As filed with the Securities and Exchange Commission on November 13, 1995
File No. 811-5151
Registration No. 33-14196
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 31 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Post-Effective Amendment No. 70 |X|
MUTUAL FUND GROUP
(Exact Name of Registrant as Specified in Charter)
125 West 55th Street
New York, New York 10019
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 426-1600
Copy to:
Ann Bergin Carl Frischling, Esq.
Mutual Fund Group Kramer, Levin, et. al.
125 West 55th Street 919 Third Avenue
New York, New York 10019 New York, New York 10022
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
|_| immediately upon filing |_| on ( ) pursuant to
pursuant to paragraph (b) paragraph (b)
|X| 60 days after filing |_| on ( ) pursuant to
pursuant to paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing |_| on ( ) pursuant to
pursuant to paragraph (a)(2) paragraph (a)(2) rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its series under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940 on July 18, 1994 and
Registrant's Rule 24f-2 Notice will be filed on or around December 30, 1995.
This Filing Consists of Pages.
Exhibit Index is Located on Page .
The Hub Funds (Capital Growth Portfolio and Growth and Income Portfolio) have
executed this Registration Statement.
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Mutual Fund Group
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of
Prospectus of the responses to the Items in Part A and location in each form of
Prospectus and the Statement of Additional Information of the responses to the
Items in Part B of Form N-1A).
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) CAPITAL GROWTH FUND
VISTA(SM) SMALL CAP EQUITY FUND
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
---------------------------------------------------------------------------
1 Front Cover Page *
2(a) Expense Summary *
(b) Not Applicable *
3(a) Not Applicable *
(b) Not Applicable *
(c) Yield and Performance *
Information
4(a)(b) Other Information *
Concerning Shares of the
Fund; Investment Objectives,
Policies and Risk Factors;
Additional Information on
Investment Policies and
Techniques
(c) Investment Objectives, Policies *
and Risk Factors
(d) Not Applicable *
5(a) Management *
(b) Management - The Adviser; *
Back Cover Page
(c)(d) Management - The *
Administrator; Shareholder
Servicing Agents, Transfer
Agent and Custodian
(e) Shareholder Servicing Agents, *
Transfer Agent and Custodian -
Transfer Agent and Custodian;
Back Cover Page
(f) Other Information Concerning *
Shares of the Fund - Expenses
-i-
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Mutual Fund Group
(g) Not Applicable *
5A Not Applicable *
6(a) Other Information Concerning *
Shares of the Fund -
Description of Shares, Voting
Rights and Liabilities
(b) Not Applicable *
(c) Not Applicable *
(d) Not Applicable *
(e)(f) Shareholder Servicing Agents, *
Transfer Agent and Custodian -
Shareholder Servicing Agents
(f) Other Information Concerning *
Shares of the Fund - Net
Income - Dividends and Capital
Gains Distributions
(g) Tax Matters Tax Matters
7(a) Purchases and Redemptions of *
Shares - Purchases; Back
Cover Page
(b) Purchases and Redemptions of *
Shares - Purchases; Other
Information Concerning Shares
of the Fund - Net Asset Value;
Shareholder Servicing Agents,
Transfer Agent and Custodian -
Shareholder Servicing Agents
(c) Not Applicable *
(d) Shareholder Servicing Agents, *
Transfer Agent and Custodian -
Shareholder of Servicing
Agents
(e) Purchases and Redemptions of *
Shares; Other Information
concerning Shares of the Fund
- Distribution Plans and
Distribution and Sub-
Administration Agreement
8(a) Purchases and Redemptions of *
Shares - Redemptions
(b) Purchases and Redemptions of *
Shares - Redemptions
-ii-
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Mutual Fund Group
(c) Not Applicable *
(d) Not Applicable *
9 Not Applicable *
-iii-
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Mutual Fund Group
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) CAPITAL GROWTH FUND
VISTA(SM) SMALL CAP EQUITY FUND
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
------------------------------------------------------------------------
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13 Investment Objective and Investment Objective,
Policies Policies and Restrictions
14 * Management of the Fund -
Trustees and Officers
15(a) * Not Applicable
(b) * Not Applicable
(c) * Management of the Fund
16(a) Management--The Adviser Management of the Fund-
Adviser
(b) Management--The Adviser Management of the Fund-
Adviser
(c) Other Information Concerning Management of the Fund-
Shares of the Fund - Expenses Administrator
(d) Management -- The Management of the Fund-
Administrator Administrator
(e) * Not Applicable
(f) Purchases and Redemptions Management of the Fund
of Shares;Other Information - Distribution
Concerning Sharesof the Fund
-Distribution Plan and
Distribution and Sub-Administration
Agreement
(g) * Not Applicable
-iv-
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Mutual Fund Group
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
(h) * Management of the Fund -
Shareholder Servicing Agents,
Transfer Agent and Custodian;
Independent Accountants; Back
Cover Page
(i) * Not Applicable
17 Investment Objective Investment Objectives,
and Policies Policies and Restrictions -
Portfolio Transactions
18 Other Information General Information -
Concerning Shares of the Description of Shares,
Fund - Description of Voting Rights and
Shares Voting Rights and Liabilities
Liabilities
19(a) Purchases and Redemptions *
of Shares
(b) Other Information Determination of Net Asset
Concerning Shares of the Value
Fund - Net Asset Value;
Purchases and Redemptions
of Shares
(c) * Not Applicable
20 Tax Matters Tax Matters
21(a) * Management of the Fund -
Distributor
(b) * Management of the Fund -
Distributor
(c) * Not Applicable
22 * Performance Information -
Yield Quotations
23 * Not Applicable
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Mutual Fund Group
PART A
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Mutual Fund Group
PROSPECTUS
VISTA(sm) GROWTH AND INCOME FUND
INSTITUTIONAL SHARES
January ___, 1996
VISTA GROWTH AND INCOME FUND (the "Fund") seeks to provide its
shareholders with long-term capital appreciation and to provide dividend income
primarily through a broad portfolio (i.e., at least 80% of its assets under
normal circumstances) of common stocks. The Growth and Income Fund will invest
its assets in a portfolio of stocks of issuers (including foreign issuers)
ranging from small to medium to large capitalizations. For the most part, the
Adviser will pursue a "contrary opinion" investment approach, selecting common
stocks that are currently out of favor with investors in the stock market. These
securities are usually characterized by a relatively low price/earnings ratio
(using normalized earnings), a low ratio of market price to book value, or
underlying asset values that the Adviser believes are not fully reflected in the
current market price. The Adviser believes that the risk involved in this policy
will be moderated somewhat by the anticipated dividend returns on the stocks to
be held by the Growth and Income Fund. The Fund is a series of Mutual Fund Group
(the "Trust"), an open-end management investment company organized as a business
trust under the laws of the Commonwealth of Massachusetts on May 11, 1987,
presently consisting of 15 separate series (the "Funds"). Because the Fund is
"non-diversified", more of the Fund's assets may be concentrated in the
securities of any single issuer, which may make the value of shares of the Fund
more susceptible to certain risks than shares of a diversified mutual fund.
The Fund, unlike many other investment companies which directly acquire
and manage their own portfolios of securities, seeks its investment objectives
by
investing all of its investable assets in Growth and Income Portfolio (the
"Portfolio"), an open-end management investment company managed by The Chase
Manhattan Bank, N.A. with investment objectives that are identical to those of
the Fund. Investors should carefully consider this investment approach. For
additional information regarding this unique investment structure, see "Unique
Characteristics of Master/Feeder Fund Investment Structure" on page __.
Of course, there can be no assurance that the Fund or Portfolio will
achieve their investment objectives. Prospective investors should carefully
consider the risks associated with an investment in the Fund. For a further
discussion on the risks associated with an investment in the Fund, see
"Investment Objective and Policies" in this Prospectus. Investors should also
refer to "Additional Information on Investment Policies and Techniques" on page
__.
The Chase Manhattan Bank, N.A. ("Chase" or the "Adviser") is the
Portfolio's investment adviser, custodian (the "Custodian") and administrator.
Chase serves as the Fund's and Portfolio's custodian . Vista Broker-Dealer
Services, Inc. ("VBDS" or the "Distributor") is the Fund's distributor and is
unaffiliated with Chase. Investments in the Fund are subject to risk--including
possible loss of principal--and will fluctuate in value. Shares of the Fund are
not bank deposits or obligations of, or guaranteed or endorsed by Chase or any
of its affiliates and are not insured by, obligations of or otherwise supported
by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
This Prospectus only offers shares of the Fund's Institutional Shares
class of shares. Institutional Shares of the Fund are continuously offered for
sale without a sales load through VBDS only to qualified investors that make an
initial investment of $1,000,000 or more. Qualified investors are defined as
institutions, trusts, partnerships, corporations, individuals, qualified and
other retirement plans and fiduciary
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Mutual Fund Group
accounts opened by a bank, trust company or thrift institution which exercises
investment authority over such accounts. The Fund also offers, through a
separate prospectus,
Class A and Class B shares, each with a public offering price that reflects
sales charges and different expense levels. Sales persons and any other person
entitled to receive compensation for selling or servicing shares of the Fund may
receive different compensation with respect to one particular class of shares
over another in the Fund.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor should know before investing. A Statement of Additional
Information for the Fund, dated January __, 1996, which contains more detailed
information concerning the Fund including the trustees and officers of the Fund
and Portfolio, has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Investors should read this prospectus carefully and retain it for
future reference.
For information about the Fund or additional classes of shares offered
by the Fund, simply call the Vista Service Center at
1-800- 622-4273.
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Mutual Fund Group
TABLE OF CONTENTS
Expense Summary...............................................................4
Investment Objectives and Policies............................................5
Additional Information on Investment Policies and Techniques..................6
Distribution Method...........................................................9
Management....................................................................10
Purchases and Redemptions of Shares...........................................11
Tax Matters...................................................................13
Other Information Concerning Shares of the Fund...............................14
Shareholder Servicing Agents, Transfer Agent and Custodian....................17
Yield and Performance Information.............................................18
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Mutual Fund Group
EXPENSE SUMMARY
The following table provides (i) a summary of estimated expenses
relating to purchases and sales of Institutional Shares of the Fund, and the
estimated aggregate annual operating expenses of the Fund and the Portfolio, as
a percentage of average net assets of the Fund, and (ii) an example illustrating
the dollar cost of such estimated expenses on a $1,000 investment in
Institutional Shares of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if the Trust
retained the services of the investment adviser and the assets of the Fund were
invested directly in the type of securities to be held by the Portfolio.
Institutional Shares
Shareholder Transaction Expenses
Maximum Initial Sales Charge imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge imposed on Reinvested Dividends....................... None
Exchange Fee............................................................... None
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds).................................................................. None
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fee................................................... 0.40%
Rule 12b-1 Distribution Plan Fee.......................................... 0.00%
Administration Fee........................................................ 0.10%
Other Expenses
- --Sub-administration Fee..................................................0.05%
- --Shareholder Servicing Fee ............................................. 0.25%
- --Other Operating Expenses+ ..............................................0.20%
Total Fund Operating Expenses........................................ 1.00%
Example:
You would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual rate of return:
One Three Five Ten
Year Years Years Years
Institutional Shares.............. $__ $__ $___ $__
+A shareholder may incur a $10.00 charge for certain wire redemptions.
The purpose of the expense summary provided above is to assist
investors in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The expense summary shows the
investment advisory fee, administration fee, sub-administrations fee,
shareholder servicing agent fee and other operating expenses expected to be
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Mutual Fund Group
incurred by the Fund and/or Portfolio during the fiscal year. A more complete
description of the Fund's and Portfolio's expenses, including any potential fee
waivers, is set forth herein on pages __-__, __-__ and __-__.
The "Example" set forth above assumes all dividends and other
distributions are reinvested and that the percentages under "Annual Fund
Operating Expenses" remain the same in the years shown. The "Example" should not
be considered a representation of past or future expenses of the Fund; actual
expenses may be greater or less than shown.
INVESTMENT OBJECTIVES AND POLICIES
Introduction
The Trust seeks to achieve the investment objective of the Fund by
investing all the investable assets of the Fund in the Portfolio. The Trust may
withdraw the investment of the Fund from the Portfolio at any time, if the Board
of Trustees of the Trust determines that it is in the best interest of the Fund
to do so. Upon any such withdrawal, the Board of Trustees would consider what
action might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Portfolio.
Investment Objectives -- The primary investment objective of the Fund
is long-term capital appreciation. The Fund's secondary investment objective is
to provide dividend income.
Investment Policies -- The Fund seeks to achieve its investment
objectives by investing in the Portfolio which invests primarily (i.e., at least
80% of its assets under normal circumstances) in common stocks. In addition, the
Portfolio may invest up to 20% of its net assets in convertible securities. The
Portfolio will invest its assets in stocks of issuers (including foreign
issuers) ranging from small to medium to large capitalizations. For the most
part, the Adviser will pursue a "contrary opinion" investment approach,
selecting common stocks for the Portfolio that are currently out of favor with
investors in the stock market. These securities are usually characterized by a
relatively low price/earnings ratio (using normalized earnings), a low ratio of
market price to book value, or underlying asset values that the Adviser believes
are not fully reflected in the current market price. The Adviser believes that
the market risk involved in this policy will be moderated somewhat by the
anticipated dividend returns on the stocks to be held by the Portfolio.
The net asset value of the Fund will fluctuate based on the value of the
securities in the Portfolio.
The Portfolio normally will be substantially fully invested and, under
normal circumstances, invest at least 80% of its assets in common stocks. The
Portfolio may invest up to 20% of its net assets in stocks of foreign issuers.
Investments in foreign securities are subject to certain risks to which
investments in domestic securities are not subject, including political or
economic instability of the issuer or country of issue and the possibility of
the imposition of exchange controls. However, the Portfolio reserves the right
to invest more than 20% of its assets in cash, cash equivalents and debt
securities for temporary defensive purposes during periods that the Adviser
considers to be particularly risky for investment in common stocks. See
"Additional Information on Investment Policies and Techniques--Non-U.S.
Securities" on page __.
The Portfolio may enter into derivative and related instruments. The
information presented below under "Additional Information on Investment Policies
and Techniques" contains a more complete description of these instruments , as
well as further information concerning the investment policies and techniques of
the Portfolio. In addition, the Statement of Additional Information includes a
further discussion of these instruments to be entered into by the Portfolio. The
use of such instruments involves transaction costs and certain risks, which are
discussed below and in the Statement of Additional Information. Shareholder
approval is not required to change the investment objectives or any of the
investment policies described above or in "Additional Information on Investment
Policies and Techniques". However, in the event of a change in the Fund's or
Portfolio's investment objectives, shareholders will be given at least 30 days'
prior written notice.
<PAGE>
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
To the extent the assets of the Portfolio are not invested in common
stocks, they will consist of or be invested in cash, cash equivalents and
short-term debt securities, such as U.S. Government securities, bank obligations
and commercial paper, as described under "Investment Objective, Policies and
Restrictions" in the Statement of Additional Information, and in repurchase
agreements, as described below and in greater detail under "Investment
Objective, Policies and Restrictions" in the Statement of Additional
Information.
Among the common stocks in which the Portfolio may invest are stocks of
foreign issuers, although at present the Portfolio does not intend to invest
more than 20% of its assets in such securities. These securities may represent a
greater degree of risk (e.g., risk related to exchange rate fluctuation, tax
provisions, war or expropriation) than do securities of domestic issuers.
Because the value of securities and the income derived therefrom may
fluctuate according to the earnings of the issuers and changes in economic and
market conditions, there can be no assurance that the investment objectives of
the Fund and Portfolio will be achieved.
Repurchase Agreements. The Portfolio may, when appropriate, enter into
repurchase agreements (a purchase of and simultaneous commitment to resell a
security at an agreed-upon price and date which is usually not more than seven
days from the date of purchase) only with member banks of the Federal Reserve
System and security dealers believed creditworthy and only if fully
collateralized by U.S. Government obligations or other securities in which the
Portfolio is permitted to invest. In the event the seller fails to pay the
agreed-to sum on the agreed-upon delivery date, the underlying security could be
sold by the Portfolio, but the Portfolio might incur a loss in doing so, and in
certain cases may not be permitted to sell the security. As an operating policy,
the Portfolio, through its custodian bank, takes constructive possession of the
collateral underlying repurchase agreements. Additionally, procedures have been
established for the Portfolio to monitor, on a daily basis, the market value of
the collateral underlying all repurchase agreements to ensure that the
collateral is at least 100% of the value of the repurchase agreements. No more
than 10% of the total assets of the Portfolio will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days. Repurchase Agreements are considered by the Staff of the
Securities and Exchange Commission to be loans by the Portfolio.
Portfolio Management and Turnover. It is not intended that the assets of
the Portfolio will be invested in securities for the purpose of short-term
profits. However, the Portfolio will dispose of portfolio securities whenever
the Adviser believes that changes are appropriate. Generally, the primary
consideration in placing portfolio securities transactions with broker-dealers
for execution is to obtain, and maintain the availability of, execution at the
most favorable prices and in the most effective manner possible. For a complete
discussion of portfolio transactions and brokerage allocation, see "Investment
Objectives, Policies and Restrictions--Investment Policies: Portfolio
Transactions and Brokerage Allocation" in the Statement of Additional
Information.
Portfolio Securities Lending. Although the Portfolio would not intend to
engage in such activity in the ordinary course of business, the Portfolio 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
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Mutual Fund Group
the Portfolio's total assets. In connection with such loans, the Portfolio 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
100% of the current market value of the securities loaned. The Portfolio can
increase its income through the investment of such collateral. The Portfolio
continues to be entitled to the interest payable or any dividend-equivalent
payments received on a loaned security and, in addition, receive interest on the
amount of the loan. However, the receipt of any dividend-equivalent payments by
the Portfolio 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 Portfolio might experience risk of loss if the
institutions with which it has engaged in portfolio loan transactions breach
their agreements with the Portfolio. 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 Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans justifies the risk.
Foreign U.S-Non Securities
Investing in securities issued by foreign corporations and governments
involves considerations and possible risks not typically associated with
investing in securities issued by domestic corporations and the U.S. Government.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the U.S. or other countries) or changed circumstances in
dealings between countries. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods.
The Portfolio may invest in securities denominated in the ECU, which is
a "basket" consisting of specified amounts of the currencies of certain member
states of the European Community. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of the European Community to
reflect changes in relative values of the underlying currencies. The Portfolio's
Trustees do not believe that such adjustments will adversely affect holders of
ECU-denominated securities or the marketability of such securities. European
governments and supranational organizations (discussed below), in particular,
issue ECU-denominated securities.
The Portfolio may invest in securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations of the
Asian and Pacific regions.
The Portfolio may invest its assets in securities of foreign issuers in
the form of sponsored ADRs, EDRs, or other similar securities representing
securities of foreign issuers. ADRs are receipts typically issued by an American
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Mutual Fund Group
bank or trust company evidencing ownership of the underlying foreign securities.
EDRs are receipts issued by a European financial institution evidencing a
similar arrangement.
Derivatives and Related Instruments
The Portfolio may invest its assets in derivative and related
instruments subject only to the Portfolio's investment objective and policies
and the requirement that, to avoid leveraging the Portfolio, the Portfolio
maintain segregated accounts consisting of liquid assets, such as cash, U. S.
Government securities, or other high-grade debt obligations (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.
The value of some derivative or similar instruments in which the
Portfolios invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and - like other investments of the
Portfolios - the ability of the Portfolio to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly. If the Adviser incorrectly
forecasts such factors and has taken positions in derivative or similar
instruments contrary to prevailing market trends, the Portfolios could be
exposed to the risk of a loss. The Portfolios might not employ any or all of the
instruments described herein, and no assurance can be given that any strategy
used will succeed.
To the extent permitted by the investment objectives and policies of the
Portfolios, and as described more fully in the Statement of Additional
Information, the Portfolio may :
o purchase, write and exercise call ando put options on securities,
securities indexes and foreign currencies (including using options in
combination with securities, other options or derivative instruments);
o enter into futures contracts and options on futures contracts;
o employ forward currency and interest-rate contracts;
o purchase and sell mortgage-backed and asset-backed securities; and
o purchase and sell structured products.
Risk Factors--As explained more fully in the Statement of Additional Informatior
, there are a number of risks associated with the use of
derivatives and related instruments, including:
o 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.
As incorrect correlation could result in a loss of both the hedged assets
in a fund and the hedging vehicle so that the portfolio return might have
been greater had hedging not been attempted. This risk is particularly
acute in the case of "cross-hedges" between currencies.
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Mutual Fund Group
o The Adviser may incorrectly forecast interest rates, market values or
other economic factors in utilizing a derivatives strategy. In such a
case, the Portfolio may have been in a better position had it not entered
into such strategy.
o 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.
o Strategies not involving hedging may increase the risk to the Portfolio.
Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to the Portfolio than hedging
strategies using the same instruments.
o There can be no assurance that a liquid market will exist at a time when
the Portfolio 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 a particular
contract, no trades may be made that day at a price beyond the 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.
o 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.
o In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards of
trade, there is a greater potential that a counterpart or broker may
default or be unable to perform on its commitments. In the event of such a
default, the Portfolio may experience a loss.
o In transactions involving currencies, the value of the currency
underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, government policies and market
forces.
Unique Characteristics of Master/Feeder Fund Structure
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, a separate registered
investment company with the same investment objectives as the Fund. Therefore,
an investor's
interest in the Portfolio's securities is indirect. In addition to selling a
beneficial interest to the Fund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, other investors investing in the Portfolio
are not required to sell their shares at the same public offering prices as the
Fund. Investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns
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Mutual Fund Group
are also present in other mutual fund structures.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds which have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Shares of the Fund for which no voting instructions have been received will be
voted in the same proportion as those shares for which voting instructions are
received. Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Trust to withdraw the Fund's interest in the
Portfolio. Any such withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution from the Portfolio). The
Fund could incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, the distribution in kind may result in a less
diversified portfolio of investments or adversely affect the liquidity of the
Fund.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interest of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
investable assets of the Fund in another pooled investment entity having the
same investment objectives as the Fund or retaining an investment adviser to
manage the Fund's assets in accordance with the investment policies of the
Portfolio.
State securities regulations generally do not permit the same individuals
who are disinterested Trustees of the Fund to be Trustees of the Portfolio
absent the adoption of written procedures by a majority of the Disinterested
Trustees of the Fund reasonably appropriate to deal with potential conflicts of
interest up to and including creating a separate Board of Trustees. The Trustees
of the Fund, including a majority of the Disinterested Trustees, have adopted
procedures they believe are reasonably appropriate to deal with any conflict of
interest up to and including creating a separate Board of Trustees.
There are several domestic investment companies that invest all of their
assets in the Portfolio, as does the Fund, and that are sold primarily to
foreign investors. The Fund perceives no adverse effect to the Fund or its
shareholders as a result of such companies' investment in the Portfolio because
such companies are regulated by U.S. securities law, their investment in the
Portfolio is small as compared to the aggregate investment in the Portfolio, and
their shareholder base is diverse.
Investors in the Fund may obtain information about whether an investment
in the Portfolio may be available through other Funds by writing the Vista
Service Center.
For more information, see "Management," "Other Information Concerning
Shares of the Fund," "Shareholder Servicing Agents, Transfer Agent and
Custodian" and "Additional Information on Investment Policies and Techniques."
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Mutual Fund Group
DISTRIBUTION METHOD
Sales Charges. Institutional Shares are sold at net asset value without
the imposition of a front-end or a contingent deferred sales charge
Ongoing Annual Expenses. Institutional Shares have an annual
shareholder servicing fee of 0.25% of its average daily net assets.
Institutional Shares do not pay an annual distribution fee under Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act").
Other Information. Selected dealers and financial consultants may receive
different levels of compensation for selling one particular class of Fund shares
rather than another.
MANAGEMENT
The Fund does not have an investment adviser because the Trust seeks to
achieve the investment objectives of the Fund by investing all of the investable
assets of the Fund in the Portfolio. The Portfolio's investment adviser is
Chase, which also serves as the Fund's and Portfolio's administrator. Chase
global investment management capabilities are supported by investment
professionals located in cities around the world, including New York, Geneva and
Hong Kong.
The Adviser
The Adviser manages the assets of the Portfolio pursuant to an Investment
Advisory Agreement dated November 15, 1993 and subject to such policies as the
Board of Trustees of the Portfolio may determine, the Adviser will make
investment decisions for the Portfolio. Dave Klassen and Greg Adams, Vice
Presidents of the advisor, co-manage the Growth and Income Portfolio. Mr.
Klassen, Head of U.S. Equity Funds Management and Research for Chase, is also
primarily responsible for the day-to-day management of the capital growth
Portfolio, as well as several pooled equity funds. Mr. Klassen joined Chase in
March of 1992. Prior to that he spent 11 years at Dean Witter Reynolds as vice
President and Portfolio Manager, responsible for a number of mutual funds and
individual accounts,
Mr. Adams, Director of U.S. Equity Research for Chase, is also responsible
for managing the Vista Equity Fund, the Vista Equity Income Fund, and
co-managing the Vista balanced fund, as well as managing a number of Chase's
pooled equity funds. Mr. Adams joined Chase in 1987 and has been responsible for
overseeing the proprietary computer model program used in the U.S. equity
selection process. For its services under the Investment Advisory Agreement, the
Adviser is entitled to receive an annual fee computed daily and paid monthly
based at an annual rate equal to 0.40% of the Portfolio's average daily net
assets. The Adviser may, from time to time, voluntarily waive all or a portion
of its fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
Certain Relationships and Activities. The Adviser and its affiliates may
have deposit, loan and other commercial banking relationships with the issuers
of securities purchased on behalf of the Portfolio, including outstanding loans
to such issuers which may be repaid in whole or in part with the proceeds of
securities so purchased. The Adviser 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. The Adviser and its affiliates
may sell U.S. Government obligations and municipal obligations to, and purchase
them from, other investment companies sponsored by the Distributor or affiliates
of the Distributor. The Adviser will not invest the Portfolio's 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 the Adviser or an affiliate is a non-principal member. This restriction
may limit the amount or type of U.S. Government obligations, municipal
obligations or commercial paper available to be purchased by the Portfolio. The
Adviser has informed the Portfolio that in making its investment decisions, it
does not obtain or use material inside information in the possession of any
other division or department of the Adviser, including the division that
performs services for the Portfolio as Custodian, or in the possession of any
affiliate of the Adviser. Shareholders of the Fund are notified that Chase and
its affiliates may exchange among themselves certain information about the
shareholder and his account.
The Administrator
Pursuant to Administration Agreements, dated as of January 1, 1989, as
amended September 30, 1993 and _____, 1995 (collectively the "Administration
Agreement"), Chase serves as administrator of the Fund. Under the agreement,
Chase provides certain administrative services, including among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. Chase is entitled to
receive from each of the Fund and the Portfolio a fee computed daily and paid
monthly at an annual rate equal to 0.05% of their respective average daily net
assets. Chase may, from time to time, voluntarily waive all or a portion of its
fees payable to it under the Administration Agreements.
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Mutual Fund Group
PURCHASES AND REDEMPTIONS OF SHARES
Purchases
Institutional Shares are sold to qualified investors at their public
offering price. The public offering price of Institutional Shares is the next
determined net asset value. Qualified investors are defined as institutions,
trusts, partnerships, corporations, individuals, qualified and other retirement
plans and fiduciary accounts opened by a bank, trust company or thrift
institution which exercise investment authority over such accounts.
Institutional Shares may be purchased through selected financial service firms,
such as broker-dealer firms and banks ("Dealers") who have entered into a
selected dealer agreement with VBDS, at the public offering price which is
computed once daily as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time, on each business day during which the Exchange
is open for trading ("Fund Business Day"). Orders received by Dealers prior to
the New York Stock Exchange closing time are confirmed at the offering price
effective at the close of such Exchange, provided the order is received by the
Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and certificates will be issued
upon request. Management reserves the right to refuse to sell shares of the Fund
to any institution.
Shareholder Servicing Agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund shares, such as pre-authorized or systematic purchase and redemption plans.
Each Shareholder Servicing Agent may establish its own terms and conditions,
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Mutual Fund Group
limitations on the amounts of subsequent transactions, with respect to such
services. Certain Shareholder Servicing Agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding the fees for
their services as Shareholder Servicing Agents (see "Shareholder Servicing
Agents, Transfer Agent and Custodian -- Shareholder Servicing Agents"), which
may have the effect of increasing the net return on the investment of customers
of that Shareholder Servicing Agent.
Minimum Investments
The Fund has established a minimum initial investment amount for the
purchase of Institutional Shares. The minimum initial investment amount is
$1,000,000. There is no minimum for subsequent investments. Purchases of
Institutional Shares offered by other Vista Funds may be aggregated with
purchases of Institutional Shares of the Fund to meet the $1,000,000 minimum
initial investment amount requirement.
Redemptions
Shareholders may redeem all or any portion of the shares in their account
at any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent. Redemptions
will be effected on the same day the redemption order is received if such order
is received prior to 4:00 p.m. Eastern time, or any Fund Business Day. The
proceeds of a redemption will be paid by wire in federal funds normally on
the next Fund Business Day after the redemption is effected, but in any event
within seven days. In making redemption requests, the names of the registered
shareholders and their account numbers must be supplied.
A wire redemption may be requested by telephone or wire to the Vista Service
Center. For telephone redemptions, call the Vista Service Center at (800)
622-4273.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions of shares are taxable events on which
the shareholder may recognize a gain or a loss. Although the Fund generally
retains the right to pay the redemption price of shares in kind with securities
(instead of cash), the Trust has filed an election under Rule 18f-1 under the
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Mutual Fund Group
1940 Act committing it to pay in cash all redemptions by a shareholder of record
up to the amounts specified by the rule (approximately $250,000).
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
Redemption of Accounts of Less than $1,000,000. The Fund may redeem the
shares of any shareholder, if at such time, the aggregate net asset value of the
shares in such shareholder's account is less than $1,000,000. In the event of
any such redemption, a shareholder will receive at least 60 days notice prior to
the redemption.
Exchange Privilege
Shareholders may exchange, at net asset value, Institutional Shares of the
Fund for Institutional Shares of the other Vista Funds which have an
Institutional Share class of shares, in accordance with the terms of the then
current prospectus of the Fund being acquired. No initial sales charges or
contingent deferred sales charges are imposed on the Institutional Shares being
acquired. Currently, the Fund, Vista Small Cap Equity Fund, Vista Capital Growth
Fund and Vista money market funds offer Institutional Shares
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Mutual Fund Group
. The prospectus of the other Vista Fund into which shares are being exchanged
should be read carefully prior
to any exchange and retained for future reference. Under this exchange
privilege, Institutional Shares of the Fund may be exchanged for Institutional
Shares of other Vista Funds only if those Funds and their shares are registered
in the states where the exchange may legally be made and only if the account
registrations are identical.
