As filed via EDGAR with the Securities and Exchange Commission on August 6, 1996
File No. 811-5151
Registration No. 33-14196
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 36 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
Post-Effective Amendment No. 75 |X|
-------------------------------
MUTUAL FUND GROUP
(Exact Name of Registrant as Specified in Charter)
101 Park Avenue
New York, New York 10178
--------------------------------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (212) 492-1600
George Martinez, Esq. Niall L. O'Toole, Esq. Gary S. Schpero, Esq.
BISYS Fund Services, Inc. Chase Manhattan Bank Simpson Thacher & Bartlett
3435 Stelzer Road 270 Park Avenue 425 Lexington Avenue
Columbus, Ohio 43219 New York, New York 10017 New York, New York 10017
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
| | immediately upon filing pursuant to | | on ( ) pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
|X| 75 days after filing pursuant to |_| on ( ) 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.
------------------
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 was filed on November 27, 1995.
The Trustees of the Hub Portfolios have also executed this registration
statement.
<PAGE>
MUTUAL FUND GROUP
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933
VISTA(SM) U.S. TREASURY INCOME FUND
VISTA(SM) BALANCED FUND
VISTA(SM) EQUITY INCOME FUND
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) CAPITAL GROWTH FUND
VISTA(SM) LARGE CAP EQUITY FUND
VISTA(SM) BOND FUND
VISTA(SM) SHORT-TERM BOND FUND
VISTA(SM) GLOBAL FIXED INCOME FUND
VISTA(SM) INTERNATIONAL EQUITY FUND
VISTA(SM) SMALL CAP EQUITY FUND
VISTA(SM) U.S. GOVERNMENT SECURITIES FUND
VISTA(SM) AMERICAN VALUE FUND
VISTA(SM) SOUTHEAST ASIAN FUND
VISTA(SM) JAPAN FUND
VISTA(SM) EUROPEAN FUND
VISTA(SM) EMERGING GROWTH FUND
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
Captions apply to all Prospectuses except where
indicated in parenthesis. Parenthesis indicate
captions for Institutional Shares Prospectuses
1 Front Cover Page *
2(a) Expense Summary *
(b) Not Applicable *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance Information *
4(a)(b) Other Information *
Concerning the Fund;
Fund Objective; Investment
Policies
(c) Fund Objective; Investment *
Policies
(d) Not Applicable *
5(a) Management *
(b) Management *
(c)(d) Management; Other Information Concerning the Fund *
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(e) Other Information Concerning *
the Fund; Back Cover Page
(f) Other Information Concerning *
the Fund
(g) Not Applicable *
5A Not Applicable *
6(a) Other Information Concerning *
the Fund
(b) Not Applicable *
(c) Not Applicable *
(d) Not Applicable *
(e)(f) About Your Investment; How to Buy, Sell *
and Exchange Shares (How to Purchase, Redeem
and Exchange Shares); How Distributions Are
Made; Tax Information; Other Information
Concerning the Fund; Make the Most of Your
Vista Privileges.
(f) How Distributions are Made; *
Tax Information
(g) How Distributions are Made; Tax Matters
Tax Information
(h) About Your Investment; How to Buy, *
Sell and Exchange Shares (How to
Purchase, Redeem and Exchange Shares);
Other Information Concerning the Fund
7(a) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(b) How the Fund Values its Shares; *
How to Buy, Sell and Exchange
Shares (How to Purchase, Redeem
and Exchange Shares)
(c) Not Applicable *
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem and
Exchange Shares)
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(e) Management; Other Information *
Concerning the Fund
(f) Other Information Concerning the *
Fund
8(a) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(b) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(c) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
9 Not Applicable *
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13(a)(b) Fund Objective; Investment Investment Policies
Policies and Restrictions
14(c) * Management of the Trust and
Funds or Portfolios
(b) * Not Applicable
(c) * Management of the Trust and
Funds or Portfolios
15(a) * Not Applicable
(b) * General Information
(c) * General Information
16(a) Management Management of the Trust and
Funds or Portfolios
(b) Management Management of the Trust and
Funds or Portfolios
(c) Other Information Concerning Management of the Trust and
the Fund Funds or Portfolios
(d) Management Management of the Trust and
Funds or Portfolios
(e) * Not Applicable
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(f) How to Buy, Sell and Exchange Shares Management of the Trust and
(How to Purchase, Redeem and Exchange Shares); Funds or Portfolios
Other Information Concerning the Fund
(g) * Not Applicable
(h) * Management of the Trust and
Funds or Portfolios;
Independent Accountants
(i) * Not Applicable
17 Investment Policies Investment Policies and Restrictions
18(a) Other Information Concerning the Fund; General Information
How to Buy, Sell and Exchange Shares
(How to Purchase, Redeem and Exchange
Shares)
(b) * Not Applicable
19(a) How to Buy, Sell and Exchange Shares Purchases, Redemptions and Exchanges
(How to Purchase, Redeem and Exchange
Shares)
(b) How the Fund Values its Shares; How to Determination of Net Asset Value
Buy, Sell and Exchange Shares (How to
Purchase, Redeem and Exchange Shares)
(c) * Purchases, Redemptions and Exchanges
20 How Distributions are Made; Tax Information Tax Matters
21(a) * Management of the Trust and Funds
or Portfolios
(b) * Management of the Trust and Funds
or Portfolios
(c) * Not Applicable
22 * Performance Information
23 * Not Applicable
</TABLE>
-v-
<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
-vi-
<PAGE>
EXPLANATORY NOTE
The Prospectuses for the Class A and Class B Shares of the Vista U.S. Treasury
Income Fund, Vista Bond Fund, Vista Large Cap Equity Fund, Vista Equity Income
Fund, Vista Small Cap Equity Fund, Vista Growth and Income Fund, Vista Balanced
Fund, Vista Capital Growth Fund, Vista International Equity Fund, Vista Global
Fixed Income Fund, Vista Southeast Asian Fund, Vista European Fund and Vista
Japan Fund, the Prospectuses for the Class A Shares of the Vista Short-Term Bond
Fund and Vista U.S. Government Securities Fund, the Prospectus for Shares of the
Vista American Value Fund, and the Prospectuses for the Institutional Shares of
the Vista U.S. Government Securities Fund, Vista Short-Term Bond Fund, Vista
Bond Fund, Vista Large Cap Equity Fund, Vista Small Cap Equity Fund, Vista
Growth and Income Fund and Vista Capital Growth Fund, each dated May 6, 1996,
are incorporated by reference to the Registrant's filing of definitive copies
under Rule 497 (c) of the Securities Act of 1933, as amended (the "Securities
Act"), on May 9, 1996.
The Prospectus Supplement for the Vista Large Cap Equity Fund dated May 10,
1996 is incorporated by reference to the Registrant's filing of a definitive
copy under Rule 497 (e) of the Securities Act on May 10, 1996.
The Prospectus Supplement for the Vista European Fund, Vista Southeast Asian
Fund and Vista Japan Fund dated May 30, 1996 is incorporated by reference to
the Registrant's filing of a definitive copy under Rule 497 (e) of the
Securities Act on May 30, 1996.
The Prospectus Supplement for the Vista Balanced Fund, Vista Bond Fund, Vista
Short-Term Bond Fund, Vista U.S. Government Securities Fund and Vista U.S.
Treasury Income Fund dated June 25, 1996 is incorporated by reference to the
Registrant's filing of a definitive copy under Rule 497 (e) of the Securities
Act on June 28, 1996.
The Prospectus Supplement for the Class A and Class B Shares of the Vista U.S.
Treasury Income Fund, Vista U.S. Government Securities Fund, Vista Bond Fund,
Vista Large Cap Equity Fund, Vista Balanced Fund, Vista Equity Income Fund,
Vista Growth and Income Fund, Vista Capital Growth Fund, Vista International
Equity Fund, Vista Global Fixed Income Fund, Vista Southeast Asian Fund, Vista
European Fund, Vista Japan Fund and Vista Short-Term Bond Fund dated July 1,
1996 is incorporated by reference to the Registrant's filing of a definitive
copy under Rule 497 (e) of the Securities Act on July 2, 1996.
