will re-evaluate each unrated floating
or variable rate security on a quarterly basis to determine that it continues
to meet a Money Market Fund's high quality criteria. If an instrument is ever
deemed to fall below a Money Market Fund's high quality standards, either it
will be sold in the market or the demand feature will be exercised.
The securities in which certain Funds may be invested include
participation certificates issued by a bank, insurance company or other
financial institution in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate gives
a Fund an undivided interest in
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the security in the proportion that the Fund's participation interest bears to
the total principal amount of the security and generally provides the demand
feature described below. Each Participation Certificate is backed by an
irrevocable letter of credit or guaranty of a bank (which may be the bank
issuing the Participation Certificate, a bank issuing a confirming letter of
credit to that of the issuing bank, or a bank serving as agent of the issuing
bank with respect to the possible repurchase of the Participation Certificate)
or insurance policy of an insurance company that the Board of Trustees of the
Trust has determined meets the prescribed quality standards for a particular
Fund.
A Fund may have the right to sell the Participation Certificate back to
the institution and draw on the letter of credit or insurance on demand after
the prescribed notice period, for all or any part of the full principal amount
of the Fund's participation interest in the security, plus accrued interest.
The institutions issuing the Participation Certificates would retain a service
and letter of credit fee and a fee for providing the demand feature, in an
amount equal to the excess of the interest paid on the instruments over the
negotiated yield at which the Participation Certificates were purchased by a
Fund. The total fees would generally range from 5% to 15% of the applicable
prime rate or other short-term rate index. With respect to insurance, a Fund
will attempt to have the issuer of the participation certificate bear the cost
of any such insurance, although the Funds retain the option to purchase
insurance if deemed appropriate. Obligations that have a demand feature
permitting a Fund to tender the obligation to a foreign bank may involve
certain risks associated with foreign investment. A Fund's ability to receive
payment in such circumstances under the demand feature from such foreign banks
may involve certain risks such as future political and economic developments,
the possible establishments of laws or restrictions that might adversely affect
the payment of the bank's obligations under the demand feature and the
difficulty of obtaining or enforcing a judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and
variable rate securities held by the Funds, including Participation
Certificates, on the basis of published financial information and reports of
the rating agencies and other bank analytical services to which the Funds may
subscribe. Although these instruments may be sold by a Fund, it is intended
that they be held until maturity.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the underlying
floating or variable rate securities may change with changes in interest rates
generally, the floating or variable rate nature of the underlying floating or
variable rate securities should minimize changes in value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed rate securities. A Fund's portfolio may
contain floating or variable rate securities on which stated minimum or maximum
rates, or maximum rates set by state law, limit the degree to which interest on
such floating or variable rate securities may fluctuate; to the extent it does,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Because the adjustment of interest rates on the floating
or variable rate securities is made in relation to movements of the applicable
banks' "prime rates" or other short-term rate adjustment indices, the floating
or variable rate securities are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the floating or variable rate
securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund is entitled to receive payment of the
principal amount of the security upon demand or (ii) the period remaining until
the security's next interest rate adjustment. With respect to a Money Market
Fund, the maturity of a variable rate demand instrument will be determined in
the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. With respect to Income Funds, if variable rate securities
are not redeemed through the demand feature, they mature on a specified date
which may range up to thirty years from the date of issuance.
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Tender Option Floating or Variable Rate Certificates. The Money Market
Funds may invest in tender option bonds. A tender option bond is a synthetic
floating or variable rate security issued when long term bonds are purchased in
the secondary market and are then deposited into a trust. Custodial receipts
are then issued to investors, such as the Funds, evidencing ownership interests
in the trust. The trust sets a floating or variable rate on a daily or weekly
basis which is established through a remarketing agent. These types of
derivatives, to be money market eligible under Rule 2a-7, must have a liquidity
facility in place which provides additional comfort to the investors in case
the remarketing fails. The sponsor of the trust keeps the difference between
the rate on the long term bond and the rate on the short term floating or
variable rate security.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund with an agreement to repurchase the
securities at an agreed upon price and date. The repurchase price is generally
equal to the original sales price plus interest. Reverse repurchase agreements
are usually for seven days or less and cannot be repaid prior to their
expiration dates. Reverse repurchase agreements involve the risk that the
market value of the portfolio securities transferred may decline below the
price at which the Fund is obliged to purchase the securities.
High Quality Municipal Obligations. Investments by the Tax Free Money
Market Fund will be made in unrated Municipal Obligations only if they are
determined to be of comparable quality to permissible rated investments on the
basis of the advisers' credit evaluation of the obligor or of the bank issuing
a participation certificate, letter of credit or guaranty, or insurance issued
in support of the obligation. High Quality instruments may produce a lower
yield than would be available from less highly rated instruments. The Board of
Trustees has determined that Municipal Obligations which are backed by the
credit of U.S. Government will be considered to have a rating equivalent to
Moody's Aaa.
If, subsequent to purchase by the Tax Free Money Market Fund, (a) an issue
of rated Municipal Obligations ceases to be rated in the highest short-term
rating category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization) or the
Board of Trustees determines that it is no longer of comparable quality or (b)
the Tax Free Money Market Fund's advisers become aware that any portfolio
security not so highly rated or any unrated security has been given a rating by
any rating organization below the rating organization's second highest rating
category, the Board of Trustees will reassess promptly whether such security
presents minimal credit risk and will cause such Tax Free Money Market Fund to
take such action as it determines is in its best interest and that of its
shareholders; provided that the reassessment required by clause (b) is not
required if the portfolio security is disposed of or matures within five
business days of the advisers becoming aware of the new rating and the Fund's
Board is subsequently notified of the adviser's actions.
To the extent that a rating given by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards
for its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information. The ratings of
Moody's, S&P and Fitch represent their opinions as to the quality of the
Municipal Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute
standards of quality. Although these ratings may be an initial criterion for
selection of portfolio investments, the advisers also will evaluate these
securities and the creditworthiness of the issuers of such securities.
Zero Coupon, Payment-in-Kind and Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the
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component parts separately. The interest component of STRIPS may be more
volatile than that of United States Treasury bills with comparable maturities.
Zero coupon obligations are sold at a substantial discount from their
value at maturity and, when held to maturity, their entire return, which
consists of the amortization of discount, comes from the difference between
their purchase price and maturity value. Because interest on a zero coupon
obligation is not distributed on a current basis, the obligation tends to be
subject to greater price fluctuations in response to changes in interest rates
than are ordinary interest-paying securities with similar maturities. The value
of zero coupon obligations appreciates more than such ordinary interest-paying
securities during periods of declining interest rates and depreciates more than
such ordinary interest-paying securities during periods of rising interest
rates. Under the stripped bond rules of the Internal Revenue Code of 1986, as
amended (the "Code"), investments by a Fund in zero coupon obligations will
result in the accrual of interest income on such investments in advance of the
receipt of the cash corresponding to such income.
Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the coupon
payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury Receipts,
are examples of stripped U.S. Treasury securities separated into their
component parts through such custodial arrangements.
Payment-in-kind ("PIK") bonds are debt obligations which provide that the
issuer thereof may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments experience greater volatility in market value due to
changes in interest rates than debt obligations which provide for regular
payments of interest. A Fund will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule
144A provides an exemption from the registration requirements of the Securities
Act for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as a
Fund who agree that they are purchasing the paper for investment and not with a
view to public distribution. Any resale of Section 4(2) paper by the purchaser
must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A and
Section 4(2) paper are liquid or illiquid for purposes of the limitation on
investment in illiquid securities. Pursuant to those policies and procedures,
the Trustees have delegated to the advisers the determination as to whether a
particular instrument is liquid or illiquid, requiring that consideration be
given to, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to sell the security and the number of
potential purchasers, dealer undertakings to make a market in the security, the
nature of the security and the time needed to dispose of the security. The
Trustees will periodically review the Funds' purchases and sales of Rule 144A
securities and Section 4(2) paper.
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Stand-By Commitments. In a put transaction, a Fund acquires the right to
sell a security at an agreed upon price within a specified period prior to its
maturity date, and a stand-by commitment entitles a Fund to same-day settlement
and to receive an exercise price equal to the amortized cost of the underlying
security plus accrued interest, if any, at the time of exercise.
The amount payable to the Tax Free Money Market Fund upon its exercise of
a stand-by commitment with respect to a Municipal Obligation normally would be
(i) the acquisition cost of the Municipal Obligation (excluding any accrued
interest paid by the Fund on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the security, plus (ii) all interest accrued on the
security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Tax Free Money Market Fund would value the underlying
Municipal Obligation at amortized cost. Accordingly, the amount payable by a
bank or dealer during the time a stand-by commitment is exercisable would be
substantially the same as the market value of the underlying Municipal
Obligation. The Tax Free Money Market Fund values stand-by commitments at zero
for purposes of computing their net asset value per share.
Stand-by commitments are subject to certain risks, which include the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, the fact that the commitment is not marketable by
the Fund, and that the maturity of the underlying security will generally be
different from that of the commitment. Nor more than 10% of the total assets of
the Tax Free Money Market Fund will be invested in Municipal Obligations that
are subject to stand-by commitments from the same bank or broker-dealer.
Securities Loans. To the extent specified in the Prospectuses, each Fund
is permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of a Fund's total assets. In
connection with such loans, a Fund will receive collateral consisting of cash,
cash equivalents, U.S. Government securities or irrevocable letters of credit
issued by financial institutions. Such collateral will be maintained at all
times in an amount equal to at least 102% of the current market value plus
accrued interest of the securities loaned. A Fund can increase its income
through the investment of such collateral. A Fund continues to be entitled to
the interest payable or any dividend-equivalent payments received on a loaned
security and, in addition, to receive interest on the amount of the loan.
However, the receipt of any dividend-equivalent payments by a Fund on a loaned
security from the borrower will not qualify for the dividends-received
deduction. Such loans will be terminable at any time upon specified notice. A
Fund might experience risk of loss if the institutions with which it has
engaged in portfolio loan transactions breach their agreements with such Fund.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower experience financial difficulty. Loans will be made only to firms
deemed by the advisers to be of good standing and will not be made unless, in
the judgment of the advisers, the consideration to be earned from such loans
justifies the risk.
Real Estate Investment Trusts. Certain Funds may invest in shares of real
estate investment trusts ("REITs"), which are pooled investment vehicles which
invest primarily in income-producing real estate or real estate related loans
or interests. REITs are generally classified as equity REITs or mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive income from the collection of interest payments. The value of equity
trusts will depend upon the value of the underlying properties, and the value
of mortgage trusts will be sensitive to the value of the underlying loans or
interests.
Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the non-Money Market Funds
may employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of
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other instruments or assets, interest or currency exchange rates, or indexes.
For instance, derivatives include futures, options, forward contracts,
structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways:
first, to reduce risk by hedging (offsetting) an investment position; second,
to substitute for another security particularly where it is quicker, easier and
less expensive to invest in derivatives; and lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction costs,
quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for a Fund.
Each Fund may invest its assets in derivative and related instruments
subject only to the Fund's investment objective and policies and the
requirement that the Fund maintain segregated accounts consisting of cash or
other liquid assets (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under such instruments
with respect to positions where there is no underlying portfolio asset so as to
avoid leveraging the Fund.
The value of some derivative or similar instruments in which the Funds may
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Funds--ability of a
Fund to successfully utilize these instruments may depend in part upon the
ability of the advisers to forecast interest rates and other economic factors
correctly. If the advisers inaccurately forecast such factors and have taken
positions in derivative or similar instruments contrary to prevailing market
trends, a Fund could be exposed to the risk of a loss. The Funds might not
employ any or all of the strategies described herein, and no assurance can be
given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Funds may employ along with risks or special
attributes associated with them. This discussion is intended to supplement the
Funds' current prospectuses as well as provide useful information to
prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no guarantee
that there will be a correlation between price movements in a hedging vehicle
and in the portfolio assets being hedged. An incorrect correlation could result
in a loss on both the hedged assets in a Fund and the hedging vehicle so that
the portfolio return might have been greater had hedging not been attempted.
This risk is particularly acute in the case of "cross-hedges" between
currencies. The advisers may inaccurately forecast interest rates, market
values or other economic factors in utilizing a derivatives strategy. In such a
case, a Fund may have been in a better position had it not entered into such
strategy. Hedging strategies, while reducing risk of loss, can also reduce the
opportunity for gain. In other words, hedging usually limits both potential
losses as well as potential gains. Strategies not involving hedging may
increase the risk to a Fund. Certain strategies, such as yield enhancement, can
have speculative characteristics and may result in more risk to a Fund than
hedging strategies using the same instruments. There can be no assurance that a
liquid market will exist at a time when a Fund seeks to close out an option,
futures contract or other derivative or related position. Many exchanges and
boards of trade limit the amount of fluctuation permitted in option or futures
contract prices during a single day; once the daily limit has been reached on
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Finally, over-the-counter
instruments typically do not have a liquid market. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position.
Activities of large traders in the futures and securities markets involving
arbitrage, "program trading," and other investment strategies may cause price
distortions in these markets. In certain instances, particularly
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those involving over-the-counter transactions, forward contracts there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a default, a Fund may
experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund.
Options on Securities, Securities Indexes and Debt Instruments. A Fund may
purchase, sell or exercise call and put options on (i) securities, (ii)
securities indexes, and (iii) debt instruments.
Although in most cases these options will be exchange-traded, the Funds
may also purchase, sell or exercise over-the-counter options. Over-the-counter
options differ from exchange-traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller. As
such, over-the-counter options generally have much less market liquidity and
carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund may also use
combinations of options to minimize costs, gain exposure to markets or take
advantage of price disparities or market movements. For example, a Fund may
sell put or call options it has previously purchased or purchase put or call
options it has previously sold. These transactions may result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and other transaction costs paid on the put or call option which is
sold. A Fund may write a call or put option in order to earn the related
premium from such transactions. Prior to exercise or expiration, an option may
be closed out by an offsetting purchase or sale of a similar option. The Funds
will not write uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
Fund writing a covered call (i.e., where the underlying securities are held by
the Fund) has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price, but has retained the risk of loss should the price of the
underlying securities decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. The
Funds will not write uncovered options.
If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, such Fund
will lose its entire investment in the option. Also, where a put or call option
on a particular security is purchased to hedge against price movements in a
related security, the price of the put or call option may move more or less
than the price of the related security. There can be no assurance that a liquid
market will exist when a Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, a Fund may be unable to close out a position.
Futures Contracts and Options on Futures Contracts. A Fund may purchase or
sell (i) interest-rate futures contracts, (ii) futures contracts on specified
instruments or indices, and (iii) options on these futures contracts ("futures
options").
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The futures contracts and futures options may be based on various
instruments or indices in which the Funds may invest such as foreign
currencies, certificates of deposit, Eurodollar time deposits, securities
indices, economic indices (such as the Consumer Price Indices compiled by the
U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
a Fund may sell a futures contract--or buy a futures option--to protect against
a decline in value, or reduce the duration, of portfolio holdings. Likewise,
these instruments may be used where a Fund intends to acquire an instrument or
enter into a position. For example, a Fund may purchase a futures contract--or
buy a futures option--to gain immediate exposure in a market or otherwise
offset increases in the purchase price of securities or currencies to be
acquired in the future. Futures options may also be written to earn the related
premiums.
