AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999
FILE NOS. 33-9421
811-5526
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 \x\
PRE-EFFECTIVE AMENDMENT NO. \ \
POST-EFFECTIVE AMENDMENT NO. 28 \x\
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 \x\
AMENDMENT NO. 32 \x\
----------------
MUTUAL FUND INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
One Chase Manhattan Plaza, Third Floor
New York, New York 10081
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
--------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 492-1600
--------------------
George Martinez, Esq.
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
GARY S. SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
It is proposed that this filing will become effective:
\X\ immediately upon filing pursuant \ \ on pursuant to paragraph (b)
to paragraph (b)
\ \ 60 days after filing pursuant to \ \ on April 30, 1999 pursuant to
paragraph (a)(1) paragraph (a)(1)
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\ \ 75 days after filing pursuant \ \ on pursuant to paragraph
to paragraph (a)(2) (a)(2) of Rule 485
If appropriate, check the following box:
\ \ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of units of
beneficial interest for sale under the Securities Act of 1933. Registrant's
Rule 24f-2 Notice for the fiscal year 1998 was filed on or about March 25, 1999.
================================================================================
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MUTUAL FUND INVESTMENT TRUST
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------
Captions apply to all
Prospectuses except where
indicated in parenthesis.
Parenthesis indicate captions
for Institutional Shares
Prospectuses
1 Front Cover Page *
2(a) Expense Summary *
(b) Not Applicable *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance Information *
4(a)(b) Other Information Concerning *
the Fund; Fund Objective;
Investment Policies
(c) Fund Objective; Investment *
Policies
(d) Not Applicable *
5(a) Management *
(b) Management *
(c)(d) Management; Other Information *
Concerning the Fund
(e) Other Information Concerning *
the Fund; Back Cover Page
(f) Other Information Concerning *
the Fund
(g) Not Applicable *
5A Not Applicable *
6(a) Other Information Concerning *
the Fund
(b) Not Applicable *
(c) Not Applicable *
3
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Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------
(d) Not Applicable *
(e)(f) About Your Investment; How to *
Buy, Sell and Exchange Shares (How to Purchase, Redeem and
Exchange Shares); How Distributions Are Made; Tax
Information; Other Information Concerning the Fund.
(f) How Distributions are Made; *
Tax Information
(g) How Distributions are Made; Tax Matters
Tax Information
(h) About Your Investment; How to *
Buy, Sell and Exchange Shares
(How to Purchase, Redeem and
Exchange Shares); Other
Information Concerning the
Fund
7(a) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(b) How the Fund Values its *
Shares; How to Buy, Sell and
Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)
(c) Not Applicable *
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(e) Management; Other Information *
Concerning the Fund
(f) Other Information Concerning *
the Fund
8(a) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(b) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
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Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------
(c) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase,
Redeem and Exchange Shares)
9 Not Applicable *
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13(a)(b) Fund Objective; Investment Investment Policies and
Policies Restrictions
14(c) * Management of the Trust and
Funds or Portfolios
(b) * Not Applicable
(c) * Management of the Trust and
Funds or Portfolios
15(a) * Not Applicable
(b) * General Information
(c) * General Information
16(a) Management Management of the Trust and
Funds or Portfolios
(b) Management Management of the Trust and
Funds or Portfolios
(c) Other Information Concerning Management of the Trust and
the Fund Funds or Portfolios
(d) Management Management of the Trust and
Funds or Portfolios
(e) * Not Applicable
(f) How to Buy, Sell and Exchange Management of the Trust and
Shares (How to Purchase, Funds or Portfolios
Redeem and Exchange Shares);
Other Information Concerning
the Fund
(g) * Not Applicable
(h) * Management of the Trust and
Funds or Portfolios;
Independent Accountants
(i) * Not Applicable
5
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Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------- ------------------ -----------------------
17 Investment Policies Investment Policies and
Restrictions
18(a) Other Information Concerning General Information
the Fund; How to Buy, Sell
and Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)
(b) * Not Applicable
19(a) How to Buy, Sell and Exchange Purchases, Redemptions and
Shares (How to Purchase, Exchanges
Redeem and Exchange Shares)
(b) How the Fund Values its Determination of Net Asset
Shares; How to Buy, Sell and Value
Exchange Shares (How to
Purchase, Redeem and Exchange
Shares)
(c) * Purchases, Redemptions and
Exchanges
20 How Distributions are Made; Tax Matters
Tax Information
21(a) * Management of the Trust and
Funds or Portfolios
(b) * Management of the Trust and
Funds or Portfolios
(c) * Not Applicable
22 * Performance Information
23 * Not Applicable
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SUBJECT TO COMPLETION -- JUNE 1, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and is not an offer to buy these securities in any
state where the offer or sale is not permitted.
Chase Funds
CHASE EQUITY GROWTH FUND II
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of shares of this Fund or determined if
this prospectus is accurate or complete. It is a crime to state otherwise.
PROSPECTUS , 1999
[Logo--Chase Funds w/sm]
PSSEG-1-699x
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<TABLE>
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CONTENTS
THE FUND'S OBJECTIVE AND MAIN INVESTMENT
STRATEGY 1
FUND MANAGEMENT 7
HOW YOUR ACCOUNT WORKS 8
BUYING FUND SHARES 8
SELLING FUND SHARES 8
OTHER INFORMATION CONCERNING THE FUND 10
DISTRIBUTIONS AND TAXES 10
WHAT THE TERMS MEAN 11
</TABLE>
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CHASE EQUITY GROWTH FUND II
The Fund's
objective
The Fund aims to
provide capital
appreciation.
Producing current
income is a
secondary objective.
The Fund's main
investment strategy
The Fund uses an active equity management style which focuses on strong earn-
ings momentum and profitability within the universe of growth-oriented stocks.
The Fund normally invests at least 70% of its total assets in equity securities.
The Fund seeks capital appreciation by emphasizing the growth sectors of the
economy. It looks for companies with one or more of the following
characteristics:
o a projected earnings growth rate that's greater than or equal to the equity
markets in general
o a return on assets and return on equity equal to or greater than the equity
markets
o above market average price-earnings ratios
o below-average dividend yield
o above-average market volatility
o a market capitalization of more than $500 million.