Any such exchange may create a gain or loss to be recognized for federal
income tax purposes. Normally, shares of the Fund to be acquired through an
exchange transaction are purchased on the date on which the shares are redeemed
from the original fund, but such purchase may be delayed by either Fund up to
five business days if such Fund determines that it would be disadvantaged by an
immediate transfer of the proceeds. This privilege may be amended or terminated
at any time without notice. Arrangements have been made for the acceptance of
instructions by telephone to exchange shares if certain preauthorizations or
indemnifications are accepted and on file. Further information and telephone
exchange forms are available from the Transfer Agent.
Market Timing. The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In order to limit
excessive exchange activity and in other circumstances where the Trustees, or
Adviser believes doing so would be in the best interest of the Fund, the Fund
reserves the right to revise
or terminate the exchange privilege, limit the amount or number of exchanges or
reject any exchange. In addition, any shareholder who makes more than ten
exchanges of shares involving a Fund in a year or three in a calendar quarter
will be charged a $5.00 administration fee per each such exchange.
General
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 this 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
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Mutual Fund Group
declined in the Account Application. To provide evidence of telephone
instructions, the Transfer Agent will record telephone conversations with
shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent instructions.
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 , to carry out the instructions or to respond
to the inquiries, consistent with the service options chosen by the shareholder
in its 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. Shareholders agree to
release and hold harmless the Fund, the Adviser, the Administrator, any
Shareholder Servicing Agent or sub-agent and broker-dealer, and the officers,
directors, employees and agents thereof against any claim, liability, loss,
damage and expense for any act or failure to act in connection with Fund shares,
any related investment account, any privileges or services selected in
connection with such investment account, or any written or oral instructions or
requests with respect thereto, or any written or oral instructions or requests
from someone claiming to be a shareholder if the Fund or any of the
above-described parties follow instructions which they reasonably believe to be
genuine and act in good faith by complying with the procedures that have been
established for Fund accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
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 the bank account specified in the Bank Account
Registration, or for any written requests for additional account services made
after a shareholder has submitted an initial account application to the Fund.
The Fund may also refuse to accept or carry out any transaction that does not
satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with a tax adviser as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund in its own state
and locality.
The Fund intends to qualify each year and elect to be treated as a
separate "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If the Fund is treated as a
"regulated investment company" and all of its taxable income is distributed to
its shareholders in accordance with the timing requirements imposed by the Code,
it will not be subject to federal income tax on the amounts so distributed. If
for any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to tax at regular
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Mutual Fund Group
corporate rates without any deduction for distributions to its shareholders, and
such distributions will be taxable to shareholders to the extent of the Fund's
current and accumulated earnings and profits. The Portfolio is not required to
pay any federal or excise taxes.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as the Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by the Fund of its taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes. A
portion of the ordinary income dividends paid by the Fund with respect to a year
(which cannot exceed the aggregate amount of it shares of qualifying dividends
received by the Portfolio from domestic corporations during the year) may
qualify for the 70% dividends-received deductions a corporate shareholders, but
any such dividends-received deduction will not be allowed in computing the
corporate shareholder's adjusted current earnings, upon which is based a
corporate preference item which may be subject to an alternative minimum tax or
to the environmental superfund tax. Distributions by a Fund of the excess, if
any, of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Ordinary income dividends and capital gain dividends from the Fund
may also be subject to state and local taxes.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Fund. In general, distributions by the Fund are taken into account
by shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Fund and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax
status of all distributions made (or deemed made) during the fiscal year,
including any portions which constitute ordinary income dividends (and any
portion thereof which qualify for the dividends-received deduction for
corporations) and capital gain dividends, will be sent to the Fund's
shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the backup withholding rules of the Code, certain shareholders may
be subject to 31% withholding of federal income tax on distributions and
redemption payments made by the Fund. Generally, shareholders are subject to
backup withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
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Mutual Fund Group
OTHER INFORMATION CONCERNING SHARES OF THE FUND
Net Asset Value
The net asset value of a class of shares of the Fund is determined as of
the close of regular trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time) on each Fund Business Day, by dividing the net assets attributable
to that class by the number of its shares outstanding. Values of assets held by
the Portfolio are determined on the basis of their market or other fair value,
as described in the Statement of Additional Information. A share's net asset
value is effective for orders received by a Shareholder Servicing Agent prior to
its calculation and received by the Distributor prior to the close of business,
usually 4:00 p.m. Eastern time, on the Fund Business Day on which such net asset
value is determined. The per share net asset value of Institutional Shares of
the Fund will generally be higher than that of the Fund's other classes of
shares because of the lower expenses borne by Institutional Shares .
Net Income, Dividends and Capital Gain Distributions
Substantially all of the net investment income from dividends and interest
(if any) of the Fund is paid to its shareholders quarterly (in the months of
March, June, September and December) as a dividend. The dividends paid for a
class of shares consists of the dividends and interest income earned on its
portfolio, less expenses including those allocable to a particular class. In
computing interest income, premiums are not amortized or discounts accrued on
long-term debt securities, except as required for federal income tax purposes.
The Fund will distribute its net realized short-term and long-term capital
gains, if any, to its shareholders at least annually. Dividends paid on each of
the Fund's classes of shares are calculated at the same time and in the same
manner. In general, dividends on Institutional Shares are expected to be higher
than those on the other classes of shares due to the lower expenses borne by
Institutional Shares.
The Fund intends to make additional distributions to the extent necessary
to avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains imposed by Section 4982 of the Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent,
a shareholder may elect to receive dividends and capital gains distributions
from the Fund in either cash or additional shares .
Distribution and Sub-Administration Agreement
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Mutual Fund Group
The Distribution and Sub-Administration Agreement dated April 2, 1990, as
amended June 1, 1990 and September 30, 1993 (the "Distribution Agreement"),
provides that VBDS will act as the principal underwriter of the Fund's shares
and 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 . In addition, VBDS
will provide certain sub-administration services, including providing officers,
clerical staff and office space. VBDS currently receives a fee for
sub-administration from the Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets, on an annualized basis for the Fund's then-current
fiscal year. Other funds which have investment objectives similar to those of
the Fund, but which do not pay some or all of such fees from their assets, may
offer a higher return, although investors would, in some cases, be required to
pay a sales charge or a redemption fee.
Expenses
The respective expenses of each of the Funds of the Trust and the
Portfolio include the compensation of their respective Trustees; registration
fees; interest charges; taxes; fees and expenses of independent accountants, of
legal counsel and of any transfer agent, custodian, registrar or dividend
disbursing agent of the Trust or the Portfolio; insurance premiums; and expenses
of calculating the net asset value of, and the net income on, the Portfolio and
shares of the Fund.
The Fund will pay all of its pro rata share of the foregoing expenses of
the Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
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Mutual Fund Group
sub-administration fees payable under the Distribution and Sub-Administration
Agreement. In addition, each class will pay those expenses allocable to the
class, including: shareholder servicing fees and expenses; expenses of
preparing, printing and mailing prospectuses, reports, notices, and proxy
statements to shareholders and government offices or agencies; expenses of
shareholder meetings; expenses relating to the registration and qualification of
shares of the particular class and the preparation, printing and mailing of
prospectuses for such purposes (except that the Distribution and
Sub-Administration Agreement requires VBDS to pay for prospectuses which are to
be used for sales to prospective investors).
Expenses of the Portfolio also include all fees under the Portfolio's
Administration Agreement; the expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Portfolio's
custodian for all services to the Portfolio, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government officers and commissions;
expenses of meetings of investors; and the advisory fees payable to the Adviser
under the Advisory Agreement.
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end management investment company organized
as a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. Because the Fund is "non-diversified", more than 5% of
the assets of the Fund may be concentrated in the securities of any single
issuer, which may make the value of the shares in a fund more susceptible to
certain risks than shares of a diversified mutual fund.
The Trust has reserved the right to create and issue additional series and
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. Shares have no pre-emptive 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 class generally vote separately, for example to approve distribution
plans, but vote together, to the extent required under the 1940 Act, in the
election or selection of Trustees and independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of all series or classes when in the
judgment of the Trustees it is necessary or desirable to submit matters for a
shareholder vote. A Trustee of the Trust may, in accordance with certain rules
of the Securities and Exchange Commission, be removed from office when the
holders of record of not less than two-thirds of the outstanding shares either
present a written declaration to the Funds' Custodian or vote in person or by
proxy at a meeting called for this purpose. In addition, the Trustees will
promptly call a meeting of shareholders to remove a trustee(s) when requested to
do so in writing by record holders of not less than 10% of all outstanding
shares of the Trust. Finally, the Trustees shall, in certain circumstances, give
such shareholders access to a list of the names and addresses of all other
shareholders or inform them of the number of shareholders and the cost of
mailing their request. The Trust's Declaration of Trust provides that, at any
meeting of shareholders, a Shareholder Servicing Agent may vote any shares as to
which such Shareholder Servicing Agent is the agent of record and which are
otherwise not represented in person or by proxy at the meeting,
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Mutual Fund Group
proportionately in accordance with the votes cast by holders of all shares of
the same portfolio otherwise represented at the meeting in person or by proxy as
to which such Shareholder Servicing Agent is the agent of record. Any shares so
voted by a Shareholder Servicing Agent will be deemed represented at the meeting
for purposes of quorum requirements. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of the Fund or that
series or class.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, 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 Portfolio is organized as a trust under the laws of the State of New
York. The Portfolio's Declaration of Trust provides that the Fund and other
entities investing in the Portfolio (e.g., other
investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of the Fund's incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of all Fund shareholders and will cast
its vote as instructed by Fund shareholders. As with any mutual fund, other
investors in the Portfolio could control the results of voting at the Portfolio
level. In certain instances (e.g., a change in fundamental investment policies
or restrictions by the Portfolio which was not approved by the Fund's
shareholders), this could result in the Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Trust.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange is open
for trading. At 4:00 p.m., Eastern time, on each such day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of aggregate beneficial
interests in the Portfolio. Any additions or reductions, which are to be
effected as of 4:00 p.m. Eastern time, on such day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of 4:00 p.m., Eastern time, on such day plus or minus, as the case may be,
the amount of the net additions to or reductions in the investor's investment in
the Portfolio effected as of 4:00 p.m., Eastern time, on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., Eastern time, on such day, plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of 4:00 p.m., Eastern time, for the following day the New York
Stock Exchange is open for trading.
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Mutual Fund Group
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
Shareholder Servicing Agents
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various services, including but not limited to the following: answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated
accounts; furnish (either separately or on an integrated basis with other
reports sent to a shareholder by a Shareholder Servicing Agent) quarterly and
year-end statements and confirmations of purchases and redemptions; transmit, on
behalf of the Fund, proxy statements, annual reports, updated prospectuses and
other communications to shareholders of the Fund; receive, tabulate and transmit
to the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request. For performing these services, each Shareholder
Servicing Agent receives certain fees, which may be paid periodically,
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in accounts serviced by such Shareholder Servicing Agent
during such period, and the expenses incurred by such Shareholder Servicing
Agent. The fees relating to acting as liaison to shareholders and providing
personal services to shareholders will not exceed, on an annual basis, 0.25% of
the average daily net assets of each class of shares of the Fund represented by
shares owned during the period for which payment is being made by investors for
whom such Shareholder Servicing Agent maintains a servicing relationship. Each
Shareholder Servicing Agent may, from time to time, voluntarily waive all or a
portion of the fees payable to it. In addition, Chase may provide other related
services to the Fund and/or Portfolio for which it may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts") . Through such Accounts, customers can
purchase, exchange and redeem shares, receive dividends and distributions on
Fund investments, and take advantage of any services related to an Account
offered by such Shareholder Servicing Agent from time to time. All Accounts and
any related privileges or services shall be governed by the laws of the State of
New York, without regard to its conflicts
of laws provisions. State securities laws may require banks and financial
institutions to register as dealers under state law.
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Mutual Fund Group
Transfer Agent and Custodian
DST Systems, Inc ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund and the Portfolio. In this capacity,
DST maintains the account records of all shareholders in the Funds, including
statement preparation and mailing. DST is also responsible for
disbursing dividend and capital gain distributions to shareholders, whether
taken in cash or additional shares. From time to time, DST and/or the Fund may
contract with other entities to perform certain services for the Transfer Agent.
For its services as Transfer Agent, DST receives such compensation as is from
time to time agreed upon by the Trust or the Portfolio and DST. DST's address is
127 W. 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of the Fund, i.e., cash and securities representing the Fund's interest
in the Portfolio, and as the custodian of the Portfolio's assets, for which
Chase receives compensation as is from time to time agreed upon by the Trust or
the Portfolio and Chase. The Custodian's responsibilities include safeguarding
and controlling the Portfolio's cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest on the
Portfolio's investments, maintaining books of original entry for Portfolio
accounting and other required books and accounts, and calculating the daily net
asset value of beneficial interests in the Portfolio. Portfolio securities and
cash may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees. The internal division of Chase which serves as the
Custodian does not determine the investment policies of the Fund or the
Portfolio or decide which securities will be bought or sold on behalf of the
Portfolio or otherwise have access to or share material inside information with
the internal division that performs advisory services for the Portfolio.
YIELD AND PERFORMANCE INFORMATION
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
historical earnings, 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. Additionally, the Fund may, with proper
authorization, reprint articles written about the Fund and provide them to
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Mutual Fund Group
prospective shareholders.
The Fund may provide period and average annualized "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. Period total rates of return may be annualized. An annualized total
rate of return assumes that the period total rate of return is generated over a
52-week period, and that all dividends and capital gains distributions are
reinvested; annualized total rates of return will be slightly higher than period
total rates of return (if the periods are shorter than one year) because of the
compounding effect of the assumed reinvestment. One-, fiveand ten-year periods
will be shown, unless the class has been in existence for a shorter period.
The Fund may provide "yield" quotations in addition to total rate of
return quotations. The "yield" quotations of the Fund will be based upon a
hypothetical net investment income earned by the Fund over a thirty day or one
month period (which period shall be stated in any advertisement or communication
with a shareholder). The "yield" is then "annualized" by assuming that the
income generated over the period will be generated over a one year period. A
"yield" quotation, unlike a total rate of return quotation, does not reflect
changes in net asset value.
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 interest rates, the current market value
of the securities held by the Portfolio and changes in the Fund's expenses. The
Adviser, the Shareholder Servicing Agent, the Administrator or VBDS
may voluntarily waive a portion of their fees on a month-to-month basis. In
addition, VBDS may assume a portion of the Fund's operating expenses on a
month-to-month basis. These actions would have the effect of increasing the net
income (and therefore the yield and total rate of return) of the classes of
shares of the Fund during the period such waivers are in effect. These factors
and possible differences in the methods used to calculate the yields and total
rates of return should be considered when comparing the yields or total rates of
return of the classes of shares of the Fund to yields and total rates of return
published for other investment companies and other investment vehicles
(including different classes of shares). The Fund is advised that certain
Shareholder Servicing Agents may credit to the accounts of their customers from
whom they are already receiving other fees amounts not exceeding the Shareholder
Servicing Agent fees received (see "Purchases and Redemptions of Shares --
Purchases"), which will have the effect of increasing the net return on the
investment of customers of those Shareholder Servicing Agents. Such customers
may be able to obtain through their Shareholder Servicing Agents quotations
reflecting such increased return. See the Statement of Additional Information
for further information concerning the calculation of the yields or total rates
of return quotations for the classes of shares of the Fund.
Other Information
The Statement of Additional Information contains more detailed information
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Mutual Fund Group
about the Fund and the Portfolio, including information related to (i) the
Fund's and Portfolio's investment policies and restrictions, (ii) risk factors
associated with Fund's and Portfolio's policies and investments, (iii) the
Trust's and Portfolio's Trustees, officers and the administrators and the
Adviser, (iv) portfolio transactions, (v) the Funds' shares, including rights
and liabilities of shareholders, and (vi) additional performance information,
including the method used to calculate yield or total rate of return quotations.
The following audited financial statements of the Fund are incorporated by
reference in the Statement of Additional Information: Portfolio of Investments
at October 31, 1994, Statement of Assets and Liabilities at October 31, 1994,
Statement of Operations for the year ended October 31, 1994, and Statement of
Changes in Net Assets for each of the two years in the period ended October 31,
1994 and Per Share Data and Ratios for each of the five years in the period
ended October 31.
The Code of Ethics of the Fund prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt
to take advantage of the Fund's planned portfolio transactions. The
objective of the Code of Ethics of the Fun is that its operations be
carried out for the exclusive benefit of the Fund's shareholders. The
Fund maintains careful monitoring of compliance with the Code of Ethics.
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Mutual Fund Group
PROSPECTUS
VISTA(sm) CAPITAL GROWTH FUND
INSTITUTIONAL SHARES
January __, 1996
VISTA CAPITAL GROWTH FUND (the "Fund") seeks to provide its
shareholders with long-term capital growth primarily through a broad portfolio
(i.e., at least 80% of its assets in normal circumstances) in common stocks. The
Fund will invest all of its assets in a portfolio holding stocks of issuers
(including foreign issuers) of small to mid-sized companies, with average
capitalization of $500 million to $4 billion. The adviser intends to utilize
both quantitative and fundamental research to identify undervalued stocks with a
catalyst for
positive change. Current income, if any, is a consideration incidental to the
Fund's objective of long term capital growth. The Fund is a non-diversified
series of Mutual Fund Group (the "Trust"), an open-end, management investment
company organized as a business trust under the laws of the Commonwealth of
massachusetts on May 11, 1987, presently consisting of 15 separate series (the
"Funds"). Because the Fund is "non-diversified", more of the Fund's assets maybe
concentrated in the securities of any single issuer, than if the Fund
was"diversified" which may make the value of shares of the Fund more susceptible
to certain risks than shares of a diversified mutual fund.
The Fund, unlike many other investment companies which directly acquire
and manage their own portfolios of securities, seeks its investment objectives
by
investing all of its investable assets in Capital Growth Portfolio (the
"Portfolio"), an open-end management investment company managed by The Chase
Manhattan Bank, N.A. with investment objectives that are identical to those of
the Fund. Investors should carefully consider this investment approach. For
additional information regarding this unique investment structure, see "Unique
Characteristics of Master/Feeder Fund Structure" on page __.
Of course, there can be no assurance that the Fund or Portfolio will
achieve their investment objectives. Prospective investors should carefully
consider the risks associated with an investment in the Fund. For a further
discussion on the risks associated with an investment in the Fund, see
"Investment Objective and Policies" in this Prospectus. Investors should also
refer to "Additional Information on Investment Policies and Techniques" on page
__.
The Chase Manhattan Bank, N.A. ("Chase" or the "Adviser") is the
Portfolio's investment adviser, administrator and custodian. Vista Broker-Dealer
Services, Inc. ("VBDS" or the "Distributor") is the Fund's distributor and is
unaffiliated with Chase. Investments in the Fund are subject to risk--including
possible loss of principal--and will fluctuate in value. Shares of the Fund are
not bank deposits or obligations of, or guaranteed or endorsed by Chase or any
of its affiliates and are not insured by, obligations of or otherwise supported
by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
This Prospectus only offers shares of the Fund's Institutional Shares
class of shares. Institutional Shares of the Fund are continuously offered for
sale without a sales load through VBDS
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Mutual Fund Group
only to qualified investors that make an initial investment of $1,000,000 or
more. Qualified investors are defined as institutions, trusts, partnerships,
corporations, individuals, qualified and other retirement plans and fiduciary
accounts opened by a bank, trust company or thrift institution which exercises
investment authority over such accounts. The Fund also offers, through a
separate prospectus,
Class A and Class B shares, each with a public offering price that reflects
sales charges and different expense levels. Sales persons and any other person
entitled to receive compensation for selling or servicing shares of the Fund may
receive different compensation with respect to one particular class of shares
over another in the Fund.
This Prospectus sets forth concisely the information concerning the
Fund that a prospective investor should know before investing. A Statement of
Additional Information for the Fund, dated January __, 1996, which contains more
detailed information concerning the Fund including the trustees and officers of
the Fund and Portfolio, has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. An investor
may obtain a copy of the Statement of Additional Information without charge by
contacting the Fund.
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Mutual Fund Group
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Investors should read this prospectus carefully and retain it for future
reference
For information about the Fund or other classes of Shares offered by
the Fund, simply call the Vista Service Center at
1-800- 622-4273.
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Mutual Fund Group
TABLE OF CONTENTS
Expense Summary...............................................................4
Investment Objectives and Policies............................................5
Additional Information on Investment Policies and Techniques..................6
Distribution Method ..........................................................10
Management....................................................................10
Purchases and Redemptions of Shares...........................................11
Tax Matters...................................................................13
Other Information Concerning Shares of the Fund...............................15
Shareholder Servicing Agents, Transfer Agent and Custodian....................17
Yield and Performance Information.............................................18
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Mutual Fund Group
EXPENSE SUMMARY
The following table provides (i) a summary of estimated expenses
relating to purchases and sales of Institutional Shares of the Fund, and the
estimated aggregate annual operating expenses of the Fund and the Portfolio, as
a percentage of average net assets of the Fund, and (ii) an example illustrating
the dollar cost of such estimated expenses on a $1,000 investment in
Institutional Shares of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if the Trust
retained the services of the investment adviser and the assets of the Fund were
invested directly in the type of securities to be held by the Portfolio.
Institutional Shares
Shareholder Transaction Expenses
Maximum Initial Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................. None
Maximum Sales Charge Imposed on Reinvested Dividends.................. None
Exchange Fee.......................................................... None
Maximum Contingent Deferred Sales Charge
(as a percentage of redemption proceeds)............................ None
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fee................................................0.40%
Rule 12b-1 Distribution Plan...........................................0.00%
Administration Fee.....................................................0.10%
Other Expenses
--Sub-administration Fee.............................................0.05%
--Shareholder Servicing Fee..........................................0.25%
--Other Operating Expenses++ ........................................0.20%
Total Fund Operating Expenses......................... 1.00
- --------
++A shareholder may incur a $10.00 charge for certain wire redemptions.
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Mutual Fund Group
Example:
You would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual rate of return:
One Three Five Ten
Year Years Years Years
Institutional Shares ............. $ __ $ __ $___ $ ___
The purpose of the expense summary provided above is to assist
investors in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The expense summary shows the
investment advisory fee, administrative fee, sub-administrative fee, shareholder
servicing agent fee and other operating expenses expected to be
incurred by the Fund and/or Portfolio during the fiscal year. A more complete
description of the Fund's and Portfolio's expenses, including any potential fee
waivers, is set forth herein on pages __-__, __-__ and __-__.
The "Example" set forth above assumes all dividends and other
distributions are reinvested and that the percentages under "Annual Fund
Operating Expenses" remain the same in the years shown. The "Example" should not
be considered a representation of past or future expenses of the Fund or
Portfolio; actual expenses may be greater or less than shown.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Introduction
The Trust seeks to achieve the investment objective of the Fund by
investing all the investable assets of the Fund in the Portfolio. The Trust may
withdraw the investment of the Fund from the Portfolio. The Trust may withdraw
the investment of the Fund from the Portfolio at any time, if the Board of
Trustees of the Trust determines that it is in the best interest of the Fund to
do so. Upon any such withdrawal, the Board of Trustees would consider what
action might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Portfolio.
The Portfolio is aggressively managed and, therefore, the value of its
shares is subject to greater fluctuation and an investment in its shares
involves the assumption of a higher degree of risk than would be the case with
an investment in a conservative equity fund or a growth fund investing entirely
in proven growth equities. The net asset value of the Fund will fluctuate based
on the value of the securities in the Portfolio. Given the above-average
investment risk inherent in the Fund, investment in shares of the Fund should
not be considered a complete investment program and may not be appropriate for
all investors.
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Mutual Fund Group
Investment Objective -- The investment objective of the Fund is to
provide its shareholders with long-term capital growth. Dividend income, if any,
is a consideration incidental to the Fund's objective of growth of capital.
Investment Policies -- The Fund seeks to achieve its investment
objective by investing in the Portfolio which invests (i.e., at least 80% of its
assets under normal circumstances) in common stocks. The Portfolio will seek
to invest all of its assets in a portfolio holding stocks of issuers
(including foreign issuers) of small to mid-sized companies, with
capitalization of $500 million to $4 billion. The Adviser intends to utilize
both quantitative and fundamental research to identify undervalued stocks
with a catalyst for positive change. In addition, the Portfolio may invest up
to 20% of its net assets in convertible securities. Current income, if any, is
a consideration incidental to the Fund's objective of long term capital growth.
The Portfolio normally will be substantially fully invested and, under
normal circumstances, invest at least 80% of its assets in common stocks. The
Portfolio may invest up to 20% of its net assets in stocks of foreign issuers.
Investments in foreign securities are subject to certain risks to which
investments in domestic securities are not subject, including political or
economic instability of the issuer or country of issue and the possibility of
the imposition of exchange controls. However the Portfolio reserves the right to
invest more than 20% of its assets in cash, cash equivalents and debt securities
for temporary defensive purposes during periods which the Adviser considers to
be particularly risky for investment in common stocks. See "Additional
Information on Investment Policies and Techniques--Non-U.S. Securities" on page
__.
The Portfolio may enter into transactions in derivatives and related
instruments. The information presented below under "Additional Information on
Investment Policies and Techniques" contains a more complete description of
these instruments , as well as further information concerning the investment
policies and techniques of the Portfolio. In addition, the Statement of
Additional Information includes a further discussion of these instruments which
may be entered into by the Portfolio. The use of such instruments involves
transaction costs and certain risks, which are discussed in the Statement of
Additional Information.
Shareholder approval is not required to change the investment objective
or any of the investment policies described above or in "Additional Information
on Investment Policies and Techniques".However, in the event of a change in the
Fund's or Portfolio's investment objectives,shareholders will be given at least
30 days' prior written notice.
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Mutual Fund Group
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
To the extent the assets of the Portfolio are not invested in common
stocks, they will consist of or be invested in cash, cash equivalents and
short-term debt securities, such as U.S. Government securities, bank obligations
and commercial paper, as described under "Investment Objectives, Policies and
Restrictions" in the Statement of Additional Information, and in repurchase
agreements, as described below and in greater detail under "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
Among the common stocks in which the Portfolio may invest are stocks of
foreign issuers, although at present the Portfolio does not intend to invest
more than 20% of its assets in such securities. These securities may represent a
greater degree of risk (e.g., risk related to exchange rate fluctuation, tax
provisions, war or expropriation) than do securities of domestic issuers.
Because the value of securities and the income derived therefrom may
fluctuate according to the earnings of the issuers and changes in economic and
money market conditions, there can be no assurance that the investment
objectives of the Fund and Portfolio will be achieved.
Repurchase Agreements. The Portfolio may, when appropriate, enter into
repurchase agreements (a purchase of and simultaneous commitment to resell a
security at an agreed-upon price and date which is usually not more than seven
days from the date of purchase) only with member banks of the Federal Reserve
System and security dealers believed creditworthy and only if fully
collateralized by U.S. Government obligations or other securities in which the
Portfolio is permitted to invest. In the event the seller fails to pay the
agreed-to sum on the agreed-upon delivery date, the underlying security could be
sold by the Portfolio, but the Portfolio might incur a loss in doing so, and in
certain cases may not be permitted to sell the security. As an operating policy,
the Portfolio, through its custodian bank, takes constructive possession of the
collateral underlying repurchase agreements. Additionally, procedures have been
established for the Portfolio to monitor, on a daily basis, the market value of
the collateral underlying all repurchase agreements to ensure that the
collateral is at least 100% of the value of the repurchase agreements. Not more
than 10% of the total assets of the Portfolio will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days. Repurchase Agreements are considered by the Staff of the
Securities and Exchange Commission to be loans by the Portfolio.
Portfolio Management and Turnover.It is not intended that the assets of
the Portfolio will be invested in securities for the purpose of short-term
profits. However, the Portfolio will dispose of portfolio securities whenever
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Mutual Fund Group
the Adviser believes that changes are appropriate. Generally, the primary
consideration in placing portfolio securities transactions with broker-dealers
for execution is to obtain, and maintain the availability of, execution at the
most favorable prices and in the most effective manner possible. For a complete
discussion of portfolio transactions and brokerage allocation, see "Investment
Objectives, Policies and Restrictions--Investment Policies: Portfolio
Transactions and Brokerage Allocation" in the Statement of Additional
Information.
Portfolio Securities Lending. Although the Portfolio would not intend
to engage in such activity in the ordinary course of business, the Portfolio 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 Portfolio's total assets. In
connection with such loans, the Portfolio 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 100% of the current market value of the
securities loaned. The Portfolio can increase its income through the investment
of such collateral. The Portfolio continues to be entitled to the interest
payable or any dividend-equivalent payments received on a loaned security and,
in addition, receive interest on the amount of the loan.
However, the receipt of any dividend-equivalent payments by the
Portfolio 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 Portfolio might experience risk of loss if the
institutions with which it has engaged in portfolio loan transactions breach
their agreements with the Portfolio. 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 Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans justifies the risk.
Foreign Securities
Investing in securities issued by foreign corporations and governments
involves considerations and possible risks not typically associated with
investing in securities issued by domestic corporations and the U.S. Government.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the U.S. or other countries) or changed circumstances in
dealings between countries. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
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Mutual Fund Group
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to extended settlement periods.
The Portfolio may invest in securities denominated in the ECU, which is
a "basket" consisting of specified amounts of the currencies of certain member
states of the European Community. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of European Community to
reflect changes in relative values of the underlying currencies. The Portfolio's
Trustees do not believe that such adjustments will adversely affect holders of
ECU-denominated securities or the marketability of such securities. European
governments and supranational organizations (discussed below), in particular,
issue ECU-denominated securities.
The Portfolio may invest in securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries: the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations steel and coal industries; and the Asian Development
Bank, which is an international development bank established to land funds,
promote investment and provide technical assistance to member nations of the
Asian and Pacific regions.
The Portfolio may invest its assets in securities of foreign issuers in
the form of sponsored ADRs, EDRs, or other similar securities representing
securities of foreign issuers. ADRs are receipts typically issued by an American
bank or trust company evidencing ownership of the underlying foreign securities.
EDRs are receipts issued by a European financial institution evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets.
Derivative and Related Instruments
The Portfolio may invest its assets in derivative and related
instruments subject only to the Portfolio's investment objective and policies
and the requirement that, to avoid leveraging the Portfolio, the Portfolio
maintain segregated accounts consisting of liquid assets, such as cash, U. S.
Government securities, or other high-grade debt obligations (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.
The value of some derivative or similar instruments in which the
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and - like other investments of the
Portfolio - the ability of the Portfolio to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly.
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Mutual Fund Group
If the Adviser incorrectly forecasts such factors and has taken positions in
derivative or similar instruments contrary to prevailing market trends, the
Portfolio could be exposed to the risk of a loss. The Portfolio might not employ
any or all of the instruments described herein, and no assurance can be given
that any strategy used will succeed.