When writing or purchasing options, the Funds may simultaneously enter
into other transactions involving futures contracts or futures options in order
to minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks in
certain instances. The Funds may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the
security or currency position being hedged to take advantage of relationships
between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds will
only enter into futures contracts or options on futures contracts which are
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system.
Forward Contracts. A Fund may use foreign currency and interest-rate
forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. A Fund that may
invest in securities denominated in foreign currencies may, in addition to
buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a 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. By entering into a forward foreign currency contract, a Fund "locks
in" the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. As a result, a Fund reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another. Transactions
that use two foreign currencies are sometimes referred to as "cross-hedges."
A Fund may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from the Fund's investments or anticipated
investments in securities denominated in foreign currencies. A Fund may also
enter into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another.
A Fund may also use forward contracts to hedge against changes in interest
rates, increase exposure to a market or otherwise take advantage of such
changes. An interest-rate forward contract involves the obligation to purchase
or sell a specific debt instrument at a fixed price at a future date.
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Interest Rate and Currency Transactions. A Fund may employ currency and
interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of a Fund's net currency exposure
will not exceed the total net asset value of its portfolio. However, to the
extent that a Fund is fully invested while also maintaining currency positions,
it may be exposed to greater combined risk.
The Funds will only enter into interest rate and currency swaps on a net
basis, i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. Interest
rate and currency swaps do not involve the delivery of securities, the
underlying currency, other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate and currency swaps is limited to the
net amount of interest or currency payments that a Fund is contractually
obligated to make. If the other party to an interest rate or currency swap
defaults, a Fund's risk of loss consists of the net amount of interest or
currency payments that the Fund is contractually entitled to receive. Since
interest rate and currency swaps are individually negotiated, the Funds expect
to achieve an acceptable degree of correlation between their portfolio
investments and their interest rate or currency swap positions.
A Fund may hold foreign currency received in connection with investments
in foreign securities when it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate.
A Fund may purchase or sell without limitation as to a percentage of its
assets forward foreign currency exchange contracts when the advisers anticipate
that the foreign currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities and are not held by such Fund. In addition, a Fund may enter into
forward foreign currency exchange contracts in order to protect against adverse
changes in future foreign currency exchange rates. A Fund may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
its advisers believe that there is a pattern of correlation between the two
currencies. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Fund than if it had not entered into such contracts. The use
of foreign currency forward contracts will not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on
a Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Fund may not always be able to enter into foreign currency forward
contracts at attractive prices, and this will limit a Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with regard to a Fund's
use of cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may exist between movements
in the exchange rates of the foreign currencies underlying a Fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's assets that are the subject of such cross-hedges are
denominated.
A Fund may enter into interest rate and currency swaps to the maximum
allowed limits under applicable law. A Fund will typically use interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
Mortgage-Related Securities. A Fund may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers,
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commercial banks and savings and loan associations. Mortgage loans included in
the pool--but not the security itself--may be insured by the Government
National Mortgage Association or the Federal Housing Administration or
guaranteed by the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation or the Veterans Administration. Mortgage-backed securities
provide investors with payments consisting of both interest and principal as
the mortgages in the underlying mortgage pools are paid off. Although providing
the potential for enhanced returns, mortgage-backed securities can also be
volatile and result in unanticipated losses.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of the
principal invested far in advance of the maturity of the mortgages in the pool.
The actual rate of return of a mortgage-backed security may be adversely
affected by the prepayment of mortgages included in the mortgage pool
underlying the security.
A Fund may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, monthly. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the U.S. Government, or U.S. Government-
related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, are allocated to different
classes in accordance with the terms of the instruments, and changes in
prepayment rates or assumptions may significantly affect the expected average
life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar
to CMOs in that they issue multiple classes of securities. REMICs issued by
private entities are not U.S. Government securities and are not directly
guaranteed by any government agency. They are secured by the underlying
collateral of the private issuer.
The advisers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. A Fund may also invest in
debentures and other securities of real estate investment trusts. As new types
of mortgage-related securities are developed and offered to investors, the
Funds may consider making investments in such new types of mortgage-related
securities.
Dollar Rolls. Under a mortgage "dollar roll," a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, a Fund forgoes principal and
interest paid on the mortgage-backed securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A Fund may only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position which matures on or before the forward
settlement date of the dollar roll transaction. At the time a Fund enters into
a mortgage "dollar roll," it will establish a segregated account with its
custodian bank in which it will maintain cash or liquid securities equal in
value to its obligations in respect of dollar rolls, and accordingly, such
dollar rolls will not be considered senior securities. Mortgage dollar
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rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a mortgage dollar roll files
for bankruptcy or becomes insolvent, the Fund's use of proceeds of the dollar
roll may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Asset-Backed Securities. A Fund may invest in asset-backed securities,
including conditional sales contracts, equipment lease certificates and
equipment trust certificates. The advisers expect that other asset-backed
securities (unrelated to mortgage loans) will be offered to investors in the
future. Several types of asset-backed securities already exist, including, for
example, "Certificates for Automobile ReceivablesSM" or "CARSSM" ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are passed-through monthly to certificate holders, and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued
by a financial institution unaffiliated with the trustee or originator of the
CARS trust. An investor's return on CARS may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the CARS trust may be prevented from realizing the full amount due
on a sales contract because of state law requirements and restrictions relating
to foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the
failure of servicers to take appropriate steps to perfect the CARS trust's
rights in the underlying loans and the servicer's sale of such loans to bona
fide purchasers, giving rise to interests in such loans superior to those of
the CARS trust, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted. A
Fund also may invest in other types of asset-backed securities. In the
selection of other asset-backed securities, the advisers will attempt to assess
the liquidity of the security giving consideration to the nature of the
security, the frequency of trading in the security, the number of dealers
making a market in the security and the overall nature of the marketplace for
the security.
Structured Products. A Fund may invest in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of certain other investments. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, or specified instruments (such as commercial bank loans) and the
issuance by that entity of one or more classes of securities ("structured
products") backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the newly
issued structured products to create securities with different investment
characteristics such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to structured
products is dependent on the extent of the cash flow on the underlying
instruments. A Fund may invest in structured products which represent derived
investment positions based on relationships among different markets or asset
classes.
A Fund may also invest in other types of structured products, including,
among others, inverse floaters, spread trades and notes linked by a formula to
the price of an underlying instrument. Inverse floaters have coupon rates that
vary inversely at a multiple of a designated floating rate (which typically is
determined by reference to an index rate, but may also be determined through a
dutch auction or a remarketing agent or by reference to another security) (the
"reference rate"). As an example, inverse floaters may constitute a class of
CMOs with a coupon rate that moves inversely to a designated index, such as
LIBOR (London Interbank Offered Rate) or the Cost of Funds Index. Any rise in
the reference rate of an inverse floater (as a consequence of an increase in
interest rates) causes a drop in the coupon rate while any drop in the
reference rate of an inverse floater causes an increase in the coupon rate. A
spread trade is an investment position relating to a difference in the prices
or interest rates of two securities where the value of the investment position
is determined by movements in the difference between the prices or interest
rates, as the case may be,
17
<PAGE>
of the respective securities. When a Fund invests in notes linked to the price
of an underlying instrument, the price of the underlying security is determined
by a multiple (based on a formula) of the price of such underlying security. A
structured product may be considered to be leveraged to the extent its interest
rate varies by a magnitude that exceeds the magnitude of the change in the
index rate of interest. Because they are linked to their underlying markets or
securities, investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
Total return on the structured product is derived by linking return to one or
more characteristics of the underlying instrument. Because certain structured
products of the type in which a Fund may invest may involve no credit
enhancement, the credit risk of those structured products generally would be
equivalent to that of the underlying instruments. A Fund may invest in a class
of structured products that is either subordinated or unsubordinated to the
right of payment of another class. Subordinated structured products typically
have higher yields and present greater risks than unsubordinated structured
products. Although a Fund's purchase of subordinated structured products would
have similar economic effect to that of borrowing against the underlying
securities, the purchase will not be deemed to be leverage for purposes of a
Fund's fundamental investment limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which an Income Fund
invests may be deemed illiquid and subject to its limitation on illiquid
investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions on the Use of Futures and Option Contracts. None
of the Funds is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that a Fund may enter into such transactions for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5%
of the liquidation value of the Fund's portfolio, provided, further, that, in
the case of an option that is in-the-money, the in-the-money amount may be
excluded in calculating the 5% limitation.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with such Fund's custodian or sub-custodian so that the amount so
segregated, plus the initial deposit and variation margin held in the account
of its broker, will at all times equal the value of the futures contract,
thereby insuring that the use of such futures is unleveraged.
In addition to the foregoing requirements, the Board of Trustees has
adopted an additional restriction on the use of futures contracts and options
thereon, requiring that the aggregate market value of the futures contracts
held by a Fund not exceed 50% of the market value of its total assets. Neither
this restriction nor any policy with respect to the above-referenced
restrictions, would be changed by the Board of Trustees without considering the
policies and concerns of the various federal and state regulatory agencies.
Master-Feeder Structure
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, each Fund is permitted to invest all of its investable
assets in a separate registered investment company (a "Master Portfolio"). The
Core Equity Fund and Equity Growth Fund utilize this structure. In that event,
a shareholder's
18
<PAGE>
interest in a Fund's underlying investment securities would be indirect. In
addition to selling a beneficial interest to a Fund, a Master Portfolio could
also sell beneficial interests to other mutual funds or institutional
investors. Such investors would invest in such Master Portfolio on the same
terms and conditions and would pay a proportionate share of such Master
Portfolio's expenses. However, other investors in a Master Portfolio would not
be required to sell their shares at the same public offering price as a Fund,
and might bear different levels of ongoing expenses than a Fund. Shareholders
of the Funds should be aware that these differences may result in differences
in returns experienced in the different funds that invest in a Master
Portfolio. Such differences in return are also present in other mutual fund
structures.
Smaller funds investing in a Master Portfolio could be materially affected
by the actions of larger funds investing in the Master Portfolio. For example,
if a large fund were to withdraw from a Master Portfolio, the remaining funds
might experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Master Portfolio could become less diverse,
resulting in increased portfolio risk. However, this possibility also exists
for traditionally structured funds which have large or institutional investors.
Funds with a greater pro rata ownership in a Master Portfolio could have
effective voting control of such Master Portfolio. Under this master/feeder
investment approach, whenever the Trust was requested to vote on matters
pertaining to a Master Portfolio, the Trust would hold a meeting of
shareholders of the relevant Fund and would cast all of its votes in the same
proportion as did such Fund's shareholders. Shares of a Fund for which no
voting instructions had been received would be voted in the same proportion as
those shares for which voting instructions had been received. Certain changes
in a Master Portfolio's objective, policies or restrictions might require the
Trust to withdraw the relevant Fund's interest in such Master Portfolio. Any
such withdrawal could result in a distribution in kind of portfolio securities
(as opposed to a cash distribution from such Master Portfolio). A Fund could
incur brokerage fees or other transaction costs in converting such securities
to cash. In addition, a distribution in kind could result in a less diversified
portfolio of investments or adversely affect the liquidity of the relevant
Fund.
A Fund will not adopt a master/feeder structure under which the
disinterested Trustees of the Trust are Trustees of the Master Portfolio unless
the Trustees of the Trust, including a majority of the disinterested Trustees,
adopt procedures they believe to be reasonably appropriate to deal with any
conflict of interest up to and including creating a separate Board of Trustees.
If a Fund invests all of its investable assets in a Master Portfolio,
investors in the Fund will be able to obtain information about whether
investment in the Master Portfolio might be available through other funds by
contacting the Chase Funds Service Center. In the event a Fund adopts a
master/feeder structure and invests all of its investable assets in a Master
Portfolio, shareholders of the Fund will be given at least 30 days' prior
written notice.
Investment Restrictions
The Funds have adopted the following investment restrictions which may not
be changed without approval by a "majority of the outstanding shares" of a Fund
or Portfolio which, as used in this Statement of Additional Information, means
the vote of the lesser of (i) 67% or more of the shares of a Fund or total
beneficial interests of a Portfolio present at a meeting, if the holders of
more than 50% of the outstanding shares of a Fund or total beneficial interests
of a Portfolio are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of a Fund or total beneficial interests of a Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of shareholders of the Fund that
invests in such Portfolio and will cast its votes as instructed by the
shareholders of such Fund.
With respect to the Core Equity Fund and the Equity Growth Fund, it is a
fundamental policy of each Fund that when the Fund holds no portfolio
securities except interests in the Portfolio in which it invests, the
19
<PAGE>
Fund's investment objective and policies shall be identical to the Portfolio's
investment objective and policies, except for the following: a Fund (1) may
invest more than 10% of its net assets in the securities of a registered
investment company, (2) may hold more than 10% of the voting securities of a
registered investment company, and (3) will concentrate its investments in the
investment company. It is a fundamental investment policy of each such Fund
that when the Fund holds only portfolio securities other than interests in the
Portfolio, the Fund's investment objective and policies shall be identical to
the investment objective and policies of the Portfolio at the time the assets
of the Fund were withdrawn from the Portfolio.
Each Fund may not:
(1) borrow money, except that each Fund may borrow money for temporary
or emergency purposes, or by engaging in reverse repurchase transactions,
in an amount not exceeding 33 1/3% of the value of its total assets at the
time when the loan is made and may pledge, mortgage or hypothecate no more
than 1/3 of its net assets to secure such borrowings. Any borrowings
representing more than 5% of a Fund's total assets must be repaid before
the Fund may make additional investments;
(2) make loans, except that each Fund may: (i) purchase and hold debt
instruments (including without limitation, bonds, notes, debentures or
other obligations and certificates of deposit, bankers' acceptances and
fixed time deposits) in accordance with its investment objectives and
policies; (ii) enter into repurchase agreements with respect to portfolio
securities; and (iii) lend portfolio securities with a value not in excess
of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the same
industry. Notwithstanding the foregoing, (i) with respect to a Fund's
permissible futures and options transactions in U.S. Government securities,
positions in such options and futures shall not be subject to this
restriction; (ii) the Money Market Funds may invest more than 25% of their
total assets in obligations issued by banks, including U.S. banks; and
(iii) the Tax Free Money Market Fund may invest more than 25% of its assets
in municipal obligations secured by bank letters of credit or guarantees,
including participation certificates.
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
a Fund from (i) purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities
or (ii) engaging in forward purchases or sales of foreign currencies or
securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
Investments by a Fund in securities backed by mortgages on real estate or
in marketable securities of companies engaged in such activities are not
hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund may engage in transactions that may result in the issuance
of senior securities to the extent permitted under applicable regulations
and interpretations of the 1940 Act or an exemptive order; (b) a Fund may
acquire other securities, the acquisition of which may result in the
issuance of a senior security, to the extent permitted under applicable
regulations or interpretations of the 1940 Act; and (c) subject to the
restrictions set forth above, a Fund may borrow money as authorized by the
1940 Act. For purposes of this restriction, collateral arrangements with
respect to permissible options and futures transactions, including deposits
of initial and variation margin, are not considered to be the issuance of a
senior security; or
20
<PAGE>
(7) underwrite securities issued by other persons except insofar as a
Fund may technically be deemed to be an underwriter under the Securities
Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any
other investment policy or restriction, each Fund may seek to achieve its
investment objective by investing all of its investable assets in another
investment company having substantially the same investment objective and
policies as the Fund. For purposes of investment restriction (2) above,
loan participations are considered to be debt instruments. For purposes of
investment restriction (5) above, real estate includes Real Estate Limited
Partnerships. For purposes of investment restriction (3) above, industrial
development bonds, where the payment of principal and interest is the
ultimate responsibility of companies within the same industry, are grouped
together as an "industry." Investment restriction (3) above, however, is
not applicable to investments by a Fund in municipal obligations where the
issuer is regarded as a state, city, municipality or other public authority
since such entities are not members of an "industry." Supranational
organizations are collectively considered to be members of a single
"industry" for purposes of restriction (3) above. For purposes of
investment restriction (3) above, the Money Market Funds may invest more
than 25% of their respective total assets in obligations issued by banks,
including foreign branches of U.S. banks where the investment risk of
investing in the foreign branch is the same as that of investing in the
U.S. parent, in that the U.S. parent would be unconditionally liable in the
event the foreign branch failed to pay on its instruments for any reason.