The Prospectus Supplement for the Vista Small Cap Equity Fund dated July 1,
1996 is incorporated by reference to the Registrant's filing of a definitive
copy under Rule 497 (e) of the Securities Act on July 2, 1996.
The Statement of Additional Information for the Vista International Equity Fund,
Vista Global Fixed Income Fund, Vista Southeast Asian Fund, Vista European Fund
and Vista Japan Fund (the "International SAI"), dated May 6, 1996, is
incorporated by reference to the Registrant's filing of definitive copies under
Rule 497 (c) of the Securities Act on May 9, 1996.
The Statement of Additional Information Supplement for the Vista U.S. Treasury
Income Fund, Vista Bond Fund, Vista Large Cap Equity Fund, Vista Balanced Fund,
Vista Equity Income Fund, Vista Small Cap Equity Fund, Vista Growth and Income
Fund, Vista Capital Growth Fund, Vista American Value Fund, Vista U.S.
Government Securities Fund and Vista Short-Term Bond Fund dated July 12, 1996 is
incorporated by reference to the Registrant's filing of a definitive copy under
rule 497(e) of the Securities Act on July 18, 1996.
The Statement of Additional Information Supplement for the International SAI
dated July 12, 1996 is incorporated by reference to the Registrant's filing of a
definitive copy under rule 497(e) of the Securities Act on July 18, 1996.
<PAGE>
PROSPECTUS
VISTA[SM] EMERGING GROWTH FUND
Class A and B Shares
, 1996
Investment Strategy: Capital Growth
This Prospectus explains concisely what you should know before investing. Please
read it carefully and keep it for future reference. You can find more detailed
information about the Fund in its _______, 1996 Statement of Additional
Information, as amended periodically (the "SAI"). For a free copy of the SAI,
call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference.
The Fund, unlike many other investment companies which directly acquire and
manage their own portfolios of securities, seeks its investment objective by
investing all of its investable assets in Emerging Growth Portfolio (the
"Portfolio"), an open-end management investment company with an investment
objective identical to those of the Fund. Investors should carefully consider
this investment approach. For additional information regarding this investment
structure, see "Unique Characteristics of Master/Feeder Fund Structure" on page
15.
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.
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, THE CHASE MANHATTAN BANK 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.
1
<PAGE>
TABLE OF CONTENTS
Expense Summary ............................................................ 3
The expenses you might pay on your Fund investment, including examples
Fund Objective ............................................................. 4
Investment Policies ........................................................ 4
The kinds of securities in which the Fund invests,
investment policies and techniques, and risks
Management ................................................................. 7
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment ...................................................... 7
Alternative sales arrangements
How to Buy, Sell and Exchange Shares ....................................... 7
How the Fund Values its Shares ............................................. 11
How Distributions are Made; Tax Information ................................ 12
How the Fund distributes its earnings,
and tax treatment related to those earnings
Other Information Concerning the Fund ...................................... 12
Distribution plans, shareholder servicing agents, administration, custodian,
expenses, organization, master/feeder Fund structure and regulatory matters
Performance Information .................................................... 15
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges ..................................... 16
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The following
table summarizes your costs from investing in the Fund based on estimated
expenses for the current fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
Class A Class B
Shares Shares
------- -------
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................. 4.75% None
Maximum Deferred Sales Charge
(as a percentage of the lower of
original purchase price or redemption proceeds)* .... None 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee ............................... 0.65% 0.65%
12b-1 Fee** ........................................... 0.25% 0.75%
Shareholder Servicing Fee ............................. 0.25% 0.25%
Other Expenses ........................................ 0.35% 0.60%
Total Fund Operating Expenses ......................... 1.50% 2.25%
==== ====
Examples
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares+ ......................... $62 $ 93 $125 $218
Class B Shares:
Assuming complete redemption
at the end of the period++ +++ ...... $74 $103 $143 $240
Assuming no redemptions+++ ............ $23 $ 70 $120 $240
* The maximum deferred sales charge on Class B shares applies to redemptions
during the first year after purchase; the charge generally declines by 1%
annually thereafter (except in the fourth year), reaching zero after six
years. See "How to Buy, Sell and Exchange Shares."
** Long-term shareholders in mutual funds with 12b-1 fees, such as Class A and
Class B shareholders of the Fund, may pay more than the economic equivalent
of the maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales charge.
++ Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
+++ Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the ninth year after purchase. See "How to Buy, Sell and
Exchange Shares."
The table is provided to help you understand the expenses of investing in the
Fund and your share of the operating expenses that the Fund incurs. THE EXAMPLES
SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES OR RETURNS;
ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be incurred
directly by customers of financial institutions in connection with an investment
in the Fund. The Fund understands that Shareholder Servicing Agents may credit
to the accounts of their customers from whom they are already receiving other
fees amounts not exceeding such other fees or the fees received by the
Shareholder Servicing Agent from the Fund with respect to those accounts. See
"Other Information Concerning the Fund."
3
<PAGE>
FUND OBJECTIVE
Vista Emerging Growth Fund seeks long-term capital growth. The Fund is not
intended to be a complete investment program, and there is no assurance it will
achieve its objective.
INVESTMENT POLICIES
Investment Approach
The Fund seeks to achieve its objective by investing all of its investable
assets in the Portfolio. Under normal market conditions, the Portfolio will
invest at least 80% of its total assets in equity securities and at least 65% of
its total assets in equity securities of small to mid cap companies. The
Portfolio's advisers classify small to mid cap companies as those with market
capitalizations of $300 million to $4 billion at the time of purchase by the
Portfolio. To pursue the Portfolio's objective the advisers will seek to invest
in companies with consistent, accelerating earnings and attractive stock
valuations. The Portfolio's advisers utilize a disciplined process involving
quantitative pre-screening techniques, fundamental company research, and a
proprietary company earnings model which identifies the potential for positive
earnings. Current income is an incidental consideration to the Portfolio's
objective. You should be aware that an investment in small to mid cap companies
may be more volatile than investments in companies with greater capitalization,
as described under "Risk Factors" below.
The Portfolio is classified as a "non-diversified" fund under federal securities
law. The Portfolio's assets may be more concentrated in the securities of any
single issuer or group of issuers than if the Portfolio were diversified.
The Portfolio may invest any portion of its assets not invested in equity
securities in high quality money market instruments and repurchase agreements.
In addition, at times when the Portfolio's advisers deem it advisable to limit
the Portfolio's exposure to the equity markets, the Portfolio may invest up to
20% of its total assets in U.S. Government obligations other than money market
instruments. For temporary defensive purposes, the Portfolio may invest without
limitation in money market instruments and repurchase agreements. To the extent
that the Portfolio departs from its investment policies during temporary
defensive periods, the Fund's investment objective may not be achieved.
Fund Structure
The Portfolio has an objective identical to that of the Fund. The Fund may
withdraw its investment from the Portfolio at any time if the Trustees determine
that it is in the best interest of the Fund to do so. Upon any such withdrawal,
the Trustees would consider what action might be taken, including investing all
of the Fund's investable assets in another pooled investment entity having
substantially the same objective and policies as the Fund or retaining an
investment adviser to manage the Fund's assets directly.
Other Investment Practices
The Portfolio may also engage in the following investment practices, when
consistent with the Portfolio's overall objective and policies. These practices,
and certain associated risks, are more fully described in the SAI.
Foreign Securities. The Portfolio may invest up to 20% of its total assets in
foreign securities, including Depositary Receipts. Since foreign securities are
normally denominated and traded in foreign currencies, the values of the
Portfolio's foreign investments may be affected favorably or unfavorably by
currency exchange rates and exchange control regulations. There may be less
information publicly available about foreign companies than U.S. companies, and
they are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the U.S. The securities of
foreign companies may be less liquid and more volatile than the securities of
comparable U.S. companies. Foreign settlement procedures and trade regulations
may involve certain risks (such as delay in payment or delivery of securities or
in the recovery of the Portfolio's assets held abroad) and expenses. It is
possible that nationalization or expropriation of assets, imposition of currency
exchange controls, confiscatory taxation, political or financial instability and
diplomatic developments could affect the value of the Portfolio's investments in
certain foreign countries. Foreign laws may restrict the ability to invest in
certain countries or issuers and special tax considerations will apply to
foreign securities. The risks can increase if the Portfolio invests in
securities of issuers in emerging markets.