To the extent permitted by the investment objectives and policies of the
Portfolio, and as described more fully in the Statement of Additional
Information, the Portfolio may :
o purchase, write and exercise call ando put options on securities,
securities indexes and foreign currencies (including using options in
combination with securities, other options or derivative
instruments);
o enter into futures contracts and options on futures contracts;
o employ forward currency and interest-rate contracts;
o purchase and sell mortgage-backed and asset-backed securities; and
o purchase and sell structured products.
Risk Factors--
As explained more fully in the Statement of Additional Information, there
are a number of risks associated with th derivatives and related instruments,
including:
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Mutual Fund Group
o 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.
As incorrect correlation could result in a loss of both the hedged assets
in a fund and the hedging vehicle so that the portfolio return might have
been greater had hedging not been attempted. This risk is particularly
acute in the case of "cross-hedges" between currencies.
o The Adviser may incorrectly forecast interest rates, market values or
other economic factors in utilizing a derivatives strategy. In such a
case, the Portfolio may have been in a better position had it not entered
into such strategy.
o 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.
o Strategies not involving hedging may increase the risk to the Portfolio.
Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to the Portfolio than hedging
strategies using the same instruments.
o There can be no assurance that a liquid market will exist at a time
when the Portfolio 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 a particular contract, no trades may be made that day at a
price beyond the 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.
o 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.
o In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards of
trade, 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 Portfolio may experience a loss.
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Mutual Fund Group
o In transactions involving currencies, the value of the currency
underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, government policies and market forces.
Unique Characteristics of Master/Feeder Fund Structure
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, a separate registered
investment company with the same investment objectives as the Fund. Therefore,
an investor's interest in the Portfolio's securities is indirect. In addition
to selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, other investors
investing in the Portfolio are not required to sell their shares at the same
public offering prices as the Fund. Investors in the Fund should be aware that
these differences may result in differences in returns experienced in the
different funds that invest in the Portfolio. Such differences in returns are
also present in other mutual fund structures.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds which have large of
institutional investors). Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Shares of the Fund for which no voting instructions have been received will be
voted in the same proportion
as those shares for which voting instructions are received. Certain changes in
the Portfolio's investment objectives, policies or restrictions may require the
Trust to withdrawn the Fund's interest in the Portfolio. Any cash withdrawal
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution from the Portfolio). The Fund could incur brokerage fees or
other transaction costs in converting such securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Fund.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interest of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
investable assets of the Fund in another pooled investment entity having the
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Mutual Fund Group
same investment objectives as the Fund or retaining an investment adviser to
manage the Fund's assets in accordance with the investment policies of the
Portfolio.
State securities regulations generally do not permit the same individuals
who are disinterested Trustees of the Fund to be Trustees of the Portfolio
absent the adoption of written procedures by a majority of the Disinterested
Trustees of the Fund reasonably appropriate to deal with potential conflicts of
interest up to and including creating a separate Board of Trustees. The Trustees
of the Fund, including a majority of the Disinterested Trustees, have adopted
procedures they believe are reasonably appropriate to deal with any conflict of
interest up to and including creating a separate Board of Trustees.
There are several domestic investment companies that invest all of their
assets in the Portfolio, as does the Fund, and that are sold primarily to
foreign investors. The Fund perceives no adverse effect to the Fund or its
shareholders as a result of such companies' investment in the Portfolio because
such companies are regulated by U.S. securities law, their investment in the
Portfolio is small as compared to the aggregate investment in the Portfolio, and
their shareholder base is diverse.
Investors in the Fund may obtain information about whether an investment
in the Portfolio may be available through other Funds by writing the Vista
Service Center.
For more information, see "Management," "Other Information Concerning
Shares of the Fund," "Shareholder Servicing Agents, Transfer Agent and
Custodian" and "Additional Information on Investment Policies and Techniques."
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DISTRIBUTION METHOD
Sales Charges-- Institutional Shares are sold at net asset value without
the imposition of a front-end or initial sales charge or a contingent deferred
sales charge
Ongoing Annual Expenses--Institutional Shares have an annual shareholder
servicing fee of 0.25% of its average daily net assets. Institutional Shares do
not pay an annual distribution fee under Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act").
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Other Information--Selected dealers and financial consultants may receive
different levels of compensation for selling one particular class of Fund shares
rather than another.
MANAGEMENT
The Fund does not have an investment adviser because the Trust seeks to
achieve the investment objectives of the Fund by investing all of the investable
assets of the Fund in the Portfolio. The Portfolio's investment adviser is
Chase, which also serves as the Fund's and Portfolio's administrator. Chase
global investment management capabilities are supported by investment
professionals located in cities around the world, including New York, Geneva and
Hong Kong. The Adviser
The Adviser manages the assets of the Portfolio pursuant to an Investment
Advisory Agreement dated November 15, 1993 and, subject to such policies as the
Board of Trustees may determine, the Adviser makes investment decisions for the
Portfolio. Dave Klassen and Greg Adams, Vice Presidents of the Adviser,
co-manage the Portfolio. Mr. Klassen, Head of U.S. Equity Funds Management and
Research for Chase, is also primarily responsible for the day-to-day management
of the Portfolio as well as several pooled equity funds . Mr. Klassen joined
Chase in March 1992 . Prior to joining Chase, Mr. Klassen spent 11 years as a
vice president and portfolio manager at Dean Witter Reynolds, responsible for
managing several mutual funds and other accounts. Mr. Adams Director of U. S.
Equity Research for Chase, is also responsible for managing the Vista Equity
Fund, the Vista Balanced Fund, as well as managing a number of Chase's pooled
equity funds. Mr. Adams joined Chase in 1987 and has been responsible for
overseeing the proprietary computer model program used in the U.S. equity
selection process. For its services under the Investment Advisory Agreement, the
Adviser is entitled to receive an annual fee computed daily and paid monthly
based at an annual rate equal to 0.40% of the Portfolio's average daily net
assets. The Adviser may, from time to time, voluntarily waive all or a portion
of its fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
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Mutual Fund Group
Certain Relationships and Activities. The Adviser and its affiliates may
have deposit, loan and other commercial banking relationships with the issuers
of securities purchased on behalf of the Portfolio, including outstanding loans
to such issuers which may be repaid in whole or in part with the proceeds of
securities so purchased. The Adviser 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. The Adviser and its affiliates
may sell U.S. Government obligations and municipal obligations to, and purchase
them from, other investment companies sponsored by the Distributor or affiliates
of the Distributor. The Adviser will not invest the Portfolio's 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 the Adviser or an affiliate is a
non-principal member. This restriction may limit the amount or type of U.S.
Government obligations, municipal obligations or commercial paper available to
be purchased by the Portfolio. The Adviser has informed the Portfolio that in
making its investment decisions, it does not obtain or use material inside
information in the possession of any other division or department of the
Adviser, including the division that performs services for the Portfolio as
Custodian, or in the possession of any affiliate of the Adviser. Shareholders of
the Fund are notified that Chase and its affiliates may exchange among
themselves certain information about the shareholder and his account.
The Administrator
Pursuant to Administration Agreements, dated as of January 1, 1989, as
amended September 30, 1993 and _____, 1995 (collectively the "Administration
Agreement") Chase serves as administrator of the Fund. Chase provides
certain administrative services, including, among other responsibilities,
coordinating relationships with independent contractors and agents; preparing
for signature by officers and filing of certain documents required for
compliance with applicable laws and regulations excluding those of the
securities laws of the various states; preparing financial statements; arranging
for the maintenance of books and records; and providing office facilities
necessary to carry out the duties thereunder. Chase is entitled to receive from
each of the Fund and the Portfolio a fee computed daily and paid monthly at an
annual rate equal to 0.05% of their respective average daily net assets. Chase
may, from time to time, voluntarily waive all or a portion of its fees payable
to it under the Administration Agreement.
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PURCHASES AND REDEMPTIONS OF SHARES
Purchases
Institutional Shares are sold to qualified investors without a sales load
at their public offering price. The public offering price of Institutional
Shares is the next determined net asset value. Qualified investors are defined
as institutions, trusts, partnerships, corporations, individuals, qualified and
other retirement plans and fiduciary accounts opened by a bank, trust company or
thrift institution which exercise investment authority over such accounts.
Institutional Shares of the Fund may be purchased through selected
financial service firms, such as broker-dealer firms and banks ("Dealers") who
have entered into a selected dealer agreement with Vista Broker-Dealer Services,
Inc., at the public offering price which is computed once daily as of the close
of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time;
however, options are priced at 4:15 p.m.) on each business day during which the
Exchange is open for trading ("Fund Business Day") . Orders received by Dealers
prior to the New York Stock Exchange closing time are confirmed at the offering
price effective at the close of such Exchange, provided the order is received by
the Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and share certificates will be
issued only upon request. Management reserves the right to refuse to sell shares
of the Fund to any institution.
Shareholder Servicing Agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund Shares, such as pre-authorized or systematic purchase and redemption plans.
Each Shareholder Servicing Agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain
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Mutual Fund Group
Shareholder Servicing Agents may (although they are not required by the Trust to
do so) credit to the accounts of their customers from whom they are already
receiving other fees an amount not exceeding the fees for their services as
Shareholder Servicing Agents (see "Shareholder Servicing Agents, Transfer Agent
and Custodian -- Shareholder Servicing Agents"), which may have the effect of
increasing the net return on the investment of customers of that Shareholder
Servicing Agent.
Minimum Investments
The Fund has established minimum initial investment for the purchase of
Institutional Shares. The minimum initial investment amount is $1,000,000. There
is no minimum for subsequent investments. Purchases of Institutional Shares
offered by other Vista Funds may be aggregated with purchases of Institutional
Shares of the Fund to meet the $1,000,000 minimum initial investment amount
requirement.
Exchanges for Institutional Shares of other Vista Funds. Institutional
Shares of the Fund may be exchanged for Institutional Shares of other Vista
Funds. See "Exchange Privilege."
Redemptions
Shareholders may redeem all or any portion of the shares in their account
at any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent. Redemptions
will be effected on the same day the redemption order is received if such order
is received prior to 4:00 p.m. Eastern time, or any Fund Business Day. The
proceeds of aredemption will be paid by wire in federal funds normally on
the next Fund Business Day after the redemption is effected, but in any event
within seven days. In making redemption requests, the names
of the registered shareholders and their account numbers must be supplied.
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Mutual Fund Group
A wire redemption may be requested by telephone or wire to the Vista Service
Center. For telephone redemptions, call the Vista Service Center at (800)
622-4273.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions of shares are taxable events on which
the shareholder may recognize a gain or a loss. The Fund retains the right to
pay the redemption price of shares in kind with securities (instead of cash).
However, the Trust has filed an election under Rule 18f-1 under the 1940 Act
committing to pay in cash all redemptions by a shareholder of record up to the
amounts specified in the rule (approximately $250,000).
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
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Mutual Fund Group
Redemption of Accounts of Less than $1,000,000. The Fund may redeem the
shares of any shareholder, if at such time, the aggregate net asset value of the
shares in such shareholder's account is less than $1,000,000. In the event of
any such redemption, a shareholder will receive at least 60 days notice prior to
the redemption.
Exchange Privilege
Shareholders may exchange, at net asset value, Institutional Shares of the
Fund for Institutional Shares of the other Vista Funds which have an
Institutional Share class of shares in accordance with the terms of the then
current prospectus of the Fund being acquired. No initial sales charges or
contingent deferred sales charges are imposed on the Institutional Shares being
acquired through an exchange. Currently, the Fund, Vista Growth and Income Fund,
Vista Small Cap Fund and Vista money market funds offer Institutional Shares.
The prospectus of the other Vista Fund into which shares are being exchanged
should be read carefully prior to any exchange and retained for future
reference. Under this exchange privilege, Institutional Shares of the Fund may
be exchanged for Institutional Shares of other Vista Funds only if those Funds
and their shares are registered in the states where the exchange may legally be
made and only if the account registrations are identical.
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Mutual Fund Group
Any such exchange may create a gain or loss to be recognized for federal
income tax purposes. Normally, shares of the Fund to be acquired through an
exchange transaction are purchased on the date on which the shares are redeemed
from the original fund, but such purchase may be delayed by either Fund up to
five business days if such Fund determines that it would be disadvantaged by an
immediate transfer of the proceeds. This privilege may be amended or terminated
at any time without notice. Arrangements have been made for the acceptance of
instructions by telephone to exchange shares if certain pre-authorizations or
indemnifications are accepted and on file. Further
information and telephone exchange forms are available from the Transfer Agent.
Market Timing. The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In order to limit
excessive exchange activity and in other circumstances where the Trustees or
Adviser believes doing so would be in the best interest of the Fund, the Fund
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving a Fund in a
year or three in a calendar quarter will be charged a $5.00 administration fee
per each such exchange.
General
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 this 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 the Account Application. To provide evidence of telephone
instructions, the Transfer Agent will record telephone conversations with
shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such reasonable procedures, it may be liable for losses due to unauth
ized or fraudulent instructions.
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Mutual Fund Group
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 , to carry out the instructions or to respond
to the inquiries, consistent with the service options chosen by the shareholder
in its 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. Shareholders agree to
release and hold harmless the Fund, the Adviser, the Administrator, any
Shareholder Servicing Agent or sub-agent and broker-dealer, and the officers,
directors, employees and agents thereof against any claim, liability, loss,
damage and expense for any act or failure to act in connection with Fund shares,
any related investment account, any privileges or services selected in
connection with such investment account, or any written or oral instructions or
requests with respect thereto, or any written or oral instructions or requests
from someone claiming to be a shareholder if the Fund or any of the
above-described parties follow instructions which they reasonably believe to be
genuine and act in good faith by complying with the procedures that have been
established for Fund accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with a tax adviser as to the tax consequences of an investment in
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Mutual Fund Group
the Fund, including the status of distributions from the Fund in its own state
and locality.
The Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Fund is treated as a "regulated
investment company" and all of its taxable income is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on the amounts so distributed. If for
any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to its shareholders, and
such distributions will be taxable to shareholders to the extent of the Fund's
current and accumulated earnings and profits. The Portfolio is not required to
pay any federal income or excise taxes.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as the Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by the Fund of its taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes. A
portion of the ordinary income dividends paid by the Fund with respect to a year
(which cannot exceed the aggregate amount of its share of qualifying dividends
received by the Portfolio from domestic corporations during the year) may
qualify for the 70% dividends-received deduction for corporate shareholders, but
any such dividends-received deduction will not be allowed in computing a
corporate shareholder's adjusted current earnings, upon which is based a
corporate preference item which may be subject to an alternative minimum tax or
to the environmental superfund tax. Distributions by the Fund of the excess, if
any, of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Ordinary income dividends and capital gain dividends from the Fund
may also be subject to state and local taxes.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
Distributions to shareholders will be treated in the same manner for
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Mutual Fund Group
federal income tax purposes whether received in cash or reinvested in additional
shares of the Fund. In general, distributions by the Fund are taken into account
by shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Fund and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
(or deemed made) during the fiscal year, including any portions which constitute
ordinary income dividends (and any portion thereof which qualify for the
dividends-received deduction for corporations) and capital gains dividends, will
be sent to the Fund's shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the backup withholding rules of the Code, certain shareholders may
be subject to 31% withholding of federal income tax on distributions and
redemption payments made by the Fund. Generally, shareholders are subject to
backup withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
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Mutual Fund Group
OTHER INFORMATION CONCERNING SHARES OF THE FUND
Net Asset Value
The net asset value of the Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time,
however, options are priced at 4:15 p.m.), on each Fund Business Day, by
deducting the amount of the Fund's liabilities from the value of its assets and
dividing the difference by the number of its shares outstanding. Values of
assets held by the Portfolio (i.e., the value of its investment in the Portfolio
and its other assets) are determined on the basis of their market or other fair
value, as described in the Statement of Additional Information. A share's net
asset value is effective for orders received by a Shareholder Servicing Agent
prior to its calculation and received by the Distributor prior to the close of
business, usually 4:00 p.m. Eastern time, on the Fund Business Day on which such
net asset value is determined. The net asset values per share of each of the
Fund's classes may differ slightly due to differing allocations of
class-specific expenses. The per share net asset value of Institutional Shares
of the Fund will generally be higher than that of the Fund's other classes of
shares because of the lower expenses borne by the Institutional Shares .
Net Income, Dividends and Capital Gain Distributions
Substantially all of the net income from dividends and interest (if any) of
the Fund is paid to its shareholders semi-annually (in the months of June and
December) as a dividend. The Fund's net investment income for a class of shares
consists of the interest income for a class of shares earned on its portfolio,
less expenses including these allocable to a particular class. In computing the
interest income, premiums are not amortized or discounts accrued on long-term
debt securities, except as required for federal income tax purposes. The Fund
will distribute its net realized short-term and long-term capital gains, if any,
to its shareholders at least annually. Dividends paid on each of the Fund's
classes of shares are calculated at the same time and in the same manner. In
general, dividends on Institutional Shares are expected to be higher than those
on the other classes of shares due to the lower expenses, borne by the
Institutional Shares.
The Fund intends to make additional distributions to the extent necessary
to avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains of mutual funds imposed by Section 4982 of the
Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent,
a shareholder may elect to receive dividends and capital gains distributions
from the Fund in either cash or additional shares .
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Mutual Fund Group
Distribution and Sub-Administration Agreement
The Distribution and Sub-Administration Agreement dated April 2, 1990,
amended June 1, 1990 and September 30, 1993 (the "Distribution Agreement"),
provides that VBDS will act as the principal underwriter of the Fund's shares
and 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. In addition, VBDS will provide certain sub-administration
services, including providing officers, clerical staff and office space.
Expenses
The respective expenses of each of the Funds of the Trust and the
Portfolio include the compensation of their respective Trustees: registration
fees; interest charges; taxes; fees and expenses of independent accountants, of
legal counsel and of any transfer agent, custodian, registrar or dividend
disbursing agent of the Trust or the Portfolio; insurance premiums; and expenses
of calculating the net asset value of, and the net income on, the Portfolio and
shares of the Fund.
The Fund will pay all of its pro rata share of the foregoing expenses of
the Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
sub-administration fees payable under the Distribution and Sub-Administration
Agreement. In addition, each class will pay those expenses allocable to the
class, including: shareholder servicing fees and expenses; expenses of
preparing, printing and mailing prospectuses, reports, notices, and proxy
statements to shareholders and government offices or agencies; expenses of
shareholder meetings; expenses relating to the registration and qualification of
shares of the particular class and the preparation, printing and mailing of
prospectuses for such purposes (except that the Distribution and
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Mutual Fund Group
Sub-Administration Agreement requires the Distributor to pay for prospectuses
which are to be used for sales to prospective investors).
Expenses of the Portfolio also include all fees under the Portfolio's
Administration Agreement; the expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Portfolio's
custodian for all services to the Portfolio, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government officers and commissions;
expenses of meetings of investors; and the advisory fees payable to the Adviser
under the Advisory Agreement.
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. Because the Fund is "non-diversified ", more of the
assets of the Fund may be concentrated in the securities of any single issuer
than if the Fund was "diversified", which may make the value of the shares in a
fund more susceptible to certain risks than shares of a diversified mutual fund.
The Trust has reserved the right to create and issue additional series and
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. Shares have no pre-
exemptive 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 class generally vote separately,
for example to approve distribution plans, but shares of all series or classes
vote together, to the extent required under the 1940 Act, in the election or
selection of Trustees and independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of all series or classes when in the
judgment of the Trustees it is necessary or desirable to submit matters for a
shareholder vote. A Trustee of the Trust may, in accordance with certain rules
of the Securities and Exchange Commission, be removed from office when the
holders of record of not less than two-thirds of the outstanding shares either
present a written declaration to the Funds' Custodian or vote in person or by
proxy at a meeting called for this purpose. In addition, the Trustees will
promptly call a meeting of shareholders to remove a trustee(s) when requested to
do so in writing by record holders of not less than 10% of all
<PAGE>
Mutual Fund Group
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same portfolio otherwise represented at the meeting in person or by proxy as
to which such Shareholder Servicing Agent is the agent of record. Any shares so
voted by a Shareholder Servicing Agent will be deemed represented at the meeting
for purposes of quorum requirements. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of the Fund or that
series or class.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, 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 Portfolio is organized as a trust under the laws of the State of New
York. The Portfolio's Declaration of Trust provides that the Fund and other
entities investing in the Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund's
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the Portfolio.
Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of all Fund shareholders and will cast
its vote as instructed by Fund shareholders. As with any mutual fund, other
investors in the Portfolio could control the results of voting at the Portfolio
level. In certain instances (e.g., a change in fundamental investment policies
or restrictions by the Portfolio which was not approved by the Fund's
<PAGE>
Mutual Fund Group
shareholders), this could result in the Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Trust.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange is open
for trading. At 4:00 p.m. Eastern time, on each such day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of aggregate beneficial
interests in the Portfolio. Any additions or reductions, which are to be
effected as of 4:00 p.m. Eastern time, on such day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of 4:00 p.m. Eastern time, on such day plus or minus, as the case may be, the
amount of the net additions to or reductions in the investor's investment in the
Portfolio effected as of 4:00 p.m. Eastern time, on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., Eastern time, on such day, plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of 4:00 p.m., Eastern time, on the following day the New York Stock
Exchange is open for trading.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
Shareholder Servicing Agents
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various services, including but not limited to the following: answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by a Shareholder Servicing Agent) quarterly and year-end
statements and confirmations of purchases and redemptions; transmit, on behalf
of the Fund, proxy statements, annual reports, updated prospectuses
<PAGE>
Mutual Fund Group
and other communications to shareholders of the Fund; receive, tabulate and
transmit to the Fund proxies executed by shareholders with respect to meetings
of shareholders of the Fund; and provide such other related services as the Fund
or a shareholder may request. For performing these services, each Shareholder
Servicing Agent receives certain fees, which may be paid periodically,
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in accounts serviced by such Shareholder Servicing Agent
during such period, and the expenses incurred by such Shareholder Servicing
Agent. Fees relating to acting as liaison to shareholders and providing personal
services to shareholders, will not exceed, on an annual basis, 0.25% of the
average daily net assets of each class of the Fund represented by shares owned
during the period for which payment is being made by investors for whom such
Shareholder Servicing Agent maintains a servicing relationship. Each Shareholder
Servicing Agent may, from time to time, voluntarily waive all or a portion of
the fees payable to it. In addition, Chase may provide other related services to
the Fund and/or Portfolio for which it may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts (" Accounts") . Through such Accounts, customers can
purchase, exchange and redeem shares, receive dividends and distributions on
Fund investments, and take advantage of any services related to an Account
offered by such Shareholder Servicing Agent from time to time. All Accounts and
any related privileges or services shall be governed by the laws of the State of
New York, without regard to its conflicts of laws provisions. State securities
laws may require banks and financial institutions to register as dealers under
state law.
<PAGE>
Mutual Fund Group
Transfer Agent and Custodian
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund and the Portfolio. In this capacity,
DST maintains the account records of all shareholders in the Funds, including
statement preparation and mailing. DST is also responsible for disbursing
dividend and capital gain distributions to shareholders, whether taken in cash
or additional shares. From time to time, DST and/or the Fund may contract with
other entities to perform certain services for the Transfer Agent. For its
services as Transfer Agent, DST receives such compensation as is from time to
time agreed upon by the Trust or the Portfolio and DST. DST's address is 127 W.
10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of the Fund i.e., cash and securities representing the Fund's interest in
the Portfolio, and as the custodian of the Portfolio's assets, for which Chase
receives compensation as is from time to time agreed upon by the Trust or the
Portfolio and Chase. The Custodian's responsibilities include safeguarding and
controlling the Portfolio's cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest on the
Portfolio's investments, maintaining books of original entry for portfolio and
Portfolio accounting and other required books and accounts, and calculating the
daily net asset value of beneficial interests in the Portfolio. Portfolio
securities and cash may be held by sub-custodian banks if such arrangements are
reviewed and approved by the Trustees. The internal division of Chase which
serves as the Portfolio's Custodian does not determine the investment policies
of the Portfolio or decide which securities will be bought or sold on behalf of
the Portfolio or otherwise have access to or share material inside information
with the internal division that performs advisory services for the Portfolio.
YIELD AND PERFORMANCE INFORMATION
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
historical earnings, 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
<PAGE>
Mutual Fund Group
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. 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 interest rates, the current market value
of the securities held by the Portfolio and changes in the Fund's expenses. The
Adviser, the Shareholder Servicing Agent, the Administrator and the Distributor
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 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). The Fund is advised that certain
Shareholder Servicing Agents may credit to the accounts of their customers from
whom they are already receiving other fees amounts not exceeding the Shareholder
Servicing Agent fees received (see "Purchases and Redemptions of
<PAGE>
Mutual Fund Group
Shares -- Purchases"), which will have the effect of increasing the net return
on the investment of customers of those Shareholder Servicing Agents. Such
customers may be able to obtain through their Shareholder Servicing Agents
quotations reflecting such increased return. See the Statement of Additional
Information for further information concerning the calculation of the yields or
total rates of return quotations for classes of shares of the Fund.
Other Information
The Statement of Additional Information contains more detailed information
about the Fund and the Portfolio, including information related to (i) the
Fund's and Portfolio's investment policies and restrictions, (ii) risk factors
associated with the Fund's and Portfolio's policies and investments, (iii) the
Trust's and Portfolio's Trustees, officers and the administrators and the
Adviser, (iv) portfolio transactions, (v) the Funds' shares, including rights
and liabilities of shareholders, and (vi) additional performance information,
including the method used to calculate yield or total rate of return quotations.
The audited financial statements of the Fund are incorporated by reference in
the Statement of Additional Information: Portfolio of Investments at October 31,
1994, Statement of Assets and Liabilities at October 31, 1994, Statement of
Operations for the year ended October 31, 1994, and Statement of Changes in Net
Assets for each of the two years in the period ended October 31, 1994 and
Financial Highlights for each of the five years ended October 31, 1994.
The Code of Ethics of the Fund prohibits all affiliated personnel from engaging
in personal investment activities which compete with or attempt to take
advantage of the Fund's planned portfolio transactions. The objective of the
Code of Ethics of the Fund is that its operations be carried out for the
exclusive benefit of the Fund's shareholders. The Fund maintains careful
monitoring of compliance with the Code of Ethics.
* * * * * * * * * *
<PAGE>
Mutual Fund Group
PROSPECTUS
VISTA(sm) SMALL CAP EQUITY FUND
INSTITUTIONAL SHARES
January ___, 1996
VISTA SMALL CAP EQUITY FUND (the "Fund") seeks to provide its shareholders
with long-term capital growth primarily through a broad portfolio (i.e., at
least 80% of its assets in normal circumstances) in common stocks. Under
ordinary circumstances, the Fund will invest at least 65% of its assets in
small-sized companies, with capitalization of $500 million or less. The Adviser
intends to utilize both quantitative and fundamental research to identify
undervalued stocks with a catalyst for positive change. Current income, if any,
is a consideration incidental to the Fund's objective of growth of capital.
There can be no assurance that the methodology employed will satisfy the Fund's
objective of long term capital growth. To retain investment flexibility, the
Fund may determine to discontinue selling new shares of the Fund when the net
assets of the Fund reach approximately $500 million. Were the Fund to do so,
existing shareholders of the Fund would be permitted to continue making
additional purchases of Fund shares. The Fund is a non-diversified series of
Mutual Fund Group (the "Trust"), an open-end, management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on May 11, 1987, presently consisting of 15 separate series (the
"Funds"). Because the Fund is "non-diversified", more of the Fund's assets may
be concentrated in the securities of any single issuer, than if the Fund was
"diversified" which may make the value of shares of the Fund more susceptible to
certain risks than shares of a diversified mutual fund.
Of course, there can be no assurance that the Fund will achieve its
investment objective. Prospective investors should carefully consider the risks
associated with an investment in the Fund. For a further discussion on the risks
associated with an investment in the Fund, see "Investment Objective, Policies
and Risk Factors" in this Prospectus. Investors should also refer to "Additional
Information on Investment Policies and Techniques" on page ___ .
The Chase Manhattan Bank, N.A. ("Chase" or the "Adviser") is the investment
adviser, custodian (the "Custodian") and administrator (the "Administrator").
Vista Broker-Dealer Services, Inc. ("VBDS" or the "Distributor") is the Fund's
distributor and is unaffiliated with Chase. Investments in the Fund are subject
to risk--including possible loss of principal--and will fluctuate in value.
Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by Chase or any of its affiliates and are not insured by, obligations
of or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
<PAGE>
Mutual Fund Group
This prospectus only offers shares of the Fund's Institutional Shares
class of shares. Institutional Shares of the Fund are continuously offered for
sale without a sales load through VBDS only to qualified investors that make an
initial investment of $1,000,000 or more. Qualified investors are defined as
institutions, trusts, partnerships, corporations, individuals, qualified and
other retirement plans and fiduciary accounts opened by a bank, trust company or
thrift institution which exercises investment authority over such accounts. An
investor should obtain from its Shareholder Servicing Agent, if appropriate, and
should read in conjunction with this Prospectus, the materials provided by the
Shareholder Servicing Agent describing the procedures under which the shares of
the Fund may be purchased and redeemed through such Shareholder Servicing Agent.
The Fund also offers, through a separate prospectus, Class A and Class B shares,
each with a public offering price that reflects sales charges and different
expense levels. Sales persons and any other person entitled to receive
compensation for selling or servicing shares of the Fund may receive different
compensation with respect to one particular class of shares over another in the
Fund.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. A Statement of
Additional Information for the Fund, dated January __, 1996 which contains more
detailed information concerning the Fund including the trustees and officers of
the Fund, has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Investors should read this prospectus carefully and retain it for future
reference.
For information about the Fund , or other classes of shares offered by the
Fund,, simply call the Vista Service Center at the following toll-free number:
1-800- 622-4273.
<PAGE>
TABLE OF CONTENTS
Expense Summary...............................................................4
Investment Objective, Policies and Risk Factors...............................5
Additional Information on Investment Policies and Techniques..................6
Distribution Method...........................................................8
Management....................................................................8
Purchases and Redemptions of Shares...........................................10
Tax Matters...................................................................12
Other Information Concerning Shares of the Fund...............................13
Shareholder Servicing Agents, Transfer Agent and Custodian....................15
Yield and Performance Information.............................................16
<PAGE>
Mutual Fund Group
EXPENSE SUMMARY
The following table provides (i) a summary of expenses relating to
purchases and sales of Institutional Shares of the Fund, and the aggregate
annual operating expenses of the Fund, as a percentage of average net assets of
the Fund, and (ii) an example illustrating the dollar cost of such expenses on a
$1,000 investment in Institutional Shares of the Fund.