In addition, each Fund is subject to the following nonfundamental
restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Tax Free Income Fund and New York Tax
Free Income Fund may not, with respect to 75% of its assets, hold more than
10% of the outstanding voting securities of any issuer or invest more than
5% of its assets in the securities of any one issuer (other than
obligations of the U.S. Government, its agencies and instrumentalities);
each of the Tax Free Income Fund and New York Tax Free Income Fund may not,
with respect to 50% of its assets, hold more than 10% of the outstanding
voting securities of any issuer.
(2) Each Fund may not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment program
of a Fund.
(3) Each Fund may not purchase or sell interests in oil, gas or
mineral leases.
(4) Each Fund other than the Money Market Funds may not invest more
than 15% of its net assets in illiquid securities; each Money Market Fund
may not invest more than 10% of its net assets in illiquid securities.
(5) Each Fund may not write, purchase or sell any put or call option
or any combination thereof, provided that this shall not prevent (i) the
writing, purchasing or selling of puts, calls or combinations thereof with
respect to portfolio securities or (ii) with respect to a Fund's
permissible futures and options transactions, the writing, purchasing,
ownership, holding or selling of futures and options positions or of puts,
calls or combinations thereof with respect to futures.
(6) Except as specified above, each Fund may invest up to 5% of its
total assets in the securities of any one investment company, but may not
own more than 3% of the securities of any one investment company or invest
more than 10% of its total assets in the securities of other investment
companies.
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<PAGE>
For purposes of the Funds' investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.
If a percentage or rating restriction on investment or use of assets set
forth herein or in a Prospectus is adhered to at the time a transaction is
effected, later changes in percentage resulting from any cause other than
actions by a Fund will not be considered a violation. If the value of a Fund's
holdings of illiquid securities at any time exceeds the percentage limitation
applicable at the time of acquisition due to subsequent fluctuations in value
or other reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund are made by a
portfolio manager who is an employee of the adviser or sub-adviser to such Fund
and who is appointed and supervised by senior officers of such adviser or
sub-adviser. Changes in a Fund's investments are reviewed by the Board of
Trustees of the Trust or Master Trust, as the case may be. The portfolio
managers may serve other clients of the advisers in a similar capacity.
The frequency of a Fund's portfolio transactions--the portfolio turnover
rate--will vary from year to year depending upon market conditions. Because a
high turnover rate may increase transaction costs and the possibility of
taxable short-term gains, the advisers will weigh the added costs of short-term
investment against anticipated gains. Each Fund will engage in portfolio
trading if its advisers believe a transaction, net of costs (including
custodian charges), will help it achieve its investment objective. Funds
investing in both equity and debt securities apply this policy with respect to
both the equity and debt portions of their portfolios.
For the fiscal years ended December 31, 1997, 1998 and 1999, the annual
rates of portfolio turnover for the following Funds (or their predecessors)
were as follows:
<TABLE>
<CAPTION>
Funds 1997* 1998 1999
----- ----- ---- ----
<S> <C> <C> <C>
Balanced Fund 64% 58% 45%
Core Equity Fund ** 24% 32% 11%
Equity Growth Fund ** 35% 35% 15%
Equity Income Fund 14% 3% 16%
Income Fund 97% 54% 120%
Intermediate Term Bond Fund 14% 135% 85%
Short-Intermediate Term U.S. Government
Securities Fund 63% 87% 91%
Small Capitalization Fund 43% 45% 60%
U.S. Government Securities Fund 87% 110% 19%
Equity Growth II Fund *** N/A N/A 5%
</TABLE>
----------
* The portfolio turnover rates for fiscal year 1997 relate to predecessors
Funds of the AVESTA Trust.
** The portfolio turnover for fiscal year 1999 was calculated from January 1,
1999 to August 11, 1999. After August 11, 1999, Core Equity Fund and Equity
Growth Fund invest all of their investable assets in Core Equity Portfolio
and Equity Growth Portfolio, respectively.
*** The portfolio turnover for fiscal year 1999 was calculated from July 1,
1999 (commencement of opera-tions) to December 31, 1999.
As of August 12, 1999, Core Equity Fund and Equity Growth Fund invest all
of their investable assets in Core Equity Portfolio and Equity Growth
Portfolio, respectively. Core Equity Portfolio and Equity Growth
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<PAGE>
Portfolio are series of Mutual Fund Master Investment Trust. The portfolio
turnover rates of Core Equity Portfolio and Equity Growth Portfolio for the
period from August 12, 1999 (commencement of operations) to December 31, 1999
were 6% and 1%, respectively.
For the fiscal year ended December 31, 2000, the annual rates of portfolio
turnover for the International Equity Fund, Mid Cap Growth Fund, New York Tax
Free Income Fund and Tax Free Income Fund are each expected not to exceed 200%.
Under the advisory agreement and the sub-advisory agreements, the adviser
and sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds. In assessing the best overall
terms available for any transaction, the adviser and sub-advisers consider all
factors they deem relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the adviser
and sub-advisers, and the reasonableness of the commissions, if any, both for
the specific transaction and on a continuing basis. The adviser and sub-advisers
are not required to obtain the lowest commission or the best net price for any
Fund on any particular transaction, and are not required to execute any order
in a fashion either preferential to any Fund relative to other accounts they
manage or otherwise materially adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund normally seeks to deal directly with the primary market
makers unless, in its opinion, best execution is available elsewhere. In the
case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the adviser or sub-adviser on the
tender of a Fund's portfolio securities in so-called tender or exchange offers.
Such soliciting dealer fees are in effect recaptured for a Fund by the adviser
and sub-adviser. At present, no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds to pay a broker-dealer which provides brokerage and research
services to the adviser or sub-advisers, the Funds and/or other accounts for
which they exercise investment discretion an amount of commission for effecting
a securities transaction for a Fund in excess of the amount other
broker-dealers would have charged for the transaction if they determine in good
faith that the greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-dealer viewed
in terms of either a particular transaction or their overall responsibilities
to accounts over which they exercise investment discretion. Not all of such
services are useful or of value in advising the Funds. The adviser and
sub-advisers report to the Board of Trustees regarding overall commissions paid
by the Funds and their reasonableness in relation to the benefits to the Funds.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or of purchasers or sellers of securities,
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
The management fees that the Funds pay to the adviser will not be reduced
as a consequence of the adviser's or sub-advisers' receipt of brokerage and
research services. To the extent the Funds' portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Funds will exceed
those that might otherwise be paid by an amount which cannot be presently
determined. Such services generally would be useful and of value to the adviser
or sub-advisers in serving one or more of their other clients and, conversely,
such services obtained by the placement of brokerage business of other clients
generally would be useful to the adviser or sub-advisers in carrying out their
obligations to the Funds. While such ser-
23
<PAGE>
vices are not expected to reduce the expenses of the adviser or sub-advisers,
the advisers would, through use of the services, avoid the additional expenses
which would be incurred if they should attempt to develop comparable
information through their own staffs.
In certain instances, there may be securities that are suitable for one or
more of the Funds as well as one or more of the adviser's or sub-advisers'
other clients. Investment decisions for the Funds and for other clients are
made with a view to achieving their respective investment objectives. It may
develop that the same investment decision is made for more than one client or
that a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives
of more than one client. When two or more Funds or other clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Funds are
concerned. However, it is believed that the ability of the Funds to participate
in volume transactions will generally produce better executions for the Funds.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Funds and
Portfolios paid brokerage commissions as detailed below:
<TABLE>
<CAPTION>
1997* 1998 1999
------- -------- -------
<S> <C> <C> <C>
Balanced Fund $15,780 $ 28,076 $32,417
Core Equity Fund 35,767 73,487 81,691**
Equity Growth Fund 55,780 155,024 83,170**
Equity Income Fund 27,089 34,168 75,480
Small Capitalization Fund 48,136 97,991 165,867
Equity Growth II Fund*** N/A N/A 25,477
</TABLE>
----------
* For the fiscal year 1997, represents brokerage commissions paid by
predecessor Funds from the AVESTA Trust.
** Represents brokerage commissions paid for the period January 1, 1999
through August 11, 1999. After August 11, 1999, Core Equity Fund and Equity
Growth Fund invest all of their investable assets in Core Equity Portfolio
and Equity Growth Portfolio, respectively.
*** Represents brokerage commissions paid for the period July 1, 1999
(commencement of operations) through December 31, 1999.
For the period from August 12, 1999 (commencement of operations) through
December 31, 1999, Core Equity Portfolio and Equity Growth Portfolio paid
aggregate broker commissions of $47,626 and $2,409, respectively.
No portfolio transactions are executed with the advisers or with any
affiliate of the advisers, acting either as principal or as broker.
PERFORMANCE INFORMATION
The discussion in this "Performance Information" section shall not apply
to the Portfolios. From time to time, a Fund may use hypothetical investment
examples and performance information in advertisements, shareholder reports or
other communications to shareholders. Because such performance information is
based on past investment results, it should not be considered as an indication
or representation of the performance of any classes of a Fund in the future.
From time to time, the performance and yield of classes of a Fund may be quoted
and compared to those of other mutual funds with similar investment objectives,
24
<PAGE>
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the
performance and yield of a Fund or its classes. A Fund's performance may be
compared with indices such as the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Government Bond Index, the Lehman Government Bond
1-3 Year Index and the Lehman Aggregate Bond Index; the S&P 500 Index, the S&P
400 Mid Cap Index, the S&P 600 Small Cap Index, the Dow Jones Industrial
Average or any other commonly quoted index of common stock prices; and the
Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund may,
with proper authorization, reprint articles written about such Fund and provide
them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in a
Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. One-,
five-, and ten-year periods will be shown, unless the class has been in
existence for a shorter period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values (in the case of
the non-Money Market Funds) of the classes of shares of a Fund will vary based
on market conditions, the current market value of the securities held by the
Fund and changes in the Fund's expenses. The advisers, the Administrator, the
Distributor and other service providers may voluntarily waive a portion of
their fees on a month-to-month basis. In addition, the Distributor may assume a
portion of a Fund's operating expenses on a month-to-month basis. These actions
would have the effect of increasing the net income (and therefore the yield and
total rate of return) of the classes of shares of the Fund during the period
such waivers are in effect. These factors and possible differences in the
methods used to calculate the yields and total rates of return should be
considered when comparing the yields or total rates of return of the classes of
shares of a Fund to yields and total rates of return published for other
investment companies and other investment vehicles (including different classes
of shares).
Each Fund presents performance information for each class thereof since
the commencement of operations of that Fund (or the related predecessor fund,
as described below), rather than the date such class was introduced.
Performance information for each class introduced after the commencement of
operations of the related Fund (or predecessor fund) is therefore based on the
performance history of a predecessor class. Historical expenses reflected in
performance information are based upon the distribution and other expenses
actually incurred during the periods presented and have not been restated, for
periods during which the performance information for a particular class is
based upon the performance history of a predecessor class, to reflect the
ongoing expenses currently borne by the particular class.
In connection with the Avesta Conversion, each of the Balanced, Core
Equity, Equity Growth, Equity Income, Income, Intermediate Term Bond, Money
Market, Short-Intermediate Term U.S. Government Securities, Small
Capitalization and U.S. Government Securities Funds of the Trust was
established to receive the assets of the corresponding investment portfolio of
the AVESTA Trust, a collective investment trust organized under Texas law.
Performance results presented for each class of the Chase Funds include the
performance of the corresponding investment portfolio of the AVESTA Trust for
periods prior to the consummation of the Avesta Conversion. Accordingly, for
periods prior to January 1, 1998, the performance results for each class of a
Fund will be identical.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to a
Fund.
25
<PAGE>
Advertisements for the Chase Funds may include references to the asset
size of other financial products made available by Chase or its affiliates,
such as the offshore assets of other funds.
Total Rate of Return
A Fund's or class's total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect
to shares purchased with such dividends and capital gains distributions, by
(ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. The average annual rate of return quotation
will be calculated by (x) adding 1 to the period total rate of return quotation
as calculated above, (y) raising such sum to a power which is equal to 365
divided by the number of days in such period, and (z) subtracting 1 from the
result.
26
<PAGE>
Average Annual Total Returns(1)
The average annual total rate of return figures for the following Funds,
reflecting the initial investment and assuming the reinvestment of all
distributions for the one, five and ten year periods ended December 31, 1999
and for the period from commencement of business operations of each such Fund
to December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Date of Date of
One Five Ten Since Fund Class
Year Years Years Inception Inception Introduction
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund 3/29/88
Premier Shares 14.23% 19.51% 12.84% 3/29/88
Investor Shares (2) 13.94% 19.42% 12.80% 10/16/98
Core Equity Fund 4/1/93
Premier Shares 23.89% 27.18% N/A 20.11% 4/1/93
Investor Shares (2) 23.59% 27.09% N/A 20.05% 9/10/98
Equity Growth Fund 3/29/88
Premier Shares 31.85% 31.14% 18.45% 3/29/88
Investor Shares (2) 31.54% 31.04% 18.41% 8/13/98
Equity Income Fund 3/29/88
Premier Shares 13.06% 24.13% 14.70% 3/29/88
Investor Shares (2) 12.70% 24.03% 14.66% 8/24/98
Income Fund 3/29/88
Premier Shares (2.78%) 6.89% 6.47% 3/29/88
Investor Shares (2) (2.92%) 6.84% 6.45% 11/10/98
Intermediate Term Bond Fund 10/3/94
Premier Shares (1.11%) 6.32% N/A 6.00% 10/3/94
Investor Shares (2) (1.36%) 6.26% N/A 5.94% 11/10/98
Short-Intermediate Term
U.S. Government Securities Fund 4/1/93
Premier Shares 0.72% 5.75% N/A 4.43% 4/1/93
Investor Shares (2) 0.48% 5.67% N/A 4.37% 11/10/98
Small Capitalization Fund 4/1/93
Premier Shares 13.23% 18.80% N/A 13.99% 4/1/93
Investor Shares (2) 12.89% 18.71% N/A 13.92% 8/12/98
U.S. Government Securities Fund 4/1/93
Premier Shares (2.55%) 8.28% N/A 6.07% 4/1/93
Investor Shares (2) (2.79%) 8.22% N/A 6.03% 11/10/98
Equity Growth II Fund N/A N/A N/A 14.76% 7/1/99 7/1/99
</TABLE>
----------
(1) The ongoing fees and expenses borne by Investor Shares are greater than
those borne by Premier Shares. As indicated above, the performance
information for each class introduced after the commencement of operations
of the related Fund (or predecessor fund) is based on the performance
history of a predecessor class and historical expenses have not been
restated, for periods during which the performance information for a
particular class is based upon the performance history of a predecessor
class, to reflect the ongoing expenses currently borne by the particular
class. Accordingly, the performance information presented in the table
above and in each table that follows may be used in assessing each Fund's
performance history but does not reflect how the distinct classes would
have performed on a relative basis prior to the introduction of those
classes, which would require an adjustment to the ongoing expenses.