The Portfolio may invest its assets in securities of foreign issuers in the form
of American Depositary Receipts, European Depositary Receipts or other similar
securities representing securities of foreign issuers (collectively, "Depositary
Receipts"). The Portfolio treats Depositary Receipts as interests in the
underlying securities for purposes of its investment policies. The Portfolio
will limit its investment in Depositary Receipts not sponsored by the issuer of
the underlying securities to no more than 5% of the value of its net assets (at
the time of investment).
4
<PAGE>
U.S. Government Obligations. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Money Market Instruments. The Portfolio may invest in cash or high-quality,
short-term money market instruments. Such instruments may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money market
instruments may involve certain risks associated with foreign investment.
Repurchase Agreements, Securities Loans and Forward Commitments. The Portfolio
may enter into agreements to purchase and resell securities at an agreed-upon
price and time. The Portfolio also has the ability to lend portfolio securities
in an amount equal to not more than 30% of its total assets to generate
additional income. These transactions must be fully collateralized at all times.
The Portfolio may purchase securities for delivery at a future date, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Portfolio may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Portfolio may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Portfolio enters into a reverse repurchase agreement,
it will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price (including
accrued interest). The Portfolio would be required to pay interest on amounts
obtained through reverse repurchase agreements, which are considered borrowing
under federal securities laws.
Stand-By Commitments. The Portfolio may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
money market instruments in its portfolio. In these transactions, the Portfolio
would acquire the right to sell a security at an agreed upon price within a
specified period prior to its maturity date. These transactions involve some
risk to the Portfolio if the other party should default on its obligation and
the Portfolio is delayed or prevented from recovering the collateral or
completing the transaction. Acquisition of puts will have the effect of
increasing the cost of the securities subject to the put and thereby reducing
the yields otherwise available from such securities.
Convertible Securities. The Portfolio may invest up to 20% of its net assets in
convertible securities, which are securities generally offering fixed interest
or dividend yields which may be converted either at a stated price or stated
rate for common or preferred stock. Although to a lesser extent than with
fixed-income securities generally, the market value of convertible securities
tends to decline as interest rates increase, and increase as interest rates
decline. Because of the conversion feature, the market value of convertible
securities also tends to vary with fluctuations in the market value of the
underlying common or preferred stock.
Other Investment Companies. The Portfolio may invest up to 10% of its total
assets in shares of other investment companies, subject to applicable regulatory
limitations.
STRIPS. The Portfolio may invest up to 20% of its total assets in separately
traded principal and interest components of securities backed by the full faith
and credit of the U.S. Government, including instruments known as "STRIPS". The
value of these instruments tends to fluctuate more in response to changes in
interest rates than the value of ordinary interest-paying debt securities with
similar maturities. The risk is greater when the period to maturity is longer.
Derivatives and Related Instruments. The Portfolio may invest its assets in
derivative and related instruments to hedge various market risks or to increase
the Portfolio's income or gain. Some of these instruments will be subject to
asset segregation requirements to cover the Portfolio's obligations. The
Portfolio may (i) purchase, write and exercise call and put options on
securities and securities indexes (including using options in combination with
securities, other options or derivative instruments); (ii) enter into swaps,
futures contracts and options on futures contracts; (iii) employ forward
currency contracts; and (iv) purchase and sell structured products, which are
instruments designed to restructure or reflect the characteristics of certain
other investments.
5
<PAGE>
There are a number of risks associated with the use of derivatives and related
instruments and no assurance can be given that any strategy will succeed. The
value of certain derivatives or related instruments in which the Portfolio
invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Portfolio to successfully
utilize these instruments may depend in part upon the ability of the Portfolio's
advisers to forecast these factors correctly. Inaccurate forecasts could expose
the Portfolio to a risk of loss. There can be no guarantee that there will be a
correlation between price movements in a hedging instrument and in the portfolio
assets being hedged. The Portfolio is not required to use any hedging
strategies. Hedging strategies, while reducing risk of loss, can also reduce the
opportunity for gain. Derivatives transactions not involving hedging may have
speculative characteristics, involve leverage and result in more risk to the
Portfolio than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when the Portfolio seeks to
close out a derivatives position. Activities of large traders in the futures and
securities markets involving arbitrage, "program trading," and other investment
strategies may cause price distortions in derivatives markets. In certain
instances, particularly those involving over-the-counter transactions or forward
contracts, there is a greater potential that a counterparty or broker may
default. In the event of a default, the Portfolio may experience a loss. For
additional information concerning derivatives, related instruments and the
associated risks, see the SAI.
Portfolio Turnover. The frequency of the Portfolio's portfolio transactions will
vary from year to year. The Portfolio's investment policies may lead to frequent
changes in investments, particularly in periods of rapidly changing market
conditions. High portfolio turnover rates would generally result in higher
transaction costs, including brokerage commissions or dealer mark-ups, and would
make it more difficult for the Portfolio to qualify as a registered investment
company under federal tax law. See "How Distributions are Made; Tax Information"
and "Other Information Concerning the Fund-Certain Regulatory Matters."
Limiting Investment Risks
Specific investment restrictions help the Portfolio limit investment risks for
the Fund's shareholders. These restrictions prohibit the Portfolio from: (a)
with respect to 50% of its total assets, holding more than 10% of the voting
securities of any issuer; (b) investing more than 15% of its net assets in
illiquid securities (which include securities restricted as to resale unless
they are determined to be readily marketable in accordance with procedures
established by the Board of Trustees of the Portfolio); or (c) investing more
than 25% of its total assets in any one industry. A complete description of
these and other investment policies is included in the SAI. Except for
restriction (c) above and investment policies designated as fundamental in the
SAI, the investment policies of the Portfolio and the Fund (including their
investment objective) are not fundamental. Shareholder approval is not required
to change any non-fundamental policy. However, in the event of a change in the
Fund's or Portfolio's investment objective, shareholders will be given at least
30 days' prior written notice.
Risk Factors
The net asset value of the shares of the Fund can be expected to fluctuate based
on the value of the securities held by the Portfolio. The Portfolio is
aggresively managed and, therefore, the value of the shares of the Fund is
subject to greater fluctuation and an investment in the Fund's shares involves a
higher degree of risk than an investment in a conservative equity fund or a
growth fund investing entirely in proven growth equities. An investment in the
Fund should not be considered a complete investment program and may not be
appropriate for all investors.
The securities of small to mid cap companies often trade less frequently and in
more limited volume, and may be subject to more abrupt or erratic price
movements, than securities of larger, more established companies. Such companies
may have limited product lines, markets or financial resources, or may depend on
a limited management group.
Because the Portfolio is "non-diversified," the value of the Fund's shares is
more susceptible to developments affecting issuers in which the Portfolio
invests.
To the extent the Portfolio invests in longer-term U.S. Government obligations,
the performance of the Portfolio may also be affected by interest rate changes.
As interest rates increase, the value of any fixed income securities held by the
Portfolio will tend to decrease.
For a discussion of certain other risks associated with the Portfolio's
additional investment activities, see "Other Investment Practices" above.
MANAGEMENT
The Portfolio's Advisers
6
<PAGE>
The Chase Manhattan Bank ("Chase") acts as investment adviser to the Portfolio
pursuant to an Investment Advisory Agreement and has overall responsibility for
investment decisions of the Portfolio, subject to the oversight of the Board of
Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan Corporation,
a bank holding company. Chase and its predecessors have over 100 years of money
management experience. For its investment advisory services to the Portfolio,
Chase is entitled to receive an annual fee computed daily and paid monthly based
at an annual rate equal to 0.65% of the Portfolio's average daily net assets.
Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is the
sub-investment adviser to the Portfolio pursuant to a Sub-Investment Advisory
Agreement between CAM and Chase. CAM is a wholly-owned operating subsidiary of
Chase. CAM makes investment decisions for the Portfolio on a day-to-day basis.
For these services, CAM is entitled to receive a fee, payable by Chase from its
advisory fee, at an annual rate equal to 0.30% of the Portfolio's average daily
net assets. CAM was recently formed for the purpose of providing discretionary
investment advisory services to institutional clients and to consolidate Chase's
investment management function. The same individuals who serve as portfolio
managers for Chase also serve as portfolio managers for CAM. CAM is located at
1211 Avenue of the Americas, New York, New York 10036.
Portfolio Managers. Dave Klassen, Director of Domestic Equity Management at
Chase, has been responsible for the day-to-day management of the Portfolio since
inception. Mr. Klassen joined Chase in March 1992 and, in addition to managing
the Portfolio, is a manager of the Vista Small Cap Equity Fund, the Vista
Capital Growth Portfolio and the Vista Growth and Income Portfolio. 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.
ABOUT YOUR INVESTMENT
Alternative Sales Arrangements
Class A shares. An investor who purchases Class A shares pays a sales charge at
the time of purchase. As a result, Class A shares are not subject to any sales
charges when they are redeemed. Certain purchases of Class A shares qualify for
reduced sales charges. Class A shares have lower combined 12b-1 and service fees
than Class B shares. See "How to Buy, Sell and Exchange Shares" and "Other
Information Concerning the Fund."
Class B shares. Class B shares are sold without an initial sales charge, but are
subject to a contingent deferred sales charge ("CDSC") if redeemed within a
specified period after purchase. Class B shares also have higher combined 12b-1
and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on relative net
asset value, at the beginning of the ninth year after purchase. For more
information about the conversion of Class B shares, see the SAI. This discussion
will include information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. Class B shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made. Until conversion, Class B shares will have a higher
expense ratio and pay lower dividends than Class A shares because of the higher
combined 12b-1 and service fees. See "How to Buy, Sell and Exchange Shares" and
"Other Information Concerning the Fund."
Which arrangement is best for you? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge might consider
Class B shares. In almost all cases, investors planning to purchase $250,000 or
more of the Fund's shares will pay lower aggregate charges and expenses by
purchasing Class A shares.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs, SEP-IRAs
and the Systematic Investment Plan) and make additional investments at any time
with as little as $100. You can buy Fund shares three ways-through an investment
representative, through the Fund's distributor by calling the Vista Service
Center, or through the Systematic Investment Plan.
7
<PAGE>
All purchases made by check should be in U.S. dollars and made payable to the
Vista Funds. Third party checks, credit cards and cash will not be accepted. The
Fund reserves the right to reject any purchase order or cease offering shares
for purchase at any time. When purchases are made by check, redemptions will not
be allowed until clearance of the purchase check, which may take 15 calendar
days or longer. In addition, the redemption of shares purchased through ACH will
not be allowed until clearance of your payment, which may take 7 business days
or longer.
Buying shares through the Fund's distributor. Complete and return the enclosed
application and your check in the amount you wish to invest to the Vista Service
Center.
Buying shares through systematic investing. You can make regular investments of
$100 or more per transaction through automatic periodic deduction from your bank
checking or savings account. Shareholders electing to start this Systematic
Investment Plan when opening an account should complete Section 8 of the account
application. Current shareholders may begin such a plan at any time by sending a
signed letter with signature guarantee and a deposit slip or voided check to the
Vista Service Center. Call the Vista Service Center at 1-800-34-VISTA for
complete instructions.
Shares are sold at the public offering price based on the net asset value next
determined after the Vista Service Center receives your order in proper form. In
most cases, in order to receive that day's public offering price, the Vista
Service Center must receive your order before the close of regular trading on
the New York Stock Exchange. If you buy shares through your investment
representative, the representative must receive your order before the close of
regular trading on the New York Stock Exchange to receive that day's public
offering price. Orders for shares are accepted by the Fund after funds are
converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or transferring shares to
another person shortly after purchase, you should pay for those shares with a
certified check to avoid any delay in redemption, exchange or transfer.
Otherwise the Fund may delay payment until the purchase price of those shares
has been collected or, if you redeem by telephone, until 15 calendar days after
the purchase date. To eliminate the need for safekeeping, the Fund will not
issue certificates for your Class A shares unless you request them. Due to the
conversion feature of Class B shares, certificates for Class B shares will not
be issued and all Class B shares will be held in book entry form.
Class A Shares
The public offering price of Class A shares is the net asset value plus a sales
charge that varies depending on the size of your purchase. The Fund receives the
net asset value. The sales charge is allocated between your broker-dealer and
the Fund's distributor as shown in the following table, except when the Fund's
distributor, in its discretion, allocates the entire amount to your
broker-dealer.
<TABLE>
<CAPTION>
Sales charge as a percentage of:
---------------------------------------------------------
Amount of transaction
at offering price($) Amount of sales charge
Offering Net amount reallowed to dealers as a
price invested percentage of offering price
-------- ---------- ----------------------------
<S> <C> <C> <C>
Under 100,000 ..................... 4.75 4.99 4.00
100,000 but under 250,000 ......... 3.75 3.90 3.25
250,000 but under 500,000 ......... 2.50 2.56 2.25
500,000 but under 1,000,000 ....... 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1 million or
more.
The Fund's distributor pays broker-dealers commissions on net sales of Class A
shares of $1 million or more based on an investor's cumulative purchases. Such
commissions are paid at the rate of 1.00% of the amount under $2.5 million,
0.75% of the next $7.5 million, 0.50% of the next $40 million and 0.20%
thereafter. The Fund's distributor may withhold such payments with respect to
short-term investments.
Class B Shares
Class B shares are sold without an initial sales charge, although a CDSC will be
imposed if you redeem shares within a specified period after purchase, as shown
in the table below. The following types of shares may be redeemed without charge
at
8
<PAGE>
any time: (i) shares acquired by reinvestment of distributions and (ii) shares
otherwise exempt from the CDSC, as described below. For other shares, the amount
of the charge is determined as a percentage of the lesser of the current market
value or the purchase price of shares being redeemed.
Year 1 2 3 4 5 6 7 8+
- -------------------------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held longest during the
CDSC period. When a share that has appreciated in value is redeemed during the
CDSC period, a CDSC is assessed only on its initial purchase price. For
information on how sales charges are calculated if you exchange your shares, see
"How to Exchange Your Shares." The Fund's distributor pays broker-dealers a
commission of 4.00% of the offering price on sales of Class B shares, and the
distributor receives the entire amount of any CDSC you pay.
General
You may be eligible to buy Class A shares at reduced sales charges. Consult your
investment representative or the Vista Service Center for details about Vista's
combined purchase privilege, cumulative quantity discount, statement of
intention, group sales plan, employee benefit plans, and other plans.
Descriptions are also included in the enclosed application and in the SAI. In
addition, sales charges will not apply to shares purchased with redemption
proceeds received within the prior ninety days from non-Vista mutual funds on
which the investor paid a front-end or contingent deferred sales charge.
A participant-directed employee benefit plan participating in a "multi-fund"
program approved by the Board of Trustees may include amounts invested in the
other mutual funds participating in such program for purposes of determining
whether the plan may purchase Class A shares at net asset value. These
investments will also be included for purposes of the discount privileges and
programs described above.
The Fund may sell Class A shares at net asset value without an initial sales
charge to the current and retired Trustees (and their immediate families),
current and retired employees (and their immediate families) of Chase, the
Fund's distributor and transfer agent or any affiliates or subsidiaries thereof,
registered representatives and other employees (and their immediate families) of
broker-dealers having selected dealer agreements with the Fund's distributor,
employees (and their immediate families) of financial institutions having
selected dealer agreements with the Fund's distributor (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to sales
of Vista fund shares), financial institution trust departments investing an
aggregate of $1 million or more in the Vista Family of Funds, and clients of
certain administrators of tax-qualified plans when proceeds from repayments of
loans to participants are invested (or reinvested) in the Vista Family of Funds.