Institutional Shares
Shareholder Transaction Expenses
Maximum Initial Sales Charge Imposed on Purchases
(as a percentage of offering price) ......................................None
Maximum Sales Charge Imposed on Reinvested Dividends........................None
Exchange Fee................................................................None
Maximum Contingent Deferred Sales Charge
(as a percentage of redemption proceeds)..................................None
Annual Fund Operating Expenses
(as a percentage of net assets)
Investment Advisory Fee....................................................0.65%
Rule 12b-1 Distribution Plan Fee...........................................0.00%
Administration Fee.........................................................0.10%
Other Expenses
--Sub-Administration Fee ................................................0.05%
--Shareholder Servicing Fee .............................................0.15%
--Other Operating Expenses+++ ...........................................0.15%
Total Fund Operating Expenses.......................................... 1.10%
=====
Example:
You would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual total return:
One Three Five Ten
Year Years Years Years
Institutional Shares ........................... $__ $__ $__ $__
- --------
+++A shareholder may incur a $10.00 charge for certain wire redemptions.
The purpose of the expense summary provided above is to assist
investors in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The expense summary shows the
investment advisory fee, administrative fee, sub-administrative fee, shareholder
servicing agent fee and other operating expenses expected to be
incurred by the Fund during the fiscal year. A more complete description of the
Fund's expenses, including any potential fee waivers, is set forth herein on
pages __-__, __-__ and __-__.
The "Example" set forth above assumes all dividends and other
distributions are reinvested and that the percentages under "Annual Fund
Operating Expenses"
remain the same in the years shown. The "Example" should not be considered a
representation of past or future expenses of the Fund; actual expenses may be
greater or less than shown.
<PAGE>
Mutual Fund Group
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
Introduction
The Fund is aggressively managed and, therefore, the value of its
shares is subject to greater fluctuation and an investment in its shares
involves the assumption of a higher degree of risk than would be the case with
an investment in a conservative equity fund or a growth fund investing entirely
in proven
growth equities. The net asset value of the Fund will fluctuate based on the
value of the securities in the Fund's portfolio. Given the above-average
investment risk inherent in the Fund, investment in shares of the Fund should
not be considered a complete investment program and may not be appropriate for
all investors.
Investment Objective -- The investment objective of the Fund is to
provide its shareholders with long-term capital growth. Current income, if any,
is a consideration incidental to the Fund's objective of growth of capital.
Investment Policies -- The Fund seeks to achieve its investment
objective by investing (i.e., at least 80% of its total assets under normal
circumstances) in common stocks. Under ordinary circumstances, the Fund will
invest at least 65% of its assets in small sized-companies, with capitalization
of $500 million or less. The Adviser intends to utilize both quantitative and
fundamental research to identify undervalued stocks with a catalyst for positive
change. Dividend income, if any, is a consideration incidental to the Fund's
objective of growth of capital. There can be no assurance that the methodology
employed will satisfy the Fund's objective of long term capital growth. An
investor should be aware that investment in small capitalization issuers may be
more volatile than investments in issuers with market capitalizations greater
than $500 million due to the lack of diversification in the business activities,
limited product lines, markets or financial resources, and correspondingly
greater susceptibility to changes in the business cycle of small capitalization
issuers. Small
<PAGE>
Mutual Fund Group
capitalization stocks as a group may not respond to general market rallies or
downturns as much as other types of equity securities. This investment policy
involves the risks that the changes or trends identified by the Adviser will not
occur or will not be as significant as projected and that, even if the changes
or trends develop, the particular issues held by the Fund will not benefit as
anticipated from such changes or trends.
The Fund normally will be substantially fully invested and, under normal
circumstances, invest at least 80% of its total assets in common stocks. The
Fund may invest up to 20% of its total assets in stocks of foreign issuers.
Investments in foreign securities are subject to certain risks to which
investments in domestic securities are not subject, including political or
economic instability of the issuer or country of issue and the possibility of
the imposition of exchange controls. However, the Fund reserves the right to
invest more than 20% of its total assets in cash, cash equivalents and debt
securities such as commercial paper, bank obligations and obligations issued by
the U.S. Government or its agencies and instrumentalities which have a remaining
maturity of one year or less for temporary defensive purposes during periods
which the Adviser considers to be particularly risky for investment in common
stocks. See "Additional Information on Investment Policies and
Techniques--Foreign Securities" on page __. The Fund may also enter into
repurchase agreements and engage in the lending of portfolio securities. See
"Additional Information on Investment Policies and Techniques--Repurchase
Agreements, Portfolio Securities Lending on page __.
The Fund may enter into transactions in derivatives and related
instruments. The information presented below under "Additional Information on
Investment Policies and Techniques" contains a more complete description of
these instruments , as well as further information concerning the investment
policies and techniques of the Fund. In addition, the Statement of Additional
Information includes a further discussion of these instruments which may be
entered into by the Fund. The use of such instruments involves transaction costs
and certain risks, which are discussed in the Statement of Additional
Information.
Shareholder approval is required to change the Fund's investment objective
which is considered to be fundamental. However, shareholder approval is not
<PAGE>
Mutual Fund Group
required to change any of the investment policies described above or in
"Additional Information on Investment Policies and Techniques".
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
To the extent the assets of the Fund are not invested in common stocks,
they will consist of or be invested in cash, cash equivalents and short-term
debt securities, such as U.S. Government securities, bank obligations and
commercial paper, as described under "Investment Objectives, Policies and
Restrictions" in the Statement of Additional Information, and in repurchase
agreements, as described below and in greater detail under "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
Because the value of securities and the income derived therefrom may
fluctuate according to the earnings of the issuers and changes in economic and
money market conditions, there can be no assurance that the investment objective
of the Fund will be achieved.
Repurchase Agreements. The Fund may, when appropriate, enter into
repurchase agreements (a purchase of and simultaneous commitment to resell a
security at an agreed-upon price and date which is usually not more than seven
days from the date of purchase) only with member banks of the Federal Reserve
System and security dealers believed creditworthy and only if fully
collateralized by U.S. Government obligations or other securities in which the
Fund is permitted to invest. In the event the seller fails to pay the agreed-to
sum on the agreed-upon delivery date, the underlying security could be sold by
the Fund, but the Fund might incur a loss in doing so, and in certain cases may
not be permitted to sell the security. As an operating policy, the Fund, through
its custodian bank, takes constructive possession of the collateral underlying
repurchase agreements. Additionally, procedures have been established for the
Fund to monitor, on a daily basis, the market value of the collateral underlying
all repurchase agreements to ensure that the collateral is at least 100% of the
value of the repurchase agreements. Not more than 10% of the total assets of the
Fund will be invested in securities which are subject to legal or contractual
restrictions on resale, including securities that are not readily marketable and
repurchase agreements maturing in more than seven days. Repurchase Agreements
are considered by the Staff of the Securities and Exchange Commission to be
loans by the Fund.
Portfolio Management and Turnover. It is not intended that the assets
of the Fund will be invested in securities for the purpose of short-term
profits. However, the Fund will dispose of portfolio securities whenever the
Adviser believes that changes are appropriate. Generally, the primary
consideration in placing portfolio securities transactions with broker-dealers
for execution is to obtain, and maintain the availability of, execution at the
most favorable prices and in the most effective manner possible. For a complete
discussion of
<PAGE>
Mutual Fund Group
portfolio transactions and brokerage allocation, see "Investment Objectives,
Policies and Restrictions--Investment Policies: Portfolio Transactions and
Brokerage Allocation" in the Statement of Additional Information.
Foreign Securities
Among the common stocks in which the Fund may invest are stocks of
foreign issuers, although at present the Fund does not intend to invest more
than 20% of its total assets in such securities. These securities may represent
a greater degree of risk (e.g., risk related to exchange rate fluctuation, tax
provisions, war or expropriation) than do securities of domestic issuers.
Investing in securities issued by foreign corporations and governments
involves considerations and possible risks not typically associated with
investing in securities issued by domestic corporations and the U.S. Government.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the U.S. or other countries) or changed circumstances in
dealings between countries. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to extended settlement periods.
The Fund may invest in securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain member
states of the European Community. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of European Community to
reflect changes in relative values of the underlying currencies. The Fund's
Trustees do not believe that such adjustments will adversely affect holders of
ECU-denominated securities or the marketability of such securities. European
governments and supranational organizations (discussed below), in particular,
issue ECU-denominated securities.
The Fund may invest in securities issued by supranational organizations
such as: the World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations of the Asian and Pacific regions.
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The Fund may invest its assets in securities of foreign issuers in the
form of sponsored ADRs, EDRs, or other similar securities representing
securities of foreign issuers. ADRs are receipts typically issued by an American
bank or trust company evidencing ownership of the underlying foreign securities.
EDRs are receipts issued by a European financial institution evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets.
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Derivatives and Related Instruments
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, to avoid leveraging the Fund, the Fund maintain segregated accounts
consisting of liquid assets, such as cash, U. S. Government securities, or other
high-grade debt obligations (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.
The value of some derivative or similar instruments in which the Fund
invests may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and - like other investments of the Fund - the ability
of the Fund to successfully utilize these instruments may depend in part upon
the ability of the Adviser to forecast interest rates and other economic factors
correctly. If the Adviser incorrectly forecasts such factors and has 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 instruments described herein, and no assurance can be
given that any strategy used will succeed.
To the extent permitted by the investment objectives and policies of
the Fund, and as described more fully in the Statement of Additional
Information, the Fund may:
o purchase, write and exercise call and put options on securities,
securities indexes and foreign currencies (including using options in
combination with securities, other options or derivative
instruments);
o enter into futures contracts and options on futures contracts; o employ
forward currency and interest-rate contracts; o purchase and sell
mortgage-backed and asset-backed securities; and o purchase and sell
structured products.
Risk Factors--As explained more fully in the Statement of Additional
Information, there are a number of risks associated with the use of derivatives
and related instruments, including:
o 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 of both the hedged assets
of 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.
o The Adviser may incorrectly forecast interest rates, market values or
other economic factors in utilizing a derivatives strategy. In such a
case, the Fund may have been in a better position had it not entered into
such strategy.
o 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.
o Strategies not involving hedging may increase the risk to the 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.
o 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
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a particular contract, no trades may be made that day at a price beyond
the 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.
o 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.
o In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards of
trade, 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.
o In transactions involving currencies, the value of the currency
underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, government policies and market
forces.
DISTRIBUTION METHOD
Sales Charges-- Institutional Shares are sold at net asset value without
the imposition of a front-end or initial sales charge or a contingent deferred
sales charge.
Ongoing Annual Expenses--Institutional Shares have an annual shareholder
servicing fee of 0.25% of its average daily net assets. Institutional Shares do
not pay an annual distribution fee under Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act").
Other Information--Selected dealers and financial consultants may receive
different levels of compensation for selling one particular class of Fund shares
rather than another.
MANAGEMENT
The Fund's investment adviser is Chase, which also serves as the Fund's
administrator. Chase global investment management capabilities are supported by
investment professionals located in cities around the world, including New York,
Geneva and Hong Kong.
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The Adviser
The Adviser manages the assets of the Fund pursuant to an Investment
Advisory Agreement dated November 17, 1994 and, subject to such policies as the
Board of Trustees may determine, the Adviser makes investment decisions for the
Fund. Dave Klassen and Jill Greenwald, Vice Presidents of the Adviser, are
responsible for the day-to-day management of the Fund. Mr. Klassen joined
Chase in March 1992 and, in addition to co-managing the Capital Growth Fund, is
responsible for managing several pooled equity funds. Prior to joining Chase,
Mr. Klassen was a vice president and portfolio manager at Dean Witter Reynolds,
responsible for managing several mutual funds and other accounts. Ms. Greenwald
joined Chase in 1993, specializing in small cap issues. Prior to joining Chase,
Ms. Greenwald was a Director for Prudential Equity Investors and a Senior
Analyst for Fred Alger Management, Inc. with concentrations in consumer,
technology and transportation issues. For its services under the Investment
Advisory Agreement, the Adviser is entitled to receive an annual fee computed
daily and paid monthly based at an annual rate equal to 0.65% of the Fund's
average daily net assets. The Adviser may, from time to time, voluntarily waive
all or a portion of its fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
Certain Relationships and Activities. The Adviser and its affiliates may
have deposit, loan and other commercial banking relationships with the issuers
of securities purchased on behalf 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. The Adviser 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. The Adviser and its affiliates
may sell U.S. Government obligations and municipal obligations to, and purchase
them from, other investment companies sponsored by the Distributor or affiliates
of the Distributor. The Adviser will not invest the Fund's assets in any U.S.
Government obligations, municipal obligations or
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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 the Adviser or an affiliate is a non-principal
member. This restriction may limit the amount or type of U.S. Government
obligations, municipal obligations or commercial paper available to be purchased
by the Fund. The Adviser has informed the Fund that in making its investment
decisions, it does not obtain or use material inside
information in the possession of any other division or department of the
Adviser, including the division that performs services for the Fund as
Custodian, or in the possession of any affiliate of the Adviser. Shareholders of
the Fund are notified that Chase and its affiliates may exchange among
themselves certain information about the shareholder and his account.
The Administrator
Pursuant to an Administration Agreement, dated as of January 1, 1989, as
amended September 30, 1993 and ____, 1995 (collectively the "Administration
Agreement") Chase serves as administrator of the Fund. Chase provides certain
administrative services, including, among other responsibilities, coordinating
relationships with independent contractors and agents; preparing for signature
by officers and filing of certain documents required for compliance with
applicable laws and regulations excluding those of the securities laws of the
various states; preparing financial statements; arranging for the maintenance of
books and records; and providing office facilities necessary to carry out the
duties thereunder. Chase is entitled to receive 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. Chase may, from time to time, voluntarily waive all or a
portion of its fees payable to it under the Administration Agreements.
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PURCHASES AND REDEMPTIONS OF SHARES
Purchases
Institutional Shares are sold to qualified investors at their public
offering price. The public offering price of Institutional Shares is the next
determined net asset value. Qualified investors are defined as institutions,
trusts, partnerships, corporations, individuals, qualified and other retirement
plans and fiduciary accounts opened by a bank, trust company or thrift
institution which exercise investment authority over such accounts.
Institutional Shares may be purchased through selected financial service firms,
such as broker-dealer firms and banks ("Dealers") who have entered into a
selected dealer agreement with Vista Broker-Dealer Services, Inc., at the public
offering price which is computed once daily as of the close
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of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time;
however, options are priced at 4:15 p.m.) on each business day during which the
Exchange is open for trading ("Fund Business Day") . Orders received by Dealers
prior to the New York Stock Exchange closing time are confirmed at the offering
price effective at the close of such Exchange, provided the order is received by
the Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and share certificates will be
issued only upon request. Management reserves the right to refuse to sell shares
of the Fund to any institution.
Shareholder Servicing Agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund Shares, such as pre-authorized or systematic purchase and redemption plans.
Each Shareholder Servicing Agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain Shareholder Servicing Agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding the fees for
their services as Shareholder Servicing Agents (see "Shareholder Servicing
Agents, Transfer Agent and Custodian -- Shareholder Servicing Agents"), which
may have the effect of increasing the net return on the investment of customers
of that Shareholder Servicing Agent.
Minimum Investments
The Fund has established a minimum initial investment amount for the
purchase of Institutional Shares. The minimum initial investment amount is
$1,000,000. There is no minimum for subsequent investments. Purchases of
Institutional Shares offered by other Vista Funds may be aggregated with
purchases of Institutional Shares of the Fund to meet the $1,000,000 minimum
initial investment amount requirement.
Exchanges for Institutional Shares of other Vista Funds. Institutional
Shares of the Fund may be exchanged for Institutional Shares of other Vista
Funds. See "Exchange Privilege."
Redemptions
Shareholders may redeem all or any portion of the shares in their account
at any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent. Redemptions
will be effected on the same day the redemption order is received if such order
is received prior to 4:00 p.m. Eastern time, on any Fund Business Day. The
proceeds of aredemption will be paid by wire in federal funds normally on the
next Fund Business Day after the redemption is effected, but in any event within
seven days. In making redemption requests, the names of the registered
shareholders and their account numbers must be supplied.
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Mutual Fund Group
A wire redemption may be requested by telephone or wire to the Vista Service
Center. For telephone redemptions, call the Vista Service Center at (800)
622-4273.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions of shares are taxable events on which
the shareholder may recognize a gain or a loss. The Fund retains the right to
pay the redemption price of shares in kind with securities (instead of cash).
However, the Trust has filed an election under Rule 18f-1 under the 1940 Act,
committing to pay in cash all redemptions by a shareholder of record up to the
amounts specified in the rule (approximately $250,000).
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Mutual Fund Group
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
Redemption of Accounts of Less than $1,000,000. The Fund may redeem the
shares of any shareholder, if at such time, the aggregate net asset value of the
shares in such shareholder's account is less than $1,000,000. In the event of
any such redemption, a shareholder will receive at least 60 days notice prior to
the redemption.
Exchange Privilege
Shareholders may exchange, at net asset value, Institutional Shares of the
Fund for Institutional Shares of the other Vista Funds which have an
Institutional Share class of shares, in accordance with the terms of the then
current prospectus of the Fund being acquired. No initial sales charges or
contingent deferred sales charges are imposed on the Institutional Shares being
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Mutual Fund Group
acquired through an exchange. Currently, the Fund, Vista Growth and Income
Fund, Vista Capital Growth Fund and Vista money market funds offer Institutional
Shares. The prospectus of the other Vista Fund into which shares are being
exchanged should be read carefully prior to any exchange and retained for future
reference. Under this exchange privilege, Institutional Shares of the Fund may
be exchanged for Institutional Shares of such Vista Funds only if those Funds
and their shares are registered in the states where the exchange may legally be
made and only if the account registrations are identical.
Any such exchange may create a gain or loss to be recognized for federal
income tax purposes. Normally, shares of the Fund to be acquired through an
exchange transaction are purchased on the date redeemed from the original Fund,
but such purchase may be delayed by either Fund up to five business days if such
Fund determines that it would be disadvantaged by an immediate transfer of the
proceeds. This privilege may be amended or terminated at any time without
notice. Arrangements have been made for the acceptance of instructions by
telephone to exchange shares if certain pre-authorizations or indemnifications
are accepted and on file. Further information and telephone exchange forms are
available from the Transfer Agent.
Market Timing. The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In order to limit
excessive exchange activity and in other circumstances where the Trustees or
Adviser believes doing so would be in the best interest of the Fund, the Fund
reserves the right to revise or terminate the exchange privilege, limit the
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Mutual Fund Group
amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving a Fund in a
year or three in a calendar quarter will be charged a $5.00 administration fee
for each such exchange.
General
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 this 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 the Account Application. To provide evidence of telephone
instructions, the Transfer Agent will record telephone conversations with
shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent instructions.
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 , to carry out the instructions or to respond
to the inquiries, consistent with the service options chosen by the shareholder
in its 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. Shareholders agree to
release and hold harmless the Fund, the Adviser, the Administrator, any
Shareholder Servicing Agent or sub-agent and broker-dealer, and the officers,
directors, employees and agents thereof against any claim, liability, loss,
damage and expense for any act or failure to act in connection with Fund shares,
any related investment account, any privileges or services selected in
connection with such investment account, or any written or oral instructions or
requests with respect thereto, or any written or oral instructions or requests
from someone claiming to be a shareholder if the Fund or any of the
above-described parties follow instructions which they reasonably believe to be
genuine and act in good faith by complying with the procedures that have been
established for Fund accounts and services.
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Mutual Fund Group
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
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 the bank account specified in the Bank Account
Registration, or for any written requests for additional account services made
after a shareholder has submitted an initial account application to the Fund.
The Fund may also refuse to accept or carry out any transaction that does not
satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with a tax adviser as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund in its own state
and locality.
The Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Fund is treated as a "regulated
investment company" and all of its taxable income is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on the amounts so distributed. If for
any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to its shareholders, and
such distributions will be taxable to shareholders to the extent of the Fund's
current and accumulated earnings and profits. The Fund is not required to pay
any federal income or excise taxes.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as the Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by the Fund of its taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
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Mutual Fund Group
Such distributions are treated as dividends for federal income tax purposes. A
portion of the ordinary income dividends paid by the Fund with respect to a year
(which cannot exceed the aggregate amount of its share of qualifying dividends
received by the Fund from domestic corporations during the year) may qualify for
the 70% dividends-received deduction for corporate shareholders, but any such
dividends-received deduction will not be allowed in computing a corporate
shareholder's adjusted current earnings, upon which is based a corporate
preference item which may be subject to an alternative minimum tax or to the
environmental superfund tax. Distributions by the Fund of the excess, if any, of
its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Ordinary income dividends and capital gain dividends from the Fund
may also be subject to state and local taxes.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Fund. In general, distributions by the Fund are taken into account
by shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Fund and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
(or deemed made) during the fiscal year, including any portions which constitute
ordinary income dividends (and any portion thereof which qualify for the
dividends-received deduction for corporations) and capital gains dividends, will
be sent to the Fund's shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the backup withholding rules of the Code, certain shareholders may
be subject to 31% withholding of federal income tax on distributions and
redemption payments made by the Fund. Generally, shareholders are subject to
backup withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
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Mutual Fund Group
OTHER INFORMATION CONCERNING SHARES OF THE FUND
Net Asset Value
The net asset value of the Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time,
however, options are priced at 4:15 p.m.), on each Fund Business Day, by
deducting the amount of the Fund's liabilities from the value of its assets and
dividing the difference by the number of its shares outstanding. Values of
assets held by the Fund (i.e., the value of its investment in the Fund and its
other assets) are determined on the basis of their market or other fair value,
as described in the Statement of Additional Information. A share's net asset
value is effective for orders received by a Shareholder Servicing Agent prior to
its calculation and received by the Distributor prior to the close of business,
usually 4:00 p.m. Eastern time, on the Fund Business Day on which such net asset
value is determined. The net asset values per share of each of the Fund's
classes may differ slightly due to differing allocations of class-specific
expenses. The per share net asset value of Institutional Shares of the Fund will
generally be higher than that of the Fund's other classes of shares because of
the lower expenses borne by the Institutional Shares .
Net Income, Dividends and Capital Gain Distributions
Substantially all of the net income from dividends and interest (if any) of
the Fund is paid to its shareholders semi-annually (in the months of June and
December) as a dividend. The Fund's net investment income for a class of shares
consists of the interest income for a class of shares earned on its portfolio,
less expenses including these allocable to a particular class. In computing the
interest income, premiums are not amortized or discounts accrued on long-term
debt securities, except as required for federal income tax purposes. The Fund
will distribute its net realized short-term and long-term capital gains, if any,
to its shareholders at least annually. Dividends paid on each of the Fund's
classes of shares are calculated at the same time and in the same manner. In
general, dividends on Institutional Shares are expected to be higher than those
on the other classes of shares due to the lower expenses borne by Institutional
Shares.
The Fund intends to make additional distributions to the extent necessary
to avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains of mutual funds imposed by Section 4982 of the
Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
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shareholder may elect to receive dividends and capital gains distributions from
the Fund in either cash or additional shares .
Distribution and Sub-Administration Agreement
The Distribution and Sub-Administration Agreement dated April 2, 1990,
amended June 1, 1990 and September 30, 1993 (the "Distribution Agreement"),
provides that VBDS will act as the principal underwriter of the Fund's shares
and 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 . In addition, VBDS
will provide certain sub-administration services, including providing officers,
clerical staff and office space. VBDS currently receives a fee for
sub-administration from the Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets, on an annualized basis for the Fund's then-current
fiscal year. Other funds which have investment objectives similar to those of
the Fund, but which do not pay some or all of such fees from their assets, may
offer a higher return, although investors would, in some cases, be required to
pay a sales charge or a redemption fee.
Expenses
The respective expenses of each of the Funds of the Trust include the
compensation of their respective Trustees: registration fees; interest charges;
taxes; fees and expenses of independent accountants, of legal counsel and of any
transfer agent, custodian, registrar or dividend disbursing agent of the Trust;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, shares of the Fund.
The Fund will pay all of its pro rata share of the foregoing expenses of
the Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
sub-administration fees payable under the Distribution and Sub-Administration
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Agreement. In addition, each class will pay those expenses allocable to the
class, including: shareholder servicing fees and expenses; expenses of
preparing, printing and mailing prospectuses, reports, notices, and proxy
statements to shareholders and government offices or agencies; expenses of
shareholder meetings; expenses relating to the registration and qualification of
shares of the particular class and the preparation, printing and mailing of
prospectuses for such purposes (except that the Distribution and
Sub-Administration Agreement requires VBDS to pay for prospectuses which are to
be used for sales to prospective investors).
Expenses of the Fund also include all fees under the Fund's Administration
Agreement; the 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 officers and commissions; expenses of
meetings of investors; and the advisory fees payable to the Adviser under the
Advisory Agreement.
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end management investment company organized
as a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. Because the Fund is "non-diversified ", more of the
assets of the Fund may be concentrated in the securities of any single issuer
than if the Fund was "diversified", which may make the value of the shares in a
fund more susceptible to certain risks than shares of a diversified mutual fund.
The Trust has reserved the right to create and issue additional series and
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. Shares have no
pre-emptive 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 class generally vote separately,
for example to approve distribution plans, but shares of all series or classes
vote together, to the extent required under the 1940 Act, in the election or
selection of Trustees and independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of all series or classes when in the
judgment of the Trustees it is necessary or desirable to
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submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Funds' Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, the
Trustees will promptly call a meeting of shareholders to remove a trustee(s)
when requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same class or fund otherwise represented at the meeting in person or by
proxy as to which such Shareholder Servicing Agent is the agent of record. Any
shares so voted by a Shareholder Servicing Agent will be deemed represented at
the meeting for purposes of quorum requirements. Shareholders of each series or
class would be entitled to share pro rata in the net assets of that series or
class available for distribution to shareholders upon liquidation of the Fund or
that series or class.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, 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.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
Shareholder Servicing Agents
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various services, including but not limited to the following: answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
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Mutual Fund Group
to establish and maintain shareholder accounts and records; assist in
processing purchase and redemption transactions; arrange for the wiring of
funds; transmit and receive funds in connection with customer orders to purchase
or redeem shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by a Shareholder Servicing Agent) quarterly and year-end
statements and confirmations of purchases and redemptions; transmit, on behalf
of the Fund, proxy statements, annual reports, updated prospectuses and other
communications to shareholders of the Fund; receive, tabulate and transmit to
the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request. Shareholder Servicing Agents may be required to
register pursuant to state securities law.
For performing these services, each Shareholder Servicing Agent receives certain
fees, which may be paid periodically, determined by a formula based upon the
number of accounts serviced by such Shareholder Servicing Agent during the
period for which payment is being made, the level of activity in accounts
serviced by such Shareholder Servicing Agent during such period, and the
expenses incurred by such Shareholder Servicing Agent. Fees relating to acting
as liaison to shareholders and providing personal services to shareholders, will
not exceed, on an annual basis, 0.15% of the average daily net assets of each
class of shares of the Fund represented by shares owned during the period for
which payment is being made by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship. Each Shareholder Servicing Agent may,
from time to time, voluntarily waive all or a portion of the fees payable to it.
In addition, Chase may provide other related services to the Fund for which it
may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts (" Accounts") . Through such Accounts, customers can
purchase, exchange and redeem shares, receive dividends and distributions on
Fund investments, and take advantage of any services related to an Account
offered by such Shareholder Servicing Agent from time to time. All Accounts and
any related privileges or services shall be governed by the laws of the State of
New York, without regard to its conflicts
of laws provisions. State securities laws may require banks and financial
institutions to register as dealers under state law.
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Mutual Fund Group
Transfer Agent and Custodian
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund. In this capacity, DST maintains the
account records of all shareholders in the Fund, including statement preparation
and mailing. DST is also responsible for disbursing dividend and capital gain
distributions to shareholders, whether taken in cash or additional shares. From
time to time, DST and/or the Fund may contract with other entities to perform
certain services for the Transfer Agent. For its services as Transfer Agent, DST
receives such compensation as is from time to time agreed upon by the Trust and
DST. DST's address is 127 W. 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of the Fund, for which Chase receives compensation as is from time to
time agreed upon by the Trust and Chase. The Custodian's responsibilities
include safeguarding and controlling the Fund's cash and securities, handling
the receipt and delivery of securities, determining income and collecting
interest on the Fund's investments, maintaining books of original entry for
portfolio and Fund accounting and other required books and accounts, and
calculating the daily net asset value of beneficial interests in the Fund. Fund
securities and cash may be held by sub-custodian banks if such arrangements are
reviewed and approved by the Trustees. The internal division of Chase which
serves as the Fund's Custodian does not determine the investment policies of the
Fund or decide which securities will be bought or sold on behalf of the Fund or
otherwise have access to or share material inside information with the internal
division that performs advisory services for the Fund.
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Mutual Fund Group
YIELD AND PERFORMANCE INFORMATION
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
historical earnings, 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. 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 interest rates, the current market value
of the securities held by the Fund and changes in the Fund's expenses. The
Adviser, the Shareholder Servicing Agent, the Administrator and VBDS
may voluntarily waive a portion of their fees on a month-to-month basis. In
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Mutual Fund Group
addition, VBDS may assume a portion of the Fund's operating expenses on a
month-to-month basis. These actions would have the effect of increasing the net
income (and therefore the yield and total rate of return) of the classes of
shares of the Fund during the period such waivers are in effect. These factors
and possible differences in the methods used to calculate the yields and total
rates of return should be considered when comparing the yields or total rates of
return of the classes of shares of the Fund to yields and total rates of return
published for other investment companies and other investment vehicles
(including different classes of shares). The Fund is advised that certain
Shareholder Servicing Agents may credit to the accounts of their customers from
whom they are already receiving other fees amounts not exceeding the Shareholder
Servicing Agent fees received (see "Purchases and Redemptions of Shares --
Purchases"), which will have the effect of increasing the net return on the
investment of customers of those Shareholder Servicing Agents. Such customers
may be able to obtain through their Shareholder Servicing Agents quotations
reflecting such increased return. See the Statement of Additional Information
for further information concerning the calculation of the yields or total rates
of return quotations for classes of shares of the Fund.
Other Information
The Statement of Additional Information contains more detailed information
about the Fund, including information related to (i) the Fund's investment
policies and restrictions, (ii) risk factors associated with the Fund's policies
and investments, (iii) the Trust's Trustees, officers and the administrators and
the Adviser, (iv) portfolio transactions, (v) the Fund's shares, including
rights and liabilities of shareholders, and (vi) additional performance
information, including the method used to calculate yield or total rate of
return quotations.
The Code of Ethics of the Fund prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of the Fund's planned portfolio transactions. The objective of the
Code of Ethics of the Fund is that its operations be carried out for the
exclusive benefit of the Fund's shareholders. The Fund maintains careful
monitoring of compliance with the Code of Ethics.