The Fund focuses on companies with strong earnings and high levels of
profitability as well as positive industry or company characteristics.
The Fund may invest up to 30% of its total assets in foreign securities,
including Depositary Receipts. It may also invest in convertible securities,
which generally pay interest or dividends and which can be converted into
common or preferred stock.
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FREQUENCY OF TRADING
The Fund may trade securities actively, which could increase transaction costs
(and thus lower performance) and increase dividends.
CHASE EQUITY GROWTH FUND II
The Fund may also invest in investment grade debt securities. When the adviser
wishes to limit the Fund's equity investments because of market conditions, the
Fund may invest any amount in investment grade debt securities.
The Fund may invest any portion of its assets that aren't in stocks or fixed
income securities in high quality money market instruments and repurchase
agreements. To temporarily defend its assets, the Fund may put any amount of
its assets in these types of investments.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval. [LOGO}
2
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The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Equity Growth Fund II.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The securities of mid-capitalization companies may trade less frequently and in
smaller volumes than securities of larger, more established companies. As a
result, share price changes may be more sudden or more erratic. Mid-sized
companies may have limited product lines, markets or financial resources, and
they may depend on a small management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize
or expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called
the
3
<PAGE>
CHASE EQUITY GROWTH FUND II
"euro." It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government obligations, it could
reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service
providers to do the same, but there's no guarantee these systems will work
properly. Year 2000 problems could also hurt issuers whose securities the Fund
holds or securities markets generally.
An investment in the Fund isn't a deposit of The Chase Manhattan Bank and it
isn't insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.{LOGO}
4
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Fees and expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
None.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)*
INVESTMENT TOTAL ANNUAL
ADVISORY DISTRIBUTION OTHER FUND OPERATING
FEE (12B-1) FEES EXPENSES EXPENSES
SHARES 0.40% NONE 0.20% 0.60%
*The table is based on estimated expenses for the current fiscal year. The
table does not reflect charges or credits you might incur if you invest through
a financial institution.
5
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CHASE EQUITY GROWTH FUND II
EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The example assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
YOUR COSTS WOULD BE:
NUMBER OF YEARS 1 3
COSTS $61 $192
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
6
<PAGE>
The Investment Adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase
is a wholly owned subsidiary of The Chase Manhattan Corporation, a bank holding
company. Chase provides the Fund with investment advice and supervision. Chase
and its predecessors have more than a century of money management experience.
Chase is located at 270 Park Avenue, New York, NY 10017.
Chase is entitled to receive an annual fee for its services equal to 0.40% of
the Fund's average daily net assets.
The Portfolio Manager
The portfolio manager is Henry Lartigue, the Chief Investment Officer at Chase
Texas. Mr. Lartigue has managed the portfolio since its inception. In the two
years before coming to Chase Texas, he was an independent registered investment
adviser.
Chase Bank of Texas, N.A. (Chase Texas) is the sub-adviser to the Fund. Chase
Texas is a wholly-owned subsidiary of The Chase Manhattan Corporation. It makes
the day-to-day investment decisions for the Fund.
Chase Texas is located at 712 Main Street, Houston, Texas 77002.
7
<PAGE>
HOW YOUR ACCOUNT WORKS
Who May Buy These
Shares
You may only buy these shares through participating employee benefit plans with
over $1 billion in assets (Plans).
Each Plan will have different procedures and rules regarding the purchase and
sale of shares. Most Plans require you to contact a designated agent of the
Plan to implement a purchase or sale. You must follow the procedures and rules
that apply to your Plan.
Buying Fund Shares
Tell the designated agent that you wish to use all or part of your interest
("account") in the Plan to buy shares. In some Plans, you may have specific
shares designated as part of your account. However, in most Plans, your account
will show a dollar value in a trust fund that owns shares.
Your Plan will forward its purchase orders to the Fund in accordance with its
procedures and rules. These procedures and rules may include minimum required
investments and/or specific deadlines. The Plan will buy shares from the Fund
at the net asset value per share (NAV).
NAV is the value of everything the Fund owns, minus everything it owes, divided
by the number of shares held by investors. If your Plan receives an order in
proper form before the New York Stock Exchange closes regular trading (or the
Plan's earlier deadline, if any) and the order, along with payment in federal
funds, is received by the Fund before it closes for business, the order will be
confirmed at that day's net asset value. The Fund calculates its NAV once each
day at the close of regular trading on the New York Stock Exchange (normally 4
p.m. Eastern time). The Fund generally values its assets at their market value
but may use fair value if market prices are unavailable.
Your Plan can buy shares on any business day that the Federal Reserve Bank of
New York and the New York Stock Exchange are open.
Your Plan must provide a Taxpayer Identification Number when it opens an
account. The Fund has the right to refuse any purchase order or to stop
offering shares for sale at any time.
The Fund will not issue certificates for shares.
Selling Fund Shares
Tell the designated agent that you wish to sell, transfer or exchange all or
part of your account in the Plan that represents an interest in Fund shares.
The designated agent of the Plan will forward sale orders to the Fund in
accordance with its procedures and rules.
Your Plan can sell some or all of its shares on any day the Chase Funds Service
Center is accepting purchase orders. Your Plan will receive the next NAV
calculated after the Chase Funds Service Center receives the order in proper
form. If the Fund receives the Plan's order before the New York Stock Exchange
closes
8
<PAGE>
regular trading, the Plan will receive that day's net asset value.
The Fund generally sends proceeds of the sale in federal funds to your Plan on
the business day after the Fund receives a sale request in proper form.
Under unusual circumstances, the Fund may stop accepting orders to sell shares
or postpone payment for more than seven days, as federal securities laws
permit.
Related performance
information
Chase Texas, the investment sub-adviser for the Fund, has been responsible for
the day-to-day management of the Chase Equity Growth Fund since its inception
in March 1988. The Chase Equity Growth Fund has the same investment objectives,
policies and strategies as those of the Fund. The chart below shows the
performance for the one, three, five and ten year periods ended March 31, 1999,
of Premier Class shares of the Chase Equity Growth Fund.