The performance quoted reflects fee waivers that subsidize and reduce the
total operating expenses of certain Funds (or classes thereof). Returns on
these Funds (or classes) would have been lower if there
27
<PAGE>
were not such waivers. With respect to certain Funds, Chase and/or other
service providers are obligated to waive certain fees and/or reimburse
certain expenses for a stated period of time. In other instances, there is
no obligation to waive fees or to reimburse expenses.
The Prospectuses disclose the extent of any agreements to waive fees and/or
reimburse expenses. Performance presented in the table above and in each
table that follows for each class of these Funds includes the performance
of their respective predecessor funds for periods prior to the consummation
of the Avesta Conversion. Performance presented for each class of each of
these Funds is based on the historical expenses and performance of a single
class of shares of its predecessor fund and does not reflect the current
distribution, service and/or other expenses that an investor would incur as
a holder of such class of such Fund. Date of Fund inception shown for these
Funds is the date of inception of their respective predecessor funds. These
Funds commenced operations as part of the Trust on January 1, 1998. The
predecessor funds (unlike the Chase Funds and other investment companies)
were not required to comply with the diversification, distribution and
other requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Had the predecessor funds been subject to such
requirements, their investment performance might have been adversely
affected.
(2) Performance information presented in the table above and in each table that
follows for this class of this Fund prior to the date the class was
introduced does not reflect distribution fees and certain other expenses
borne by this class which, if reflected, would reduce the performance
quoted.
Yield Quotations
Any current "yield" quotation for a class of shares shall consist of an
annualized hypothetical yield, carried at least to the nearest hundredth of one
percent, based on a thirty calendar day period and shall be calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum offering price per share on the last day
of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
Any current "yield" for a class of shares of a Money Market Fund which is
used in such a manner as to be subject to the provisions of Rule 482(d) under
the Securities Act of 1933, as amended, shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven calendar day period and shall be calculated by
dividing the net change in the value of an account having a balance of one
Share at the beginning of the period by the value of the account at the
beginning of the period and multiplying the quotient by 365/7. For this
purpose, the net change in account value would reflect the value of additional
Shares purchased with dividends declared on the original Share and dividends
declared on both the original Share and any such additional Shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any effective yield quotation for a class of shares of a Money Market Fund so
used shall be calculated by compounding the current yield quotation for such
period by multiplying such quotation by 7/365, adding 1 to the product, raising
the sum to a power equal to 365/7, and subtracting 1 from the result. A portion
of the Tax Free Money Market Fund's income used in calculating such yields may
be taxable.
Any taxable equivalent yield quotation of a class of shares of a Tax Free
Fund, whether or not it is a Money Market Fund, shall be calculated as follows.
If the entire current yield quotation for such period is tax-exempt, the tax
equivalent yield will be the current yield quotation (as determined in
accordance with the appropriate calculation described above) divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion
of the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates and (b) the portion of the yield which is not tax-exempt.
28
<PAGE>
The SEC yields of the shares of the non-Money Market Funds for the thirty
day period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Premier Investor
--------- ---------
<S> <C> <C>
Balanced Fund 2.44% 2.20%
Core Equity Fund -- --
Equity Growth Fund -- --
Equity Income Fund 0.71% 0.47%
Income Fund 6.00% 5.63%
Intermediate Term Bond Fund 6.07% 5.82%
Short-Intermediate Term U.S. Government Securities Fund 5.68% 5.44%
Small Capitalization Fund -- --
U.S. Government Securities Fund 5.56% 5.37%
</TABLE>
The 30-day SEC yield for Equity Growth II Fund as of December 31, 1999 was
0.28%.
The yields and effective yields of the shares of the Money Market Fund for
the seven day period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Effective
Current Compound
Annualized Yield Annualized Yield
------------------ -----------------
<S> <C> <C>
Money Market Fund
Premier Shares 5.41% 5.55%
Investor Shares 5.31% 5.45%
</TABLE>
Non-Standardized Performance Results(1)
The table below reflects the net change in value of an assumed initial
investment of $10,000 in each class of Fund shares in the following Funds for
the period from the commencement date of business for each such Fund through
December 31, 1999, or in the case of the Balanced Fund, Equity Growth Fund,
Equity Income Fund and the Income Fund for the ten-year period ending December
31, 1999. The values reflect an assumption that capital gain distributions and
income dividends, if any, have been invested in additional shares of the same
class. From time to time, the Funds may provide these performance results in
addition to the total rate of return quotations required by the Securities and
Exchange Commission. As discussed more fully in the Prospectus, neither these
performance results, nor total rate of return quotations, should be considered
as representative of the performance of the Funds in the future. These factors
and the possible differences in the methods used to calculate performance
results and total rates of return should be considered when comparing such
performance results and total rate of return quotations of the Funds with those
published for other investment companies and other investment vehicles.
29
<PAGE>
<TABLE>
<CAPTION>
Fund
Inception
Total Value Date
------------- ----------
<S> <C> <C>
Balanced Fund 3/29/88
Premier Shares $33,464
Investor Shares 33,348
Core Equity Fund 4/1/93
Premier Shares 34,476
Investor Shares 34,354
Equity Growth Fund 3/29/88
Premier Shares 54,379
Investor Shares 54,178
Equity Income Fund 3/29/88
Premier Shares 39,422
Investor Shares 39,274
Income Fund 3/29/88
Premier Shares 18,742
Investor Shares 18,682
Intermediate Term Bond Fund 10/3/94
Premier Shares 13,584
Investor Shares 13,532
Short-Intermediate Term
U.S. Government Securities Fund 4/1/93
Premier Shares 13,408
Investor Shares 13,349
Small Capitalization Fund 4/1/93
Premier Shares 24,208
Investor Shares 24,114
U.S. Government Securities Fund 4/1/93
Premier Shares 14,900
Investor Shares 14,846
Equity Growth II Fund 11,476 7/1/99
</TABLE>
----------
(1) See notes to the table captioned "Average Annual Total Return" above. The
table above assumes an initial investment of $10,000 in a particular class
of a Fund for the period from the Fund's commencement of operations or, in
the case of the Balanced Fund, Equity Growth Fund, Equity Income Fund and
the Income Fund, from December 31, 1989, although the particular class may
have been introduced at a subsequent date. As indicated above, performance
information for each class introduced after the commencement of operations
of the related Fund (or predecessor fund) is based on the performance
history of a predecessor class and historical expenses have not been
restated, for periods during which the performance information for a
particular class is based upon the performance history of a predecessor
class, to reflect the ongoing expenses currently borne by the particular
class.
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Since the
International Equity Fund invests in securities primarily listed on foreign
exchanges which may trade on Saturdays or other customary United States
national business holidays on which the Fund does not price, the Fund's
portfolio will trade and the net asset value of the Fund's shares may be
significantly affected on days on which the investor has no access to the Fund.
30
<PAGE>
Each Fund calculates its NAV once each day at the close of regular trading
on the New York Stock Exchange. Equity securities in a Fund's portfolio are
valued at the last sale price on the exchange on which they are primarily
traded or on the NASDAQ National Market System, or at the last quoted bid price
for securities in which there were no sales during the day or for other
unlisted (over-the-counter) securities not reported on the NASDAQ National
Market System. Bonds and other fixed income securities (other than short-term
obligations, but including listed issues) in a Fund's portfolio are valued on
the basis of valuations furnished by a pricing service, the use of which has
been approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations which
mature in 60 days or less are valued at amortized cost, which constitutes fair
value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
The Money Market Funds' portfolio securities are valued at their amortized
cost. Amortized cost valuation involves valuing an instrument at its cost and
thereafter accrediting discounts and amortizing premiums at a constant rate to
maturity. Pursuant to the rules of the Securities and Exchange Commission, the
Board of Trustees has established procedures to stabilize the net asset value
of each Money Market Fund at $1.00 per share. These procedures include a review
of the extent of any deviation of net asset value per share, based on available
market rates, from the $1.00 amortized cost price per share. If fluctuating
interest rates cause the market value of a Money Market Fund's portfolio to
approach a deviation of more than 1/2 of 1% from the value determined on the
basis of amortized cost, the Board of Trustees will considered what action, if
any, should be initiated. Such action may include redemption of shares in kind
(as described in greater detail below), selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations.
The Money Market Funds have established procedures designed to ensure that
their portfolio securities meet their high quality criteria.
Bonds and other fixed income securities, (other than short-term
obligations) in a Fund's portfolio are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the Board
of Trustees. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, compound rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in a Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of
discount (the difference between acquisition price and stated redemption price
at maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined on
the basis of interest and discount accrued less amortization of premium.
31
<PAGE>
PURCHASES, REDEMPTIONS AND EXCHANGES
The discussion in this "Purchases, Redemptions and Exchanges" section
shall not apply to the Portfolios.
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received by
the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their latest
account application or other written request for services, including
purchasing, exchanging, or redeeming shares of such Fund and depositing and
withdrawing monies from the bank account specified in the Bank Account
Registration section of the shareholder's latest account application or as
otherwise properly specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
Under the Exchange Privilege, shares may be exchanged for shares of
another fund only if shares of the fund exchanged into are registered in the
state where the exchange is to be made. Shares of a Fund may only be exchanged
into another fund if the account registrations are identical. Any such exchange
may create a gain or loss to be recognized for federal income tax purposes.
Normally, shares of the fund to be acquired are purchased on the redemption
rate, but such purchase may be delayed by either fund for up to five business
days if a fund determines that it would be disadvantaged by an immediate
transfer of the proceeds.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described
in the Prospectuses. A Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A signature
guarantee may be obtained from a bank, trust company, broker-dealer or other
member of a national securities exchange. Please note that a notary public
cannot provide a signature guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and in
the Prospectuses are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund intends to qualify and elect to be taxed as a regulated
investment company (a "RIC") under Subchapter M of the Code. If a Fund
qualifies as a RIC, such Fund will not be subject to federal income tax on the
portion of its net investment income (i.e., its investment company taxable
income, as that term is defined in the
32
<PAGE>
Code, without regard to the deduction for dividends paid) and net capital gain
(i.e., the excess of its net long-term capital gain over net short-term capital
loss) that it distributes to shareholders, provided that it distributes (i) at
least 90% of its net investment income for the taxable year, and (ii) in the
case of each Tax Free Fund, at least 90% of its net tax-exempt interest income
for the taxable year (the "Distribution Requirement").
In addition to satisfying the Distribution Requirement for each taxable
year, a RIC must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies (to the
extent such currency gains are directly related to the RIC's principal business
of investing in stock or securities) and other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "Income Requirement").
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a RIC. Under this
test, at the close of each quarter of a Fund's taxable year, at least 50% of
the value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other RICs, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of the
Fund's total assets in securities of such issuer and as to which the Fund does
not hold more than 10% of the outstanding voting securities of such issuer),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other RICs), or in two or more issuers which the Fund controls
and which are engaged in the same or similar trades or businesses.
Each non-Money Market Fund may engage in hedging or derivatives
transactions involving foreign currencies, forward contracts, options and
futures contracts (including options, futures and forward contracts on foreign
currencies) and short sales. See "Additional Policies Regarding Derivative and
Related Transactions." Such transactions will be subject to special provisions
of the Code that, among other things, may affect the character of gains and
losses realized by the Fund (that is, may affect whether gains or losses are
ordinary or capital), accelerate recognition of income of the Fund and defer
recognition of certain of the Fund's losses. These rules could therefore affect
the character, amount and timing of distributions to shareholders. In addition,
these provisions (1) will require a Fund to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were closed out) and
(2) may cause a Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
Distribution Requirement and avoid the 4% excise tax (described below). Each
Fund intends to monitor its transactions, will make the appropriate tax
elections and will make the appropriate entries in its books and records when
it acquires any option, futures contract, forward contract or hedged investment
in order to mitigate the effect of these rules.
If a Fund purchases shares in a "passive foreign investment company" (a
"PFIC"), the Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders.
Additional charges in the nature of interest may be imposed on the Fund in
respect of deferred taxes arising from such distributions or gains. If a Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code (a "QEF"), in lieu of the foregoing requirements, the Fund
would be required to include in income each year a portion of the ordinary
earnings and net capital gain of the qualified electing fund, even if not
distributed to the Fund. Alternatively, under recently enacted legislation, a
Fund can elect to mark-to-market at the end of each taxable year its shares in
a PFIC; in this case, the Fund would recognize as ordinary income any increase
in the value of such shares, and as ordinary loss any decrease in such value to
the extent it did not exceed prior increases included in income. Under either
election, a Fund might be required to recognize in a year income in excess of
its distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year, and such income would nevertheless be subject to the
Distribution Requirement and would be taken into account for purposes of the 4%
excise tax.
33
<PAGE>
If for any taxable year a Fund does not qualify as a RIC, all of its
taxable income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions to
shareholders, and such distributions will be taxable to the shareholders as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the
dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a RIC that fails to
distribute in each calendar year an amount equal to 98% of ordinary taxable
income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a RIC having a taxable year ending November 30 or December 31, for its
taxable year (a "taxable year election")). The balance of such income must be
distributed during the next calendar year. For the foregoing purposes, a RIC is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its net investment
income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below. Dividends paid on Premier and
Investor shares are calculated at the same time. In general, dividends on
Investor shares are expected to be lower than those on Premier shares due to
the higher distribution expenses borne by the Investor shares. Dividends may
also differ between classes as a result of differences in other class specific
expenses.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a "capital gain
dividend," it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Under current legislation, the maximum rate of tax on long-term capital
gains of individuals is 20% (10% for gains otherwise taxed at 15%) for
long-term capital gains with respect to capital assets held for more than 12
months. Additionally, beginning after December 31, 2000, the maximum tax rate
for capital assets with a holding period beginning after that date and held for
more than five years will be 18%.
Conversely, if a Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Each Tax Free Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Tax Free
Fund's taxable year at least 50% of the its total assets con-
34
<PAGE>
sist of tax-exempt municipal obligations. Distributions from a Tax Free Fund
will constitute exempt-interest dividends to the extent of its tax-exempt
interest income (net of expenses and amortized bond premium). Exempt-interest
dividends distributed to shareholders of a Tax Free Fund are excluded from
gross income for federal income tax purposes. However, shareholders required to
file a federal income tax return will be required to report the receipt of
exempt-interest dividends on their returns. Investors should be aware that gain
from the sale or redemption of shares of a Tax Free Fund will be taxable to the
shareholders as capital gain even though the increase in value of such shares
is attributable to tax-exempt interest income. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes, they
may be subject to alternative minimum tax ("AMT") in certain circumstances and
may have other collateral tax consequences as discussed below. Distributions by
a Tax Free Fund of any net investment income or of any net capital gain will be
taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular income tax and is computed at a maximum marginal rate of 28% for
noncorporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMT net operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must
be included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of a Tax Free Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Tax Free Fund. Moreover, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds held
by a Tax Free Fund will likely be subject to tax on dividends paid by the Tax
Free Fund which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by a
Fund from domestic corporations for the taxable year. A dividend received by a
Fund will not be treated as a qualifying dividend (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days
(91 days in the case of certain preferred stock) during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock)
under the Rules of Code Section 246(c)(3) and (4); (2) to the extent that a
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a Fund.