* * * * * * * * * *
<PAGE>
Mutual Fund Group
PART B
<PAGE>
Mutual Fund Group
STATEMENT OF
ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
January ,1996
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) CAPITAL GROWTH FUND
125 West 55th Street, New York, New York 10019
Table of Contents
Page
The Funds.................................................................... 2
Investment Objective, Policies and Restrictions.............................. 3
Performance Information...................................................... 25
Determination of Net Asset Value............................................ 29
Tax Matters................................................................. 31
Management of the Funds and Portfolios...................................... 39
Independent Accountants..................................................... 52
General Information......................................................... 52
Appendix A -Description of Ratings...........................................A-1
This Statement of Additional Information sets forth
information which may be of interest to investors in the Fund but which is not
necessarily included in the Prospectus offering such shares. This Statement of
Additional Information should be read in conjunction with the individual
Prospectuses offering Institutional Shares classes of shares of each of Vista
Growth and Income Fund and Vista Capital Growth Fund (each a "Fund" and
collectively, the "Funds"). Any references to the "Prospectus" in this Statement
of Additional Information is a reference to the Prospectus or Prospectuses
offering a Fund, Funds or class of shares of certain of the Funds to which this
Statement pertains. In each instance, the specific Prospectus or Prospectuses
referred to are referenced by the surrounding text, which identifies a specific
Fund, Funds, or class of shares. Copies of each Prospectus may be obtained by an
investor without charge by contacting Vista Broker-Dealer Services, Inc., the
Funds' 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 the Vista Service Center at
our toll-free number:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
<PAGE>
Mutual Fund Group
THE FUNDS
Mutual Fund Group (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 May 11, 1987. The Trust presently consists of
15 separate series of beneficial interest each of which represent an interest in
a separate portfolio of investments. Certain of the series portfolios are
diversified and others are non-diversified, as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). Vista Growth and
Income Fund and Vista Capital Growth Fund (each a "Fund" and, collectively, the
"Funds") offer Institutional Shares, which are sold only to qualified investors
investing a minimum of $1 million and are not subject to an initial or
contingent deferred sales charge.
In addition, the Funds converted to a master fund/feeder fund
structure in December 1993. Under this structure, each of these Funds seeks to
achieve its investment objective by investing all of its investable assets in an
open-end, non-diversified management investment company which has the same
investment objective as that Fund. The Growth and Income Fund invests in the
Growth and Income Portfolio ("Income Portfolio") and the Capital Growth Fund
invests in the Capital Growth Portfolio ("Growth Portfolio"). The Income
Portfolio and the Growth Portfolio are referred to collectively as the
"Portfolios."
Each of these Portfolios is a New York trust with its principal
office in the Bahamas. Certain qualified investors, in addition to a Fund, may
invest in a Portfolio. For purposes of this Statement of Additional Information,
any information or references to either or both of the Portfolios refer to the
operations and activities after implementation of the master fund/feeder fund
structure.
The Funds' Institutional Shares are continuously offered for sale
through Vista Broker-Dealer Services, Inc. ("VBDS"), the Funds' distributor (the
"Distributor"), which is not affiliated with Chase Manhattan Bank, N.A. or its
affiliates, to investors making a minimum initial investment of $1 million.
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Mutual Fund Group
The Board of Trustees of the Trust provides broad supervision over
the affairs of the Trust including the Funds. In the case of the Portfolios,
separate Boards of Trustees, with certain common members, provide broad
supervision. The Chase Manhattan Bank, N.A. ("Chase") is the investment adviser
(the "Adviser") for the Funds and the two Portfolios. Chase also serves as the
Trust's administrator (the "Administrator") and supervises the overall
administration of the Trust, including the Funds. The Adviser continuously
manages the investments of the Funds and the two Portfolios in accordance with
the investment objective and policies of each Fund. The selection of investments
for each Fund or Portfolio and the way in which they are managed depend on the
conditions and trends in the economy and the financial marketplaces.
Occasionally, communications to shareholders may contain the views of the
investment adviser as to current market, economic, trade and interest rate
trends, as well as legislative, regulatory and monetary developments, and may
include investment strategies and related matters believed to be of relevance to
a Fund. A majority of the Trustees of the Trust are not affiliated with the
Adviser. Similarly, a majority of the Trustees of the Portfolios are not
affiliated with the Adviser.
Advertisements for the Vista Funds may include references to the asset
size of other financial products made available by Chase Manhattan, such as the
offshore assets of the Vista Funds.
<PAGE>
Mutual Fund Group
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
VISTA GROWTH AND INCOME FUND seeks long-term capital appreciation, with
dividend income as a secondary objective, through investment in a Portfolio of
common stocks with the same investment objectives and policies.
VISTA CAPITAL GROWTH FUND aggressively seeks long-term capital growth,
through investment in a Portfolio of common stocks of issuers that the Fund
believes are likely to benefit from certain social or economic trends. As
indicated in the Prospectus, this Fund is intended for investors who understand
and are willing to accept the potential risks associated with the Fund's
investment objective.
Investment Policies
The Prospectus sets forth the various investment policies applicable to
each Fund or Portfolio. The following information supplements and should be read
in conjunction with the sections of each Prospectus entitled "Investment
Objectives and Policies", and "Additional Information on Investment Policies and
Techniques ."
U.S. Government Securities -- As indicated in each Prospectus, and
although the Portfolios invest primarily in common stocks, they may also
maintain cash reserves and invest in a variety of short-term debt securities,
including obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, which have remaining maturities not exceeding one
year. Agencies and instrumentalities that issue or guarantee debt securities and
have been established or sponsored by the U.S. Government include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association and the Student Loan Marketing Association. Certain of these
securities may not be backed by the full faith and credit of the U.S.
Government.
Bank Obligations -- Investments by the Portfolios in short-term debt
securities as described above also include investments in obligations (including
certificates of deposit and bankers' acceptances) of those U.S. banks 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.
<PAGE>
A certificate of deposit is an interest-bearing negotiable
certificate issued by a bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. Although the
borrower is liable for payment of the draft, the bank unconditionally guarantees
to pay the draft at its face value on the maturity date.
Commercial Paper -- Investments by the Portfolios in short-term debt
securities also include investments in commercial paper, which represents
short-term, unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial paper purchased
for the
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Mutual Fund Group
Portfolios will consist of direct obligations of domestic issuers which, at the
time of investment, are (i) rated "P-1" by Moody's or "A-1" or better by
Standard & Poor's, (ii) issued or guaranteed as to principal and interest by
issuers or guarantors having an existing debt security rating of "Aa" or better
by Moody's or "AA" or better by Standard & Poor's, or (iii) securities which, if
not rated, are, in Chase's opinion, of an investment quality comparable to rated
commercial paper in which the above-referenced Funds may invest. The rating
"P-1" is the highest commercial paper rating assigned by Moody's and the ratings
"A-1" and "A-1+" are the highest commercial paper ratings assigned by Standard &
Poor's. Debt securities rated "Aa" or better by Moody's or "AA" or better by
Standard & Poor's are generally regarded as high-grade obligations and such
ratings indicate that the ability to pay principal and interest is very strong.
Repurchase Agreements -- Each Portfolio may, when appropriate, enter
into repurchase agreements only with member banks of the Federal Reserve System
and securities dealers believed creditworthy, and only if fully collateralized
by U.S. Government obligations or other securities in which such Fund is
permitted to invest. Under the terms of a typical repurchase agreement, a
Portfolio would acquire an underlying debt 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 Portfolio to resell the instrument at a
fixed price and time, thereby determining the yield during the Portfolio'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
may be deemed under the 1940 Act to be loans collateralized by the underlying
securities. All repurchase agreements entered into by a Portfolio 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 the amount of the loan,
including the accrued interest thereon, and the Portfolio 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 Portfolio, but would only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, a Portfolio may suffer time
delays and incur costs in connection with the disposition of the collateral. The
Trust's 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 Portfolio. A Portfolio will not
be invested in a repurchase agreement maturing in more than seven days if any
such investment together with securities subject to restrictions on transfer
held by such Portfolio exceed 10% of its total net assets.
(See paragraph 5 under "Investment Restrictions" below.) Repurchase agreements
are also subject to the same risks described below with respect to stand-by
commitments.
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Mutual Fund Group
Variable Rate Securities and Participation Certificates --The
variable rate securities in which the Portfolios may be invest include
participation certificates, issued by a bank, insurance company or other
financial institution, in variable rate securities owned by such institutions or
affiliated organizations ("Participation Certificates"). A Participation
Certificate gives a Portfolio an undivided interest in the variable rate
security in the proportion that the Portfolio's participation interest bears to
the total principal amount of the security and provides the demand feature
described below. Each Participation Certificate is backed by an irrevocable
letter of credit or guaranty of a bank (which may be the bank issuing the
Participation Certificate, a bank issuing a confirming letter of credit to that
of the issuing bank, or a bank serving as agent of the issuing bank with respect
to the possible repurchase of the certificate of participation) or insurance
policy of an insurance company that the Board of Trustees of the Trust has
determined meets the prescribed quality standards for a particular Fund.
A Portfolio has the right to sell the Participation Certificate back
to the institution and draw on the letter of credit or insurance on demand after
the prescribed notice period, for all or any part of the full principal amount
of the Portfolio's participation interest in the security, plus accrued
interest. A Portfolio will exercise the demand feature only (i) upon a default
under the terms of the offering documentation of the security, (ii) as needed to
provide liquidity to the Portfolio in order to make redemptions of Fund shares,
or (iii) to maintain a high quality investment portfolio. The institutions
issuing the Participation Certificates will retain a service and letter of
credit fee and a fee for providing the demand feature, in an amount equal to the
excess of the interest paid on the instruments over the negotiated yield at
which the Participation Certificates were purchased by a Portfolio. The total
fees generally range from 5% to 15% of the applicable prime rate or other
short-term rate index. With respect to insurance, a Portfolio will attempt to
have the issuer of the Participation Certificate bear the cost of the insurance,
although the Portfolio retains the option to purchase insurance if necessary.
The Adviser has been instructed by the Trust's Board of Trustees to
monitor continually the pricing, quality and liquidity of the variable rate
securities held by the above-referenced Portfolios, including the participation
certificates, on the basis of published financial information and reports of the
rating agencies and other bank analytical services to which the Portfolios may
subscribe. Although these instruments may be sold by a Portfolio, it is intended
that they be held until maturity, except under the circumstances stated above.
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Mutual Fund Group
No Portfolio will invest more than 5% of its total assets (taken at
the greater of cost or market value) in Participation Certificates.
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 variable rate securities may change with changes in interest rates
generally, the variable rate nature of the underlying 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 income securities. A Portfolio's portfolio may contain
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 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 variable rate securities is made in relation
to movements of the applicable banks' "prime rates" or other short-term rate
adjustment indices, the variable rate securities are not comparable to long-term
fixed rate securities. Accordingly, interest rates on the variable rate
securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer
of (i) the notice period required before a Portfolio 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.
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Mutual Fund Group
Loans of Portfolio Securities -- Certain securities dealers who make
"short sales" or who wish to obtain particular securities for short periods may
seek to borrow them from institutional investors such as the Portfolios. Each
Portfolio reserves the right to seek to increase its income by lending its
portfolio securities. Under present regulatory policies, including those of the
Board of Governors of the Federal Reserve System and the Securities and Exchange
Commission, such loans may be made only to member firms of the New York Stock
Exchange, and are required to be secured continuously by collateral in cash,
cash equivalents, or U.S. Government securities maintained on a current basis in
an amount at least equal to the market value of the securities loaned. Under a
loan, a Portfolio has the right to call a loan and obtain the securities loaned
at any time on five days' notice.
During the existence of a loan, a Portfolio continues to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and also receives compensation based on investment of the collateral. A
Portfolio does not, however, have the right to vote any securities having voting
rights during the existence of the loan, but can call the loan in anticipation
of an important vote to be taken among holders of the securities or of the
giving or withholding of their consent on a material matter affecting the
investment.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral if the borrower of the
securities experiences financial difficulty. However, the loans will be made
only to dealers deemed by a Portfolio to be of good standing, and when, in the
judgment of the Portfolio, the consideration that can be earned currently from
securities loans of this type justifies the attendant risk. In the event or
Portfolio makes securities loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Portfolio's total assets.
Non-diversification -- The Trust has registered as a
"non-diversified" investment company, which means that as to 50% of a Fund's
total assets, no more than 5% of the assets of each Fund may be invested in the
obligations of an issuer, subject to diversification requirements applicable to
the Funds under federal tax laws. At present, these requirements do not permit
more than 25% of the value of a Fund's total assets to be invested in securities
(other than various securities issued or guaranteed by the United States or its
agencies or instrumentalities) of any one issuer, at the close of any calendar
quarter. Since a
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Mutual Fund Group
relatively high percentage of the assets of each Fund may be invested in the
obligations of a limited number of issuers, the value of each Fund's shares may
be more susceptible to any single economic, political or regulatory occurrence
than the shares of a diversified investment company.
With respect to the Portfolios, each Fund will "look through" its
respective Portfolio to the securities held by its Portfolio for purposes of
determining diversification. Each Portfolio may invest more than 5% of its
assets in the obligations of a single issuer, subject to diversification
requirements under federal tax laws. At present, these requirements do not
permit more than 25% of the value of a Portfolio's total assets to be invested
in securities (other than various securities issued or guaranteed by the United
States or its agencies or instrumentalities) of any one issuer, at the close of
any calendar quarter. Since a relatively high percentage of the assets of each
Portfolio may be invested in the obligations of a limited number of issuers, the
net asset value of each Fund's shares may be more susceptible to any single
economic, political or regulatory occurrence than the net asset value of a
diversified investment company.
<PAGE>
Mutual Fund Group
Additional Policies Regarding Derivative and Related Transactions
As explained more fully below, the Portfolios employ derivative and
related instruments as tools in the management of portfolio assets. Put briefly,
a "derivative" instrument may be considered a security or other instrument which
derives its value from the value or performance of other instruments or assets,
interest or currency exchange rates, or indexes. for instance, derivatives
include futures, options, forward contracts, structured notes and various
over-the-counter instruments.
Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers in three
ways: First to reduce risk by hedging (offsetting) an investment position.
Second, to substitute for another security particularly where it is quicker,
easier and less expensive to invest in derivatives. Third, 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
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Mutual Fund Group
portfolio assets. However, derivatives also have the potential to significantly
magnify risks, thereby leading to potentially greater losses for a Portfolio.
Each Portfolio may invest its assets in derivative and related
instruments subject only to the Portfolio's investment objective and policies
and the requirement that the Portfolio maintain segregated accounts consisting
of liquid assets, such as cash, U. S. government securities, or other high-grade
debt obligations (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 Portfolio.
The value of some derivative or similar instruments in which the
Portfolios invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Portfolios--the ability of a Portfolio to successfully utilize these instruments
may depend in part upon the ability of the Adviser to forecast interest rates
and other economic factors correctly. If the Adviser incorrectly forecasts such
factors and has taken positions in derivative or similar instruments contrary to
prevailing market trends, the Portfolios could be exposed to the risk of a loss.
The Portfolios 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 Portfolios may employ along with risks or special
attributes associated with them.
This discussion is intended to supplement the Portfolios' current prospectuses
as well as provide useful information to prospective investors.
Derivative and Related Instruments
To the extent permitted by the investment objectives and policies of
each Portfolio, and as described more fully below, a Portfolio may:
o purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with
securities, other options and derivative instruments);
o enter into futures contracts and options on futures contracts;
o purchase and sell mortgage-backed and asset-backed securities;
o purchase and sell structured products.
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Risk Factors
As explained more fully below and in the discussion of particular
strategies or instruments, there are a number of risks associated with the use
of derivatives and related instruments:
o 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. As incorrect correlation could result in a loss on both
the hedged assets in a Portfolio 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.
o The Adviser may incorrectly forecast interest rates, market values or
other economic factors in utilizing a derivatives strategy. In such a
case, the Portfolio may have been in a better position had it not
entered into such strategy.
o 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.
o Strategies not involving hedging may increase the risk to a
Portfolio. Certain strategies, such as yield enhancement, can have
speculative characteristics and may result in more risk to a
Portfolio than hedging strategies using the same instruments.
o There can be no assurance that a liquid market will exist at a time
when a Portfolio seeks to close out an option, futures contract or
other derivative or related position. Many exchanges and boards of
trade limit the amount of fluctuation permitted in option or futures
contract prices during a single day; once the daily limit has been
reached on particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain instruments are
relatively new and without a significant trading history. As a result,
there is no assurance that an active secondary market will develop or
continue to exist. Finally, over-the-counter instruments typically do
not have --- a liquid market. Lack of a liquid market for any reason
may prevent a Portfolio from liquidating an unfavorable position.
o 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.
o In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards
of trade, there is a greater potential that a counterparty or
broker may default or be unable to perform on its commitments.
In the event of such a default,a Portfolio may experience a loss.
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o 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 the Portfolios' use of various
strategies involving derivatives and related instruments.
Options on Securities, Securities Indexes, Currencies and Debt Instruments.
The Portfolios may PURCHASE, SELL or EXERCISE call and put options on:
o securities;
o securities indexes;
o currencies; or
o debt instruments.
Although in most cases these options will be exchange-traded, the
Portfolios 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 Portfolio intends to purchase pending its
ability to invest in such securities in an orderly manner. A Portfolio may also
use combinations of options to minimize costs, gain exposure to markets or take
advantage of price disparities or market movements. For example, a Portfolio may
sell put or call options it has previously purchased or purchase put or call
options it has previously sold. These transactions may result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and other transaction costs paid on the put or call option which is
sold. A Portfolio may write a call or put option in order to earn the related
premium from such transactions. Prior to exercise or expiration,
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an option may be closed out by an offsetting purchase or sale of a similar
option.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
fund writing a covered call (i.e., where the underlying securities are held by
the fund) has, in return for the premium on the option, given up the opportunity
to profit from a price increase in the underlying securities above the exercise
price, but has retained the risk of loss should the price of the underlying
securities decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price.
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If a put or call option purchased by the Portfolio 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 Portfolio will
lose its entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when a Portfolio seeks to close out an option position. Furthermore,
if trading restrictions or suspensions are imposed on the options markets, a
Portfolio may be unable to close out a position.
Futures contracts and Options on Futures Contracts. The Portfolios may
purchase or sell
o interest-rate futures contracts;
o stock index futures contracts;
o foreign currency futures contracts;
o futures contracts on specified instruments; and
o options on these futures contracts ("futures options").
The futures contracts and futures options may be based on various
securities in which the Portfolios 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) and other financial instruments and indices.
These instruments may be used to hedge portfolio positions and
transactions as well as to gain exposure to markets. For example, a Portfolio
may sell a futures contract--or buy a futures option--to protect against a
decline in value, or reduce the duration, of portfolio holdings. Likewise, these
instruments may be used where a Portfolio intends to acquire an instrument or
enter into a position. For example, a Portfolio 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 Portfolios 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 of price disparities or market movements. Such strategies may entail
additional risks in certain instances. Portfolios may engage in cross-hedging by
purchasing or selling futures or options on a security or currency different
from the security or currency position being hedged to take advantage of
relationships between the two securities or currencies.
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Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Portfolios
will only enter into futures contracts or options or futures contracts which are
standardized and traded on a U. S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system.
Forward Contracts. Portfolios 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. All Portfolios 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 involved 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 Portfolio "locks in"
the exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. As a result, a Portfolio reduces its
exposure to changes in the value of the currency it will delivery and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Portfolio is similar to selling securities denominated
in one currency and purchasing securities denominated in another. Transactions
that use two foreign currencies are sometimes referred to as "cross-hedges."
A Portfolio may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Portfolio's investments or
anticipated investments in securities denominated in foreign currencies. A
Portfolio may also enter into these contracts for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
A Portfolio 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.
Mortgage-Backed Securities. The Portfolios may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, 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
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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 yield of
a mortgage-backed security may be adversely affected by the prepayment of
mortgages included in the mortgage pool underlying the security.
The Portfolios 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, semi-annually. CMOs are collateralized by portfolios of
mortgage pass-through securities guaranteed by the U. S. Government, or U. S.
Governmentrelated, entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
An investor is partially protected against a sooner than desired return of
principal because of the sequential payments.
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
Structured Products. The Portfolios may purchase interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations, thereby creating "structured
products." 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
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provisions. 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 Portfolio may also invest in other types of structured products,
including among others, spread trades and notes linked by a formula (e.g., a
multiple) to the price of an underlying instrument or currency. A spread trade
is an investment position relating to a difference in the prices or interest
rates of two securities or currencies 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 or currencies.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Investment Restrictions
The Funds and Portfolios have adopted the following investment
restrictions which may not be changed without approval by a "majority of the
outstanding shares" of a Fund or Portfolio which, as used in this Statement of
Additional Information, means the vote of the lesser of (i) 67% or more of the
shares of the Fund or total beneficial interests of a Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund or total
beneficial interests of a Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund or total beneficial
interests of a Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its
votes as instructed by the Fund shareholders.
With respect to the Growth and Income Fund and the Capital Growth
Fund, it is a fundamental policy of each Fund that when the Fund holds no
portfolio securities except interests in the Portfolio, the Fund's investment
objective and policies shall be identical to the Portfolio's investment
objective and policies, except for the following: the Fund (1) may invest more
than 5% of its assets in another issuer, (2) may, consistent with Section 12 of
the 1940 Act, invest in securities issued by other registered investment
companies, (3) may invest more than 10% of its net assets in the securities of a
registered investment company, (4) may hold more than 10% of the voting
securities of a registered investment company, (5) will concentrate its
investments in the investment company and (6) will not issue senior securities
except as permitted by an exemptive order of the SEC. It is a fundamental
investment policy of each Fund that when the Fund holds only portfolio
securities other than interests in the Portfolio, the Fund's investment
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objective and policies shall be identical to the investment objective and
policies of the Portfolio at the time the assets of the Fund were withdrawn from
the Portfolio.
Each Fund or Portfolio may not:
(1) borrow money or pledge, mortgage or hypothecate its assets, except
that, as a temporary measure for extraordinary or emergency purposes the
Funds or Portfolios may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed, and may
pledge, mortgage or hypothecate not more than 1/3 of such assets to secure
such borrowings (it is intended that, money would be borrowed by a Fund or
Portfolio only from banks and only to accommodate requests for the
repurchase of shares of the Fund or Portfolio while effecting an orderly
liquidation of portfolio securities), provided that collateral arrangements
with respect to a Fund's or Portfolio's permissible futures and options
transactions, including initial and variation margin, are not considered to
be a pledge of assets for purposes of this restriction; no Fund or
Portfolio will purchase investment securities if its outstanding borrowing,
including repurchase agreements, exceeds 5% of the value of the Fund's or
Portfolio's total assets; for additional related restrictions, see clause
(i) under the caption "State and Federal Restrictions" hereafter;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained as may be necessary for
the clearance of purchases and sales of securities and except that, with
respect to a Fund's or Portfolio's permissible options and futures
transactions, deposits of initial and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures or
options positions;
(3) underwrite securities issued by other persons except insofar as
the Fund or Portfolio may technically be deemed an underwriter under the
Securities Act of 1933 in selling a portfolio security;
(4) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) with respect to the
Growth and Income Fund (including the Growth and Income Portfolio) and the
Capital Growth Fund (including the Capital Growth Portfolio), the purchase,
ownership, holding or sale of warrants where the grantor of the warrants is
the issuer of the underlying securities, (ii) with respect to all of the
Funds and Portfolios, the writing, purchasing or selling of puts, calls or
combinations thereof with respect to U.S. Government securities or (iii)
with respect to a Fund's or Portfolio's permissible futures and options
transactions, the writing, purchasing, ownership, holding or selling
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Mutual Fund Group
of futures and options positions or of puts, calls or combinations
thereof with respect to futures;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (including securities that are not
readily marketable, but not including repurchase agreements maturing in not
more than seven days) if, as a result thereof, more than 10% of the Fund's
or Portfolio's total assets (taken at market value) would be so invested
(including repurchase agreements maturing in more than seven days) ;
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business, other than (i) with respect
to a Fund's or Portfolio's permissible futures and options transactions or
(ii) with respect to the Growth and Income Fund (including the Growth and
Income Portfolio) and the Capital Growth Fund (including the Capital Growth
Portfolio) , forward purchases and sales of foreign currencies or
securities (each Fund reserves the freedom of action to hold and to sell
real estate acquired as a result of its ownership of securities);
(7) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer
to be held by the Fund or the Portfolio;
(8) make short sales of securities or maintain a short position;
except that all Funds and Portfolios may only make such short sales of
securities or maintain a short position if when a short position is open
such Fund or Portfolio owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to,
the securities sold short, and unless not more than 10% of the Fund's and
Portfolio's net assets (taken at market value) is held as collateral for
such sales at any one time (it is the present intention of management to
make such sales only for the purpose of deferring realization of gain or
loss for federal income tax purposes; such sales would not be made of
securities subject to outstanding options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of a Fund's and Portfolio's
investment objective, up to
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25% of the assets of the Fund or Portfolio, at market value at the
time of each investment, may be invested in any one industry, except that,
with respect to a Fund's or Portfolio's permissible futures and options
transactions, positions in options and futures shall not be subject to this
restriction; or
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that collateral
arrangements with respect to a Fund's or Portfolio's permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
Each Fund and Portfolio is not permitted to make loans to other
persons, except (i) through the lending of its portfolio securities and provided
that any such loans not exceed 30% of the Fund's or Portfolio's total assets
(taken at market value), (ii) through the use of repurchase agreements or the
purchase of short-term obligations and provided that not more than 10% of the
Fund's or Portfolio's total assets will be invested in repurchase agreements
maturing in more than seven days, or (iii) by purchasing, subject to the
limitation in paragraph 5 above, a portion of an issue of debt securities of
types commonly distributed privately to financial institutions, for which
purposes the purchase of short-term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be considered
the making of a loan.
For purposes of the investment restrictions described above and the
state and federal restrictions described below, 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. For purposes
of Investment Restriction No. 9, industrial development bonds, where the payment
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of principal and interest is the ultimate responsibility of companies within the
same industry, are grouped together as an "industry".
In addition, the Funds and Portfolios that are permitted to enter
into repurchase agreements have adopted the following operating policy with
respect to such activity, which is not fundamental and which may be changed
without shareholder approval. Such Funds and Portfolios may enter into
repurchase agreements (a purchase of and a simultaneous commitment to resell a
security at an agreed-upon price on an agreed-upon date) only with member banks
of the Federal Reserve System and securities dealers believed creditworthy and
only if fully collateralized by U.S. Government obligations or other securities
in which such Funds and Portfolios are permitted to invest. If the vendor of a
repurchase agreement fails to pay the sum agreed to on the agreed-upon delivery
date, a Fund or Portfolio would have the right to sell the securities
constituting the collateral; however, the Fund or Portfolio might thereby incur
a loss and in certain cases may not be permitted to sell such securities.
Moreover, as noted above in paragraph 5, a Fund or Portfolio that is permitted
to invest in repurchase agreements may not, as a matter of fundamental policy,
invest more than 10% (15% with respect to the Balanced Fund) of its total assets
in repurchase agreements maturing in more than seven days.
The Funds and Portfolios have no current intention of engaging in the
following activities in the foreseeable future: (i) writing, purchasing or
selling puts, calls or combinations thereof with respect to U.S. Government
securities; (ii) making short sales of securities or maintaining a short
position; or other than with respect to the Funds (including the Portfolios),
(iii) purchasing voting securities of any issuer.
State and Federal Restrictions: In order to comply with certain
federal and state statutes and regulatory policies, as a matter of operating
policy, each Fund or Portfolio will not:
(i) sell any security which it does not own unless by virtue of its ownership
of other securities the Fund has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions, (ii) invest for the purpose of exercising
control or management, (iii) except for the Growth and Income Fund and Capital
Growth Fund, purchase securities issued by any registered investment company
except by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the
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open market, is part of plan of merger or consolidation; provided, however, that
the securities of any registered investment company will not be purchased on
behalf of the Fund if such purchase at the time thereof would cause more than 5%
or 10% of the Fund's total assets (taken at the greater of cost or market value)
to be invested in the securities of such issuer or the securities of registered
investment companies, respectively, or would cause more than 3% of the
outstanding voting securities of any such issuer to be held by the Fund; and
provided, further, that securities issued by any open-end investment company
shall not be purchased on behalf of the Fund, (iv) invest more than 10% of the
Fund's or Portfolio's total assets (taken at the greater of cost or market
value) in securities that are not readily marketable except that the Growth and
Income Fund and Capital Growth Fund will invest all assets in Portfolios, (v)
invest more than 5% of the Fund's assets in companies which, including
predecessors, have a record of less than three years' continuous operation, (vi)
invest in warrants valued at the lower of cost or market, in excess of 5% of the
value of the Fund's net assets, and no more than 2% of such value may be
warrants which are not listed on the New York or American Stock Exchanges, or
(vii) purchase or retain in the Fund's or Portfolio's portfolio any securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or Portfolio, or is an officer or
director of the Adviser, if after the purchase of the securities of such issuer
by the Fund or Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, all taken at market value, of
such issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities,
or both, all taken at market value. These policies are not fundamental and may
be changed by the Trust's or Portfolio's Board of Trustees without shareholder
approval.
Percentage and Rating Restrictions: If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security of a Fund or Portfolio will not be considered a violation of policy.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for the Portfolios
are made by a portfolio manager who is an employee of the Adviser to such
Portfolio and who is appointed and supervised by senior officers of
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such Adviser. Changes in the Portfolios' investments are reviewed by the Board
of Trustees. The Portfolio's portfolio managers may serve other clients of the
Adviser in a similar capacity.
The frequency of a Portfolio'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 (see "Tax Matters" in the Prospectus),
the Adviser will weigh the added costs of short-term investment against
anticipated gains. For the fiscal years ended October 31, 1993 , 1994 and 1995
the annual rates of portfolio turnover for the following Funds were as follows:
1993 1994 1995
--------- ------- -----
The Growth and Income Fund: 41% * *
The Capital Growth Fund: 36% * *
* The Growth and Income Fund and the Capital Growth Fund invest all of
their investable assets in their respective Portfolio and do not invest
directly in a portfolio of assets, and therefore do not have reportable
portfolio turnover rates.
The primary consideration in placing portfolio security transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Portfolios and
other clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their brokerage
commissions. Debt securities are
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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 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 on the tender of the Portfolio's portfolio securities in so-called
tender or exchange offers. Such soliciting dealer fees are in effect recaptured
for the Portfolios by the Adviser. At present, no other recapture arrangements
are in effect.
Under the Portfolios' Investment Advisory Agreements and as permitted
by Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause
the Portfolios to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction for the Portfolios in excess of the amount other broker-dealers
would have charged for the transaction if the Adviser determines 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 the Adviser's overall
responsibilities to the Portfolios or to its clients. Not all of such services
are useful or of value in advising the Portfolios.
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.
Although commissions paid on every transaction will, in the judgment
of the Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolios and the Adviser's other clients as part of providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Portfolios, a commission higher than one
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Mutual Fund Group
charged elsewhere will not be paid to such a firm solely because it provided
Research to the Adviser.
The Adviser's investment management personnel will attempt to
evaluate the quality of Research provided by brokers. Results of this effort are
sometimes used by the Adviser as a consideration in the selection of brokers to
execute portfolio transactions. However, the Adviser may be unable to quantify
the amount of commissions which are paid as a result of such Research because a
substantial number of transactions are effected through brokers which provide
Research but which are selected principally because of their execution
capabilities.