The total return figures have been computed in accordance with the Securities
and Exchange Commission's standardized formula and reflect advisory fees paid
to the investment adviser and transaction costs and other expenses. The figures
also reflect reinvestment of dividends and/or capital gain distributions, if
any.
The total return figures in the chart are intended to provide investors with
information about the historical experience of Chase Texas in managing a
portfolio which is substantially similar to the Fund. The performance shown is
not that of the Fund and is not necessarily indicative of how the Fund will
perform in the future.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
CHASE EQUITY GROWTH FUND 35.92% 34.00% 26.76% 17.75%
- --------------------------------------------------------------------------------
STANDARD & POOR'S 500 18.46% 28.07% 26.25% 18.98%
- --------------------------------------------------------------------------------
9
<PAGE>
HOW YOUR ACCOUNT WORKS
Other information
concerning the Fund
The Fund's distributor is CFD Fund Distributors Inc., which we call CFD in this
prospectus. CFD is a subsidiary of The BISYS Group, Inc. and is not affiliated
with Chase.
Chase, the Fund and their respective affiliates, agents and sub-agents may
share information about shareholders and their accounts with each other and
with others unless this sharing is prohibited by contract. The information can
be used for a variety of purposes, including offering investment and insurance
products to shareholders.
Distributions and taxes
The Fund can earn income and it can realize capital gains. The Fund deducts any
expenses and pays these earnings out to shareholders as distributions.
The Fund distributes any net investment income at least quarterly. Net capital
gain is distributed at least annually.
Although the Fund offers the ability for shareholders to receive their
distributions either in additional Fund shares or in cash, it is expected that
the Plans will elect to receive all distributions in additional Fund shares.
Because of special tax rules applicable to retirement accounts, you will not be
currently taxed on dividends paid by the Fund to your Plan. In general, you
will be taxed only when you receive a distribution for your Plan. Substantial
penalties and ordinary income tax (on the whole distribution) will be imposed
if amounts are withdrawn from the Plan prior to age 591/2, unless certain
exceptions apply. Provided the proceeds stay in your Plan, you will not be
taxed on redemption or exchange of Fund shares. You should consult your tax
advisor about the implications of investing in different types of retirement
accounts and about the tax impact of making withdrawals from your Plan.
The Fund expects that its distributions will consist primarily of capital
gains.
Different tax consequences apply for investments outside a retirement account
or if your Plan becomes ineligible for the special tax treatment described
above.
10
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What the terms mean
DEBT SECURITIES: securities used by issuers, such as governmental entities
and corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date
of the security. However, if a borrower issues a zero coupon debt security, it
does not make regular interest payments.
DEPOSITARY RECEIPTS: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
DISTRIBUTION FEE: a fee that covers the cost of the distribution system used to
sell shares to the public.
GROWTH APPROACH: approach which focuses on identifying securities of companies
whose earnings growth potential appears to the manager to be greater than the
market in general and whose growth in revenue is expected to continue for an
extended period.
MANAGEMENT FEE: a fee paid to the investment adviser to manage the Fund and
make decisions about buying and selling the Fund's investments.
OTHER EXPENSES: miscellaneous items, including transfer agency, custody and
registration fees.
REPURCHASE AGREEMENTS: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
11
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HOW TO REACH US
More information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed information about the Fund and its policies. By
law, it's considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-888-524-2730 or writing to:
Chase Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasefunds.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Fund, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5526
Chase Funds
Fulfillment Center
393 Manley Street
West Bridgewater, MA 02379-1039
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION-JUNE 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
, 1999
CHASE EQUITY GROWTH FUND II
ONE CHASE MANHATTAN PLAZA, NEW YORK, NEW YORK 10081
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectus offering shares of the Fund. This Statement of Additional Information
should be read in conjunction with the Prospectus offering shares of Chase
Equity Growth Fund II. Any references to a "Prospectus" in this Statement of
Additional Information is a reference to the foregoing Prospectus. Copies of the
Prospectus may be obtained by an investor without charge by contacting CFD Fund
Distributors, Inc. ("CFD"), the Fund's distributor (the "Distributor"), at the
above-listed address.
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:
1-800-62-CHASE
Chase Funds Service Center
P.O. Box 419392
Kansas City, MO 64141
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Fund................................................................................................... 3
Investment Policies and Restrictions....................................................................... 3
Performance Information.................................................................................... 20
Determination of Net Asset Value........................................................................... 21
Purchases, Redemptions and Exchanges....................................................................... 22
Tax Matters................................................................................................ 23
Management of the Trust and the Fund....................................................................... 27
Independent Accountants.................................................................................... 32
Certain Regulatory Matters................................................................................. 32
General Information........................................................................................ 33
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
</TABLE>
2
<PAGE>
THE FUND
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" or "Chase Funds"), of which the
Equity Growth Fund II (the "Fund") is one series. The Fund is a diversified
Fund, as such term is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). References to "Shares" in this Statement of Additional
Information are to the shares of Equity Growth Fund II and not to shares of
the other series.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The Chase Manhattan Bank ("Chase") is
the investment adviser for the Funds. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration of
the Trust, including the Funds. A majority of the Trustees of the Trust are not
affiliated with the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT POLICIES
The Prospectus sets forth the investment policies of the Fund. The
following information supplements and should be read in conjunction with the
related sections of the Prospectus.
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 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.
In the case of obligations not backed by the full faith and credit of the U.S.
Treasury, the agency issuing or guaranteeing the obligation is principally
responsible for ultimate repayment. 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
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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.
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.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Fund's foreign investments may be influenced by
currency exchange rates and exchange control regulations. There may be less
information publicly available about foreign issuers than U.S. issuers, and they
are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the U.S. Foreign securities may
be less liquid and more volatile than comparable U.S. securities. Foreign
settlement procedures and trade regulations may involve certain expenses and
risks. One risk would be the delay in payment or delivery of securities or in
the recovery of the Fund's assets held abroad. It is possible that
nationalization or expropriation of assets, imposition of currency exchange
controls, taxation by withholding Fund assets, political or financial
instability and diplomatic developments could affect the value of the Fund's
investments in certain foreign countries. Foreign laws may restrict the ability
to invest in certain countries or issuers, and special tax considerations will
apply to foreign securities. The risks can increase if a Fund invests in
emerging market securities.