For purposes of the Corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMT.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings.
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Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known. If more than 50% of the value of
the International Equity Fund's total assets at the close of its taxable year
consists of the stock or securities of foreign corporations, the Fund may elect
to "pass through" to the Fund's shareholders the amount of foreign taxes paid
by such Fund. If the International Equity Fund so elects, each shareholder
would be required to include in gross income, even though not actually
received, his pro rata share of the foreign taxes paid by the Fund, but would
be treated as having paid his pro rata share of such foreign taxes and would
therefore be allowed to either deduct such amount in computing taxable income
or use such amount (subject to various Code limitations) as a foreign tax
credit against federal income tax (but not both). For purposes of the foreign
tax credit limitation rules of the Code, each shareholder would treat as
foreign source income his pro rata share of such foreign taxes plus the portion
of dividends received from the International Equity Fund representing income
derived from foreign sources. No deduction for foreign taxes could be claimed
by an individual shareholder who does not itemize deductions. In certain
circumstances, a shareholder that (i) has held shares of the International
Equity Fund for less than a specified minimum period during which it is not
protected from risk of loss or (ii) is obligated to make payments related to
the dividends, will not be allowed a foreign tax credit for foreign taxes
deemed imposed on dividends paid on such shares. Additionally, the
International Equity Fund must also meet this holding period requirement with
respect to its foreign stocks and securities in order for "creditable" taxes to
flow-through. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income dividends,
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net asset
value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation
or other "exempt recipient."
Sale or Redemption of Shares
Each Money Market Fund seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that a Money Market Fund will be able
to do this. In such a case and in any case involving
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<PAGE>
the non-Money Market Funds, a shareholder will recognize gain or loss on the
sale or redemption of shares of a Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's adjusted
tax basis in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of the Fund within 30 days
before or after the sale or redemption. In general, any gain or loss arising
from (or treated as arising from) the sale or redemption of shares of a Fund
will be considered capital gain or loss and will be long-term capital gain or
loss if the shares were held for longer than one year. However, any capital
loss arising from the sale or redemption of shares held for six months or less
will be disallowed to the extent of the amount of exempt-interest dividends
received on such shares and (to the extent not disallowed) will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder will be subject to U.S. withholding tax at the rate of 30% (or
lower treaty rate) upon the gross amount of the dividend. Furthermore, such a
foreign shareholder may be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) on the gross income resulting from the International
Equity Fund's election to treat any foreign taxes paid by it as paid by the
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund and capital gain dividends and
exempt-interest dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax on a net basis at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
State and Local Tax Matters
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding
taxes. Most states provide that a RIC may pass through (without restriction) to
its shareholders state and local income tax exemptions available to direct
owners of certain types of U.S. government securities (such as U.S. Treasury
obligations). Thus, for residents of these states, distributions derived from a
Fund's investment in certain types of U.S. government securities should be free
from state and local income taxes to the extent that the interest income from
such investments would have been exempt from state and local income taxes if
such securities had been held directly by the respective shareholders
themselves. Certain states, however, do not allow a RIC to pass through to its
shareholders the state
37
<PAGE>
and local income tax exemptions available to direct owners of certain types of
U.S. government securities unless the RIC holds at least a required amount of
U.S. government securities. Accordingly, for residents of these states,
distributions derived from a Fund's investment in certain types of U.S.
government securities may not be entitled to the exemptions from state and
local income taxes that would be available if the shareholders had purchased
U.S. government securities directly. Shareholders' dividends attributable to a
Fund's income from repurchase agreements generally are subject to state and
local income taxes, although states and regulations vary in their treatment of
such income. The exemption from state and local income taxes does not preclude
states from asserting other taxes on the ownership of U.S. government
securities. To the extent that a Fund invests to a substantial degree in U.S.
government securities which are subject to favorable state and local tax
treatment, shareholders of such Fund will be notified as to the extent to which
distributions from the Fund are attributable to interest on such securities.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from RICs may differ from the rules for U.S. federal income taxation
in other respects. Shareholders are urged to consult their tax advisers as to
the consequences of these and other state and local tax rules affecting
investment in a Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
MANAGEMENT OF THE TRUSTS AND THE FUNDS AND PORTFOLIOS
Trustees and Officers
The Trustees and officers of the Trusts and their principal occupations
for at least the past five years are set forth below. Their titles may have
varied during that period.
*Sarah E. Jones--Chairman and Trustee. President and Chief Operating
Officer of Chase Mutual Funds Corp.; formerly Managing Director for the Global
Asset Management and Private Banking Division of The Chase Manhattan Bank. Age:
47. Address: Chase Mutual Funds Corp., 1211 Avenue of the Americas, 41st Floor,
New York, New York 10036.
William J. Armstrong--Trustee. Vice President and Treasurer,
Ingersoll-Rand Company. Age: 58. Address: 49 Aspen Way, Upper Saddle River, NJ
07458.
John R.H. Blum--Trustee. Attorney in private practice; formerly, partner
in the law firm of Richards, O'Neil & Allegaert; Commissioner of
Agriculture--State of Connecticut, 1992-1995. Age: 70. Address: 322 Main
Street, Lakeville, CT 06039.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 66. Address: 108 Valley
Road, Cos Cob, CT 06807.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc., (1971-1988);
Director, Janel Hydraulics, Inc.; Director of The Hanover Funds, Inc. Age: 67.
Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He has been employed by Chase in numerous
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<PAGE>
capacities and offices since 1954. Director of Blessings Corporation, Jefferson
Insurance Company of New York, Monticello Insurance Company and National. Age:
68. Address: 257 Plantation Circle South, Ponte Vedra Beach, FL 32082.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; Director of The Hanover
Funds, Inc. and The Hanover Investment Funds, Inc. Age: 72. Address: 624 East
45th Street, Savannah, GA 31405.
George E. McDavid--Trustee. President, Houston Chronicle Publishing
Company. Member of Avesta Supervisory Committee from inception to 1997. Age:
69. Address: PO Box 2558, Houston, TX 77252.
W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; Director and Chairman of The Hanover Funds, Inc.; Director,
Chairman and President of The Hanover Investment Funds, Inc. Age: 72. Address:
RR 1 Box 102, Weston, VT 05181.
Fergus Reid, III--Trustee. Chairman and Chief Executive Officer, Lumelite
Corporation, since September 1985; Trustee, Morgan Stanley Funds. Age: 67.
Address: 202 June Road, Stamford, CT 06903.
*Leonard M. Spalding, Jr.--Trustee. Chief Executive Officer of Chase
Mutual Funds Corp.; formerly President and Chief Executive Officer of Vista
Capital Management; Chief Investment Executive of The Chase Manhattan Bank.
Age: 64. Address: Chase Mutual Funds Corp., 1211 Avenue of the Americas, 41st
Floor, New York, NY 10036.
Richard E. Ten Haken--Trustee. Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers' Retirement
System. Age: 65. Address: 4 Barnfield Road, Pittsford, NY 14534.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 69. Address: 80 Perkins
Road, Greenwich, CT 06830.
*H. Richard Vartabedian--Trustee. Investment Management Consultant,
formerly, Senior Investment Officer, Division Executive of the Investment
Management Division of The Chase Manhattan Bank, N.A., 1980 through 1991. Age:
64. Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, ME 04576.
Martin R. Dean--Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age: 37. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lisa Hurley--Secretary. Senior Vice President and General Counsel, BISYS
Fund Services; formerly Counsel to Moore Capital Management and General Counsel
to Global Asset Management and Northstar Investments Management. Age: 44.
Address: 90 Park Avenue, New York, NY 10016.
Vicky M. Hayes--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributors, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 37. Address: 1211 Avenue of the Americas, 41st Floor, New York, NY
10036.
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<PAGE>
Alaina Metz--Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Department, Alliance Capital Management
L.P. Age: 31. Address: 3435 Stelzer Road, Columbus, OH 43219.
* Asterisks indicate those Trustees that are "Interested Persons" (as defined
in the 1940 Act).
With the exception of Ms. Jones, Mr. McDavid and Mr. Reid, each of whom served
as Trustees of the Trust for the Trust's entire fiscal year, each of the other
Trustees became Trustees of the Trust in March 2000.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to
recommend independent auditors and monitor accounting and financial matters.
The Trustees and officers of the Trusts appearing in the table above also serve
in the same capacities with respect to Mutual Fund Group, Mutual Fund Trust,
Mutual Fund Variable Annuity Trust, Mutual Fund Select Group, Mutual Fund
Select Trust, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio (these entities, together with the Trusts, are
referred to below as the "Chase Mutual Funds").
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the Trustee
serves, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended December 31, 1999 for each Trustee of the Trusts:
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Benefits Accrued by the from "Fund Complex"
Fund Complex (1) (2)
<S> <C> <C>
Sarah E. Jones, Trustee -- --
William J. Armstrong, Trustee $ 35,695 $ 80,000
John R.H. Blum, Trustee 70,084 87,500
Stuart W. Cragin, Jr., Trustee 42,785 82,500
Ronald R. Eppley, Jr., Trustee 52,102 80,000
Joseph J. Harkins, Trustee 60,009 80,000
George E. McDavid, Trustee -- 8,000
W.D. MacCallan, Trustee 73,291 80,000
W. Perry Neff, Trustee 70,365 80,000
Fergus Reid, III, Trustee 108,490 168,000
Leonard M. Spalding, Jr., Trustee 25,509 80,000
Richard E. Ten Haken, Trustee 55,162 83,750
Irving L. Thode, Trustee 50,414 80,000
H. Richard Vartabedian, Trustee 69,858 120,000
</TABLE>
(1) Data reflects total benefits accrued by the Trusts for the fiscal year
ended December 31, 1999, by Mutual Fund Group, Mutual Fund Select Group,
Capital Growth Portfolio, Growth and Income Portfolio and International Equity
Portfolio for the fiscal year ended October 31, 1999, and by Mutual Fund Trust,
Mutual Fund Select Trust and Mutual Fund Variable Annuity Trust for the fiscal
year ended October 31, 1999.
(2) Data reflects total compensation earned during the period ended December
31, 1999 for service as a Trustee to the Trust, Mutual Fund Group, Mutual Fund
Trust, Mutual Fund Variable Annuity Trust, Mutual
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<PAGE>
Fund Select Group, Mutual Fund Select Trust, Capital Growth Portfolio, Growth
and Income Portfolio and International Equity Portfolio. Of the amounts listed
in the second column above, the Trust paid $8,000 in Trustee fees to each of
Mr. McDavid and Mr. Reid.
Of the amount listed above, the Trusts paid $8,000 to each of Mr. McDavid
and Mr. Reid. In addition, the Trusts paid $7,500, $7,000 and $7,500 to Frank
A. Liddell, Jr., Kenneth L. Otto and H. Michael Tyson, respectively. Messrs.
Liddell, Otto and Tyson resigned as Trustees in March 2000.
As of March 31, 2000, the Trustees and officers as a group owned less than
1% of each Fund's outstanding shares, all of which were acquired for investment
purposes.
Chase Vista Funds Retirement Plan for Eligible Trustees
The Trustees also instituted a Retirement Plan for Eligible Trustees (the
"Plan") pursuant to which each Trustee (who is not an employee of any of the
Funds, the advisers, administrator or distributor or any of their affiliates)
may be entitled to certain benefits upon retirement from the Board of Trustees.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible Trustee has attained age 65 and has completed at least five years of
continuous service with one or more of the investment companies advised by the
adviser (collectively, the "Covered Funds"). Each Eligible Trustee is entitled
to receive from the Covered Funds an annual benefit commencing on the first day
of the calendar quarter coincident with or following his date of retirement
equal to the sum of (i) 8% of the highest annual compensation received from the
Covered Funds multiplied by the number of such Trustee's years of service (not
in excess of 10 years) completed with respect to any of the Covered Funds and
(ii) 4% of the highest annual compensation received from the Covered Funds for
each year of service in excess of 10 years, provided that no Trustee's annual
benefit will exceed the highest annual compensation received by that Trustee
from the Covered Funds. Such benefit is payable to each eligible Trustee in
monthly installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of October 31, 1999, the estimated credited years
of service for Messrs. Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, MacCallan, Neff, Spalding, Ten Haken and Thode and for Ms. Jones are
15, 7, 12, 15, 6, 10, 9, 9, 15, 1, 14, 6 and 0, respectively.
Highest Annual Compensation Paid by All Chase Vista Funds
<TABLE>
<CAPTION>
$80,000 $100,000 $120,000 $140,000 $160,000
Years of
Service Estimated Annual Benefits Upon Retirement
<S> <C> <C> <C> <C> <C>
16 $80,000 $100,000 $120,000 $140,000 $160,000
14 76,800 96,000 115,200 134,400 153,600
12 70,400 88,000 105,600 123,200 140,800
10 64,000 80,000 96,000 112,000 128,000
8 51,200 64,000 76,800 89,600 102,400
6 38,400 48,000 57,600 67,200 76,800
4 25,600 32,000 38,400 44,800 51,200
</TABLE>
Effective August 21, 1995, the Trustees instituted a Deferred Compensation
Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which
each Trustee (who is not an employee of any of the Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustee's fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination of
service). The deferred amounts are invested in shares of Chase Vista Funds
selected by the Trustee. The deferred amounts are paid out in a lump sum or
over a period of several years
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<PAGE>
as elected by the Trustee at the time of deferral. If a deferring Trustee dies
prior to the distribution of amounts held in the deferral account, the balance
of the deferral account will be distributed to the Trustee's designated
beneficiary in a single lump sum payment as soon as practicable after such
deferring Trustee's death.
Messrs. Eppley, Ten Haken, Thode and Vartabedian have each executed a
deferred compensation agreement for the 1999 calendar year and as of October
31, 1999 they had contributed $52,400, $27,700, $58,950 and $98,250,
respectively.
The Declaration of Trust each of the Trust and the Master Trust provides
that the Trust or Master Trust, as the case may be, will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust or Master Trust, as the case may be, unless, as to liability to the Trust
or its shareholders, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices or with respect to any matter unless it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interest of the Trust or Master Trust, as the
case may be. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of their duties.
Adviser and Sub-Adviser
Chase acts as investment adviser to the Funds and Portfolios pursuant to
separate Investment Advisory Agreements (collectively, the "Advisory
Agreement"). Subject to such policies as the Board of Trustees may determine,
Chase is responsible for investment decisions for the Funds. Pursuant to the
terms of the Advisory Agreement, Chase provides the Funds with such investment
advice and supervision as it deems necessary for the proper supervision of the
Funds' investments. The advisers (including the sub-advisers) continuously
provide investment programs and determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the Funds' assets
shall be held uninvested. The advisers to the Fund furnish, at their own
expense, all services, facilities and personnel necessary in connection with
managing the investments and effecting portfolio transactions for the Funds.