The management fees that the Portfolios pay to the Adviser will not
be reduced as a consequence of the Adviser's receipt of brokerage and research
services. To the extent the Portfolios' portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Portfolios 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 in serving one or more of the Portfolios and other clients and,
conversely, such services obtained by the placement of brokerage business of
other clients generally would be useful to the Adviser in carrying out its
obligations to a Portfolio. While such services are not expected to reduce the
expenses of the Adviser, the Adviser would, through use of the services, avoid
the additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
In certain instances, there may be securities that are suitable for
one or more of the Portfolios as well as one or more of the Adviser's other
clients. Investment decisions for the Portfolios and for the Adviser's other
clients are made with a view to achieving their respective investment
objectives. It may develop that the same investment decision is made for more
than one client or that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more Portfolios or
other clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the
Portfolios are concerned. However, it is believed that the ability of the
Portfolios to participate in volume transactions will generally produce better
executions for the Portfolios.
For the fiscal years ended October 31, 1991, 1992, 1993, the Capital
Growth Fund paid aggregate brokerage commissions of $6,495, $60,979 and
$283,972, respectively.
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For the same periods, the Growth and Income Fund paid aggregate brokerage
commissions of $146,944, $231,193 and $1,092,931, respectively. For the fiscal
years ended October 31, 1994 and 1995, the Capital Growth Portfolio paid
aggregated brokerage commissions of $1,242,652 and $____, respectively. For the
fiscal years ended October 31, 1994 and 1995, the Growth and Income Portfolio
paid aggregate brokerage commissions of $1,515,504 and $____, respectively.
No portfolio transactions are executed with the Adviser, or with any
affiliate of the Adviser, acting either as principal or as broker.
PERFORMANCE INFORMATION
Total Rate of Return
A Fund's total rate of return for a class of shares of the Fund 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.
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No total return information is presented for Institutional Shares of Growth and
Income Fund and Capital Growth Fund since such shares were first offered in
January 1996.
Yield Quotations
Any current "yield" quotation for a class of shares of the Fund 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. No yield information is presented for
Institutional Shares of Growth and Income Fund and Capital Growth Fund since
such shares were first offered in January 1996.
Non-Standardized Performance Results
No performance information is presented for Institutional Shares of Growth
and Income Fund and Capital Growth and Income Fund and Capital Growth Fund since
such shares were first offered in January 1996.
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DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value per Share each day as of the
regular close of the New York Stock Exchange, or 4:15 p.m. for Funds holding
options, in the case of a Fixed Income or Equity Fund) during which the New York
Stock Exchange is open for trading (a "Fund Business Day"), by dividing the
value of its net assets (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued, which, in the case of
funds with multiple share classes, is apportioned between the classes, to obtain
net assets by class) by the number of its shares outstanding (by class, for
multiple class Funds) at the time the determination is made. (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.) Purchases and redemptions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or redemption order.
(See "Purchases and Redemptions of Shares" in the Prospectus.)
Equity securities in a Portfolio's portfolio are valued at the last
sale price on the exchange on which they are primarily traded or on the NASDAQ
National Market System, or at the last quoted bid price for securities in which
there were no sales during the day or for other unlisted (over-the-counter)
securities not reported on the NASDAQ National Market System. Bonds and other
fixed income securities (other than short-term obligations, but including listed
issues) in a Portfolio's portfolio are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the Board
of Trustees. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in a Portfolio's portfolio
is determined on the basis of coupon interest accrued plus amortization of
discount (the difference
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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.
Subject to compliance with applicable regulations, each Fund has
reserved the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of 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.
With respect to the Growth and Income Fund and Capital Growth Fund,
the Trust will redeem Fund shares in kind only if it has received a redemption
in kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of such
Portfolio and in no case will they receive a security issued by the Portfolio.
Each Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the corresponding Fund is permitted to redeem
in kind or unless requested by the corresponding Fund.
Each investor in a Portfolio, including the corresponding Fund, may
add to or reduce its investment in the Portfolio on each day that the New York
Stock Exchange is open for business. As of 4:00 p.m. (Eastern Time) on each such
day, the value of each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in a
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m. on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m. on the following day the
New York Stock Exchange is open for trading.
<PAGE>
TAX MATTERS
Mutual Fund Group
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the respective Fund's 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 each Fund's Prospectus are not intended as
substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
Because certain Funds invest all of their assets in Portfolios which will be
classified as partnerships for federal income tax purposes, such Funds will be
deemed to own a proportionate share of the income of the Portfolio into which
each contributes all of its assets for purposes of determining whether such
Funds satisfy the Distribution Requirement and the other requirements necessary
to qualify as a regulated investment company (e.g., Income Requirement
(hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) 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 regulated
investment company'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"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be
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Mutual Fund Group
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including a municipal obligation) purchased by
a Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation.
Further, the Code also treats as ordinary income, a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
such Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning of
Section 1092 of the Code; (3) the transaction is one that was marketed or sold
to such Fund on the basis that it would have the economic characteristics of a
loan but the interest-like return would be taxed as capital gain; or (4) the
transaction is described as a conversion transaction in the Treasury
Regulations. The amount of the gain recharacterized generally will not exceed
the amount of the interest that would have accrued on the net investment for the
relevant period at a yield equal to 120% of the federal long-term, mid-term, or
short-term rate, depending upon the type of instrument at issue, reduced by an
amount equal to: (1) prior inclusions of ordinary income items from the
conversion transaction; and (2) the capitalized interest on acquisition
indebtedness under Code Section 263(g). Built-in losses will be preserved where
a Fund has a built-in loss with respect to property that becomes a part of a
conversion transaction. No authority exists that indicates that the converted
character of the income will not be passed to a Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if: (1) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (2) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other
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things, must not be deep-in-the-money) with respect thereto); or (3) the asset
is stock and the Fund grants an in-the-money qualified covered call option with
respect thereto. However, for purposes of the Short-Short Gain Test, the holding
period of the asset disposed of may be reduced only in the case of clause (i)
above. In addition, a Fund may be required to defer the recognition of a loss on
the disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by certain of the Funds (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
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Mutual Fund Group
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, 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 regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentality's of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government Securities.
If for any taxable year a Fund does not qualify as a regulated
investment company, 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 regulated investment
company 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 regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"))(Tax-exempt
interest on municipal obligations is not subject to the excise tax). The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss
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for the calendar year; and (2) exclude foreign currency gains and losses
incurred after October 31 of any year (or after the end of its taxable year if
it has made a taxable year election) in determining the amount of ordinary
taxable income for the current calendar year (and, instead, include such gains
and losses in determining ordinary taxable income for the succeeding calendar
year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
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Mutual Fund Group
Fund Distributions
Each Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70%
dividends-received deduction for corporations only to the extent discussed
below. Dividends paid on each class of shares are calculated at the same time
and in the same manner. In general, dividends on Class B shares are expected to
be lower than those on Class A shares and Institutional Shares due to the higher
distribution expenses borne by the Class B shares. In general, dividends on
Institutional Shares are expected to be higher than those on Class A shares and
Institutional Shares due to lower expenses borne by Institutional Shares.
Dividends may also differ between classes as a result of differences in other
class specific expenses.
A Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Fund currently intends to distribute
any such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. The Code provides, however, that under certain conditions
only 50% of the capital gain recognized upon a Fund's disposition of "small
business" stock will be subject to tax.
Conversely, if a Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by an Equity Fund with respect to a
taxable year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as Subchapter S
corporations, which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Equity Fund from domestic
corporations for the taxable year. A dividend received by an Equity 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), excluding for this purpose under the rules
of Code Section 246(c) (3) and (4): (i) any day more than 45 days (or 90 days in
the case of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Equity Fund has an option to
sell, is under a contractual obligation to sell, has made
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Mutual Fund Group
and not closed a short sale of, is the grantor of a deep-in-the-money or
otherwise nonqualified option to buy, or has otherwise diminished its risk of
loss by holding other positions with respect to, such (or substantially
identical) stock; (2) to the extent that the Equity 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 (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Equity
Fund or (2) by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items). In the case where a Fund invests all of its assets in a Portfolio and
the Fund satisfies the holding period rules pursuant to Code Section 246(c) as
to its interest in the Portfolio, a corporate shareholder which satisfies the
foregoing requirements with respect to its shares of the Fund should receive the
dividends- received deduction.
For purposes of the Corporate AMT and the environmental Superfund
tax, the corporate dividends-received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from an
Equity Fund into account (without a dividends-received deduction) in determining
its adjusted current earnings.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be invested
in various countries is not known.
Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of his
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the
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Mutual Fund Group
Fund, distributions of such amounts will be taxable to the shareholder in the
manner described above, although such distributions economically constitute a
return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
Long-term capital gains of noncorporate taxpayers are currently taxed at a
maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a
Fund, (2) disposes of such shares less than 91 days after they are acquired and
(3) subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales
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Mutual Fund Group
load acquired in connection with the acquisition of the shares disposed of, then
the sales load on the shares disposed of (to the extent of the reduction in the
sales load on the shares subsequently acquired) shall not be taken into account
in determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
<PAGE>
Mutual Fund Group
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income 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. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the sale of shares of the Fund, capital gain dividends and
exempt-interest dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
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.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Shareholders are urged to consult their tax
advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
<PAGE>
MANAGEMENT OF THE FUNDS AND PORTFOLIOS
Trustees and Officers of the Trust
The Trustees and officers and their principal occupations for at
least the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees and officers that are
"interested persons" (as defined in the 1940 Act). Unless otherwise indicated
below, the address of each officer is 125 W. 55th Street, New York, New York
10019.
Trustees
FERGUS REID, III* - Chairman of the Board of Trustees; Chairman and Chief
Executive Officer, Lumelite Corporation, since September 1985.
Address: 971 West Road, New Canaan, Connecticut 06840.
RICHARD E. TEN HAKEN - District Superintendent of Schools, Monroe No. 2 and
Orleans Counties, New York; Chairman of the Finance and the Audit and Accounting
Committees, Member of the Executive Committee and Vice President, New York State
Teachers' Retirement System.
Address: 4 Barnfield Road, Pittsford, New York 14534.
JOSEPH J. HARKINS* - Retired; Commercial Sector Executive and Executive
Vice President of The Chase Manhattan Bank, N.A. from 1985 through 1989. He has
been employed by Chase in numerous capacities and offices since 1954. Director
of Blessings Corporation, Jefferson Insurance Company of New York, Monticello
Insurance Company and National.
Address: 257 Plantation Circle South, Ponte Vedra South, Ponte Vedra Beach,
FL 32082
H. RICHARD VARTABEDIAN* - President of the Trust, Retired; Senior Investment
Officer, Division Executive of the Investment Management Division of The
Chase Manhattan Bank, N.A., 1980-1991; responsible for investment research,
trading and portfolio management for commingled funds and high net worth
individuals within the U.S. Employed by Chase in various investment oriented
capacities since 1960, primarily as a senior portfolio manager for
institutional, ERISA and high net worth portfolios.
Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, Maine 04576.
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Mutual Fund Group
STUART W. CRAGIN, Jr. - President, Fairfield Testing Laboratory, Inc. He
has previously served in a variety of marketing, manufacturing and general
management positions with Union Camp Corp., Trinity Paper & Plastics Corp., and
Canover Industries.
IRVING L. THODE - Retired; Vice President of Quotron Systems. He has previously
served in a number of executive positions with Control Data Corp., including
President of their Latin American operations, and General Manager of their Data
Services business.
Officers
Martin Dean - Treasurer and Assistant Secretary of the Trust; Manager, Financial
Reporting and Control, BISYS Fund Services, Inc.
George O. Martinez - Secretary of the Trust; Senior Vice President and Director
of Legal and Compliance Services, BISYS Fund Services, Inc.; Senior Vice
President, Vista Broker-Dealer Services, Inc.
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.
The Funds pay no direct remuneration to any officer of the Trust. As
of December 31, 1995, the Trustees and officers as a group owned of record less
than 1% of each Fund's outstanding shares, all of which were acquired for
investment purposes. For the fiscal year ended October 31, 1995, the Trust paid
to its disinterested Trustees fees and expenses for all
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Mutual Fund Group
meetings of the Board and any committees attended in the aggregate amount of
approximately $_______ which amount is then apportioned between the Funds
comprising the Trust.
Adviser
The Funds do not have an investment adviser. Rather, the Trust seeks
to attain the investment objective of the Funds by investing the investible
assets of each Fund in its respective Portfolio. The Adviser manages the assets
of each Portfolio pursuant to Investment Advisory Agreements, dated as of
November 15, 1993 (the "Advisory Agreements"). Prior to implementation of the
master fund/feeder fund structure, the Adviser managed the assets of the Funds
pursuant to an investment advisory contract dated August 19, 1987 which had
terms and conditions substantially similar to that presently existing . Subject
to such policies as the Board of Trustees may determine, Chase makes investment
decisions for each Portfolio. Pursuant to the terms of the Advisory Agreements,
the Adviser provides each Portfolio with such investment advice and supervision
as it deems necessary for the proper supervision of each Portfolio's
investments. The Adviser continuously provides investment programs and
determines from time to time what securities shall be purchased, sold or
exchanged and what portion of each Portfolio's assets shall be held uninvested.
The Adviser furnishes, at its own expense, all services, facilities and
personnel necessary in connection with managing the investments and effecting
portfolio transactions for the Portfolio, are described under "Expenses" in the
Prospectus. The Advisory Agreement for each Portfolio will continue in effect
from year to year with respect to each Portfolio only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of such Portfolio's outstanding voting securities and, in either case,
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.
Pursuant to the terms of each of the Advisory Agreements, the Adviser
is permitted to render services to others. Each Advisory Agreement is terminable
without penalty by the Trust on behalf of each Portfolio on not more than 60
days', nor less than 30 days', written notice when authorized either by a
majority vote of such Portfolio's shareholders or
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Mutual Fund Group
by a vote of a majority of the Board of Trustees of the Portfolio, or by the
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). Each Advisory Agreement provides that the Adviser under such
Agreement shall not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for the respective Portfolio, except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
thereunder.
The equity research team of the Adviser looks for two key variables
when analyzing stocks for potential investment in equity portfolios: value and
momentum. To uncover these qualities, the team uses a combination of
quantitative analysis, fundamental research and computer technology to help
identify undervalued stocks. A proprietary computer model gauges potential
performance and relative value of about 1,500 stocks. The equity research team
then considers a company's cash flow, the stock's price earning ratio,
price-to-book ratio and dividend level. The team uses a model that helps
forecast how the selected stocks will react to different economic trends.
The top 20 percent of stocks picked by the computer model are then
studied further by the team by seeking out the opinions of leading analysts and
doing hands-on research, such as interviewing corporate managers. This research
helps narrow the field from the 250 to 300 stocks accepted by the computer
model.
In the event the operating expenses Fund or of any Portfolio,
including all investment advisory, administration and sub-administration fees,
but excluding brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, for any fiscal year exceed the most restrictive
expense limitation applicable to that Fund or Portfolio imposed by the
securities laws or regulations thereunder of any state in which the shares of
such Fund or Portfolio 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 such Fund or
Portfolio during such fiscal year; and if such amounts should exceed the monthly
fee, the Adviser shall pay to such Fund or Portfolio 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 the Adviser pursuant to
the Advisory Agreements, each Portfolio pays an investment advisory fee computed
and paid monthly based on a rate equal to a specified percentage
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Mutual Fund Group
of 0.40% of each Portfolios average daily net assets, on an annualized basis for
such Portfolio's then-current fiscal year. However, the Adviser may voluntarily
agree to waive a portion of the fees payable to it on a month-to-month basis.
For the fiscal years ended October 31, 1993 , 1994 and 1995, Chase
was paid or accrued the following investment advisory fees with respect to the
following Funds, and voluntarily waived the amounts in parentheses following
such fees with respect to each such period:
Fiscal Year-Ended October 31
Fund
1993 1994 1995
Waived/Payable Waived/Payable Waived/Payable
Growth and
Income Fund $1,878,340/none $296,161/none $____/$____
Capital Growth
Fund $430,099/none $71,213/none $_____/$____
Administrator
Pursuant to an Administration Agreement, dated as of January 1, 1989
as amended September 30, 1993 and ____, 1995 (the "Administration Agreement"),
Chase serves as administrator of the Trust. Chase provides certain
administrative services to the Trust and Portfolios, including, among other
responsibilities, coordinating the negotiation of contracts and fees with, and
the monitoring of performance and billing of, the Trust's and Portfolio's
independent contractors and agents; preparation for signature by an officer of
the Trust and Portfolios of all documents required to be filed for compliance by
the Trust and Portfolios 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 Trust
and Portfolios and providing, at its own expense, office facilities, equipment
and personnel necessary to carry out its duties. The administrators do not have
any responsibility or authority for the management of the Funds or Portfolios,
the determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
Under the administration agreements, Chase renders administrative
services to others. The administration agreements will continue in effect from
year to year with respect to each Fund or Portfolio only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of such Fund's or Portfolio'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
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Mutual Fund Group
agreements are terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or Portfolios, or by the Administrator on 60 days'
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The administration agreements also
provide that neither Chase nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Funds, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the administration
agreements.
In addition, the administration agreements provide that, in the event
the operating expenses of any Fund or Portfolio, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of such Fund are qualified for sale, as such
limitations may be raised or lowered from time to time, Chase shall reduce its
administration fee (which fee is described below) to the extent of its share of
such excess expenses. The amount of any such reduction to be borne by Chase
shall be deducted from the monthly administration fee otherwise payable to Chase
during such fiscal year; and if such amounts should exceed the monthly fee,
Chase or CMTC shall pay to such Fund or Portfolio 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 agreements, the Administrator receives from each Fund a fee
computed and paid monthly at an annual rate equal to 0.05% of each of the Fund's
and Portfolio's respective 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 each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1993 , 1994 and 1995, Chase
was paid or accrued the following administration fees and voluntarily waived the
amounts in parentheses following such fees:
<PAGE>
Mutual Fund Group
Fiscal Year-Ended October 31,
1993 1994 1995
Payable/Waived Payable/Waived Payable /Waived
Growth and Income $469,585/none $637,264/none $____/$____
Fund
Capital Growth $107,524/none $208,866/none $____/$____
Fund
Distributor
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration
Agreement dated August 21, 1995 (the Distribution Agreement"), with the
Distributor, pursuant to which the Distributor acts as the Funds' exclusive
underwriter, provides certain administration services and promotes and arranges
for the sale of each of the Vista Shares (prior to entering into the
Distribution Agreement, the Trust retained the Distributor pursuant to a
contract dated April 2, 1990 as amended June 1, 1990, August 4, 1992 and
September
<PAGE>
Mutual Fund Group
30, 1993 and ____, 1995 which contained terms and conditions substantially
similar to that presently in effect. The Distributor is a wholly-owned
subsidiary of BISYS Fund Services, Inc. The Distribution Agreement provides that
the Distributor will bear the expenses of printing, distributing and filing
prospectuses and statements of additional information and reports used for sales
purposes, and of preparing and printing sales literature and advertisements not
paid for by the Distribution Plan. The Trust pays for all of the expenses for
qualification of the shares of each Fund for sale in connection with the public
offering of such shares, and all legal expenses in connection therewith. In
addition, pursuant to the Distribution Agreement, the Distributor provides
certain sub-administration services to the Trust, including providing officers,
clerical staff and office space.
The Distribution Agreement is currently in effect and will continue
in effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
such Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days' written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all
investment advisory, administration and sub-administration fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses such
as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for sale,
as such limitations may be raised or lowered from time to time, the Distributor
shall reduce its sub-administration fee with respect to such Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to such Fund
during such fiscal year; and if such amounts should exceed the
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Mutual Fund Group
monthly fee, the Distributor shall pay to such Fund its share of such excess
expenses no later than the last day of the first month of the next succeeding
fiscal year.
In consideration of the services provided by the Distributor pursuant
to the Distribution Agreement, the Distributor receives an annual fee, payable
monthly, of 0.05% of the net assets of each Fund. However, the Distributor has
voluntarily agreed to waive a portion of the fees payable to it under the
Distribution Agreement with respect to each Fund on a month-to-month basis. For
the fiscal years ended October 31, 1993 , 1994 and 1995, the Distributor was
paid or accrued the following sub-administration fees under the Distribution
Agreement, and voluntarily waived the amounts in parentheses following such
fees:
<PAGE>
Mutual Fund Group
Fiscal Year-Ended October 31,
1993 1994 1995
Payable/Waived Payable/Waived Payable/Waived
Growth and Income $234,794/none $637,264/none $____/$____
Fund
Capital Growth $53,763/none $208,866/none $____/$____
Fund
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent to provide
certain services. The fees relating to acting as liaison to shareholders
and providing personal services to shareholders will not exceed, on an
annualized basis, 0.25% of the average daily net assets of each of the
Shares of the Funds represented by shares owned during the period for which
payment is being made by investors with whom such Shareholder Servicing
Agent maintains a servicing relationship. However, each Shareholder
Servicing Agent has voluntarily agreed to waive a portion of the fees
payable to it under its Servicing Agreement with respect to each Fund on a
month-to-month basis. For the fiscal years ended October 31, 1993 , 1994
and 1995, fees payable to the Shareholder Servicing Agents (all of which
currently are related parties) and the amounts voluntarily waived for each
such period (as indicated in parentheses), were as follows:
<PAGE>
Fiscal Year-Ended October 31,
Fund 1993 1994 1995
Payable/Waived Payable/Waived Payable/Waived
Growth and Income $1,126,760/None $3,186,323/none $____/$___
Fund
Capital Growth $261,208/none $1,043,992/none $____/$____
Fund
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. Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund and Portfolio for which Chase receives compensation as is
from time to time agreed upon by the Trust (or Portfolio) and Chase.
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Mutual Fund Group
In certain circumstances Shareholder Servicing Agents may be required
to register as dealers under state law.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from
the Trust's Annual Reports to Shareholders for the fiscal year ended October 31,
1995, have been so incorporated by reference in reliance on the reports of Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
independent accountants of the Funds, given on the authority of said firm as
experts in accounting and auditing. Price Waterhouse provides the Funds with
audit services, tax return preparation, and assistance and consultation with
respect to the preparation of filings with the Securities and Exchange
Commission.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, management investment company
organized as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. Because certain of the Funds comprising the Trust are
"non-diversified", more than 5% of any of the assets of any such Fund may be
invested in the obligations of any single issuer, which may make the value of
the shares in such a Fund more susceptible to certain risks than shares of a
diversified mutual fund.
The Trust currently consists of 15 Funds of shares of beneficial
interest without par value. With respect to certain of the Equity and Income
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
pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each share held. Shares of each series or class generally vote separately,
for example to approve investment advisory agreements or distribution plans, but
shares of all series and classes vote together, to the extent required under the
1940 Act, in the election or selection of Trustees and independent accountants.
With respect to shares purchased through a Shareholder Servicing Agent and, in
the event written proxy instructions are not received by
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Mutual Fund Group
the Fund or its designated agent prior to a shareholder meeting at which a proxy
is to be voted and the shareholder does not attend the meeting in person, the
Shareholder Servicing Agent for such shareholder will be authorized pursuant to
an applicable agreement with the shareholder to vote the shareholder's
outstanding shares in the same proportion as the votes cast by other Fund
shareholders represented at the meeting in person or by proxy.
Vista Growth and Income Fund and Vista Capital Growth Fund offer both
Class A and Class B shares. Vista Growth and Income Fund and Vista Capital
Growth Fund also offer Institutional Shares. The classes of shares have several
different attributes relating to sales charges and expenses.
Class A shares are sold at net asset value plus an initial sales
charge of up to a maximum of 4.75% of the public offering price. Class B shares
have no initial sales charge; however, a contingent deferred sales charge will
be imposed on redemptions made within six years of purchase. The amount of this
contingent deferred sales charge will be 5% of the redemption proceeds on
redemptions in the first year after purchase, declining to zero for redemptions
made more than six years after purchase. However, this contingent deferred sales
charge will not apply to redemptions of shares representing capital appreciation
on Fund assets and reinvestment of dividends or capital distributions.
Approximately eight years after purchase, Class B shares will automatically
convert to Class A shares. Institutional Shares are offered to qualified
institutions investing a minimum of $1 million and are sold at net asset value.
In general, absent waivers, each class of shares have an
annual shareholder servicing fee of 0.25% of average daily net assets. In
addition, absent waivers, Class A has an annual distribution fee under Rule
12b-1 of 0.25% of average daily net assets, while Class B has an annual
distribution fee under Rule 12b-1 of 0.75% of average daily net assets.
Institutional Shares are not subject to Rule 12b-1 distribution fees. Moreover,
expenses borne by each class may differ slightly because of the allocation of
other class-specific expenses. For example, a higher transfer agency fee may be
imposed on Class B shares than on Class A shares. The relative impact of initial
sales charges, contingent deferred sales charges, and ongoing annual expenses
will depend on the length of time a share is held.
Selected dealers and financial consultants may receive
different levels of compensation for selling one particular class of shares
rather than another.
The Trust is not required to hold annual meetings of
shareholders but will hold special meetings of shareholders of a series or class
when, in the judgment of the Trustees, it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have, under certain circumstances,
the right to communicate with other shareholders in connection with
<PAGE>
Mutual Fund Group
requesting a meeting of shareholders for the purpose of removing one or more
Trustees. Shareholders also have, in certain circumstances, the right to remove
one or more Trustees without a meeting. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each portfolio affected by the amendment.
The Trust's Declaration of Trust provides that, at any meeting of shareholders
of the Trust or of any series or class, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
that portfolio otherwise represented at the meeting in person or by proxy as to
which such Shareholder Servicing Agent is the agent of record. Any shares so
voted by a Shareholder Servicing Agent will be deemed represented at the meeting
for purposes of quorum requirements. 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.
Stock certificates are issued only upon the written request of
a shareholder, subject to the policies of the investor's Shareholder Servicing
Agent, but the Trust will not issue a stock certificate with respect to shares
that may be redeemed through expedited or automated procedures established by a
Shareholder Servicing Agent.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law, shareholders of such 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.
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Mutual Fund Group
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 of Ethics substantially conforms to the
recommendations made by the Investment Company Institute ("ICI") (except where
noted) and includes such provisions as:
o Prohibitions on investment personnel acquiring securities
in initial offerings;
o A requirement that access persons obtain prior to acquiring
securities in a private placement and that the officer granting
such approval have no interest in the issuer making the private
placement;
o A restriction on access persons executing transactions for
securities on a recommended list until 14 days after
distribution of that list;
o A prohibition on access persons acquiring securities that are
pending execution by one of the Funds or Portfolios until 7 days
after the transactions of the Funds or Portfolios are completed;
o A prohibition of any buy or sell transaction in a particular
security in a 30-day period, except as may be permitted in
certain hardship cases or exigent circumstances where prior
approval is obtained. This provision differs slightly from the
ICI recommendation;
o A requirement for pre-clearance of any buy or sell transaction
in a particular security after 30 days, but within 60 days;
o A requirement that any gift exceeding $75.00 from a customer
must be reported to the appropriate compliance officer;
o A requirement that access persons submit in writing any request
to serve as a director or trustee of a publicly traded company;
o A requirement that all securities transactions in excess of
$1,000 be pre-cleared, except that if a person has engaged in
more than $10,000 of securities transactions in a calendar
quarter all securities of such person require preclearance (this
de minimus exception differs slightly from the ICI
recommendations);
o A requirement that all access persons direct their broker-dealer
to submit duplicate confirmation and customer statements to the
appropriate compliance unit; and
o A requirement that all access persons sign a Code of Ethics
acknowledgment, affirmthat they have read and understood the
Code and submit a personal security holdings report upon
commencement of employment or status and a personal security
transaction report within 10 days of each calendar quarter
thereafter.
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Mutual Fund Group
Principal Holders
As of ________, 1995, the following persons owned beneficially,
directly or indirectly, 5% or more of the outstanding shares of the following
classes or Funds:
GROWTH AND INCOME FUND
Chase Manhattan Bank Thrift Incentive Plan ____% of [class]
Global Securities Services Omnibus Acct.
3 Chase Metrotech Center
Brooklyn, NY 11245-0001
CAPITAL GROWTH FUND
Charles Schwab & Co., Inc. ____% of [class]
101 Montgomery Street San
Francisco, CA 94104-4122
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Mutual Fund Group
Financial Statements
The financial statements for the fiscal period ended October 31, 1995 for
the Funds are incorporated herein by reference from the Vista Funds' 1995 Annual
Reports to Shareholders.
Specimen Computations of Offering Prices Per Share
The Growth and Income Fund (specimen computations)
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial
Interest at October 31, 1995 $_____
The Capital Growth Fund (specimen computations)
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial
Interest at October 31, 1995 $_____
<PAGE>
Mutual Fund Group
APPENDIX A
DESCRIPTION OF RATINGS
Bond Ratings
Moody's Investors Service, Inc. >> Bonds which are rated Aaa are
judged to be the best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." 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 positions of
such issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with 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 fluctuations 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. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Moody's applies numerical modifiers "1," "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. 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.
Standard & Poor's Corporation Bonds rated AAA have the highest
rating assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from AAA issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than bonds in higher rated categories.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high
grade, broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to but slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond is showing of earnings
several times or many times interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
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Mutual Fund Group
Bonds rated Duff-1 are judged by Duff to be of the highest credit
quality with negligible risk factors; only slightly more than U.S. Treasury
debt. Bonds rated Duff-2, 3 and 4 are judged by Duff to be of high credit
quality with strong protection factors. Risk is modest but may vary slightly
from time to time because of economic conditions.
Bonds rated TBW-1 are judged by Thomson BankWatch, Inc. to be of the
highest credit quality with a very high degree of likelihood that principal and
income will be paid on a timely basis. Bonds rated TBW-2 offer a strong degree
of safety regarding repayment. The relative degree of safety, however, is not as
high as TBW-1.
Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1- Highest Quality; Prime
2-Higher Quality; Prime 3-High Quality.
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess safety characteristics. Capacity for timely payment on
issues with the designation A-2 is strong. However, the relative degree of
safety is not as high as for issues designated A-1. Issues carrying the
designation A-3 have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
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<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
INSTTUTIONAL SHARES
January __, 1996
VISTA(SM) SMALL CAP EQUITY FUND
125 West 55th Street, New York, New York 10019
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 the Fund. This Statement of Additional Information should be read in
conjunction with the Prospectus offering Institutional Shares class of shares of
Vista Small Cap Equity Fund (the "Fund"), dated January ___, 1996. A copy of the
Prospectus may be obtained by an investor without charge by contacting Vista
Broker-Dealer Services, Inc., the Fund's distributor, at the above-listed
address or by calling the Vista Service Center at the toll-free number listed
below.
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.