No initial sales charge will apply to the purchase of Class A shares of the Fund
by an investor seeking to invest the proceeds of a qualified retirement plan
where a portion of the plan was invested in the Vista Family of Funds, any
qualified retirement plan with 50 or more participants, or an individual
participant in a tax-qualified plan making a tax-free rollover or transfer of
assets from the plan in which Chase or an affiliate serves as trustee or
custodian of the plan or manages some portion of the plan's assets.
Purchases of Class A shares of the Fund may be made with no initial sales charge
through an investment adviser or financial planner that charges a fee for its
services. Purchases of Class A shares of the Fund may be made with no initial
sales charge (i) by an investment adviser, broker or financial planner, provided
arrangements are preapproved and purchases are placed through an omnibus account
with the Fund or (ii) by clients of such investment adviser or financial planner
who place trades for their own accounts, if such accounts are linked to a master
account of such investment adviser or financial planner on the books and records
of the broker or agent. Such purchases may be made for retirement and deferred
compensation plans and trusts used to fund those plans.
Purchases of Class A shares of the Fund may be made with no initial sales charge
in accounts opened by a bank, trust company or thrift institution which is
acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at the time
of the investment to the Fund, the Fund's distributor or the Vista Service
Center.
Shareholders of record of any Vista Fund as of November 30, 1990 and certain
immediate family members may purchase Class A shares of the Fund with no initial
sales charge for as long as they continue to own Class A shares of any Vista
fund, provided there is no change in account registration. Shareholders of
record of any portfolio of The Hanover Funds, Inc. or The Hanover Investment
Funds, Inc. as of May 3, 1996 and certain related investors may purchase Class A
shares of the Fund with no initial sales charge for as long as they continue to
own shares of any Vista fund following this date, provided there is no change in
account registration.
9
<PAGE>
The Fund may sell Class A shares at net asset value without an initial sales
charge in connection with the acquisition by the Fund of assets of an investment
company or personal holding company. The CDSC will be waived on redemption of
Class B shares arising out of death or disability or in connection with certain
withdrawals from IRA or other retirement plans. Up to 12% of the value of Class
B shares subject to a systematic withdrawal plan may also be redeemed each year
without a CDSC, provided that the Class B account had a minimum balance of
$20,000 at the time the systematic withdrawal plan was established. The SAI
contains additional information about purchasing the Fund's shares at reduced
sales charges.
The Fund reserves the right to change any of these policies on purchases without
an initial sales charge at any time and may reject any such purchase request.
Shareholders of other Vista funds may be entitled to exchange their shares for,
or reinvest distributions from their funds in, shares of the Fund at net asset
value.
How to Sell Shares
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The Fund
will only forward redemption payments on shares for which it has collected
payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of instruction to the
Vista Service Center, along with any certificates that represent shares you want
to sell. The price you will receive is the next net asset value calculated after
the Fund receives your request in proper form, less any applicable CDSC. In
order to receive that day's net asset value, the Vista Service Center must
receive your request before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more, the signatures
of registered owners or their legal representatives must be guaranteed by a
bank, broker-dealer or certain other financial institutions. See the SAI for
more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your address
as it appears on Vista's records, a signature guarantee is required. The Fund
may require additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner. Contact the Vista
Service Center for details.
The Fund generally sends you payment for your shares the business day after your
request is received in proper form, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares from your
account unless you have notified the Vista Service Center of an address change
within the preceding 30 days. Telephone redemption requests in excess of $25,000
will only be made by wire to a bank account on record with the Fund. Unless an
investor indicates otherwise on the account application, the Fund will be
authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide the Fund with his or her account registration
and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Fund nor its agents will be
liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In this
event, you may wish to submit a written redemption request, as described above,
or contact your investment representative. The Telephone Redemption Privilege is
not available if you were issued certificates for shares that remain
outstanding. The Telephone Redemption Privilege may be modified or terminated
without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or more ($100 or
more for Class B accounts) monthly, quarterly or semiannually. A minimum account
balance of $5,000 is required to establish a systematic withdrawal plan for
Class A accounts. Call the Vista Service Center at 1-800-34-VISTA for complete
instructions.
10
<PAGE>
Selling shares through your investment representative. Your investment
representative must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem your
shares if at such time the aggregate net asset value of the shares in your
account is less than $500 or if you purchase through the Systematic Investment
Plan and fail to meet the Fund's investment minimum within a twelve month
period. In the event of any such redemption, you will receive at least 60 days
notice prior to the redemption. In the event the Fund redeems Class B shares
pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain other Vista
Funds at net asset value beginning 15 days after purchase. Not all Vista Funds
offer all classes of shares. The prospectus of the other Vista Fund into which
shares are being exchanged should be read carefully and retained for future
reference. If you exchange shares subject to a CDSC, the transaction will not be
subject to the CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using the schedule of
any fund into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares. In computing
the CDSC, the length of time you have owned your shares will be measured from
the date of original purchase and will not be affected by any exchange.
An exchange of Class B shares into any of the Vista money market funds other
than the Class B shares of the Vista Prime Money Market Fund will be treated as
a redemption-and therefore subject to the conditions of the CDSC-and a
subsequent purchase. Class B shares of any Vista non-money market fund may be
exchanged into the Class B shares of the Vista Prime Money Market Fund in order
to continue the aging of the initial purchase of such shares.
For federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the Vista Service
Center for procedures for telephone transactions. The Telephone Exchange
Privilege is not available if you were issued certificates for shares that
remain outstanding. Ask your investment representative or the Vista Service
Center for prospectuses of other Vista funds. Shares of certain Vista funds are
not available to residents of all states.
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 Vista management or the Trustees
believe doing so would be in the best interests 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 the Fund in a year or three in
a calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
Reinstatement privilege. Class A shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption). Class B
shareholders who have redeemed their shares and paid a CDSC with such redemption
may purchase Class A shares with no initial sales charge (in an amount not in
excess of their redemption proceeds) if the purchase occurs within 90 days of
the redemption of the Class B shares.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined once daily
based upon prices 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., Eastern time), on each business day of the Fund, by dividing the net
assets of the Fund attributable to that class by the total number of outstanding
shares of that class. Values of assets held by the Fund (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 SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
11
<PAGE>
The Fund distributes any net investment income at least semi-annually and any
net realized capital gains at least annually. Distributions from capital gains
are made after applying any available capital loss carryovers. Distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B shares because expenses attributable to Class
B shares will generally be higher.
You can choose from three distribution options: (1) reinvest all distributions
in additional Fund shares without a sales charge; (2) receive distributions from
net investment income in cash or by ACH to a pre-established bank account while
reinvesting capital gains distributions in additional shares without a sales
charge; or (3) receive all distributions in cash or by ACH. You can change your
distribution option by notifying the Vista Service Center in writing. If you do
not select an option when you open your account, all distributions will be
reinvested. All distributions not paid in cash or by ACH will be reinvested in
shares of the class on which the distributions are paid. You will receive a
statement confirming reinvestment of distributions in additional Fund shares
promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Vista Service Center will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund or in
another Vista fund. If the Vista Service Center does not receive your election,
the distribution will be reinvested in the Fund. Similarly, if correspondence
sent by the Fund or the Vista Service Center is returned as "undeliverable,"
distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gains it distributes to
shareholders. The Fund intends to distribute substantially all of its ordinary
income and capital gain net income on a current basis. If the Fund does not
qualify as a regulated investment company for any taxable year or does not make
such distributions, the Fund will be subject to tax on all of its income and
gains.