Depositary Receipts. The Fund may invest its assets in securities of
foreign issuers in the form of American Depositary Receipts, European Depositary
Receipts, Global Depositary Receipts or other similar securities representing
securities of foreign issuers (collectively, "Depositary Receipts.") The Fund
treats Depositary Receipts as interests in the underlying securities for
purposes of its investment policies it 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.
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Obligations of Foreign Governments and Supranational Agencies. The Fund
may invest in U.S. dollar-denominated obligations of foreign governments.
The Fund may invest in debt securities issued by supranational
organizations, which include organizations such as The World Bank, which was
chartered to finance development projects in developing member countries; the
European Union, which is a fifteen-nation organization engaged in cooperative
economic activities; 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.
Obligations of supranational agencies are supported by subscribed, but unpaid,
commitments of member countries. There is no assurance that these commitments
will be undertaken or complied with in the future, and foreign and supranational
securities are subject to certain risks associated with foreign investing.
Credit Quality. The Fund will invest in debt securities of domestic and
foreign issuers only if they are rated investment grade or, if unrated,
determined by the Fund's advisers to be of comparable quality. Investment grade
debt securities are securities rated in the category of Baa or higher by Moody's
or BBB or higher by S&P or the equivalent by another NRSRO. Although the
advisers are not required to dispose of securities which are downgraded below
investment grade subsequent to acquisition, there is no present intention to
retain securities which are downgraded below investment grade. The Fund's
investments in securities other than debt of domestic and foreign issuers and
debt obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (e.g. preferred stock) will be based on the advisers' judgment
of the quality of the securities. The judgment may be based upon such
considerations as the issuer's financial strength, including its historic and
current financial condition and its historic and projected earnings; the
issuer's market position; and, other factors relevant to an analysis of a
particular issuer, as determined by the advisers.
In determining the credit quality of a fixed income security, the Fund's
advisers will consider the issuer's financial strength, including its historic
and current financial condition, its historic and projected earnings; the
issuer's market position; and, other factors relevant to an analysis of a
particular issue as determined by the advisers.
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 the 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.
Convertible Securities. The Fund may invest in convertible securities,
which are securities generally offering fixed interest or dividend yields which
may be converted either at a stated price or stated rate for common or preferred
stock. Although to a lesser extent than with fixed income securities generally,
the market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Because of the conversion
feature, the market value of convertible securities also tends to vary with
fluctuations in the market value of the underlying common or preferred stock.
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Common Stock. The Fund may invest in common stock and those debt
securities and preferred stocks that are convertible into common stock.
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 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.
Repurchase Agreements. The Fund may enter into agreements to purchase and
resell securities at an agreed-upon price and time. These transactions involve
some risk to the Fund if the other party should default on its obligation and
the Fund is delayed or prevented from recovering the collateral or completing
the transaction. The 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 the Fund
is permitted to invest. Under the terms of a typical repurchase agreement, the
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 the 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, the 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 the Fund. Repurchase agreements maturing in more than seven
days are treated as illiquid for purposes of the Fund's 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 the 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. 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 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 for the Fund consisting of cash or liquid
securities equal to the amount of the Fund's commitments securities will be
established at the 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. 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 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 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 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
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value greater or lesser than the Fund's payment obligations). The sale of
securities to meet such obligations may result in the realization of capital
gains or losses which are not exempt from federal, state or local taxation.
To the extent the 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. The Fund may invest in floating
rate securities, whose interest rates adjust automatically whenever a specified
interest rate changes, and variable rate securities, whose interest rates are
periodically adjusted. 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. 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 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 Fund 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.
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 Fund on the basis of published financial information
and reports of the rating agencies and other bank analytical services to which
the Fund may subscribe. Although these instruments may be sold by the 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. The 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 the 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.
Borrowings and Reverse Repurchase Agreements The Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow money to
buy additional securities, known as "leveraging." The Fund may use this practice
to generate cash for shareholder redemptions without selling securities during
unfavorable market conditions. 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. Whenever a Fund enters into a reverse
repurchase agreement, it will establish a segregated account in which it will
maintain liquid assets on a daily basis in an amount at least equal to the
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repurchase price (including accrued interest). The Fund would be required to pay
interest on amounts obtained through reverse repurchase agreements, which are
considered borrowings under federal securities laws.
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 component parts separately. The interest
component of STRIPS may be more volatile than that of United States Treasury
bills with comparable maturities. The Fund may invest up to 25% of its total
assets in stripped obligations (i.e., separately traded principal and interest
components of securities), where the underlying obligations are backed by the
full faith and credit of the U.S. Government, including instruments known as
"STRIPS". The risk is greater when the period to maturity is longer.
Zero coupon securities are debt securities that do not pay regular interest
payments, and instead are sold at substantial discounts from their value at
maturity. When these obligations are 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, the 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
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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.
Stand-By Commitments. The Fund may enter into put transactions, including
those sometimes referred to as stand-by commitments, with respect to securities
in its portfolio. 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. A put transaction will
increase the cost of the underlying security and consequently reduce the
available yield. Each of these transactions involves some risk to the Fund if
the other party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the transaction.
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.
Securities Loans. The 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
the Fund's total assets. In connection with such loans, the 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. The Fund
can increase its income through the investment of such collateral. The 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 the 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. The Fund might experience risk of loss if the institutions
with which it has engaged in portfolio loan transactions breach their agreements
with the 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.
Apart from being able to invest all of its investable assets in another
investment company having substantially the same investment objectives and
policies, the Fund may invest up to 10% of its total assets in shares of other
registered investment companies when consistent with its investment objectives
and policies, subject to applicable regulatory limitations. Additional fees will
be charged by such other investment companies.
The Fund is classified as a "diversified" fund under federal securities
laws.