Table of Contents
The Fund..................................................................... 2
Investment Objective, Policies and Restrictions.............................. 2
Performance Information...................................................... 15
Determination of Net Asset Value............................................. 16
Tax Matters.................................................................. 18
Management of the Fund....................................................... 25
Independent Accountants...................................................... 33
General Information.......................................................... 33
For more information about the Fund or your account, simply call the Vista
Service Center at our toll-free number:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
VSCE-SAI
<PAGE>
THE FUND
Mutual Fund Group (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 May 11, 1987. The Trust presently consists of
15 separate series of units of beneficial interest ("shares") representing
interests in 15 seperate investment portfolios.funds. Certain of such series
portfolios are diversified and others are non-diversified, as such term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
Vista Small Cap Equity Fund (the "Fund") offers Institutional Shares, which are
sold only to qualified investors investing a minimum of $1 million and are not
subject to an initial or contingent deferred sales charge. Under a multiple
class distribution system, several of the Income and Equity Funds may be offered
through two or more classes of shares.
The Fund's Shares are continuously offered for sale through Vista
Broker-Dealer Services, Inc. ("VBDS"), the Fund's distributor (the
"Distributor"), which is not affiliated with Chase Manhattan Bank, N.A. or its
affiliates, to investors who are customers of a financial institution, such as a
federal or state-chartered bank, trust company, or savings and loan association
that has entered into a shareholder servicing agreement with the Trust on behalf
of the Fund (collectively, "Shareholder Servicing Agents") or customers of a
securities broker or certain financial institutions who have entered into
Selected Dealer Agreements with the Distributor.
The Board of Trustees of the Trust provides broad supervision over
the affairs of the Trust, including the Fund. The Chase Manhattan Bank, N.A.
("Chase") is the investment adviser (the "Adviser") for the Fund. Chase also
serves as the Trust's administrator (the "Administrator") and supervises the
overall administration of the Trust, including the Fund. The Adviser
continuously manages the investments of the Fund in accordance with the
investment objective and policies of the Fund. The selection of investments for
the Fund and the way in which the Fund is managed depend on the conditions and
trends in the economy and the financial marketplaces.
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Mutual Fund Group
Occasionally, communications to shareholders may contain the views of the
investment adviser 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. A majority of the Trustees of the Trust are not affiliated with the
Adviser.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
VISTA SMALL CAP EQUITY FUND (the "Fund") aggressively seeks long-term
capital growth, through investments in common stocks of issuers with a
capitalization of $500 million or less, commonly referred to as "small cap". As
indicated in the Prospectus, this Fund is intended for investors who understand
and are willing to accept the potential risks associated with the Fund's
investment objective.
Investment Policies
The Prospectus sets forth the various investment policies applicable
to the Fund. The following information supplements and should be read in
conjunction with the sections of the Prospectus entitled "Investment Objective
and Policies" and "Additional Information on Investment Policies and
Techniques".
U.S. Government Securities -- As indicated in the Prospectus, and
although the Fund invests primarily in common stocks, it may also maintain cash
reserves and invest in a variety of short-term debt securities, including
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which have remaining maturities not exceeding one year.
Agencies and instrumentalities that issue or guarantee debt securities and have
been established or sponsored by the U.S. Government include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association and the Student Loan Marketing Association. Certain of these
securities may not be backed by the full faith and credit of the U.S.
Government.
Bank Obligations -- Investments by the Fund in short-term debt
securities as described above may also include investments in obligations
(including certificates of deposit and bankers' acceptances) of those U.S. banks
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.
A certificate of deposit is an interest-bearing negotiable
certificate issued by a bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial
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Mutual Fund Group
bank by a borrower, usually in connection with an international commercial
transaction. Although the borrower is liable for payment of the draft, the bank
unconditionally guarantees to pay the draft at its face value on the maturity
date.
Commercial Paper -- Investments by the Fund in short-term debt
securities may also include investments in commercial paper, which represents
short-term, unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial paper purchased
for the Fund will consist of direct obligations of domestic issuers which, at
the time of investment, are (i) rated "P-1" by Moody's or "A-1" or better by
Standard & Poor's, (ii) issued or guaranteed as to principal and interest by
issuers or guarantors having an existing debt security rating of "Aa" or better
by Moody's or "AA" or better by Standard & Poor's, or (iii) securities which, if
not rated, are, in Chase's opinion, of an investment quality comparable to rated
commercial paper in which the Fund may invest. The rating "P-1" is the highest
commercial paper rating assigned by Moody's and the ratings "A-1" and "A-1+" are
the highest commercial paper ratings assigned by Standard & Poor's. Debt
securities rated "Aa" or better by Moody's or "AA" or better by Standard &
Poor's are generally regarded as high-grade obligations and such ratings
indicate that the ability to pay principal and interest is very strong.
Repurchase Agreements -- The Fund may, when appropriate, enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers believed creditworthy, and only if fully collateralized by
U.S. Government obligations or other securities in which the Fund is permitted
to invest. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt 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 may be deemed 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 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 Trust's 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.
The Fund will not be invested in a repurchase agreement maturing in more than
seven days if any such investment together with securities subject to
restrictions on
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Mutual Fund Group
transfer held by the Fund exceed 10% of its total net assets. (See paragraph 5
under "Investment Restrictions" below.) Repurchase agreements are also subject
to the same risks described below with respect to stand-by commitments.
Non-diversification -- The Trust has registered as a
"non-diversified" investment company, which means that as to 50% of the Fund's
total assets, no more than 5% of the assets of the Fund may be invested in the
obligations of an issuer, subject to diversification requirements applicable to
the Fund under federal tax laws. At present, these requirements do not permit
more than 25% of the value of the Fund's total assets to be invested in
securities (other than various securities issued or guaranteed by the United
States or its agencies or instrumentalities) of any one issuer, at the close of
any calendar quarter. Since a relatively high percentage of the assets of the
Fund may be invested in the obligations of a limited number of issuers, the
value of the Fund's shares may be more susceptible to any single economic,
political or regulatory occurrence than the shares of a diversified investment
company.
Additional Policies Regarding Derivative and Related Transactions
As explained more fully below, the Fund employs derivative and related
instruments as tools in the management of portfolio assets. Put briefly, a
"derivative" instrument may be considered a security or other instrument which
derives its value from the value or performance of other instruments or assets,
interest or currency exchange rates, or indexes. for instance, derivatives
include futures, options, forward contracts, structured notes and various
over-the-counter instruments.
Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers in three
ways: First to reduce risk by hedging (offsetting) an investment position.
Second, to substitute for another security particularly where it is quicker,
easier and less expensive to invest in derivatives. Third, 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 liquid assets, such as
cash, U. S. government securities, or other high-grade debt obligations (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's
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--the ability of
a Fund to successfully utilize these instruments may depend in part upon the
ability of the Adviser to forecast interest rates and other economic factors
correctly. If the Adviser incorrectly forecasts such factors and has 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 prospectuses as well as provide useful information to prospective
investors.
Derivative and Related Instruments
To the extent permitted by the investment objectives and policies of
the Fund, and as described more fully below, the Fund may:
o purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with
securities, other options and derivative instruments);
o enter into futures contracts and options on futures contracts;
o purchase and sell mortgage-backed and asset-backed securities;
o purchase and sell structured products.
Risk Factors
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Mutual Fund Group
As explained more fully below and in the discussion of particular
strategies or instruments, there are a number of risks associated with the use
of derivatives and related instruments:
o 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. As 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.
o The Adviser may incorrectly forecast interest rates, market values or
other economic factors in utilizing a derivatives strategy. In such a
case, the Fund may have been in a better position had it not entered
into such strategy.
o 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.
o Strategies not involving hedging may increase the risk to the 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.
o 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.
o 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.
o In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards
of trade, 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.
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Mutual Fund Group
o 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 the Fund's use of various strategies
involving derivatives and related instruments.
Options on Securities,Securities Indexes, Currencies and Debt Instruments.
The Fund may PURCHASE, SELL or EXERCISE call and put options on:
o securities;
o securities indexes;
o currencies; or
o 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. A Fund may also use
combinations of options to minimize costs, gain exposure to markets or take
advantage of price disparities or market movements. For example, a Fund may sell
put or call options it has previously purchased or purchase put or call options
it has previously sold. These transactions may result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option which is
sold. A Fund may write a call or put option in order to earn the related premium
from such transactions. Prior to exercise or expiration, an option may be closed
out by an offsetting purchase or sale of a similar option.
<PAGE>
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
fund writing a covered call (i.e., where the underlying securities are held by
the fund) has, in return for the premium on the option, given up the opportunity
to profit from a price increase in the underlying securities above the exercise
price, but has retained the risk of loss should the price of the underlying
securities decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price.
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 a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a Fund
may be unable to close out a position.
Futures contracts and Options on Futures Contracts. The Fund may purchase
or sell
o interest-rate futures contracts;
o stock index futures contracts;
o foreign currency futures contracts;
o futures contracts on specified instruments; and
o options on these futures contracts ("futures options").
The futures contracts and futures options may be based on various
securities 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) and
other financial instruments and indices.
These instruments 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
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Mutual Fund Group
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
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 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 or futures contracts which are
standardized and 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 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 involved 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 delivery and increases its exposure to changes in the
value of the currency it will exchange into. The effect on the value of a 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. The Fund may also
enter into these contracts for purposes of increasing
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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.
Mortgage-Backed Securities. The Fund may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, 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 yield of
a mortgage-backed security may be adversely affected by the prepayment of
mortgages included in the mortgage pool underlying the security.
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, semi-annually. CMOs are collateralized by portfolios of
mortgage pass-through securities guaranteed by the U. S. Government, or U. S.
Governmentrelated, entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
An investor is partially protected against a sooner than desired return of
principal because of the sequential payments.
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 andare not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer
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Structured Products. The Fund may purchase interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations, thereby creating "structured
products." 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. 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 also invest in other types of structured products, including
among others, spread trades and notes linked by a formula (e.g., a multiple) to
the price of an underlying instrument or currency. A spread trade is an
investment position relating to a difference in the prices or interest rates of
two securities or currencies 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 or currencies.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
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 or pledge, mortgage or hypothecate its assets,
except that, as a temporary measure for extraordinary or emergency purposes it
may borrow in an amount not to exceed 1/3 of the current value of its net assets
including the amount borrowed, and may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings (it is intended that money
would be borrowed by the Fund only from banks and only to accommodate requests
for the repurchase of shares of the Fund while effecting an orderly liquidation
of portfolio securities), provided that collateral arrangements with respect to
the Fund's permissible futures and options transactions, including initial and
variation margin, are not considered to be a pledge of assets for
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purposes of this restriction; the Fund will not purchase investment securities
if its outstanding borrowing, including repurchase agreements, exceeds 5% of the
value of its total assets; for additional related restrictions, see clause (i)
under the caption "State and Federal Restrictions" hereafter;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained as may be necessary for the
clearance of purchases and sales of securities and except that, with respect to
the Fund's permissible options and futures transactions, deposits of initial and
variation margin may be made in connection with the purchase, ownership, holding
or sale of futures or options positions;
(3) underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(4) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, (ii) the writing, purchasing or selling of puts,
calls or combinations thereof with respect securities in which the Fund may
invest or (iii) the writing, purchasing, ownership, holding or selling of
futures and options positions or of puts, calls or combinations thereof with
respect to futures;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (including securities that are not readily
marketable, but not including repurchase agreements maturing in not more than
seven days) if, as a result thereof, more than 15% of the Fund's total assets
(taken at market value) would be so invested (including repurchase agreements
maturing in more than seven days), subject to additional restrictions imposed by
jurisdictions in which the Fund's shares are offered for sale, thereby currently
making the effective limitation 10% of the Fund's total assets;
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business, other than (i) with respect to the Fund's
permissible futures and options transactions or (ii) forward purchases and sales
of foreign currencies or securities (the Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of its ownership of
securities);
(7) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer to be
held by the Fund;
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(8) make short sales of securities or maintain a short position;
except that the Fund may only make such short sales of securities or maintain a
short position if when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such sales at any
one time (it is the present intention of management to make such sales only for
the purpose of deferring realization of gain or loss for federal income tax
purposes; such sales would not be made of securities subject to outstanding
options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's investment objective, up
to 25% of the assets of the Fund, at market value at the time of each
investment, may be invested in any one industry; or except that, with respect to
the Fund's permissible futures and options transactions, positions in options
and futures shall not be subject to this restriction; or
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to the Fund's permissible options and futures transactions,
including deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.
The Fund is not permitted to make loans to other persons, except (i)
through the lending of its portfolio securities and provided that any such loans
not exceed 30% of the Fund's total assets (taken at market value), (ii) through
the use of repurchase agreements or the purchase of short-term obligations and
provided that not more than 10% of the Fund's total assets will be invested in
repurchase agreements maturing in more than seven days, or (iii) by purchasing,
subject to the limitation in paragraph 5 above, a portion of an issue of debt
securities of types commonly distributed privately to financial institutions,
for which purposes the purchase of short-term commercial paper or a portion of
an issue of debt securities which are part of an issue to the public shall not
be considered the making of a loan.
In addition, the Fund has adopted the following operating policy with
respect to repurchase agreements, which is not fundamental and which may be
changed without shareholder approval. The Fund may enter into repurchase
agreements (a purchase of and a simultaneous commitment to resell a security at
an agreed-upon price on an agreed-upon date) only with member banks of the
Federal Reserve System and securities dealers believed creditworthy and only if
fully collateralized by U.S. Government obligations or other securities in which
the Fund is permitted to invest. If the vendor of a repurchase agreement fails
to pay the sum agreed to on the agreed-upon delivery date, the Fund would have
the right to sell the securities constituting the collateral; however, the Fund
might thereby incur a loss and in certain cases may not be
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permitted to sell such securities. Moreover, as noted above in paragraph 5, the
Fund may not, as a matter of fundamental policy, invest more than 15% of its
total assets in repurchase agreements maturing in more than seven days.
The Fund has no current intention of engaging in the following
activities in the foreseeable future: (i) writing, purchasing or selling puts,
calls or combinations thereof with respect to U.S. Government securities or (ii)
making short sales of securities or maintaining a short position.
State and Federal Restrictions: In order to comply with certain
federal and state statutes and regulatory policies, as a matter of operating
policy, the Fund will not: (i) sell any security which it does not own unless by
virtue of its ownership of other securities the Fund has at the time of sale a
right to obtain securities, without payment of further consideration, equivalent
in kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions, (ii) invest for the
purpose of exercising control or management, (iii) invest more than 10% of the
Fund's total assets (taken at the greater of cost or market value) in securities
that are not readily marketable, (iv) as to 50% of the Fund's total assets,
purchase securities of any issuer if such purchase at the time thereof would
cause the Fund to hold more than 10% of any class of securities of such issuer,
for which purposes all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a single class, (v) invest
more than 5% of the Fund's assets in companies which, including predecessors,
have a record of less than three years' continuous operation, (vi) invest in
warrants valued at the lower of cost or market, in excess of 5% of the value of
the Fund's net assets, and no more than 2% of such value may be warrants which
are not listed on the New York or American Stock Exchanges, or (vii) purchase or
retain in the Fund's portfolio any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Adviser, if after the purchase of
the securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value; (viii) purchase securities
issued by any registered investment company except by purchase in the open
market where no commission or profit to a sponsor or dealer results from such
purchase other than the customary broker's commission, or except when such
purchase, though not made in the open market, is part of plan of merger or
consolidation; provided, however, that the securities of any registered
investment company will not be purchased on behalf of the Fund if such purchase
at the time thereof would cause more than 5% or 10% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in the securities
of such issuer or the securities of registered investment companies,
respectively, or would cause more than 3% of the outstanding voting securities
of any such issuer to be held by the Fund; and provided, further, that
securities issued by any open-end investment company shall not be purchased on
behalf of the Fund. These policies are not fundamental and may be changed by the
Trust's Board of Trustees without shareholder approval.
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Percentage and Rating Restrictions: If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security of the Fund will not be considered a violation of policy.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for the Fund are
made by the Fund's portfolio manager who is an employee of the Adviser and who
is appointed and supervised by senior officers of such Adviser. Changes in the
Fund's investments are reviewed by the Board of Trustees. The Fund's portfolio
manager may serve other clients of the Adviser 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 (see "Tax Matters" in the Prospectus), the Adviser
will weigh the added costs of short-term investment against anticipated gains.
For the fiscal year ending October 31, 1995 the annual rate of portfolio
turnover for the Fund is expected not to exceed to 80%.
The primary consideration in placing portfolio security transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. 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 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 on the tender of the 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. At present, no other
recapture arrangements are in effect.
Under the Fund's Investment Advisory Agreement and as permitted by
Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause the
Fund to pay a broker-dealer which provides brokerage and research services to
the Adviser an amount of commission for effecting a securities transaction for
the Funds in excess of the amount other broker-dealers would have charged for
the transaction if the Adviser determines 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
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viewed in terms of either a particular transaction or the Adviser's overall
responsibilities to the Fund or to its clients. Not all of such services are
useful or of value in advising 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.
Although commissions paid on every transaction will, in the judgment
of the Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients as part of providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Fund, a commission higher than one charged elsewhere will not be
paid to such a firm solely because it provided Research to the Adviser.
The Adviser's investment management personnel will attempt to
evaluate the quality of Research provided by brokers. Results of this effort are
sometimes used by the Adviser as a consideration in the selection of brokers to
execute portfolio transactions. However, the Adviser would be unable to quantify
the amount of commissions which are paid as a result of such Research because a
substantial number of transactions are effected through brokers which provide
Research but which are selected principally because of their execution
capabilities.
The management fees that the Fund pays to the Adviser will not be
reduced as a consequence of the Adviser's 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 would be useful and of value to the Adviser in serving one or more of
the Fund and other clients and, conversely, such services obtained by the
placement of brokerage business of other clients would be useful to the Adviser
in carrying out its obligations to the Fund. While such services are not
expected to reduce the expenses of the Adviser, the Adviser would, through use
of the services, avoid the additional expenses which would be incurred if it
should attempt to develop comparable information through its own staff.
In certain instances, there may be securities that are suitable for
one or more of the Funds as well as one or more of the Adviser's other clients.
Investment decisions for the Fund and for the
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Adviser's other clients are made with a view to achieving their respective
investment objectives. It may develop that the same investment decision is made
for more than one client or that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more Funds or
other clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the 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.
For the period from December 20, 1994 through April 30, 1995, the
Fund paid aggregate brokerage commissions of $11,380.
No portfolio transactions are executed with the Adviser or a
Shareholder Servicing Agent, or with any affiliate of the Adviser or a
Shareholder Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
Total Rate of Return
The Fund's total rate of return for a Class of shares of the Fund 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.
No total return information is provided for Institutional Shares
since such shares were first offered in January 1996.
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Yield Quotations
Any current "yield" quotation for a Class of shares of the Fund 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.
No yield information is provided for Institutional Shares since such
shares were first offered in January 1996.
Non-Standardized Performance Results
From time to time, the Fund may provide certain non-standardized
performance results, if any, in addition to the total rate of return quotations
required by the Securities and Exchange Commission. As discussed more fully in
the Prospectus, neither these performance results, nor total rate of return
quotations, should be considered as representative of the performance of the
Fund in the future. These factors and the possible differences in the methods
used to calculate performance results and total rates of return should be
considered when comparing such performance results and total rate of return
quotations for a Class of shares of the Fund with those published for other
investment companies and other investment vehicles.
No performance information is provided for Institutional Shares since such
shares were first offered in January 1996.
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DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per Share each day as of the
regular close of the New York Stock Exchange, or 4:15 p.m. for options, during
which the New York Stock Exchange is open for trading (a "Fund Business Day"),
by dividing the value of its net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued (which
is apportioned between the classes to obtain net assets by class), by the number
of its shares outstanding at the time the determination is made. (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.) Purchases and redemptions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or redemption order. (See "Purchases and Redemptions of Shares" in the
Prospectus.)
Equity securities 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) are valued on the
basis of valuations furnished by a pricing service, the use of which has been
approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-Term obligations which mature in 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Futures and option contracts that are traded on commodities or
securities exchanges are normally valued at the settlement price on the exchange
on which they are traded. Portfolio securities (other than short-term
obligations) for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.
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.
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 portfolio securities (instead of cash).
The securities so distributed would be valued at the same amount as that
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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.
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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 Fund's 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 has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) 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 regulated
investment company'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"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to
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Mutual Fund Group
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including a municipal obligation) purchased by
the Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation.
Further, the Code also treats as ordinary income, a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of the Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of Section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction; and (2) the
capitalized interest on acquisition indebtedness under Code Section 263(g).
Built-in losses will be preserved where the Fund has a built-in loss with
respect to property that becomes a part of a conversion transaction. No
authority exists that indicates that the converted character of the income will
not be passed to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if: (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto); or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or
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the date a closing transaction is entered into. Accordingly, the Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. 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 regulated
investment companies, 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 regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument. For
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Mutual Fund Group
purposes of asset diversification testing, obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance
Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government Securities.
If for any taxable year the Fund does not qualify as a regulated
investment company, 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 regulated investment
company 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 regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"))(Tax-exempt
interest on municipal obligations is not subject to the excise tax). The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding 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 investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and
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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.
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. The Code provides, however, that under certain conditions
only 50% of the capital gain recognized upon the Fund's disposition of "small
business" stock will be subject to tax.
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 (other than corporations, such as Subchapter S corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) 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), excluding for this purpose under the rules of Code
Section 246(c) (3) and (4): (i) any day more than 45 days (or 90 days in the
case of certain preferred stock) after the date on which the stock becomes
exdividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and not closed a short sale of,
is the grantor of a deep-in-the-money or otherwise nonqualified option to buy,
or has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (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 (1) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (2) by application of
Code Section 246(b) which in general limits the dividends-received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items).
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Mutual Fund Group
Alternative minimum tax ("AMT") is imposed in addition to, but only
to the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. In addition, under the Superfund Amendments and
Reauthorization Act of 1986, a tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of a corporate
taxpayer's AMTI (determined without regard to the deduction for that tax and the
AMT net operating loss deduction) over $2 million. For purposes of the Corporate
AMT and the environmental Superfund tax, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includible in AMTI.
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 the 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 the Fund's assets to be invested in various
countries is not known.
Distributions by the Fund that do not constitute ordinary income
dividends, exempt-interest 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 (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of 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 the
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
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Mutual Fund Group
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
Each shareholder will recognize gain or loss on the sale or
redemption of shares of the 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. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of the
Fund, (2) disposes of such shares less than 91 days after they are acquired and
(3) subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
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
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Mutual Fund Group
on whether the income from the Fund is "effectively connected" with a U.S.
trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income 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. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the sale of shares of the Fund, capital gain dividends and
exempt-interest dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
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 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 a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
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.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. 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.
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Mutual Fund Group
MANAGEMENT OF THE FUND
Trustees and Officers of the Trust
The Trustees and officers and their principal occupations for at
least the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees and officers that are
"interested persons" (as defined in the 1940 Act). Unless otherwise indicated
below, the address of each officer is 125 W. 55th Street, New York, New York
10019.
Trustees
FERGUS REID, III* - Chairman of the Board of Trustees; Chairman of the Board of
Trustees of Mutual Fund Group and Trustee of certain Portfolios advised by
Chase; Chairman and Chief Executive Officer, Lumelite Corporation, since
September 1985. Address: 971 West Road, New Canaan, Connecticut 06840.
RICHARD E. TEN HAKEN - Trustee of Mutual Fund Trust and the Portfolios. Former
Chief Executive Officer, Board of Cooperative Education Services, Monroe and
Orleans Counties, New York; Former Chairman of the New York State Teachers'
Retirement System.
Address: 4 Barnfield Road, Pittsford, New York 14534.
WILLIAM J. ARMSTRONG - Trustee of Mutual Fund Trust and the Portfolios;
Vice President and Treasurer, Ingersoll-Rand Company (Woodcliff Lake, New
Jersey).
Address: 49 Aspen Way, Upper Saddle River, New Jersey 07458.
JOHN R.H. BLUM - Trustee of Mutual Fund Trust and the Portfolios; Partner in the
law firm of Richards, O'Neil & Allegaert; Commissioner of Agriculture - State of
Connecticut.
Address: 1 John Street, Millerton, New York 12546.
JOSEPH J. HARKINS* - Trustee of Mutual Fund Trust and the Portfolios;
Retired; Commercial Sector Executive and Executive Vice President of The Chase
Manhattan Bank, N.A. from 1985 through 1989. He has been employed by Chase in
numerous capacities and offices since 1954. Director of Blessings Corporation,
Jefferson Insurance Company of New York, Monticello Insurance Company and
Nationar.
Address: 257 Plantation Circle South, Ponte Vedra South, Ponte Vedra Beach,
FL 32082
H. RICHARD VARTABEDIAN* - President and Trustee of the Trust and Mutual
Fund Trust; Chairman and President of the Portfolios; Retired; Senior Investment
Officer, Division Executive of the Investment Management Division of The Chase
Manhattan Bank, N.A., 1980-1991; responsible for investment research, trading
and portfolio management for commingled funds and high net worth individuals
within the U.S. Employed by Chase in various investment oriented capacities
since 1960, primarily as a senior portfolio manager for institutional, ERISA and
high net worth portfolios.
Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, Maine 04576.
STUART W. CRAGIN, Jr. - Trustee of Mutual Fund Trust and the Portfolios;
President, Fairfeild Testing Laboratory, Inc. He has previously served in a
variety of marketing, manufacturingand general management positions with Union
Camp Corp., Trinity Paper & Plastics Corp., and Canover Industries.
Address: 652 Glenbrook Road, Greenwich, Connecticut 06906
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Mutual Fund Group
IRVING L. THODE - Trustee of Mutual Fund Trust and the Portfolios; Retired;
Vice President of Quotron Systems. He has previously served in a number of
executive positions with Control Data Corp., including President of their Latin
American operations, and General Manager of their Data Services business.
Addres80 Perkins Road, Greenwich, Connecticut 06830
Officers
Martin Dean - Treasurer and Assistant Secretary of the Trust; BISYS Fund
Services, Inc., Manager, Financial Reporting and Control
George O. Martinez - Secretary of the Trust; Senior Vice President and Director
of Legal and Compliance Services, BISYS Fund Servics, Inc., Senior Vice
President, Vista Broker-Dealer Services, Inc.
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 wilful 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 wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties.
The Fund pays no direct remuneration to any officer of the Trust.
Adviser
The Adviser manages the assets of the Fund pursuant to an Investment
Advisory Agreement, dated as of November 17, 1994 (the "Advisory Agreement").
Subject to such policies as the Board of Trustees may determine, Chase makes
investment decisions for the Fund. Pursuant to the terms of the Advisory
Agreement, the Adviser provides the Fund with such investment advice and
supervision as it deems necessary for the proper supervision of the Fund's
investments. The Adviser continuously provides investment programs and
determines 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
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Mutual Fund Group
Adviser furnishes, at its own expense, all services, facilities and personnel
necessary in connection with managing the investments and effecting portfolio
transactions for the Fund. The other expenses attributable to, and payable by
the Fund, are described under "Expenses" in the Prospectus. 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.
Pursuant to the terms of the Advisory Agreement, the Adviser is
permitted to render services to others. The 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 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 Agreement provides that
the Adviser under such Agreement shall not be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution of portfolio transactions for the respective Fund,
except for 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 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 is 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.
In consideration of the services provided by the Adviser pursuant to
the Advisory Agreement, the Fund pays an investment advisory fee computed and
paid monthly based on a rate equal to 0.65 % of the Fund's average daily net
assets, on an annualized basis for the Fund's then-current fiscal year. However,
the Adviser may voluntarily agree to waive a portion of the fees payable to it
on a month-to-month basis.
Administrator
Pursuant to an Administration Agreement, dated as of January 1, 1989
as amended September 30, 1993 (the "Administration Agreement"), Chase serves as
administrator of the Trust.
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Mutual Fund Group
Chase provides certain administrative to the Trust, including, among other
responsibilities, coordinating the negotiation of contracts and fees with, and
the monitoring of performance and billing of, the Trust'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 Trust and providing, at its own expense, office
facilities, equipment and personnel necessary to carry out its duties. The
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 renders administrative
services to others. The Administration Agreement 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
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 the
Administrator on 60 days' written notice, and will automatically terminate in
the event of its "assignment" (as defined in the 1940 Act). The Administration
Agreement also provides that neither Chase nor its personnel shall be liable for
any error of judgment or mistake of law or for any act or omission in the
administration or management of the Fund, except for wilful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Administration Agreement.
In addition, the Administration Agreement provides that, in the event
the operating expenses of any Fund including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for any
fiscal year exceed the most restrictive expense limitation applicable to the
Fund imposed by the securities laws or regulations thereunder of any state in
which the shares of the Fund is 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 such Fund its share of such excess expenses no later than the last day of
the first month of the next succeeding fiscal year.
In consideration of the services provided by Chase pursuant to the
Administration Agreement, the Administrator receives from the Fund a fee
computed 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
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Mutual Fund Group
to each Fund on a month-to-month basis. For the period from December 20, 1994
(commencement of operations) through April 30, 1995, Chase voluntarily waived
its administration fee in the amount of $1,692.
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Mutual Fund Group
Distributor
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration
Agreement dated August 21, 1995 (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 the Fund's shares (prior to the August 21, 1995, the Trust and
the Distributor were parties to a Distribution Agreement with substantially
similar terms dated April 2, 1990 as amended June 1, 1990, August 4, 1992 and
September 30, 1993 ). 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.
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<PAGE>
Mutual Fund Group
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 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 wilful 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 such 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. For the period from December 20, 1994 (commencement of operations)
through April 30, 1995, the Distributor was paid or accrued $891 and voluntarily
waived $559 for sub-administration services.
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent to provide certain
services. The fees relating to acting as liaison to shareholders and providing
personal services to shareholders will not exceed, on an annualized basis, 0.25%
of the average daily net assets of the Fund represented by shares owned during
the period for which payment is being made by investors with whom such
Shareholder Servicing Agent maintains a servicing relationship. However, each
Shareholder Servicing Agent has voluntarily agreed
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Mutual Fund Group
to waive a portion of the fees payable to it under its Servicing Agreement with
respect to the Fund on a month-to-month basis. For the period from December 20,
1994 (commencement of operations) through April 30, 1995, the Shareholder
Servicing Agents were paid or accrued $223 for services provided under the
Servicing Agreement.
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. Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of the Fund for which Chase receives compensation as is from time to time
agreed upon by the Trust and Chase. For additional information, see "Shareholder
Servicing Agents, Transfer Agent and Custodian" in the Prospectus.
In certain circumstances Shareholder Servicing Agents may be required
to register as dealers under state law.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036 serves as independent accountants of the Fund. 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.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, management investment company
organized as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. Because certain of the Funds comprising the Trust,
including the Fund, are "non-diversified", more than 5% of any of the assets of
the Fund may be invested in the obligations of any single issuer, which may make
the value of the shares in the Fund more susceptible to certain risks than
shares of a diversified mutual fund.
The Trust currently consists of 15 Funds of shares of beneficial
interest without par value. Certain of the Funds in 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 pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each share held.