All Fund distributions will be taxable to you as ordinary income, except that
any distributions of net long-term capital gains will be taxable as such,
regardless of how long you have held the shares. Distributions will be taxable
as described above whether received in cash or in shares through the
reinvestment of distributions.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next distribution date. Those investors purchasing
shares just prior to a distribution will be taxed on the entire amount of the
distribution received, even though the net asset value per share on the date of
such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Trust
has adopted Rule 12b-1 distribution plans for Class A and Class B shares which
provide that the Fund will pay distribution fees at annual rates of up to 0.25%
and 0.75% of the average daily net assets attributable to Class A and Class B
shares of the Fund, respectively. Payments under the distribution plans shall be
used to compensate or reimburse the Fund's distributor and broker-dealers for
services provided and expenses incurred in connection with the sale of Class A
and Class B shares, and are not tied to the amount of actual expenses incurred.
Payments may be used to compensate broker-dealers with trail or maintenance
commissions at an annual rate of up to 0.25% of the average daily net asset
value of Class A or Class B shares maintained in the Fund by customers of these
broker-dealers. Trail or maintenance commissions are paid to broker-dealers
beginning the 13th month following the purchase of shares by their customers.
Some activities intended to promote the sale of Class A and Class B shares will
be conducted generally by the Vista Family of Funds, and activities intended to
promote the Fund's Class A or Class B shares may also benefit the Fund's other
shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet specified
sales targets for one or more Vista Funds. These incentives may include gifts of
up to $100 per person annually; an occasional meal, ticket to a sporting event
or theater
12
<PAGE>
or entertainment for broker-dealers and their guests; and payment or
reimbursement for travel expenses, including lodging and meals, in connection
with attendance at training and educational meetings within and outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own Class A or Class B shares of the Fund. These
services include assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of Class A or Class B shares of the Fund held by investors for
whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services.
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 such other
fees or the fees for their services as shareholder servicing agents.
Chase and/or VFD may from time to time, at their own expense out of compensation
retained by them from the Fund or other sources available to them, make
additional payments to certain selected dealers or other shareholder servicing
agents for performing administrative services for their customers. These
services include maintaining account records, processing orders to purchase,
redeem and exchange Fund shares and responding to certain customer inquiries.
The amount of such compensation may be up to an additional 0.10% annually of the
average net assets of the Fund attributable to shares of the Fund held by
customers of such shareholder servicing agents. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase and/or VFD.
Administrator and Sub-Administrator
Chase acts as the administrator of the Fund and the Portfolio and 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 average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub-administration agreement and is entitled to receive a fee
for these services from the Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets. VFD has agreed to use a portion of this fee to pay for
certain expenses incurred in connection with organizing new series of the Trust
and certain other ongoing expenses of the Trust. VFD is located at 101 Park
Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and receives
compensation under an agreement with the Trust. Fund securities and cash may be
held by sub-custodian banks if such arrangements are reviewed and approved by
the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its pro rata
share of expenses of the Trust. These expenses include investment advisory and
administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Fund's custodian
for all services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to government offices and commissions; expenses of
meetings of investors; fees and expenses of independent accountants, of legal
counsel and of any transfer agent, 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. Shareholder servicing and
distribution fees are allocated to specific classes of the Fund. In addition,
the Fund may allocate transfer agency and certain other expenses by class.
Service providers to the Fund may, from time to time, voluntarily waive all or a
portion of any fees to which they are entitled.
Organization and Description of Shares
13
<PAGE>
The Fund is a portfolio of Mutual Fund Group, an open-end management investment
company organized as a Massachusetts business trust in 1987 (the "Trust"). 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 preemptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each whole share
held, and each fractional share shall be entitled to a proportionate fractional
vote, except that Trust shares held in the treasury of the Trust shall not be
voted. Shares of each class of the Fund generally vote together except when
required under federal securities laws to vote separately on matters that only
affect a particular class, such as the approval of distribution plans for a
particular class.
The Fund issues multiple classes of shares. This Prospectus relates only to
Class A and Class B shares of the Fund. The Fund offers other classes of shares
in addition to these classes. The categories of investors that are eligible to
purchase shares and minimum investment requirements may differ for each class of
Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service fee
levels, and levels of certain other expenses, which will affect the relative
performance of the different classes. Investors may call 1-800-34-VISTA to
obtain additional information about other classes of shares of the Fund that are
offered. Any person entitled to receive compensation for selling or servicing
shares of the Fund may receive different levels of compensation with respect to
one class of shares over another.
The business and affairs of the Trust are managed under the general direction
and supervision of the Trust's Board of Trustees. The Trust is not required to
hold annual meetings of shareholders but will hold special meetings of
shareholders of all series or classes when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. 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.
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.
Unique Characteristics of Master/Feeder Fund Structure
Unlike other mutual funds, which directly acquire and manage their own portfolio
securities, the Fund invests all of its investable assets in the Portfolio, a
separate registered investment company. Therefore, a shareholder's interest in
the Portfolio's securities is indirect. In addition to selling 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, and may bear different levels of ongoing expenses than the Fund.
Shareholders of the Fund should be aware that these differences may result in
differences in returns experienced in the different funds that invest in 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 or
institutional investors. 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 objective, policies or restrictions
may require the Trust to withdraw the Fund's interest in the Portfolio. Any
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, a distribution in kind may result in a less diversified portfolio
of investments or adversely affect the liquidity of the Fund.
State securities regulations generally do not permit the same individuals who
are disinterested Trustees of the Trust to be Trustees of the Portfolio absent
the adoption of written procedures by a majority of the disinterested Trustees
of the Trust reasonably appropriate to deal with the potential conflicts of
interest up to and including creating a separate Board of Trustees. The Trustees
of the Trust, 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.
14
<PAGE>
Investors in the Fund may obtain information about whether an investment in the
Portfolio may be available through other funds by calling the Vista Service
Center at 1-800-34-VISTA.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and generally
prohibit banks from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks or their affiliates from acting as investment
adviser, administrator or custodian to mutual funds or from purchasing mutual
fund shares as agent for a customer. Chase and the Trust believe that Chase
(including its affiliates) may perform the services to be performed by it as
described in this Prospectus without violating such laws. If future changes in
these laws or interpretations required Chase to alter or discontinue any of
these services, it is expected that the Board of Trustees would recommend
alternative arrangements and that investors would not suffer adverse financial
consequences. State securities laws may differ from the interpretations of
banking law described above and banks may be required to register as dealers
pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial banking
relationships with the issuers of securities purchased on behalf of the Fund,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities so purchased. Chase and its affiliates
deal, trade and invest for their own accounts in U.S. Government obligations,
municipal obligations and commercial paper and are among the leading dealers of
various types of U.S. Government obligations and municipal obligations. Chase
and its affiliates may sell U.S. Government obligations and municipal
obligations to, and purchase them from, other investment companies sponsored by
the Fund's distributor or affiliates of the distributor. Chase will not invest
the Fund'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 Chase or an affiliate is a non-principal member.
This restriction may limit the amount or type of U.S. Government obligations,
municipal obligations or commercial paper available to be purchased by the Fund.
Chase 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 Chase, including the division that performs services
for the Fund as custodian, or in the possession of any affiliate of Chase.
Shareholders of the Fund should be aware that, subject to applicable legal or
regulatory restrictions, Chase and its affiliates may exchange among themselves
certain information about the shareholder and his account. Transactions with
affiliated broker-dealers will only be executed on an agency basis in accordance
with applicable federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. Performance is calculated separately for each
class of shares. "Yield" for each class of shares is calculated by dividing the
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share of such class on the last day of that
period.
"Total return" for the one-, five- and ten-year periods (or for the life of a
class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the Fund
invested at the maximum public offering price (in the case of Class A shares) or
reflecting the deduction of any applicable contingent deferred sales charge (in
the case of Class B shares). Total return may also be presented for other
periods or without reflecting sales charges. Any quotation of investment
performance not reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales charges were used.
All performance data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, the Fund's operating expenses and which class of shares you purchase.
Investment performance also often reflects the risks associated with the Fund's
investment objectives and policies. These factors should be considered when
comparing the Fund's investment results to those of other mutual funds and other
investment vehicles. Quotation of investment performance for any period when a
fee waiver or expense limitation was in effect will be greater than if the
waiver or limitation had not been in effect. The Fund's performance may be
compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund shareholder.