The Advisory Agreement for the Funds will continue in effect from year to year
only if such continuance is specifically approved at least annually by the
Board of Trustees or by vote of a majority of a Fund's outstanding voting
securities and by a majority of the Trustees who are not parties to the
Advisory Agreement or interested persons of any such party, at a meeting called
for the purpose of voting on such Advisory Agreement.
Under the Advisory Agreement and the sub-advisers' agreements with the
adviser, the adviser and sub-advisers may utilize the specialized portfolio
skills of all their various affiliates, thereby providing the Funds with
greater opportunities and flexibility in accessing investment expertise.
Pursuant to the terms of the advisory agreements, the advisers are
permitted to render services to others. Each advisory agreement is terminable
without penalty by the Trust or Master Trust, as the case may be, on behalf of
the Funds on not more than 60 days', nor less than 30 days', written notice
when authorized either by a majority vote of a Fund's shareholders or by a vote
of a majority of the Board of Trustees of the Trust or Master Trust, as the
case may be, or by the adviser or sub-adviser on not more than 60 days', nor
less than 30 days', written notice, and will automatically terminate in the
event of its "assignment" (as defined in the 1940 Act). The advisory agreements
provide that the adviser or sub-adviser under such agreement shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of portfolio
transactions for the respective Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder.
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<PAGE>
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Funds imposed by the securities laws or regulations
thereunder of any state in which the shares of the Funds are qualified for
sale, as such limitations may be raised or lowered from time to time, the
adviser shall reduce its advisory fee (which fee is described below) to the
extent of its share of such excess expenses. The amount of any such reduction
to be borne by the adviser shall be deducted from the monthly advisory fee
otherwise payable with respect to the Funds during such fiscal year; and if
such amounts should exceed the monthly fee, the adviser shall pay to a Fund its
share of such excess expenses no later than the last day of the first month of
the next succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser of the Fund and are under the common control of Chase, as long as all
such persons are functioning as part of an organized group of persons, managed
by authorized officers of Chase.
Chase, on behalf of the Money Market Fund, Short-Intermediate Term U.S.
Government Securities Fund, U.S. Government Securities Fund, Intermediate Term
Bond Fund, Income Fund, Balanced Fund, Equity Income Fund, Core Equity
Portfolio, Equity Growth Portfolio and Small Capitalization Fund, has entered
into several investment sub-advisory agreements with Texas Commerce Bank
National Association, which subsequently changed its name to Chase Bank of
Texas, National Association (herein "Chase Texas"). Chase may enter into one or
more additional sub-advisory agreements with respect to the Tax Free Money
Market Fund, Tax Free Income Fund, New York Tax Free Income Fund, Mid Cap
Growth Fund and International Equity Fund. With respect to the day-to-day
management of the Funds, under the sub-advisory agreements, the sub-advisers
make decisions concerning, and place all orders for, purchases and sales of
securities and help maintain the records relating to such purchase and sales.
The sub-advisers may, in their discretion, provide such services through their
own employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser to the Company under applicable laws
and are under the common control of Chase; provided that (i) all persons, when
providing services under the sub-advisory agreement, are functioning as part of
an organized group of persons, and (ii) such organized group of persons is
managed at all times by authorized officers of the sub-adviser. This
arrangement will not result in the payment of additional fees by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. Also included among Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.
Chase Texas, a wholly-owned subsidiary of The Chase Manhattan Corporation,
is a commercial bank offering a wide range of banking and investment services
to customers throughout the United States and around the world. Also included
among Chase Texas's accounts are commingled trust funds and a broad spectrum of
individual trust and investment management portfolios. These accounts have
varying investment objectives.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from the appropriate
Fund(s) an investment advisory fee computed daily and paid monthly based on a
rate equal to a percentage of such Fund's average daily net assets specified in
the Prospectuses. However, the adviser may voluntarily agree to waive a portion
of the fees payable to it on a month-to-month basis. For its services under its
sub-advisory agreement, Chase Texas will be entitled to receive, with respect
to each such Fund, such compensation, payable by the adviser out of its
advisory fee, as described in the Prospectuses.
For the fiscal years ended December 31, 1998 and 1999, Chase was paid the
following investment advisory fees with respect to the following Funds, and
voluntarily waived the amounts following such fees:
43
<PAGE>
<TABLE>
<CAPTION>
Year-Ended 12/31/98 Year-Ended 12/31/99
----------------------------- --------------------------
Payable Waived Payable Waived
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Balanced Fund $350,137 $132,884 $ 635,226 $158,258
Core Equity Fund (a) 503,400 124,638 613,653 95,747
Equity Growth Fund (a) 912,673 110,212 1,000,139 54,183
Equity Income Fund 737,842 102,058 1,128,251 131,830
Income Fund 277,249 94,268 328,083 118,339
Intermediate Term Bond Fund 126,776 123,836 184,091 158,995
Money Market Fund 499,599 172,800 693,232 186,920
Short-Intermediate Term U.S. Government
Securities Fund 142,451 102,568 159,408 119,040
Small Capitalization Fund 388,277 137,579 556,937 161,025
U.S. Government Securities Fund 15,300 15,300 32,650 32,650
Equity Growth II Fund (b) N/A N/A 35,396 32,928
</TABLE>
----------
(a) Advisory fees and waivers for 1999 are from the period January 1, 1999
through August 11, 1999. On August 12, 1999 Core Equity and Equity Growth
Funds adopted the Master/Feeder Fund Structure and would not have an
investment advisor because the Trust seeks to achieve the investment
objective of the Fund by investing all of the investable assets of each
respective Fund in each respective Portfolio. For the period from August
12, 1999 (commencement of operations) to December 31, 1999, Chase was paid
or accrued investment advisory fees of $524,385 and $863,350 by Core Equity
Portfolio and Equity Growth Portfolio, respectively. Of these amounts,
Chase voluntarily waived $69,918 and $34,534, respectively.
(b) Advisory fees and waivers for 1999 are from the period July 1, 1999
(commencement of operations) through December 31, 1999.
Prior to January 1, 1998, the Funds were series of the AVESTA Trust. Chase
Texas acted as Trustee for the Avesta Funds pursuant to three separate, but
substantially similar, management agreements (the "Avesta Management
Agreements"). As with certain of the Funds, Chase Texas provided investment
advisory services to the Avesta Funds. However, Chase Texas was also obligated
to perform certain administrative and account servicing functions under the
Avesta Management Agreements, including preparation and distribution of
communications to shareholders, accounting and recordkeeping. As Trustee, Chase
Texas also paid certain expenses, including (i) all costs and expenses arising
in connection with the organization of the AVESTA Trust, including the initial
registration statement and qualification of the AVESTA Trust and its units
under federal and state law; (ii) all marketing and advertising expenses of the
AVESTA Trust and (iii) expenses of all employees, office space and facilities
necessary to carry out its duties under the Avesta Management Agreements.
Accordingly, the compensation received by the Trustee under the Avesta
Management Agreements are not necessarily indicative of the fees to be earned
by Chase under the Advisory Agreement.
For its services under the Avesta Management Agreements, the Trustee was
entitled to receive compensation as follows:
44
<PAGE>
<TABLE>
<CAPTION>
Average Daily Net Assets
----------------------------------------------------------
In Excess of
$250 Million
Up to but less than In Excess of
Fund $250 Million $500 Million $500 Million
---- -------------- ---------------- ---------------
<S> <C> <C> <C>
Balanced 1.00% 0.90% 0.80%
Core Equity 1.00% 0.90% 0.80%
Equity Growth 1.00% 0.90% 0.80%
Equity Income 1.00% 0.90% 0.80%
Income 1.00% 0.90% 0.80%
Intermediate Term Bond 0.75% 0.65% 0.55%
Money Market 0.65% 0.65% 0.65%
Short-Intermediate Term U.S. Government Securities 0.75% 0.65% 0.55%
Small Capitalization 1.15% 1.05% 0.95%
U.S. Government Securities 0.85% 0.75% 0.65%
</TABLE>
The Funds in operation paid management fees to the Trustee, net of
voluntary waivers (1), for the years ended, respectively, as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
Fund 1997
---- ---------
<S> <C>
Balanced Fund $ 256,363
Core Equity Fund 377,800
Equity Growth Fund 700,938
Equity Income Fund 709,821
Income Fund 512,611
Intermediate Term Bond Fund 112,462
Money Market Fund 806,004
Short-Intermediate Term U.S. Government Securities Fund 194,675
Small Capitalization Fund 352,263
U.S. Government Securities Fund 23,662
</TABLE>
------------
(1) For the fiscal year ended December 31, 1997, the Trustee waived
management fees for the Money Market, Income, U.S. Government Securities and
Small Capitalization Funds of $185,719, $128,407, $2,783 and $45,611,
respectively.
The Trustee had agreed to reimburse each Fund for the amount by which the
expenses of that Fund (including the management fee, but excluding interest,
taxes, brokerage commissions and extraordinary expenses) during any year exceed
the management fee payable by the Fund, provided that the average daily value
of the Fund's net assets during such year provided that the assets of the Fund
did not exceed $250 million. As such, the total reimbursements paid to the
Funds below by the Trustee for the year ended December 31, 1997, were:
45
<PAGE>
<TABLE>
<CAPTION>
Total
Reimbursements
---------------
<S> <C>
Balanced Fund $ 72,408
Core Equity Fund 75,253
Equity Growth Fund 76,840
Equity Income Fund 78,924
Income Fund 70,483
Intermediate Term Bond Fund 75,545
Money Market Fund 107,304
Short-Intermediate Term U.S. Government Securities Fund 67,908
Small Capitalization Fund 75,786
U.S. Government Securities Fund 63,928
</TABLE>
Administrator
Pursuant to separate Administration Agreements (collectively, the
"Administration Agreement"), Chase is the administrator of the Funds and
Portfolios. Chase provides certain administrative services to the Funds,
including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Funds' independent contractors and agents; preparation for signature by an
officer of the Trust or Master Trust, as the case may be, of all documents
required to be filed for compliance by the Trust or Master Trust, as the case
may be, with applicable laws and regulations excluding those of the securities
laws of various states; arranging for the computation of performance data,
including net asset value and yield; responding to shareholder inquiries; and
arranging for the maintenance of books and records of the Funds and providing,
at its own expense, office facilities, equipment and personnel necessary to
carry out its duties. Chase in its capacity as administrator does not have any
responsibility or authority for the management of the Funds, the determination
of investment policy, or for any matter pertaining to the distribution of Fund
shares.
Under the Administration Agreement Chase is permitted to render
administrative services to others. The Administration Agreement will continue
in effect from year to year with respect to each Fund only if such continuance
is specifically approved at least annually by the Board of Trustees of the
Trust or Master Trust, as the case may be, or by vote of a majority of such
Fund's outstanding voting securities and, in either case, by a majority of the
Trustees who are not parties to the Administration Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Administration
Agreement is terminable without penalty by the Trust or Master Trust, as the
case may be, on behalf of each Fund or Portfolio, as the case may be, on 60
days' written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or Master Trust, as the case may be, or by Chase on 60
days' written notice, and will automatically terminate in the event of their
"assignment" (as defined in the 1940 Act). The Administration Agreement also
provides that neither Chase or its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Funds, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administration Agreement.
In addition, the Administration Agreement provides that, in the event the
operating expenses of any Fund, including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for
any fiscal year exceed the most restrictive expense limitation applicable to
that Fund imposed by the securities laws or regulations thereunder of any state
in which the shares of such Fund are qualified for sale, as such limitations
may be raised or lowered from time to time, Chase shall reduce its
administration fee (which fee is described below) to the extent of its share of
such excess expenses. The amount of any such reduction to be borne by Chase
shall be deducted from the monthly administration fee otherwise payable to
Chase during such fiscal
46
<PAGE>
year, and if such amounts should exceed the monthly fee, Chase shall pay to
such Fund its share of such excess expenses no later than the last day of the
first month of the next succeeding fiscal year.
In consideration of the services provided by Chase pursuant to the
Administration Agreement, Chase receives from each Fund (except Core Equity
Fund and Equity Growth Fund) a fee computed daily and paid monthly at an annual
rate equal to 0.10% of each of the Fund's average daily net assets, on an
annualized basis for the Fund's then-current fiscal year. Effective August 12,
1999, Chase receives from Core Equity Fund and Equity Growth Fund a fee
computed at an annual rate equal to 0.05% of average daily net assets. Prior to
August 12, 1999, the fee was 0.10% of average daily net assets. Under a
separate administration agreement, Chase receives from Core Equity Portfolio
and Equity Growth Portfolio a fee computed at an annual rate equal to 0.05% of
average daily net assets. Chase may voluntarily waive a portion of the fees
payable to it with respect to each Fund on a month-to-month basis.
For the fiscal years ended December 31, 1998 and 1999, Chase was paid or
accrued the following administration fees, and voluntarily waived the amounts
following such fees:
<TABLE>
<CAPTION>
Year-Ended 12/31/98 Year-Ended 12/31/99
----------------------------- ---------------------
Payable Waived Payable Waived
------- ------ ------- ------
<S> <C> <C> <C> <C>
Balanced Fund $ 46,685 $ -- $ 84,697 $ --
Core Equity Fund 67,120 -- 114,476 --
Equity Growth Fund 121,688 -- 187,150 --
Equity Income Fund 98,379 -- 150,434 --
Income Fund 55,450 -- 65,617 --
Intermediate Term Bond Fund 25,355 5,261 36,818 --
Money Market Fund 166,533 -- 231,077 --
Short-Intermediate Term U.S. Government
Securities Fund 28,490 -- 31,882 --
Small Capitalization Fund 51,769 -- 74,258 --
U.S. Government Securities Fund 3,062 3,062 6,530 6,530
Equity Growth II Fund (a) N/A N/A 8,849 7,615
</TABLE>
----------
(a) Administration fees and waivers for 1999 are from the period July 1, 1999
(commencement of operations) through December 31, 1999.
For the period from August 12, 1999 (commencement of operations) through
December 31, 1999, Chase was paid administration fees of $34,960 and $57,557 by
Core Equity Portfolio and Equity Growth Portfolio, respectively.
Distribution Plan
The discussion in this "Distribution Plan" sub-section shall not apply to
the Portfolios.
The Trust has adopted a plan of distribution pursuant to Rule 12b-1 under
the 1940 Act (a "Distribution Plan") on behalf of the Investor Class shares of
its Funds as described in the Prospectus, which provides such class of the
Funds shall pay for distribution services a distribution fee (the "Distribution
Fee"), including payments to the Distributor, at annual rates not to exceed the
amounts set forth in the Prospectus for Investor Class shares. The Distributor
may use all or any portion of such Distribution Fee to pay for Fund expenses of
printing prospectuses and reports used for sales purposes, expenses of the
preparation and printing of sales literature and other such
distribution-related expenses.
Investor Class shares pay a Distribution Fee of up to 0.25% of average
daily net assets. Some payments under the Distribution Plans may be used to
compensate broker-dealers with trail or maintenance
47
<PAGE>
commissions in an amount not to exceed 0.25% annualized of the average net
asset values of Investor Class shares maintained in a Fund by such
broker-dealers' customers. Since the distribution fees are not directly tied to
expenses, the amount of distribution fees paid by a Fund during any year may be
more or less than actual expenses incurred pursuant to the Distribution Plans.