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Mutual Fund Group
Shares of each series or class generally vote separately, for example to approve
investment advisory agreements or distribution plans, but shares of all series
and classes vote together, to the extent required under the 1940 Act, in the
election or selection of Trustees and independent accountants. With respect to
shares purchased through a Shareholder Servicing Agent and, in the event written
proxy instructions are not received by the Fund or its designated agent prior to
a shareholder meeting at which a proxy is to be voted and the shareholder does
not attend the meeting in person, the Shareholder Servicing Agent for such
shareholder will be authorized pursuant to an applicable agreement with the
shareholder to vote the shareholder's outstanding shares in the same proportion
as the votes cast by other Fund shareholders represented at the meeting in
person or by proxy.
Class A shares are sold at net asset value plus an initial sales
charge of up to a maximum of 4.75% of the offering price. Class B shares have no
initial sales charge; however, a contingent deferred sales charge will be
imposed on redemptions made within six years of purchase. The amount of the
contingent deferred sales charge will be 5% of the redemption proceeds on
redemptions made in the first year after purchase, declining to zero for
redemptions made more than six years after purchase. However, this contingent
deferred sales charge will not apply to redemption of shares representing
capital appreciation on Fund assets and reinvestment of dividends or capital
gain distributions. Approximately eight years after purchase, Class B shares
will automatically convert to Class A shares. Institutional Shares are offered
to qualified institutions investing a minimum of $1 million and are sold at net
asset value.
Absent waiver of fees, Class B shares and Institutional Shares have
an annual shareholder servicing fee of 0.25% of average daily net assets. In
addition, absent certain waiver of fees, Class A shares have an annual
distribution fee under Rule 12b-1 of 0.25% of average daily net assets, while
Class B has an annual distribution fee under Rule 12b-1 of 0.75% of average
daily net assets. Moreover, expenses borne by each class may differ slightly
because of the allocation of other class specific expenses. For example, a
higher transfer agency fee may be imposed on Class B shares than on Class A
shares. The relative impact of initial sales charges, contingent deferred sales
charges, and ongoing annual expenses will depend on the length of time a share
is held.
Selected dealers and financial consultants may receive different
levels of compensation for selling one particular class of shares rather than
another.
The Trust is not required to hold annual meetings of shareholders but
will hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders also
have, in certain circumstances, the right to remove one or more Trustees without
a meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing
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<PAGE>
Mutual Fund Group
Agent is the agent of record and which are not represented in person or by proxy
at the meeting, proportionately in accordance with the votes cast by holders of
all shares of that portfolio otherwise represented at the meeting in person or
by proxy as to which such Shareholder Servicing Agent is the agent of record.
Any shares so voted by a Shareholder Servicing Agent will be deemed represented
at the meeting for purposes of quorum requirements. 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.
Stock certificates are issued only upon the written request of a
shareholder, subject to the policies of the investor's Shareholder Servicing
Agent, but the Trust will not issue a stock certificate with respect to shares
that may be redeemed through expedited or automated procedures established by a
Shareholder Servicing Agent.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such 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 wilful 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 of Ethics substantially conforms to the
recommendations made by the Investment Company Institute ("ICI") (except where
noted) and includes such provisions as:
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Mutual Fund Group
o Prohibitions on investment personnel acquiring securities in initial
offerings;
o A requirement that access persons obtain prior to acquiring
securities in a private placement and that the officer granting such
approval have no interest in the issuer making the private placement;
o A restriction on access persons executing transactions for securities
on a recommended list until 14 days after distribution of that list;
o A prohibition on access persons acquiring securities that are pending
execution by one of the Portfolios until 7 days after the transactions
of the Portfolios are completed;
o A prohibition of any buy or sell transaction in a particular security
in a 30-day period, except as may be permitted in certain hardship
cases or exigent circumstances where prior approval is obtained. This
provision differs slightly from the ICI recommendation;
o A requirement for pre-clearance of any buy or sell transaction in a
particular security after 30 days, but within 60 days;
o A requirement that any gift exceeding $75.00 from a customer must be
reported to the appropriate compliance officer;
o A requirement that access persons submit in writing any request to
serve as a director or trustee of a publicly traded company;
o A requirement that all securities transactions in excess of $1,000 be
pre-cleared, except that if a person has engaged in more than $10,000
of securities transactions in a calendar quarter all securities of such
person require pre-clearance (this de minimus exception differs
slightly from the ICI recommendations);
o A requirement that all access persons direct their broker-dealer to
submit duplicate confirmation and customer statements to the
appropriate compliance unit; and
o A requirement that all access persons sign a Code of Ethics
acknowledgment, affirming that they have read and understood the Code
and submit a personal security holdings report upon commencement of
employment or status and a personal security transaction report within
10 days of each calendar quarter thereafter.
Principal Holders
As of May 31, 1995, no persons owned beneficially, directly or
indirectly, 5% or more of the outstanding shares of each class of shares of the
Fund.
Specimen Computations of Offering Prices Per Shares
A Shares:
Net Asset Value and Redemption Price per Shares of Beneficial Interest
at April 30, 1995...................................................$11.90
Maximum Offering Price per Shares ($11.90 divided by .9525)
(reduced on purchases of $100,000 or more)..........................$12.49
B Shares:
Net Asset Value and Redemption Price per Shares of Beneficial Interest
at April 30, 1995...................................................$11.89
<PAGE>
Mutual Fund Group
PART C
<PAGE>
Mutual Fund Group
MUTUAL FUND GROUP
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement for the Vista Funds of Mutual Fund Group filed herein as
part of this post-effective amendment.
(a) Financial statements
In Part A: None.
In Part B: None.
In Part C: None.
(b) Exhibits:
Exhibit
Number
1 Declaration of Trust. (1)
2 By-laws. (1)
3 None.
4 Specimen share certificate. (1)
5(a) Investment Advisory Agreements and Sub-Advisory Agreements(6)
5(b) Form ofInvestment Advisory Agreement for Vista Small Cap Equity
Fund. (9)
5(c) Administration Agreement.(6)
6 Distribution and Sub-Administration Agreement.(6)
7 None.
8(a) Custodian Agreement. (1)
8(b) Sub-Custodian Agreement. (1)
9(a) Transfer Agency Agreement. (1)
9(b) Administrative Services Plan. (1)
9(c) Shareholder Servicing Agreement of Vista Mutual Funds. (1)
9(d) Form of Shareholder Servicing Agreement of Vista Premier
Funds.(1)
9(e) Form of Shareholder Servicing Agreement of Institutional
Shares. (11)
10 Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel.(11)
11 None.
12 None.
14 None.
15(a) Rule 12b-1 Distribution Plan of Vista Mutual Funds including
Selected Dealer Agreement and Shareholder Service Agreement. (1)
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Mutual Fund Group
15(b) Rule 12b-1 Distribution Plan of Vista Premier Funds including
Selected Dealer Agreement and Shareholder Service Agreement.(1)
15(c) Rule 12b-1 Distribution Plan for each of Vista Bond Fund, Vista
Short-Term Bond Fund, Vista Equity Fund and Vista U.S.Government
Money Market Fund including Selected Dealer Agreement and
Shareholder Service Agreement.(3)
15(d) Form of Rule 12b-1 Distribution Plan for Class B shares of the
Vista Prime Money Market Fund.(8)
15(e) Form of Rule 12b-1 Distribution Plan for Vista Asian Oceanic
Shares Fund, Vista Japan Pacific Shares Fund, Vista U.S.
Government Securities Fund and Vista European Shares Fund.(8)
15(f) Form of Rule 12b-1 Distribution Plan for Vista Small Cap Equity
Fund.(9)
16 Schedule for Computation for Each Performance Quotation.(11)
17 None.
18 Form of Rule 18f-3 Multi Class Plan Adopted by the Board of
Trustees of the Registrant on August 21, 1995.
- ----------------------------
(1) Filed as an exhibit to Amendment No. 6 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on March 23, 1990.
(2) Filed as an exhibit to Amendment No. 11 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on June 8, 1992 to register shares of
the Vista Balanced Fund and IEEE Spectrum Fund series of the Trust.
(3) Filed as an exhibit to Amendment No. 15 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on October 30, 1992.
(4) Filed as an exhibit to Amendment No. 16 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 28, 1992.
(5) Filed as an exhibit to Amendment No. 19 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on June 30, 1993.
(6) Filed as an exhibit to Amendment No. 23 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 30, 1993.
(7) Filed as an exhibit to Amendment No. 24 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on February 10, 1994.
(8) Filed as an Exhibit to Amendment No. 26 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on June 30, 1994.
(9) Filed as Exhibit to Amendment No. 27 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on October 3, 1994.
(10) Filed as Exhibit to Amendment No. 30 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on July 19, 1995.
(11) Filed herewith.
ITEM 25 Persons Controlled by or Under Common
Control with Registrant
Not applicable
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<PAGE>
Mutual Fund Group
ITEM 2Number of Holders of Securities
Number of Record
Title of Series Holders as of September 30, 1995
--------------- --------------------------------
A B Institutional
Shares Shares Shares
VISTA(SM) U.S. Government Income Fund 4,010 704 N/A
VISTA(SM) Growth and Income Fund 78,438 19,414 N/A
VISTA(SM) Capital Growth Fund 38,986 21,446 N/A
VISTA(SM) Balanced Fund 1,255 561 N/A
VISTA(SM) Equity Fund 70 - N/A
VISTA(SM) Bond Fund 78 - N/A
VISTA(SM) Short-Term Bond Fund 68 - N/A
VISTA(SM) Global Fixed Income Fund 157 55 N/A
VISTA(SM) International Equity Fund 2,664 1,096 N/A
VISTA(SM) Equity Income Fund 623 - N/A
IEEE Balanced Fund 432 - N/A
VISTA(SM) Asian Oceanic Shares Fund N/A N/A N/A
VISTA(SM) Japan Pacific Shares Fund N/A N/A N/A
VISTA(SM) European Shares Fund N/A N/A N/A
VISTA(SM) Small Cap Equity Fund 2,245 1746 N/A
ITEM 27. Indemnification
Reference is hereby made to Article V of the Registrant's Declaration of
Trust.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser, administrator and distributor are insured under
an errors and omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940.
Under the terms of the Registrant's Declaration of Trust, the Registrant may
indemnify any person who was or is a Trustee, officer or employee of the
Registrant to the maximum extent permitted by law; provided, however, that any
such indemnification (unless ordered by a court) shall be made by the Registrant
only as authorized in the specific case upon a determination that
indemnification of such persons is proper in the circumstances. Such
determination shall be made (i) by the Trustees, by a majority vote of a quorum
which consists of Trustees who are neither in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the proceeding, or (ii) if the required
quorum is not obtainable or, if a quorum of such Trustees so directs, by
independent legal counsel in a written opinion. No indemnification will be
provided by the Registrant to any Trustee or officer of the Registrant for any
liability to the Registrant or shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
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<PAGE>
Mutual Fund Group
Insofar as the conditional advancing of indemnification monies for actions based
upon the Investment Company Act of 1940 may be concerned, such payments will be
made only on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of a defense to
the action, including costs connected with the preparation of a settlement; (ii)
advances may be made only upon receipt of a written promise by, or on behalf of,
the recipient to repay that amount of the advance which exceeds that amount to
which it is ultimately determined that he is entitled to receive from the
Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission 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
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of it 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 28. Business and Other Connections of Investment Adviser
The Chase Manhattan Bank, N.A. (the "Adviser") is a commercial bank
providing a wide range of banking and investment services.
To the knowledge of the Registrant, none of the Directors or executive
officers of the Adviser, 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 the Adviser also hold or have held various positions
with bank and non-bank affiliates of the Adviser, including its parent, The
Chase Manhattan Corporation. Each Director listed below is also a Director of
The Chase Manhattan Corporation.
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<PAGE>
Mutual Fund Group
Principal Occupation or Other
Position with Employment of a Substantial Nature
Name the Adviser During Past Two Years
- -----------------------------------------------------------------------------
Thomas G. Labreque Chairman of the Board, Chairman, Chief Executive
Chief Executive Officer Officer and a Director of
and Director The Chase Manhattan
Corporation and a Director
of AMAX, Inc.
Arthur F. Ryan President, Chief Operating
Officer and Director
President, Chief Operating
Officer, and a Director of
The Chase Manhattan
Corporation
Richard J. Boyle Vice Chairman of the Vice Chairman of the Board
Board and Director and a Director of The
Chase Manhattan
Corporation and Trustee of
Prudential Realty Trust
M. Anthony Burns Director Chairman of the Board,
President and Chief
Executive Officer of
Ryder System, Inc.
Joan Ganz Cooney Director Chairman of the Executive
Committee of the Board of
Trustees, formerly Chief
Executive Officer of
Children's Television
Workshop and a Director of
each of Johnson & Johnson,
Metropolitan Life Insurance
Company and Xerox
Corporation
Edward S. Finkelstein Director Retired Chairman and Chief
Executive Officer and
Director of R.H. Macy & Co.,
Inc. and a Director of Time
Warner Inc.
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and
Director of Amoco
Corporation and Director of
Abbott Laboratories
Howard C. Kauffman Director Retired President of Exxon
Corporation and a Director
of each of Pfizer Inc. and
Ryder System, Inc.
Paul W. MacAvoy Director Dean of Yale School of
Organization and Management
David T. McLaughlin Director President and Chief
Executive Officer of The
Aspen Institute, Chairman of
Standard Fuse Corporation
and a Director of each of
ARCO Chemical Company and
Westinghouse Electric
Corporation
Edmund T. Pratt, Jr. Director Chairman Emeritus, formerly
Chairman and Chief Executive
Officer, of Pfizer Inc. and
a Director of each of Pfizer
Inc., Celgene Corp., General
Motors Corporation and
International Paper Company
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.
Jairo A. Estrada Director Chairman of the Board and
Chief Executive Officer of
Garden Way Incorporated.
Donald H. Trautlei Director President and Chief
Executive Officer of The
Aspen Institute, Chairman of
Standard Fuse Corporation
and a Director of each of
ARCO Chemical Company and
Westinghouse Electric
Corporation
Kay R. Whitmore Director Chairman of the Board,
President and Chief
Executive Officer and
Director of Eastman Kodak
Company
James L. Ferguson Director Retired Chairman and Chief
Executive Officer of General
Foods Corporation
William H. Gray III Director President and Chief
Executive Officer of the
United Negro
College Fund, Inc
David T. Kearns Director Retired Chairman and Chief
Executive Officer of the
Xerox Corporation
Delano E. Lewis Director President and Chief
Executive Officer of
National Public Radio
John H. McArthur Director Dean of the Harvard
Graduate School of Business
Administration
ITEM 29. Principal Underwriters
(a) Vista Broker-Dealer Services, Inc., a wholly-owned
subsidiary of BISYS Fund Services, Inc. is the underwriter for the Registrant.
(b) The following are the Directors and officers of Vista
Broker-Dealer Services, Inc., a wholly-owned subsidiary of BISYS Fund Services,
Inc. The principal business address of each of these persons, with the exception
of Mr. Spicer, is 125 West 55th Street, New York, New York 10022. The principal
business address of Mr. Spicer is One Bush Street, San Francisco, California
94104.
Position and Offices Position and Offices
Name with Distributor with the Registrant
- --------------------------------------------------------------------------
William B. Blundin Director and Chief Executive None
Officer
Richard E. Stierwalt Director and Chief None
Operating Officer
Timothy M. Spicer Director and Chairman None
of the Board
Joseph Kissel President None
George Martinez Chief Compliance Officer Secretary and Assistant
and Secretary Treasurer
(c) Not applicable
ITEM 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
Vista Broker-Dealer Services, Inc. 125 West 55th Street
a wholly-owned subsidiary of BISYS New York, NY 10022
Fund Services, Inc.
DST Systems, Inc. (transfer agent) 21 W. 10th Street
Kansas City, MO 64105
The Chase Manhattan Bank, N.A. 1211 Avenue of the Americas
(investment adviser and custodian) New York, NY 10036
Chase Lincoln First Bank, N.A. One Lincoln First Square
(administrator) Rochester, NY 14363
ITEM 31. Management Services
Not applicable
ITEM 32. Undertakings
(1) Registrant undertakes that its trustees shall promptly
call a meeting of shareholders of the Trust for the purpose of voting upon the
question of removal of any such trustee or trustees when requested in writing so
to do by the record holders of not less than 10 per centum of the outstanding
shares of the Trust. In addition, the Registrant shall, in certain
circumstances, give such shareholders assistance in communicating with other
shareholders of a fund as required by Section 16(c) of the Investment Company
Act of 1940.
(2) The Registrant, on behalf of the Funds, undertakes,
provided the information required by Item 5A is contained in the latest annual
report to shareholders, to furnish to each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the Registrant's
latest annual report to shareholders.
(3) The Registrant on behalf of the Funds, undertakes
to file a Post Effective Amendment which contains Financial Statements
which need not be audited, within four to six months of the commencement of
operations of the new Classes of Shares of the Funds.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 6th day of November, 1995.
MUTUAL FUND GROUP
By/s/ H. Richard Vartabedian
H. Richard Vartabedian
President
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/ Fergus Reid, III Chairman and Trstee November 6, 1995
Fergus Reid, III
/s/ William J. Armstrong Trustee November 6, 1995
William J. Armstrong
/s/ John R.H. Blum Trustee November 6, 1995
John R.H. Blum
/s/ Joseph Harkins Trustee November 6, 1995
Joseph J. Harkins
/s/ Richard E. Ten Haken Trustee November 6, 1995
Richard E. Ten Haken
/s/ Stuart W. Cragin, Jr. Trustee November 6, 1995
Stuart W. Cragin, Jr.
/s/ Irv Thode Trustee November 6, 1995
Irv Thode
/s/ H. Richard Vartabedian President November 6, 1995
H. Richard Vartabedian and Trustee
/s/ Martin R. Dean Treasurer and November 6, 1995
Martin R. Dean Principal Financial
Officer
*By:
Attorney-in-Fact
C-7
<PAGE>
Mutual Fund Group
SIGNATURES
Growth and Income Portfolio has duly caused this Post-Effective
Amendment to the Registration Statement on Form N-1A of Mutual Fund Group 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 6th day of November, 1995.
Growth and Income Portfolio
By/s/ H. Richard Vartabedian
H. Richard Vartabedian
Chairman
This Post-Effective Amendment to the Registration Statement of Mutual Fund Group
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ H. Richard Vartabedian President November 6, 1995
H. Richard Vartabedian and Trustee
/s/ William J. Armstrong Trustee November 6, 1995
William J. Armstrong
/s/ John R.H. Blum Trustee November 6, 1995
John R.H. Blum
/s/ Stuart W. Cragin, Jr. Trustee November 6, 1995
Stuart W. Cragin, Jr.
/s/ Joseph J. Harkins Trustee November 6, 1995
Joseph J. Harkins
/s/ Richard E. Ten Haken Trustee November 6, 1995
Richard E. Ten Haken
/s/ Fergus Reid, III Trustee November 6, 1995
Fergus Reid, III
/s/ Irv Thode Trustee November 6, 1995
Irv Thode
*By:
Attorney-in-Fact
C-8
<PAGE>
Mutual Fund Group
SIGNATURES
Capital Growth Portfolio has duly caused this Post-Effective Amendment
to the Registration Statement on Form N-1A of Mutual Fund Group 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 6th day of November, 1995.
Capital Growth Portfolio
By/s/ H. Richard Vartabedian
H. Richard Vartabedian
Chairman
This Post-Effective Amendment to the Registration Statement of Mutual Fund Group
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ H. Richard Vartebedian President and Trustee November 6, 1995
H. Richard Vartebedian
/s/ William J. Armstrong Trustee November 6, 1995
William J. Armstrong
/s/ John R.H. Blum Trustee November 6, 1995
John R.H. Blum
/s/ Stuart W. Cragin, Jr. Trustee November 6, 1995
Stuart W. Cragin, Jr.
/s/ Joseph J. Harkins Trustee November 6, 1995
Joseph J. Harkins
/s/ Richard E. Ten Haken Trustee November 6, 1995
Richard E. Ten Haken
/s/ Fergus Reid, III Trustee November 6, 1995
Fergus Reid, III
/s/ Irv Thode Trustee November 6, 1995
Irv Thode
*By:
Attorney-in-Fact
C-9
<PAGE>
EXHIBIT INDEX
Exhibit
Number
11(a) Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel.
16 Schedule for Each Performance Quotation.
18 Rule 18(f)-3 Multiple Class Plan adopted by the Board of
Trustees of the Registrant on August 21, 1995
<PAGE>
Exhibit 11(a)
Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
<PAGE>
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
------
WRITER'S DIRECT NUMBER
(212) 715-9100
November 6, 1995
Mutual Fund Group
125 West 55th Street
New York, New York 10019
Re: Registration Statement on Form N-1A
File No. 811-5151
Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
<PAGE>
Exhibit (16)
Schedule for Each Performance Quotation.
<PAGE>
EXHIBIT 16
Form of computation of performance quotation
Yields. A Fund's "yield" (referred to as "standardized yield") for a given
30-day period for a class of shares is calculated using the following formula
set forth in rules adopted by the Securities and Exchange Commission that apply
to all funds that quote yields:
6
Standardized Yield = 2 [(a-b + 1) - 1]
-----
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares outstanding during the 30-day period
that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
<PAGE>
EXHIBIT 16
Form of computation of performance quotation
Total Returns. The "average annual total return" of each class of a fund is an
average annual compounded rate of return for each year in a specified number of
years. It is the rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a number of
years ("n") to achieve an Ending Redeemable Value ("ERV"), according to the
following formula:
n
( ERV ) - 1 = Average Annual Total Return ("T")
--------
( P )
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the one, five, or 10 year periods at the
end of the one, five, or 10 year periods (or fractional
portion thereof).
<PAGE>
Exhibit (18)
Rule 18(f)-3 Multi Class Plan adopted by the Board of Trustees of the Registrant
on August 21, 1995
<PAGE>
MUTUAL FUND GROUP
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), the following sets forth the method for
allocating fees and expenses among each class of shares of the underlying
investment funds of Mutual Fund Group (the "Trust") that issues multiple classes
of shares (the "Multi-Class Funds"). In addition, this Rule 18f-3 MultiClass
Plan (the "Plan") sets forth the shareholder servicing arrangements,
distribution arrangements, conversion features, exchange privileges and other
shareholder services of each class of shares in the Multi-Class Funds.
The Trust is an open-end series investment company registered
under the 1940 Act the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Registration Nos. 33-14196 and 811-5151). Upon the
effective date of this Plan, the Trust hereby elects to offer multiple classes
of shares in the Multi-Class Funds pursuant to the provisions of Rule 18f-3 and
this Plan. This Plan does not make any material changes to the class
arrangements and expense allocations previously approved by the Board of
Trustees of the Trust pursuant to the exemptive order issued by the Securities
and Exchange Commission to the Trust under Section 6(c) of the 1940 Act on July
17, 1990 (1940 Act Release No. 17590).
The Trust currently consists of the following fifteen separate
Funds: the U.S. Government Income Fund, the Balanced Fund, the Equity Income
Fund, the Bond Fund, the Short-Term Bond Fund, the Growth and Income Fund, the
Capital Growth Fund, the International Equity Fund, the Global Fixed Income
Fund, the IEEE Balanced Fund, the Small Cap Equity Fund, the Southeast Asian
Fund, the Japan Fund and the European Fund.
Each of the following Funds is a Multi-Class Fund, authorized
to issue the following classes of shares representing interests in the
same underlying portfolio of assets of the respective Fund:
(i) the U.S. Government Income Fund, Balanced Fund, International Equity
Fund, Global Fixed Income Fund, Southeast Asian Fund, Japan Fund and
European Fund are authorized to issue two classes of shares - Class A
and Class B shares; and
(ii) the Growth and Income Fund, Capital Growth Fund and Small Cap Equity
Fund are authorized to issue Class A, Class B and Institutional Shares
classes of shares.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall
allocate to each class of shares in a Multi-Class Fund (i) any fees and expenses
incurred by the Trust in connection with the distribution of such class of
shares under a distribution plan adopted for such class of shares pursuant to
Rule 12b-1, and (ii) any fees and expenses incurred by the Trust under a
shareholder servicing plan in connection with the provision of shareholder
services to the holders of such class of shares. In addition, pursuant to Rule
18f-3, the Trust may allocate the following fees and expenses to a particular
class of shares in a single Multi-Class Fund:
(i) transfer agent fees identified by the transfer agent
as being attributable to such class of shares;
(ii) printing and postage expenses related to preparing
and distributing materials such as shareholder
reports, prospectuses, reports, and proxies to
current shareholders of such class of shares or to
regulatory agencies with respect to such class of
shares;
(iii) blue sky registration or qualification fees incurred
by such class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a fund
accountant or dividend paying agent charged with
calculating net asset values or determining or paying
dividends) as required to support the shareholders of
such class of shares;
(vi) litigation or other legal expenses relating solely to
such class of shares;
(vii) Trustees fees incurred as result of issues relating
to such class of shares; and
(viii) independent accountants' fees relating solely to such
class of shares.
The initial determination of the class expenses that will be
allocated by the Trust to a particular class of shares and any subsequent
changes thereto will be reviewed by the Board of Trustees and approved by a vote
of the Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust. The Trustees will monitor conflicts of interest
among the classes and agree to take any action necessary to eliminate conflicts.
Income, realized and unrealized capital gains and losses, and
any expenses of a Multi-Class Fund not allocated to a particular class of such
Fund pursuant to this Plan shall be allocated to each class of the Fund on the
basis of the net asset value of that class in relation to the net asset value of
the Fund.
The Adviser, Distributor, Administrator and any other provider
of services to the Mutual Fund Group Funds may waive or reimburse the
expenses of a particular class or classes, provided, however, that such
waiver shall not result in cross subsidization between the classes.
III. Class Arrangements.
The following summarizes the front-end sales charges,
contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder
servicing fees, exchange privileges and other shareholder services applicable to
each class of shares of the Multi-Class Funds. Additional details regarding such
fees and services are set forth in each Fund's current Prospectus and Statement
of Additional Information.
A. Class A Shares -
1. Initial Sales Load: 4.75% (of the offering
price).
2. Contingent Deferred Sales Charge: None.
3. Rule 12b-1 Distribution Fees: 0.25% per
annum of the average daily net assets.
4. Shareholder Servicing Fees: Up to 0.25% per
annum of average daily net assets.
5. Exchange Privileges: Subject to restrictions
and conditions set forth in the Prospectus,
may be exchanged for Class A shares of
any other Fund. Shares of Funds which are
not Multi-Class Funds are deemed to be Class
A shares for this purpose.
6. Other Shareholder Services: As provided in
the Prospectus. Services do not differ from
those applicable to Class B shares.
B. Class B Shares -
1. Initial Sales Load: None.
2. Contingent Deferred Sales Charge: 5% in the
first year, declining to 1% in the sixth
year and eliminated thereafter.
3. Rule 12b-1 Distribution Fees:0.75% per annum
of the average daily net assets.
4. Shareholder Servicing Fees: Up to 0.25% per
annum of the average daily net assets.
5. Conversion Features: convert to Class A
shares on the first business day of the
month following the seventh anniversary of
the original purchase,based on relative net
asset values of the two classes. Shares
acquired by the reinvestment of dividends
and distributions are included in the
conversion.
6. Exchange Privileges: May be exchanged for
Class B shares of other Multi-class Funds.
7. Other Shareholder Services: As provided in
the Prospectus. Services do not differ from
those applicable to Class A shares.
C. Institutional Shares Class -
1. Initial Sales Load: None.
2. Contingent Deferred Sales Charge: None.
3. Rule 12b-1 Distribution Fees: None.
4. Shareholder Servicing Fees: Up to 0.25% per
annum of the average daily net assets.
5. Exchange Privileges: May be exchanged for
Institutional shares of other Multi-class
Funds at relative net asset value.
6. Other Shareholder Services: As provided in
the Prospectus.
In no event will a class of shares have a conversion feature
that automatically would convert shares of such class into shares of a class
with a distribution arrangement that could be viewed as less favorable to the
shareholder from the point of view of overall cost.
The implementation of the conversion feature is subject to the
continuing availability of a ruling of the Internal Revenue Service, or of an
opinion of counsel or tax advisor, stating that the conversion of one class of
shares to another does not constitute a taxable event under federal income tax
law. The conversion feature may be suspended if such a ruling or opinion is not
available.
If a Fund implements any amendment to a Distribution Plan (or,
if presented to shareholders, adopts or implements any amendment of a
shareholder services plan) that the Board of Trustees determines would
materially increase the charges that may be borne by the Class A Shareholders
under such plan, the Class B Shares will stop converting to the Class A Shares
until the Class B Shares, voting separately, approve the amendment or adoption.
The Board of Trustees shall have sole discretion in determining whether such
amendment or adoption is to be submitted to a vote of the Class B Shareholders.
Should such amendment or adoption not be submitted to a vote of the Class B
Shareholders or, if submitted, should the Class B Shareholders fail to approve
such amendment or adoption, the Board of Trustees shall take such action as is
necessary to: (1) create a new class (the "New Class A Shares") which shall be
identical in all material respects to the Class A Shares as they existed prior
to the implementation of the amendment or adoption; and (2) ensure that the
existing Class B Shares will be exchanged or converted into New Class A Shares
no later than the date such Class B Shares were scheduled to convert to Class A
Shares. If deemed advisable by the Board of Trustees to implement the foregoing,
and at the sole discretion of the Board of Trustees, such action may include the
exchange of all Class B Shares for a new class (the "New Class B Shares"),
identical in all respects to the Class B Shares except that the New Class B
Shares will automatically convert into the New Class A Shares. Such exchanges or
conversions shall be effected in a manner that the Board of Trustees reasonably
believes will not be subject to federal taxation.
IV. Board Review.
The Board of Trustees of the Trust shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan, the Board of Trustees, including a majority of the Trustees that are not
interested persons of the Trust, shall find that the Plan, as proposed to be
amended (including any proposed amendments to the method of allocating class
and/or fund expenses), is in the best interest of each class of shares of a
MultiClass Fund individually and the Fund as a whole. In considering whether to
approve any proposed amendment(s) to the Plan, the Trustees shall request and
evaluate such information as they consider reasonably necessary to evaluate the
proposed amendment(s) to the Plan. Such information shall address the issue of
whether any waivers or reimbursements of fees or expenses could be considered a
cross-subsidization of one class by another, and other potential conflicts of
interest between classes.
In making its initial determination to approve this Plan, the
Trustees have focused on, among other things, the relationship between or among
the classes and has examined potential conflicts of interest among classes
(including those potentially involving a crosssubsidization between classes)
regarding the allocation of fees, services, waivers and reimbursements of
expenses, and voting rights. The Board has evaluated the level of services
provided to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable. In
approving any subsequent amendments to this Plan, the Board shall focus on and
evaluate such factors as well as any others deemed necessary by the Board.
Adopted effective August 21, 1995
C-12
<PAGE>