15
<PAGE>
SYSTEMATIC INVESTMENT PLAN--Invest as much as you wish ($100 or more) in the
first or third week of any month. The amount will be automatically transferred
from your checking or savings account.
SYSTEMATIC WITHDRAWAL--Make regular withdrawals of $50 or more ($100 or more for
Class B accounts) monthly, quarterly or semiannually. A minimum account balance
of $5,000 is required to establish a systematic withdrawal plan for Class A
accounts.
SYSTEMATIC EXCHANGE--Transfer assets automatically from one Vista account to
another on a regular, prearranged basis. There is no additional charge for this
service.
FREE EXCHANGE PRIVILEGE--Exchange money between Vista funds in the same class of
shares without charge. The exchange privilege allows you to adjust your
investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
REINSTATEMENT PRIVILEGE--Class A shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with
such redemption may purchase Class A shares with no initial sales charge (in an
amount not in excess of their redemption proceeds) if the purchase occurs within
90 days of the redemption of the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or termination.
16
<PAGE>
Vista Service Center VISTA
P.O. Box 419392 FAMILY OF MUTUAL FUNDS
Kansas City, MO 64141-6392 MANAGED BY CHASE MANHATTAN
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105 Emerging Growth Fund
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP 1177
Avenue of the Americas
New York, NY 10036
Prospectus
and Application
17
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
MAY 6, 1996,
AS REVISED ______________________, 1996
VISTA[SM] AMERICAN VALUE FUND
VISTA[SM] BALANCED FUND
VISTA[SM] BOND FUND
VISTA[SM] CAPITAL GROWTH FUND
VISTA[SM] EMERGING GROWTH FUND
VISTA[SM] EQUITY INCOME FUND
VISTA[SM] GROWTH AND INCOME FUND
VISTA[SM] LARGE CAP EQUITY FUND
VISTA[SM] SHORT-TERM BOND FUND
VISTA[SM] SMALL CAP EQUITY FUND
VISTA[SM] U.S. GOVERNMENT SECURITIES FUND
VISTA[SM] U.S. TREASURY INCOME FUND
101 Park Avenue, New York, New York 10178 This Statement of Additional
Information sets forth information which may be of interest to investors but
which is not necessarily included in the Prospectuses offering shares of the
Funds. This Statement of Additional Information should be read in conjunction
with the Prospectuses offering shares of Vista U.S. Government Securities Fund,
Vista U.S. Treasury Income Fund, Vista Bond Fund and Vista Short-Term Bond Fund
(collectively the "Income Funds"), and Vista American Value Fund, Vista Balanced
Fund, Vista Emerging Growth Fund, Vista Equity Income Fund, Vista Growth and
Income Fund, Vista Capital Growth Fund, Vista Large Cap Equity Fund and Vista
Small Cap Equity Fund (collectively the "Equity Funds"). Any references to a
"Prospectus" in this Statement of Additional Information is a reference to one
or more of the foregoing Prospectuses, as the context requires. Copies of each
Prospectus may be obtained by an investor without charge by contacting Vista
Fund Distributors, Inc.("VFD"), the Funds' distributor (the "Distributor"), at
the above-listed address. This Statement of Additional Information is NOT a
prospectus and is authorized for distribution to prospective investors only if
preceded or accompanied by an effective prospectus.
For more information about your account, simply call or write the Vista
Service Center at:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
MFG-SAI
1
<PAGE>
Table of Contents Page
The Funds ................................................................ 3
Investment Policies and Restrictions ..................................... 3
Performance Information .................................................. 21
Determination of Net Asset Value ......................................... 27
Purchases, Redemptions and Exchanges ..................................... 28
Tax Matters .............................................................. 30
Management of the Trust and the Funds or Portfolios ...................... 35
Independent Accountants .................................................. 49
General Information ...................................................... 49
Appendix A--Description of Certain Obligations Issued or
Guaranteed by U.S. Government Agencies or Instrumentalities ............. A-1
Appendix B--Description of Ratings ....................................... B-1
2
<PAGE>
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 16 separate
series (the "Funds"). Certain of the Funds are diversified and other Funds are
non-diversified, as such term is defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). The shares of the Funds are collectively referred
to in this Statement of Additional Information as the "Shares."
The Growth and Income Fund and Capital Growth Fund converted to a master
fund/feeder fund structure in December 1993. The Vista Emerging Growth Fund
commenced operations on , 1996 with a master fund/feeder fund structure. Under
this structure, each of these Funds seeks to achieve its investment objective by
investing all of its investable assets in an open-end management investment
company which has the same investment objective as that Fund. The Growth and
Income Fund invests in the Growth and Income Portfolio, the Capital Growth Fund
invests in the Capital Growth Portfolio and the Emerging Growth Fund invests in
the Emerging Growth Portfolio (collectively the "Portfolios"). Each of the
Portfolios is a New York trust with its principal office in New York. 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 any or all of the Portfolios refer to the operations and
activities after implementation of the master fund/feeder fund structure.
On May 3, 1996, The Hanover American Value Fund merged into Vista American Value
Fund, The Hanover Large Cap Equity Fund merged into the Institutional Shares of
Vista Large Cap Equity Fund, The Hanover Short-Term Bond Fund merged into the
Class A shares of Vista Short-Term Bond Fund, Investor Shares of The Hanover
Small Cap Equity Fund merged into the Class A shares of Vista Small Cap Equity
Fund, CBC Benefit Shares of The Hanover Small Cap Equity Fund merged into the
Institutional Shares of Vista Small Cap Equity Fund and The Hanover U.S.
Government Securities Fund merged into the Institutional Shares of Vista U.S.
Government Securities Fund. The foregoing mergers are referred to herein as the
"Hanover Reorganization."
Effective as of May 6, 1996, Vista U.S. Government Income Fund changed its name
to Vista U.S. Treasury Income Fund and Vista Equity Fund changed its name to
Vista Large Cap Equity Fund.
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 the same members as the Board of Trustees of the Trust,
provide broad supervision. The Chase Manhattan Bank ("Chase") is the investment
adviser for the Funds (other than the Growth and Income Fund, Emerging Growth
Fund and Capital Growth Fund, which do not have their own advisers) and the
three Portfolios. Chase also serves as the Trust's administrator (the
"Administrator") and supervises the overall administration of the Trust,
including the Funds, and is the administrator of the Portfolios. A majority of
the Trustees of the Trust are not affiliated with the investment adviser or
sub-advisers. Similarly, a majority of the Trustees of the Portfolios are not
affiliated with the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies of each Fund and
Portfolio. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. For descriptions of
the securities ratings of Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"), see
Appendix B.
U.S. Government Securities. U.S. Government Securities include (1) U.S. Treasury
obligations, which generally differ only in their interest rates, maturities and
times of issuance, including: U.S. Treasury bills (maturities of one year or
less), U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years); and (2) obligations
issued or guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Treasury, (b) the right of the issuer to borrow any amount listed to a specific
line of credit from the U.S. Treasury, (c) discretionary authority of the U.S.
Government to purchase certain obligations of the U.S. Government agency or
instrumentality or (d) the credit of the agency or instrumentality. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Student
Loan Marketing Association, United States Postal Service, Chrysler Corporate
Loan Guarantee Board, Small Business Administration, Tennessee Valley Authority
and any other enterprise established or sponsored by the U.S. Government.