ADDITIONAL POLICIES REGARDING DERIVATIVE AND RELATED TRANSACTIONS
Introduction. As explained more fully below, the Fund may employ
derivative and related instruments as tools in the management of portfolio
assets. Some of these instruments will be subject to asset segregation
requirements to cover the Fund's obligations. The Fund may (i) purchase, write
and exercise call and put options on securities and securities indexes
(including using options in combination with securities, other options or
derivative instruments); (ii) enter into swaps, futures contracts and options on
futures contracts; (iii) employ forward currency and interest rate contracts;
and, (iv) purchase and sell structured products, which are instruments designed
to restructure or reflect the characteristics of certain other investments. Put
briefly, a "derivative" instrument may be considered a security or other
instrument which derives its value from the value or performance of 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.
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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 the Fund.
The 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 Fund may
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--ability of the
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, the Fund could be exposed to the risk of a loss. The Fund 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 Fund may employ along with risks or special attributes
associated with them. This discussion is intended to supplement the Fund's
current prospectus 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 the 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 the Fund than hedging strategies
using the same instruments. There can be no assurance that a liquid market will
exist at a time when the 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 the 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 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, the
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
the Fund.
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Options on Securities, Securities Indexes and Debt Instruments. The 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 Fund 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. The 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, the 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. The 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 Fund
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, the
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 Fund will not
write uncovered options.
If a put or call option purchased by the 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, the 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 the Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, the Fund
may be unable to close out a position.
Futures Contracts and Options on Futures Contracts. The 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").
The futures contracts and futures options may be based on various
instruments or indices in which the Fund 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,
the 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 the Fund intends to acquire an
instrument or enter into a position. For example, the 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 Fund 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 Fund may engage in cross-hedging by purchasing or selling futures
or options on a security or currency different from
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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 Fund 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. The 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. The 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, the 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, the 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 the 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."
The 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.
The 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.
Interest Rate and Currency Transactions. The 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 the Fund's net currency exposure
will not exceed the total net asset value of its portfolio. However, to the
extent that the Fund is fully invested while also maintaining currency
positions, it may be exposed to greater combined risk.
The Fund 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 the Fund is contractually obligated
to make. If the other party to an interest rate or currency swap defaults, the
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 Fund expect to achieve an
acceptable degree of correlation between their portfolio investments and their
interest rate or currency swap positions.
The 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.
The 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,
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but securities denominated in that currency do not present attractive investment
opportunities and are not held by the Fund. In addition, the Fund may enter into
forward foreign currency exchange contracts in order to protect against adverse
changes in future foreign currency exchange rates. The 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 the 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
the 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, the
Fund may not always be able to enter into foreign currency forward contracts at
attractive prices, and this will limit the Fund's ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to the 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 the 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.
The 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. The Fund may invest in investment grade
mortgage-related securities--i.e., securities representing an ownership interest
in a pool of mortgage loans issued by lenders such as mortgage bankers,
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. Like other
fixed income securities, when interest rates rise the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed income, fixed maturity securities which have
no prepayment or call features.
The 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.
The Fund may invest in investment grade Collateralized Mortgage Obligations
("CMOs"), which are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. CMOs may be
collateralized by whole residential or commercial 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
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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 Fund may invest in principal-only or interest-only stripped
mortgage-backed securities. Stripped mortgage-backed securities have greater
volatility than other types of mortgage-related securities. Stripped
mortgage-backed securities which are purchased at a substantial premium or
discount generally are extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on such securities' yield
to maturity. In addition, stripped mortgage securities may be illiquid.
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. The 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. The Fund may enter into mortgage "dollar rolls" in which the
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. Under a mortgage "dollar
roll," the 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, the Fund forgoes principal and interest paid on the mortgage-backed
securities. The 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. The 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 the 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 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. The Fund may invest in investment grade
asset-backed securities, which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, most
often a pool of assets similar to one another, such as motor vehicle
receivables, credit card receivables, 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 Receivables(Service Mark)"
or "CARS(Service Mark)" ("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
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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. The 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. The 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. The Fund may invest in structured products which represent derived
investment positions based on relationships among different markets or asset
classes.
The 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. Interest rate
caps are financial instruments under which payments occur if an interest rate
index exceeds a certain predetermined interest rate level, known as the cap
rate, which is tied to a specific index. The Fund does not have a present
intention to invest in inverse floaters or securities with interest rate caps. 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, of the respective securities. When the 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 the 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. The 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 the 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 the 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, the Fund's investments in
these structured products may be limited by the restrictions contained
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in the 1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
Additional Restrictions on the Use of Futures and Option Contracts. The
Fund is not 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 the 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 the 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 the 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 the 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 of the Chase Funds is permitted to invest all of its
investable assets in a separate registered investment company (a "Portfolio").
In that event, a shareholder's interest in the Fund's underlying investment
securities would be indirect. In addition to selling a beneficial interest to
the Fund, a Portfolio could also sell beneficial interests to other mutual funds
or institutional investors. Such investors would invest in such Portfolio on the
same terms and conditions and would pay a proportionate share of such
Portfolio's expenses. However, other investors in a Portfolio would not be
required to sell their shares at the same public offering price as the Fund, and
might bear different levels of ongoing expenses than the Fund. Shareholders of
the Fund should be aware that these differences may result in differences in
returns experienced in the different funds that invest in a Portfolio. Such
differences in return are also present in other mutual fund structures.
Smaller funds investing in a Portfolio could be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
were to withdraw from a Portfolio, the remaining funds might experience higher
pro rata operating expenses, thereby producing lower returns. Additionally, the
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 Portfolio could have effective voting control of such Portfolio. Under this
master/feeder investment approach, whenever the Trust was requested to vote on
matters pertaining to a 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
Portfolio's objective, policies or restrictions might require the Trust to
withdraw the relevant Fund's interest in such Portfolio. Any such withdrawal
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution from such 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.
The Fund will not adopt a master/feeder structure under which the
disinterested Trustees of the Trust are Trustees of the 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.