For this reason, this type of distribution fee arrangement is characterized by
the staff of the Securities and Exchange Commission as being of the
"compensation variety" (in contrast to "reimbursement" arrangements by which a
distributor's payments are directly linked to its expenses). With respect to
Investor Class shares, because of the 0.25% annual limitation on the
compensation paid to the Distributor during a fiscal year, compensation
relating to a large portion of the commissions attributable to sales of
Investor Class shares in any one year will be accrued and paid by a Fund to the
Distributor in fiscal years subsequent thereto. In determining whether to
purchase Investor Class shares, investors should consider that compensation
payments could continue until the Distributor has been fully reimbursed for the
commissions paid on sales of Investor Class shares. However, the shares are not
liable for any distribution expenses incurred in excess of the Distribution Fee
paid.
The Investor Class shares are entitled to exclusive voting rights with
respect to matters concerning its Distribution Plan.
The Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually by
a vote of both a majority of the Trustees and a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreement related to such Plan ("Qualified
Trustees"). The Distribution Plan requires that the Trust shall provide to the
Board of Trustees, and the Board of Trustees shall review, at least quarterly,
a written report of the amounts expended (and the purposes therefor) under the
Distribution Plan. The Distribution Plan further provides that the selection
and nomination of Qualified Trustees shall be committed to the discretion of
the disinterested Trustees (as defined in the 1940 Act) then in office. The
Distribution Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or, with respect to a particular Fund, by vote of a majority
of the outstanding voting Investor Class shares of such Fund (as defined in the
1940 Act). The Distribution Plan may not be amended to increase materially the
amount of permitted expenses thereunder without the approval of shareholders
and may not be materially amended in any case without a vote of the majority of
both the Trustees and the Qualified Trustees. Each of the Funds will preserve
copies of any plan, agreement or report made pursuant to the Distribution Plan
for a period of not less than six years from the date of the Distribution Plan,
and for the first two years such copies will be preserved in an easily
accessible place.
For the fiscal years ended December 31, 1998 and 1999, the Distributor was
paid or accrued the following distribution fees, and voluntarily waived the
amounts following such fees:
<TABLE>
<CAPTION>
Year-Ended 12/31/98 Year-Ended 12/31/99
-------------------- ---------------------
Payable Waived Payable Waived
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balanced Fund--Investor Class $ 7 $ 7 $2,933 $2,933
Core Equity Fund--Investor Class 9 9 5,263 5,263
Equity Growth Fund--Investor Class 511 511 17,690 17,690
Equity Income Fund--Investor Class 49 49 3,706 3,706
Income Fund--Investor Class -- -- 436 436
Intermediate Term Bond Fund--Investor
Class -- -- 518 518
Money Market Fund--Investor Class -- -- 72 72
Short-Intermediate Term U.S. Government
Securities Fund--Investor Class -- -- 73 73
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended
12/31/98 12/31/99
----------- ----------------
<S> <C> <C> <C> <C>
Small Capitalization Fund--Investor Class 26 26 1,342 1,342
U.S. Government Securities Fund--
Investor Class -- -- 97 97
</TABLE>
Distribution and Sub-Administration Agreement
The discussion in this "Distribution and Sub-Administration Agreement"
sub-section shall not apply to the Portfolios.
The Trust has entered into a Distribution and Sub-Administration Agreement
dated January 1, 1998 (the "Distribution Agreement") with the Distributor,
pursuant to which the Distributor acts as the Funds' exclusive underwriter,
provides certain administration services and promotes and arranges for the sale
of each class of Shares. The Distributor is a wholly-owned subsidiary of BISYS
Fund Services, Inc. The Distribution Agreement provides that the Distributor
will bear the expenses of printing, distributing and filing prospectuses and
statements of additional information and reports used for sales purposes, and
of preparing and printing sales literature and advertisements not paid for by
the Distribution Plan. The Trust pays for all of the expenses for qualification
of the shares of each Fund for sale in connection with the public offering of
such shares, and all legal expenses in connection therewith. In addition,
pursuant to the Distribution Agreement, the Distributor provides certain
sub-administration services to the Trust, including providing officers,
clerical staff and office space.
The Distribution Agreement is currently in effect and will continue in
effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
such Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such
Fund's shareholders or by vote of a majority of the Board of Trustees of the
Trust, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust, or by the Distributor on 60 days'
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or connected with, rendering services under
the Distribution Agreement, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for
sale, as such limitations may be raised or lowered from time to time, the
Distributor shall reduce its sub-administration fee with respect to such Fund
(which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by the Distributor shall
be deducted from the monthly sub-administration fee otherwise payable with
respect to such Fund during such fiscal year; and if such amounts should exceed
the monthly fee, the Distributor shall pay to such Fund its share of such
excess expenses no later than the last day of the first month of the next
succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable
to it under the Distribution Agreement with respect to each Fund on a
month-to-month basis.
For fiscal years ended December 31, 1998 and 1999, the Distributor was
paid or accrued the following sub-administration fees, and voluntarily waived
the amounts following such fees:
49
<PAGE>
<TABLE>
<CAPTION>
Year-Ended 12/31/98 Year-Ended 12/31/99
------------------------------ ----------------------
Payable Waived Payable Waived
-------------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
Balanced Fund $ 23,343 -- $42,348 --
Core Equity Fund 33,560 -- 73,566 --
Equity Growth Fund 60,845 -- 120,874 --
Equity Income Fund 49,189 -- 75,217 --
Income Fund 27,725 -- 32,808 --
Intermediate Term Bond Fund 12,678 -- 18,409 --
Money Market Fund 83,266 -- 115,539 --
Short-Intermediate Term U.S. Government
Securities Fund 14,245 -- 15,941 --
Small Capitalization Fund 25,885 -- 37,129 --
U.S. Government Securities Fund 1,529 1,529 3,265 3,265
Equity Growth II Fund (a) N/A N/A 4,424 3,808
</TABLE>
----------
(a) Sub-administration fees and waivers for 1999 are from the period July 1,
1999 (commencement of operations) through December 31, 1999.
Transfer Agent and Custodian
The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund (except Core Equity Fund and Equity Growth Fund) and
receives such compensation as is from time to time agreed upon by the Trust and
Chase. As custodian, Chase provides oversight and record keeping for the assets
held in the portfolios of each Fund. Chase also provides fund accounting
services for the income, expenses and shares outstanding for such Funds. Chase
is located at 3 Metrotech Center, Brooklyn, NY 11245. Investors Bank & Trust
Company ("IBT") acts as the custodian of the assets of Core Equity Fund, Equity
Growth Fund and the Portfolios. IBT is located at 200 Clarendon Street, Boston,
MA 02117.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the Annual
Report to Shareholders for the fiscal year ended December 31, 1999 and the
related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants of the Funds, given on
the authority of said firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP provides the Funds with audit services, tax return
preparation and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.
CERTAIN REGULATORY MATTERS
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of any
of the Funds, including outstanding loans to such issuers which may be repaid
in whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Funds' distributor or affiliates of the distributor. Chase
will not invest any Fund assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate,
although under certain circumstances such securities may be purchased from
50
<PAGE>
other members of an underwriting syndicate in which Chase or an affiliate is a
non-principal member. This restriction may limit the amount or type of U.S.
Government obligations, municipal obligations or commercial paper available to
be purchased by any Fund. Chase has informed the Funds that in making its
investment decision, it does not obtain or use material inside information in
the possession of any other division or department of Chase, including the
division that performs services for the Trust as custodian, or in the
possession of any affiliate of Chase. Shareholders of the Funds should be aware
that, subject to applicable legal or regulatory restrictions, Chase and its
affiliates may exchange among themselves certain information about the
shareholder and his account. Transactions with affiliated broker-dealers will
only be executed on an agency basis in accordance with applicable federal
regulations.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Investment Trust is an open-end, non-diversified management
investment company organized as Massachusetts business trust under the laws of
the Commonwealth of Massachusetts in 1997. The Trust currently consists of 16
series of shares of beneficial interest, par value $.001 per share. With
respect to all of its Funds, the Trust may offer more than one class of shares.
The Trust has reserved the right to create and issue additional series or
classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no preemptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class.
The classes of shares have several different attributes relating to
expenses, as described herein and in the Prospectuses. In addition to such
differences, expenses borne by each class of a Fund may differ slightly because
of the allocation of other class-specific expenses. For example, a higher
transfer agency fee may be imposed on Retail Class shares than on Premier class
shares. The relative impact of ongoing annual expenses will depend on the
length of time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders
also have, in certain circumstances, the right to remove one or more Trustees
without a meeting. No material amendment may be made to the Trust's Declaration
of Trust without the affirmative vote of the holders of a majority of the
outstanding shares of each portfolio affected by the amendment. Shares have no
preemptive or conversion rights. Shares, when issued, are fully paid and non-
assessable, except as set forth below. Any series or class may be terminated
(i) upon the merger or consolidation with, or the sale or disposition of all or
substantially all of its assets to, another entity, if approved by the vote of
the holders of two-thirds of its outstanding shares, except that if the Board
of Trustees recommends such merger, consolidation or sale or disposition of
assets, the approval by vote of the holders of a majority of the series' or
class' outstanding shares will be sufficient, or (ii) by the vote of the
holders of a majority of its outstanding shares, or (iii) by the Board of
Trustees by written notice to the series' or class' shareholders. Unless each
series and class is so terminated, the Trust will continue indefinitely.
51
<PAGE>
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts of
interest that can arise in connection with personal trading activities of such
persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions,
pre-clearance requirements and blackout periods.
Principal Holders
As of April 3, 2000, the following persons owned of record 5% or more of
the outstanding shares of the following classes of the following Funds:
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Balanced Fund Investor Shares
Amalgamated Bank of NY TTEE .................... 43.22%
FBO Liuna
Supplemental Emp Ret Plan
PO Box 370, Cooper Station
New York, NY 10276-0370
NFSC FEBO # CR5-509981 ......................... 15.57%
The Chase Manhattan Bank Cust
IRA of Manuel C Pena-Morros
Trad'l IRA R/O
1627 Brickell Ave #2005
Miami, FL 33129-1250
IFTC Cust IRA R/O .............................. 5.91%
Dwight Evans
1005 Stacey Renee Ct
Arlington, TX 76002-4218
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Balanced Fund Premier Shares
Texas Commerce Bank ............................ 74.73%
Attn Asset Trading
1111 Pannin Suite 10
Houston, TX 77002-6925
Hamill & Co FBO Chase Bank of Texas NA ......... 18.07%
Attn Mutual Fund Unit 16HCBO9
PO Box 2558
Houston, TX 77252-2558
Trulin & Co .................................... 6.57%
c/o Chase Manhattan Bank
Attn Michele Bullard/Mutual Funds
PO Box 1412
Rochester, NY 14603-1412
Core Equity Fund Investor Shares
Hamill & Co FBO Chase Bank of Texas NA ......... 11.86%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Core Equity Fund Premier
Texas Commerce Bank ............................ 52.16%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
Hamill & Co FBO Chase Bank of Texas NA ......... 43.76%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Equity Growth Fund Investor Shares
Charles Schwab & Co Inc. ....................... 33.46%
Reinvest Account
Attn Mutual Funds Dept
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Equity Growth Fund Premier
Hamill & Co FBO Chase Bank of Texas NA ......... 43.21%
Attn Mutual Fund Unit 16HCBO9
PO Box 2558
Houston, TX 77252-2558
Texas Commerce Bank ............................ 43.12%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
First Union National Bank Cust ................. 7.42%
FBO Rollins Truck Leasing Corp
Pension Plan # 1546002483
Attn Mutual Fund Dept
1525 W Wt Harris Blvd
Charlotte, NC 28262-8522
Equity Income Fund Investor Shares
Hamill & Co FBO Chase Bank of Texas NA ......... 20.35%
Attn Mutual Fund Unit 16HCBO9
PO Box 2558
Houston, TX 77252-2558
Trulin & Co .................................... 6.35%
c/o Chase Manhattan Bank
Attn Michele Bullard/Mutual Funds
PO Box 1412
Rochester, NY 14603-1412
NFSC FEBO # ATL-278793 ......................... 5.27%
M June Waggoner
J Virgil Waggoner
11 Shadder Way
Houston, TX 77019-1415
Equity Income Fund Premier
Hamill & Co FBO Chase Bank of Texas NA ......... 47.05%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Texas Commerce Bank ............................ 46.82%
Attn Asset Trading
1111 Fannin Suite 10
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Houston, TX 77002-6925
Income Fund Investor Shares
Obie & Co ...................................... 66.96%
c/o Chase Bank of Texas NA
Attn Mutual Funds Unit 16HCB 09
PO Box 200547
Houston, TX 77216-0547
IFTC Cust IRA R/O .............................. 10.23%
Felipe C Perez
3415 Hickory Hill Dr
Arlington, TX 76014-3322
Federico Carrillo .............................. 7.94%
Francia Fernandez JTWROS
3 World Financial Ctr Fl 16
New York, NY 10285-0001
Income Fund Premier
Hamill & Co FBO Chase Bank of Texas NA ......... 65.91%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston TX, 77252-2558
Texas Commerce Bank ............................ 28.13%
Attn Asset Trading
1111 Fannin Suite 10
Houston TX, 77002-6925
Obie & Co ...................................... 5.95%
c/o Chase Bank of Texas NA
Attn Mutual Funds Unit 16HCB 09
PO Box 200547
Houston, TX 77216-0547
Intermediate Term Bond Fund Investor Shares
NFSC FEBO #H76-008435 .......................... 47.52%
Rollover IRA Durr L Minor
Chase Bank of Texas Cust
2834 Shadowdale
Houston, TX 77043-1715
IFTC Cust IRA R/O .............................. 14.34%
Felipe C Perez
3415 Hickory Hill Dr
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Arlington, TX 76014-3322
Hamill & Co FBO Chase Bank of Texas NA ......... 10.22%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Margaret D Penrose ............................. 6.75%
2315 Little Rd Apt 217
Arlington, TX 76016-6345
Federico Carrillo .............................. 5.58%
Francia Fernandez JTWROS
3 World Financial Ctr Fl 16
New York, NY 10285-0001
Intermediate Term Bond Fund Premier
Hamill & Co FBO Chase Bank of Texas NA ......... 61.95%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Texas Commerce Bank ............................ 15.95%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
First Union National Bank Cust ................. 14.58%
U/A for Matlack Systems Inc PPL
A/C 1546002456
1525 West Wt Harris Blvd
Charlotte, NC 28262-8522
Obie & Co ...................................... 5.03%
c/o Chase Bank of Texas NA
Attn Mutual Funds Unit 16HCB 09
PO Box 200547
Houston, TX 77216-0547
Money Market Fund Investor Shares
Margaret C Bowden .............................. 21.10%
PO Box 348
Irvington, NY 10533-0348
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Raymond Jean Lesperance TOD .............................. 16.84%
Rebecca B Lesperance &
Jennifer B Lesperance
Subject to DST Rules
795 Stuyvesant Ave Apt 2
Irvington, NY 10533-0348
Suresh C Nayar ........................................... 11.46%
Diane M Nayar JTWROS
4249 La Adelita Dr
El Paso, TX 79922-2340
Investors Fiduciary Tr Co Cust ........................... 9.33%
Roth Converted IRA 1/1/1998
FBO Jeffery A Petroske
14 Manor Pkwy
Rochester, NY 14620-2605
Money Market Fund Premier
Texas Commerce Bank ...................................... 71.07%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
Obie & Co ................................................ 28.77%
c/o Texas Commerce Bank
Attn CTF/Chase Unit 18HCB 98
PO Box 2558
Houston, TX 77252-2558
Short Int Term US Gov SEC Fund Investor Shares
Hamill & Co FBO Chase Bank of Texas NA ................... 41.61%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Talbot Perkins Childrens Services Endowment Fund ......... 23.91%
116 W 32nd St Fl 13
New York, NY 10001-3289
Luke Joseph Smith & Elaine Joan Smith GDNS ............... 7.79%
Carolyn Anne Smith
17 Layton Dr
Canterbury, NH 03224-2017
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
NFSC FEBO #ATL-189626 .......................... 7.71%
Frank B Dunlap III GDN
Matthew A Koester
3001 East Ave Apt 242 Bld J
Grand Prairie, TX 75050
NFSC FEBO #ATL-189618 .......................... 7.62%
Frank B Dunlap III GDN
Laura Elaine Koester
3001 East Ave Apt 242 Bld J
Grand Prairie, TX 75050
Boris Amusin ................................... 6.92%
Valentina Amusina JT WROS
40 Ocean Pkwy Apt 2D
Brooklyn, NY 11218-1538
Short Intr Term US Gov SEC FD Premier
Hamill & Co FBO Chase Bank of Texas NA ......... 64.80%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Texas Commerce Bank ............................ 32.39%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
Small Capitalization Fund Investor Shares
Hamill & Co FBO Chase Bank of Texas NA ......... 66.53%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Western Mining Corp USA ........................ 10.81%
401k Profit Sharing Plan
8008 E Arapahoe Rd Ste 110
Englewood, CO 80112-1356
Small Capitalization Fund Premier Shares
Hamill & Co FBO Chase Bank of Texas NA ......... 62.41%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Texas Commerce Bank ............................ 24.92%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
US Government Securities Fund Investor Shares
Edgar Jones .................................... 34.48%
Melva D Jones JTWROS
1404 S Rodgers Dr
Graham, TX 76450-4440
Margaret D Penrose ............................. 17.55%
2315 Little Rd Apt 217
Arlington, TX 76016-6345
Richard Monte .................................. 14.91%
5 Cornelia St Apt 4C
New York, NY 10014-5617
Investors Fiduciary TR CO Cust ................. 8.95%
IRA R/O Bobby J Coffin
1405 Marlee Ln
Arlington, TX 76014-1435
Donna M Ephlin ................................. 8.91%
Gary W Ephlin JTWROS
10827 Loma Del Sol Dr
El Paso, TX 79934-3782
John G Gleason ................................. 7.41%
Lorraine A Gleason JT WROS
12 Burnett Brook Dr
Mendham, NJ 07945-2100
US Government Securities Fund Premier Shares
Hamill & Co FBO Chase Bank of Texas NA ......... 53.27%
Attn Mutual Fund Unit 16HCB09
PO Box 2558
Houston, TX 77252-2558
Texas Commerce Bank ............................ 45.37%
Attn Asset Trading
1111 Fannin Suite 10
Houston, TX 77002-6925
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Name of Funds % of Total Shares
------------- -------------------
<S> <C>
Equity Growth Fund II
Chase Manhattan Bank N/A ....................... 100.00%
Global Sec Services Omnibus
CMB Thrift Plan
Attn Jeff Rosenberg
3 Chase Metro Tech Center Flr 7
Brooklyn, NY 11245-0001
</TABLE>
60
<PAGE>
Financial Statements
The Annual Report to Shareholders for the fiscal year ended December 31,
1999 of each Fund, including the report of independent accounts, financial
highlights and financial statements for the fiscal year ended December 31, 1999
contained therein, are incorporated herein by reference.
Specimen Computations of Offering Prices Per Share
<TABLE>
<S> <C>
Balanced Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 38.50
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 38.46
Core Equity Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 32.24
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 32.19
Equity Growth Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 68.09
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 67.85
Equity Income Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 49.80
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 49.83
Income Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 18.71
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 18.72
Intermediate Term Bond Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.06
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.06
Money Market Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 1.00
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 1.00
Short-Intermediate Term U.S. Government Securities Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.05
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.04
Small Capitalization Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 22.60
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 22.51
U.S. Government Securities Fund (specimen computations)
Premier Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.84
Investor Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest
at December 31, 1999 ................................................ $ 12.84
</TABLE>
62
<PAGE>
[This page intentionally left blank]
63
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government are guaranteed by the U.S.
Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary from their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the effect
of raising the effective yield earned on the Certificates; and (iv) the actual
yield of each Certificate is affected by the prepayment of mortgages included
in the mortgage pool underlying the Certificates. Principal which is so prepaid
will be reinvested although possibly at a lower rate. In addition, prepayment
of mortgages included in the mortgage pool underlying a GNMA Certificate
purchased at a premium could result in a loss to a Fund. Due to the large
amount of GNMA Certificates outstanding and active participation in the
secondary market by securities dealers and investors, GNMA Certificates are
highly liquid instruments. Prices of GNMA Certificates are readily available
from securities dealers and depend on, among other things, the level of market
rates, the Certificate's coupon rate and the prepayment experience of the pool
of mortgages backing each Certificate. If agency securities are purchased at a
premium above principal, the premium is not guaranteed by the issuing agency
and a decline in the market value to par may result in a loss of the premium,
which may be particularly likely in the event of a prepayment. When and if
available, U.S. Government obligations may be purchased at a discount from face
value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
A-1
<PAGE>
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured
by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ('Sallie Mae') Notes and Bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the 'full faith and credit' of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with
respect to bonds and commercial paper appears below.
Moody's Investors Services' Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. 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 qualities
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 rated "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 a desirable
investment. Assurance of interest and principal payments or of maintenance and
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 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.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2"
B-1
<PAGE>
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from "AAA"
issues only in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity
to repay principal and pay interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt 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 alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have
an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt
B-2
<PAGE>
protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
Standard & Poor's Rating Group Commercial Paper Ratings
A S&P commercial paper rating is current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded in several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:
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".
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Fitch Bond Ratings
AAA--Bonds rated AAA by Fitch are 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 rated AA by Fitch are 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 issues
is generally rated F-1+ by Fitch.
A--Bonds rated A by Fitch are 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 rated BBB by Fitch are 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 consequences 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. Plus and minus signs are used by Fitch to indicate
the relative position of a credit within a rating category. Plus and minus
signs, however, are not used in the AAA category.
B-3
<PAGE>
Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposits, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment
only slightly less in degree than issues rated F-1+.
F-2--Issues assigned 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.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by a Fund. However, a Fund's
investment manager will consider such event in its determination of whether
such Fund should continue to hold the security. To the extent the ratings given
by Moody's, S&P or Fitch may change as a result of changes in such
organizations or their rating systems, a Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in this Statement of Additional Information.
B-4
<PAGE>
[This page intentionally left blank]
B-5
<PAGE>
(C)The Chase Manhattan Corporation, 2000. CF10 400 April 2000 CF102-400
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits
1 Declaration of Trust dated as of September 19, 1997.*
2 By-Laws.*
3 None.
4(a) Form of Investment Advisory Agreement between Trust and The Chase
Manhattan Bank.*
4(b) Form of Sub-Advisory Agreement between The Chase Manhattan Bank and
Texas Commerce Bank National Association.*
4(c) Form of Administration Agreement.*
4(d) Form of Investment Advisory Agreement.*
5 Form of Distribution and Sub-Administration Agreement.*
6 None.
7 Form of Custodian Agreement.*
8 Form of Transfer Agency Agreement.*
II-1
<PAGE>
9 Opinion and consent of counsel as to the legality of the securities
being registered.*
10 Consent of Independent Auditors.+
11 Financial Statements and the Reports thereon for the Funds filed herein
for the fiscal year ended December 31, 1999 are incorporated by
reference into this Part B as part of the 1999 Annual Reports to
Shareholders for such Funds as filed with the Securities and Exchange
Commission by the Registrant on Form N-30D on February 18 and 28, 2000,
accession numbers 0000950146-00-000154 and 0000950146-00-000200.
12 None.
13 Distribution Plan.*
14 Financial Data Schedules.+
18 None.
* Previously filed with Registration Statement and Post-effective
Amendments and are herein incorporated by reference.
+ Filed herewith.
II-2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund.
Inapplicable.
Item 25. Indemnification
Sections 10.2 and 10.4 of the Amended and Restated Declaration of Trust, filed
as Exhibit 1, are incorporated herein by reference. Section 10.2 contains
provisions limiting the liabilities of members of the Supervisory Committee and
Section 10.4 contains provisions for indemnification of the Trustee, members of
the Supervisory Committee and officers of the Trust.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Trust and the Trustee pursuant to the foregoing provisions or otherwise,
the Trust has been advised that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Trust of expenses incurred or paid by
a director, officer, or controlling person of the Trust and the Trustee in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Trust by such director, officer or controlling person or
the Trustee in connection with the Units being registered, the Trust will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
(a) The Chase Manhattan Bank ("Chase") is the investment adviser of the Trust.
Chase is a commercial bank providing a wide range of banking and investment
services.
II-3
<PAGE>
To the knowledge of the Registrant, none of the Directors or executive officers
of Chase, except those described below, are or have been, at any time during the
past two years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain Directors and executive
officers of Chase also hold or have held various positions with bank and
non-bank affiliates of Chase, including its parent, The Chase Manhattan
Corporation. Each Director listed below is also a Director of The Chase
Manhattan Corporation.
<TABLE>
<CAPTION>
Name Position with Chase Principal Occupation
---- ------------------- --------------------
<S> <C> <C>
Hans W. Becherer Director Chairman and CEO, Deere & Co.
Frank A. Bennack, Jr. Director Chairman and CEO, The Hearst
Corp.
Susan V. Berresford Director President, The Ford Foundation
Donald L. Boudreau Vice Chairman None
Of the Board
M. Anthony Burns Director Chairman of the Board,
President and Chief Executive
Officer of Ryder System, Inc.
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director
of Amoco Corporation and
Director of Abbott Laboratories
Melvin R. Goodes Director Chairman and CEO, Warner-Lambert
Co.
William H. Gray III Director President and CEO, The College
Fund/UNCF
George V. Grune Director Chairman and CEO, The Reader's
Digest Assoc., Inc.
William Harrison Vice Chairman None
Of the Board
Harold S. Hook Director Retired Chairman, American
General Corp.
Helene Kaplan Director Of Counsel, Skaden, Arps, Slate,
Meager & Flom LLP
Thomas G. Labreque President and Chief Chairman, Chief Executive
Operating Officer Officer and a Director of The
and Director Chase Manhattan Corporation and
a Director of AMAX, Inc.
Donald H. Layton Vice Chairman None
Of the Board
James B. Lee Vice Chairman None
Of the Board
Denis O'Leary Executive None
Vice President
Marc J. Shapiro Vice Chairman None
Of the Board
Joseph G. Sponholz Vice Chairman None
Of the Board
Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine
Company, Inc. and a Director of
each of American Telephone and
Telegraph Company and CBS Inc.
II-4
<PAGE>
Walter V. Shipley Chairman of the None
Board and Chief
Executive Officer
Andrew C. Sigler Director Chairman of the Board and Chief
Executive Officer, Champion
International Corporation
John R. Stafford Director Chairman, President and Chief
Executive Officer, American
Home Products Corporation
Marina V. N. Whitman Director Professor of Business
Administration and Public
Policy, University of Michigan
</TABLE>
(b) Chase Bank of Texas, N.A. ("CBT") is investment sub-adviser with respect to
certain of the Funds. Its business has been solely that of a national bank.
The directors and executive officers (i.e., members of management committee) of
the investment adviser have held during the past two fiscal years the following
positions of a substantial nature:
II-5
<PAGE>
<TABLE>
<CAPTION>
Position(s) Position(s)
and Offices and Offices Other Substantial
with with Business, Profession,
Name CBT Registrant Vocation or Employment
----- -------------- ----------- ----------------------
<S> <C> <C> <C>
John L. Adams Chairman, None None
President and
CEO
Elaine B. Agather CEO, CBT -- None None
Fort Worth,
Vice Chairman,
CBT -- Metroplex
Alan R. Buckwalter, III Director, None None
Vice Chairman
II-6
<PAGE>
Position(s) Position(s)
and Offices and Offices Other Substantial
with with Business, Profession,
Name CBT Registrant Vocation or Employment
----- -------------- ------------- ----------------------
Robert C. Hunter Director, None None
Vice Chairman
S. Todd Maclin Director, None None
Vice Chairman
Beverly H. McCaskill Director, None None
Executive
Vice President
Scott J. McLean Executive None None
Vice President
Cathy S. Nunnally Executive None None
Vice President
Jeffrey B. Reitman Director, None None
General Counsel
Harriet S. Wasserstrum Director, None None
Vice Chairman
</TABLE>
Item 27. Principal Underwriters
Inapplicable.
Item 28. Location of Accounts and Records
Accounts and other documents are maintained at the offices of the Registrant.
II-7
<PAGE>
Item 29. Management Services.
Inapplicable.
Item 30. Undertakings
(a) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of
removal of one or more of Registrant's directors when
requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares of common stock and, in
connection with such meeting, to assist in communications
with other shareholders in this regard, as provided under
Section 16(c) of the 1940 Act.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without change.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has certified that it meets all requirements
for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York and the State of New York on the 28th day of
April, 2000.
MUTUAL FUND INVESTMENT TRUST
By /s/ Sarah Jones
--------------------------
Sarah Jones
Chair
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee April 28, 2000
-------------------------------
Fergus Reid, III
/s/ H. Richard Vartabedian Trustee April 28, 2000
-------------------------------
H. Richard Vartabedian
* Trustee April 28, 2000
-------------------------------
William J. Armstrong
* Trustee April 28, 2000
-------------------------------
John R.H. Blum
* Trustee April 28, 2000
-------------------------------
Stuart W. Cragin, Jr.
*
------------------------------- Trustee April 28, 2000
Roland R. Eppley, Jr.
* Trustee April 28, 2000
-------------------------------
Joseph J. Harkins
* Chair and April 28, 2000
------------------------------- Trustee
Sarah E. Jones
*
------------------------------- Trustee April 28, 2000
W.D. MacCallan
*
------------------------------- Trustee April 28, 2000
W. Perry Neff
* Trustee April 28, 2000
-------------------------------
Leonard M. Spalding, Jr.
* Trustee April 28, 2000
-------------------------------
Irv Thode
* Trustee April 28, 2000
-------------------------------
Richard E. Ten Haken
/s/ Martin R. Dean Treasurer and April 28, 2000
------------------------------- Principal Financial
Martin R. Dean Officer
/s/ H. Richard Vartabedian Attorney in April 28, 2000
------------------------------- Fact
H. Richard Vartabedian
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated February 10, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 Annual Report to Shareholders of Chase Money Market Fund, Chase
Short-Intermediate Term U.S. Government Securities Fund, Chase Income Fund,
Chase Balanced Fund, Chase Equity Income Fund, Chase Small Capitalization Fund,
Chase Core Equity Fund, Chase Equity Growth Fund and Chase Equity Growth II Fund
(separate portfolios of Mutual Fund Investment Trust) and Core Equity Portfolio
and Equity Growth Portfolio (separate portfolios of Mutual Fund Master
Investment Trust), which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants" in such
Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
April 28, 2000