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If the Fund invests all of its investable assets in a Portfolio, investors
in the Fund will be able to obtain information about whether investment in the
Portfolio might be available through other funds by contacting the Chase Funds
Service Center. In the event the Fund adopts a master/feeder structure and
invests all of its investable assets in a Portfolio, shareholders of the Fund
will be given at least 30 days' prior written notice.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which may not be
changed without approval by a "majority of the outstanding shares" of the Fund
which, as used in this Statement of Additional Information, means the vote of
the lesser of (i) 67% or more of the shares of the Fund present at a meeting, if
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may not:
(1) borrow money, except that the 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 the Fund's total assets must be repaid before
the Fund may make additional investments;
(2) make loans, except that the 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, with respect to the 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;
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
the 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
the Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
Investments by the 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) the 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) the 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, the 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
(7) underwrite securities issued by other persons except insofar as
the Fund may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
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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 the 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.
In addition, the Fund is subject to the following nonfundamental
restrictions which may be changed without shareholder approval:
(1) The 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).
(2) The 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) The Fund may not purchase or sell interests in oil, gas or mineral
leases.
(4) The Fund may not invest more than 15% of its net assets in
illiquid securities.
(5) The 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 the 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, the 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.
For purposes of the Fund's 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 the Fund will not be considered a violation. If the value of the
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 the Fund are made by
a portfolio manager who is an employee of the adviser or sub-adviser to the Fund
and who is appointed and supervised by senior officers of such adviser or
sub-adviser. Changes in the Fund's investments are reviewed by the Board of
Trustees of the Trust. The portfolio managers may serve other clients of the
advisers in a similar capacity.
The frequency of the 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
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anticipated gains. The 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. The Fund will apply this policy with respect
to both the equity and debt portions of its portfolio.
For the fiscal year ended December 31, 1999, the annual rates of portfolio
turnover for the Fund is 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 Fund. 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 the Fund
on any particular transaction, and are not required to execute any order in a
fashion either preferential to the 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 the 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 Fund to pay a broker-dealer which provides brokerage and research
services to the adviser or sub-advisers, the Fund and/or other accounts for
which they exercise investment discretion an amount of commission for effecting
a securities transaction for the 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 Fund. The adviser and
sub-advisers report to the Board of Trustees regarding overall commissions paid
by the Fund and their reasonableness in relation to the benefits to the Fund.
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 Fund pays 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 Fund's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Fund 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 Fund. While such services 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 the
Fund as well as one or more of the adviser's or sub-advisers' other clients.
Investment decisions for the Fund and for other clients are made with a view to
achieving their respective investment objectives. It may develop that the same
investment decision is
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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 the Fund
and other clients of the advisers 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 Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will generally produce
better executions for the Fund.
No portfolio transactions are executed with the advisers or with any
affiliate of the advisers, acting either as principal or as broker.
PERFORMANCE INFORMATION
Investment performance, which will vary, is based on many factors,
including market conditions, the composition of the Fund's portfolio and the
Fund's operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objectives and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Quotation of investment
performance for any period when a fee waiver or expense limitation was in effect
will be greater than if the waiver or limitation had not been in effect. The
Fund's performance may be compared to other mutual funds, relevant indices and
rankings prepared by independent services.
From time to time, the 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 the Fund in the future. From
time to time, the performance and yield of classes of the Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
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 the 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 the Fund or its classes. The 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, the Fund may, with proper
authorization, reprint articles written about the Fund and provide them to
prospective shareholders.
The 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 the
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 of the classes of
shares of the 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 the Fund's operating expenses
on a
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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 the Fund to yields and total rates of return
published for other investment companies and other investment vehicles
(including different classes of shares).
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 the Fund.
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
The 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.
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.
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.
Equity securities in the 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
the 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
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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.
Bonds and other fixed income securities, (other than short-term
obligations) in the 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 the 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.
PURCHASES, REDEMPTIONS AND EXCHANGES
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 Fund's 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 Prospectus 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, the 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 the 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 the Fund in writing.
Subject to compliance with applicable regulations, the 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).
The 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 Prospectus. The 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.
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TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. 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
Prospectus are not intended as substitutes for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be taxed as a regulated investment
company (a "RIC") under Subchapter M of the Code. If the Fund qualifies as a
RIC, the 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 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 at least 90% of its net investment income for the taxable year.
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, the Fund must
satisfy an asset diversification test in order to qualify as a RIC. Under this
test, at the close of each quarter of the 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.
The 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
the 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 the 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). The 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 the 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 the 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, the Fund might be required to recognize in a year
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<PAGE>
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.
If for any taxable year the 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.
The 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 the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The 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 may differ between classes as a result
of differences in class specific expenses.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The 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 recently enacted legislation, the maximum rate of tax on long-term
capital gains of individuals will generally be reduced from 28% to 20% (10% for
gains otherwise taxed at 15%) for long-term capital gains realized after
July 28, 1997 with respect to capital assets held for more than 18 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%. Under a literal reading of the legislation, capital
gain dividends paid by a RIC would not appear eligible for the reduced capital
gain rates. However, the legislation authorizes the Treasury Department to
promulgate regulations that would apply the new rates to capital gain dividends
paid by a RIC.
Conversely, if the 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 the 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.
Ordinary income dividends paid by the 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 the
Fund from domestic corporations for the taxable year. A dividend received by the
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
24
<PAGE>
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 the 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 the
Fund.
Investment income that may be received by the Fund 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.
Distributions by the 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 the 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. 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 the 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.
The 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
A shareholder in the Fund 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 the 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 the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
25
<PAGE>
If the income from the 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.
If the income from the 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, the 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 the 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 the 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 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 the 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 the
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 the Fund invests to a substantial degree in U.S.
government securities which are subject to favorable state and local tax
treatment, shareholders of the 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 the Fund. Investors should be careful to consider the tax
implications of purchasing shares just prior to the next distribution date.
Those investors purchasing shares just prior to a distribution date will be
taxed on the entire amount of the distribution received, even though the net
asset value per share on the date of such purchase reflected the amount of such
distribution.
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.
26
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUND
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust 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--Chair 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. Trustee,
Chase Vista Funds. Age: 46. Address: Chase Mutual Funds Corp., One Chase
Manhattan Plaza, Third Floor, New York, NY 10081.
Frank A. Liddell, Jr.--Trustee. Retired; Of Counsel, Liddell, Sapp,
Zivley, Hill & LaBoon. Member of AVESTA Trust Supervisory Committee from
inception to 1997. Age: 68. Address: P.O. Box 2558, Houston, TX 77252.
George E. McDavid--Trustee. President, Houston Chronicle Publishing
Company. Member of AVESTA Trust Supervisory Committee from inception to 1997.
Age: 66. Address: P.O. Box 2558, Houston, TX 77252.
Kenneth L. Otto--Trustee. Retired; formerly Senior Vice President, Tenneco
Inc. Member of AVESTA Trust Supervisory Committee from inception to 1997.
Age: 66. Address: P.O. Box 2558, Houston, TX 77252.
Fergus Reid, III--Trustee. Chairman and Chief Executive Officer, Lumelite
Corporation since September 1985. Chairman and Trustee, the Chase Vista Funds.
Trustee, Morgan Stanley Funds. Age: 65. Address: 202 June Road, Stamford, CT
06903.
H. Michael Tyson--Trustee. Retired; formerly Executive Vice President,
Texas Commerce Bank from 1990 to 1995. Member of AVESTA Trust Supervisory
Committee from 1988 to 1997. Age: 58. Address: P.O. Box 2558, Houston, TX 77252.
Martin R. Dean--Treasurer. Associate Director, Accounting Services, BISYS
Fund Services; formerly Senior Manager, KPMG Peat Marwick (1987-1994). Age: 33.
Address: 3435 Stelzer Road, Columbus, OH 43219.
Richard Baxt--Secretary. Senior Vice President, Client Services, BISYS
Fund Services; formerly General Manager of Investment and Insurance, First
Fidelity Bank, President of First Fidelity Brokers, and President of Citicorp
Investment Services. Age: 44. Address: 125 W. 55th Street, New York, NY 10019.
Vicky M. Hayes--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributor, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 36. Address: One Chase Manhattan Plaza, Third Floor, New York, NY
10081.
Alaina Metz--Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Department, Alliance Capital Management
L.P. Age: 30. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lee Schultheis--Assistant Treasurer and Assistant Secretary. President,
BISYS Fund Distributors; formerly Senior Managing Director, Forum Financial
Group. Age: 41. Address: One Chase Manhattan Plaza, Third Floor, New York, NY
10081.
Ms. Jones is also a Trustee of Mutual Fund Group, Mutual Fund Trust, Mutual
Fund Select Group, Mutual Fund Select Trust, Mutual Fund Variable Annuity Trust,
Capital Growth Portfolio, Growth and Income Portfolio and International Equity
Portfolio (these entities are referred to as the "Chase Vista Funds"). Mr. Reid
is Chairman and a Trustee of the Chase Vista Funds. Messrs. Dean, Baxt and
Schultheis and Ms. Hayes and Metz also serve in the same capacities of the Chase
Vista Funds.
- - ------------------
* Asterisks indicate those Trustees that are "interested persons" (as defined in
the 1940 Act). The Board of Trustees of the Trust presently has an Audit
Committee. The members of the Audit Committee are Messrs. Liddell, McDavid,
Otto, Reid and Tyson. The function of the Audit Committee is to recommend
independent auditors and monitor accounting and financial matters.
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<PAGE>
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. Each such
Trustee receives a fee, 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, 1998 for each member of the Board of
Trustees:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
------------------
<S> <C>
Frank A. Liddell, Jr., Trustee........................ $7,000
George E. McDavid, Trustee............................ 7,000
Kenneth L. Otto, Trustee.............................. 7,000
H. Michael Tyson, Trustee............................. 7,000
</TABLE>
The Declaration of Trust provides that the Trust 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, 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. 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-ADVISERS
Chase acts as investment adviser to the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees may determine, Chase is responsible for investment decisions
for the Fund. Pursuant to the terms of the Advisory Agreement, Chase provides
the Fund with such investment advice and supervision as it deems necessary for
the proper supervision of the Fund's 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 Fund's 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 Fund. The Advisory Agreement for the Fund 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 the 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 Fund 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 on behalf of the Fund on not more than 60 days',
nor less than 30 days', written notice when authorized either by a majority vote
of the Fund's shareholders or by a vote of a majority of the Board of Trustees
of the Trust, 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 Fund, except for wilful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of reckless disregard of its
obligations and duties thereunder.
In the event the operating expenses of the Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses
28
<PAGE>
such as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to the Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of the Fund 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 Fund during such fiscal year; and if such amounts should
exceed the monthly fee, the adviser shall pay to the 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 Choice Equity Growth Fund, has entered into an
investment sub-advisory agreement with Texas Commerce Bank National Association,
which subsequently changed its name to Chase Bank of Texas, National Association
(herein "Chase Texas"). With respect to the day-to-day management of the Fund,
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 purchases 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 Fund.
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.
For shareholders that bank with Chase or Chase Texas, Chase or Chase Texas
may aggregate investments in the Chase Funds with balances held in Chase or
Chase Texas bank accounts for purposes of determining eligibility for certain
bank privileges that are based on specified minimum balance requirements, such
as reduced or no fees for certain banking services or preferred rates on loans
and deposits. Chase, Chase Texas and certain other financial institutions may,
at their own expense, provide gifts, such as computer software packages, guides
and books related to investment or additional Fund shares valued up to $250 to
their customers that invest in the Chase Funds.
Chase and its affiliates and the Chase Funds, affiliates, agents and
subagents may exchange among themselves and others certain information about
shareholders and their accounts, including information used to offer investment
products and insurance products to them, unless otherwise contractually
prohibited.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of the Fund's average daily net assets specified in the Prospectus.
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 the Fund,
such compensation, payable by the advisor out of its advisory fee, as described
below.
For its investment advisory services to the Fund, Chase is entitled to
receive an annual fee equal to 0.40% of the average daily net assets of the
Fund.
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<PAGE>
For its sub-investment advisory services to the Funds, Chase Texas is
entitled to receive a fee, payable by Chase, at an annual rate equal to 0.20%
percent of the average daily net assets of the Fund.
The Trustee had agreed to reimburse the Fund for the amount by which the
expenses of the 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.
ADMINISTRATOR
Pursuant to an Administration Agreement (the "Administration Agreement"),
Chase is the administrator of the Fund. Chase provides certain administrative
services to the Fund, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Fund's independent contractors and agents; preparation for
signature by an officer of the Trust of all documents required to be filed for
compliance by the Trust 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 Fund
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 Fund, 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 the Fund only if such continuance is
specifically approved at least annually by the Board of Trustees of the Trust or
by vote of a majority of the 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
on behalf of the Fund on 60 days' written notice when authorized either by a
majority vote of the 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 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 Fund, 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 the 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 the
Fund imposed by the securities laws or regulations thereunder of any state in
which the shares of the 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 year, and if such amounts should exceed the monthly fee, Chase shall
pay to the 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 the Fund a fee computed daily and
paid monthly at an annual rate equal to 0.10% of the Fund's average daily net
assets, on an annualized basis for the Fund's then-current fiscal year. Chase
may voluntarily waive a portion of the fees payable to it with respect to the
Fund on a month-to-month basis.
30
<PAGE>
DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trust has entered into a Distribution and Sub-Administration Agreement
(the "Distribution Agreement") with the Distributor, pursuant to which the
Distributor acts as the Fund's 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
the 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.
CFD Fund Distributors, Inc. ("CFD") acts as the Fund's sub-administrator
and distributor. For the sub-administrative services it performs, CFD is
entitled to receive a fee from the Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. CFD has agreed to use a portion of this fee to
pay for certain expenses incurred in connection with organizing new series of
the Trust and certain other ongoing expenses of the Trust. CFD is located at One
Chase Manhattan Plaza, Third Floor, New York, NY 10081.
CFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Chase Funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater for entertainment for broker-dealers and their guests;
and, payment or reimbursement for travel expenses, including lodging and meals,
in connection with attendance at training and educational meetings within and
outside the U.S.
The Distribution Agreement is currently in effect and will continue in
effect with respect to the Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the 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 the Fund on
60 days' written notice when authorized either by a majority vote of the 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 the 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 the Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of the 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 the 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 the Fund during
such fiscal year; and if the amounts should exceed the monthly fee, the
Distributor shall pay to the 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 the Fund. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable to
it under the Distribution Agreement with respect to the Fund on a month-to-month
basis.
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<PAGE>
EXPENSES
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Fund's custodian
for all services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to government office and commissions; expenses of
meetings of investors; fees and expenses of independent accountants, of legal
counsel and any transfer agent, registrar or dividend disbursing agent of the
Trust; insurance premiums; and, expenses of calculating the net as value of, and
the net income on, shares of the Fund. Shareholder servicing and distribution
fees are allocated to specific classes of the Fund. In addition, the Fund may
allocate transfer agency and certain other expenses by class.
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 the 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 portfolio of the Fund. Chase also provides
fund accounting services for the income, expenses and shares outstanding for the
Fund. Chase may sub-contract for the provision of certain services to be
provided under the custody agreement. Fund securities and cash may be held by
sub-custodian banks if such arrangements are reviewed and approved by the
Trustees. Chase is located at 3 Metrotech Center, Brooklyn, NY 11245.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP provides the Fund 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
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and generally
prohibit banks from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks or their affiliates from acting as investment
adviser, administrator or custodian to mutual funds or from purchasing mutual
fund shares as agent for a customer. Chase and the Trust believe that Chase
(including its affiliates) may perform the services to be performed by it as
described in the Prospectus and this Statement of Additional Information without
violating such laws. If future changes in these laws or interpretations required
Chase to alter or discontinue any of these services, it is expected that the
Board of Trustees would recommend alternative arrangements and that investors
would not suffer adverse financial consequences. State securities laws may
differ from the interpretations of banking law described above and banks may be
required to register as dealers pursuant to state law.
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 Fund, 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 Fund's 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 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
32
<PAGE>
paper available to be purchased by the Fund. Chase has informed the Fund 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 Fund 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
The Fund is a series of the Mutual Fund Investment Trust, an open-end,
management investment company organized as a Massachusetts business trust under
the laws of the Commonwealth of Massachusetts on September 23, 1997 (the
"Trust"). 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 whole share
held, and each fractional share shall be entitled to a proportionate fractional
vote, except that Trust shares held in the treasury of the Trust shall not be
voted. 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 Fund may issue multiple classes of shares. The categories of investors
that are eligible to purchase shares may differ for each class of Fund shares.
The classes of shares have several different attributes relating to expenses, as
described herein and in the Prospectus. In addition to such differences,
expenses borne by each class of the Fund may differ slightly because of the
allocation of other class-specific expenses. 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 business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. 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. The Trustees will promptly call a
meeting of shareholders to remove a trustee when requested to do so in writing
by record holders of not less than 10% of all outstanding shares of the Trust.
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.
33
<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 March 31, 1999, no persons beneficially owned of record 5% or more of
the outstanding shares of the Fund.
34
<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.
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.
A-1
<PAGE>
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 SERVICE'S 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" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
B-1
<PAGE>
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 protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
B-2
<PAGE>
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS 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>
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 None.
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.
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 1st day of
June, 1999.
MUTUAL FUND INVESTMENT TRUST
By /s/ Sarah E. Jones
--------------------------
Sarah E. 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.
/s/ Sarah E. Jones Chair June 1, 1999
- - ------------------------- and
Sarah E. Jones Trustee
/s/ Frank A. Liddell, Jr.
- - ------------------------- Trustee June 1, 1999
Frank A. Liddell, Jr.
/s/ George E. McDavid
- - ------------------------- Trustee june 1, 1999
George E. McDavid
/s/ Kenneth L. Otto
- - ------------------------- Trustee June 1, 1999
Kenneth L. Otto
/s/ Fergus Reid, III
- - ------------------------- Trustee June 1, 1999
Fergus Reid, III
/s/ H. Michael Tyson
- - ------------------------- Trustee June 1, 1999
H. Michael Tyson
<PAGE>
47
/s/ Martin Dean
- - ------------------------- Treasurer June 1, 1999
Martin Dean and Principal
Financial
Officer
II-9