Certain U.S. Government Securities, including U.S. Treasury bills, notes and
bonds, Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities
3
<PAGE>
are issued or guaranteed by federal agencies or government sponsored enterprises
and are not supported by the full faith and credit of the United States. These
securities include obligations that are supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of the Federal Home Loan
Banks, and obligations that are supported by the creditworthiness of he
particular instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small Business
Administration, Federal Aviation Administration, Department of Defense, Bureau
of Indian Affairs and Private Export Funding Corporation, which often provide
higher yields than are available from the more common types of government-backed
instruments. However, such specialized instruments may only be available from a
few sources, in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
related to government guarantees. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
a Fund or Portfolio were required to liquidate any of them, it might not be able
to do so advantageously; accordingly, each Fund and Portfolio investing in such
securities normally to hold such securities to maturity or pursuant to
repurchase agreements, and would treat such securities (including repurchase
agreements maturing in more than seven days) as illiquid for purposes of its
limitation on investment in illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those of U.S.
banks (including their foreign branches) which have total assets at the time of
purchase in excess of $1 billion and the deposits of which are insured by either
the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation, and foreign banks (including their U.S. branches)
having total assets in excess of $10 billion (or the equivalent in other
currencies), and such other U.S. and foreign commercial banks which are judged
by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks or foreign banks
which are payable at a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. Fixed time deposits subject to withdrawal penalties and with
respect to which a Fund or Portfolio cannot realize the proceeds thereon within
seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by commercial
banks which generally bear fixed rates of interest and typically have original
maturities ranging from eighteen months to five years.
Banks are subject to extensive governmental regulations that may limit both the
amounts and types of loans and other financial commitments that may be made and
the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by government regulation. Investors should also be aware that securities of
foreign banks and foreign branches of United States banks may involve foreign
investment risks in addition to those relating to domestic bank obligations.
Depositary Receipts. A Fund or Portfolio will limit its investment in Depositary
Receipts not sponsored by the issuer of the underlying security to no more than
5% of the value of its net assets (at the time of investment). A purchaser of an
unsponsored Depositary Receipt may not have unlimited voting rights and may not
receive as much information about the issuer of the underlying securities as
with a sponsored Depositary Receipt.
ECU Obligations. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Trustees do not
believe that such adjustments will adversely affect holders of ECU-denominated
securities or the marketability of such securities.
Supranational Obligations. Supranational organizations, include organizations
such as The World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations of the Asian and Pacific regions.
Corporate Reorganizations. In general, securities that are the subject of a
tender or exchange offer or proposal sell at a premium to their historic market
price immediately prior to the announcement of the offer or proposal. The
increased market price of these securities may also discount what the stated or
appraised value of the security would be if the contemplated action were
approved or consummated. These investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as
4
<PAGE>
a result of the contemplated transaction; or fails adequately to recognize the
possibility that the offer or proposal may be replaced or superseded by an offer
or proposal of greater value. The evaluation of these contingencies requires
unusually broad knowledge and experience on the part of the advisers that must
appraise not only the value of the issuer and its component businesses as well
as the assets or securities to be received as a result of the contemplated
transaction, but also the financial resources and business motivation of the
offeror as well as the dynamics of the business climate when the offer or
proposal is in progress. Investments in reorganization securities may tend to
increase the turnover ratio of a Fund and increase its brokerage and other
transaction expenses.
Warrants And Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants but normally have a shorter duration and are distributed
directly by the issuer to shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Repurchase Agreements. A Fund or Portfolio will enter into repurchase agreements
only with member banks of the Federal Reserve System and securities dealers
believed creditworthy, and only if fully collateralized by securities in which
such Fund or Portfolio is permitted to invest. Under the terms of a typical
repurchase agreement, a Fund or Portfolio would acquire an underlying instrument
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase the instrument and the Fund or Portfolio
to resell the instrument at a fixed price and time, thereby determining the
yield during the Fund's or 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 are considered under the 1940 Act
to be loans collateralized by the underlying securities. All repurchase
agreements entered into by a Fund or 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 102% of the amount of the loan, including the
accrued interest thereon, and the Fund or 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 Fund or Portfolio, but would only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, a Fund or Portfolio
may suffer time delays and incur costs in connection with the disposition of the
collateral. The Board of Trustees believes that the collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by a Fund or Portfolio.
Repurchase agreements maturing in more than seven days are treated as illiquid
for purposes of the Funds' and Portfolios' restrictions on purchases of illiquid
securities. Repurchase agreements are also subject to the risks described below
with respect to stand-by commitments.
Forward Commitments. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will normally
be purchased. When a commitment to purchase a security on a forward commitment
basis is made, procedures are established consistent with the General Statement
of Policy of the Securities and Exchange Commission concerning such purchases.
Since that policy currently recommends that an amount of the respective Fund's
or Portfolio's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, a separate account of such Fund
or Portfolio consisting of cash, cash equivalents or high quality debt
securities equal to the amount of such Fund's or Portfolio's commitments
securities will be established at such Fund's or Portfolio's custodian bank. For
the purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market value. If the market value of such
securities declines, additional cash, cash equivalents or highly liquid
securities will be placed in the account daily so that the value of the account
will equal the amount of such commitments by the respective Fund or Portfolio.
Although it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a forward commitment basis may involve more
risk than other types of purchases. Securities purchased on a forward commitment
basis and the securities held in the respective Fund's or Portfolio's portfolio
are subject to changes in value based upon the public's perception of the issuer
and changes, real or anticipated, in the level of interest rates. Purchasing
securities on a forward commitment basis can involve the risk that the yields
available in the market when the delivery takes place may actually be higher or
lower than those obtained in the transaction itself. On the settlement date of
the forward commitment transaction, the respective Fund or Portfolio will meet
its obligations from then available cash flow, sale of securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from sale of the forward commitment securities themselves
(which may have a value greater or lesser than such Fund's or Portfolio's
payment obligations). The sale of securities to meet such obligations may result
in the realization of capital gains or losses.
To the extent a Fund or Portfolio engages in forward commitment transactions, it
will do so for the purpose of acquiring securities consistent with its
investment objective and policies and not for the purpose of investment
leverage, and settlement of such transactions will be within 90 days from the
trade date.
5
<PAGE>
Floating And Variable Rate Securities; Participation Certificates. The
securities in which certain Funds and Portfolios may be invested include
participation certificates issued by a bank, insurance company or other
financial institution in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate gives
a Fund or Portfolio an undivided interest in the security in the proportion that
the Fund's or Portfolio's participation interest bears to the total principal
amount of the security and generally provides the demand feature described
below. Each Participation Certificate is backed by an irrevocable letter of
credit or guaranty of a bank (which may be the bank issuing the Participation
Certificate, a bank issuing a confirming letter of credit to that of the issuing
bank, or a bank serving as agent of the issuing bank with respect to the
possible repurchase of the Participation Certificate) or insurance policy of an
insurance company that the Board of Trustees of the Trust has determined meets
the prescribed quality standards for a particular Fund or Portfolio.
A Fund or Portfolio may have the right to sell the Participation Certificate
back to the institution and draw on the letter of credit or insurance on demand
after the prescribed notice period, for all or any part of the full principal
amount of the Fund's or Portfolio's participation interest in the security, plus
accrued interest. The institutions issuing the Participation Certificates would
retain a service and letter of credit fee and a fee for providing the demand
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the Participation Certificates
were purchased by a Fund or Portfolio. The total fees would generally range from
5% to 15% of the applicable prime rate or other short-term rate index. With
respect to insurance, a Fund or Portfolio will attempt to have the issuer of the
participation certificate bear the cost of any such insurance, although the
Funds and Portfolios retain the option to purchase insurance if deemed
appropriate. Obligations that have a demand feature permitting a Fund or
Portfolio to tender the obligation to a foreign bank may involve certain risks
associated with foreign investment. A Fund's or Portfolio's ability to receive
payment in such circumstances under the demand feature from such foreign banks
may involve certain risks such as future political and economic developments,
the possible establishments of laws or restrictions that might adversely affect
the payment of the bank's obligations under the demand feature and the
difficulty of obtaining or enforcing a judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on an
ongoing basis the pricing, quality and liquidity of the floating and variable
rate securities held by the Funds and Portfolios, including Participation
Certificates, on the basis of published financial information and reports of the
rating agencies and other bank analytical services to which the Funds and
Portfolios may subscribe. Although these instruments may be sold by a Fund or
Portfolio, it is intended that they be held until maturity.
Past periods of high inflation, together with the fiscal measures adopted to
attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the underlying
floating or variable rate securities may change with changes in interest rates
generally, the floating or variable rate nature of the underlying floating or
variable rate securities should minimize changes in value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed rate securities. A Fund's or Portfolio's
portfolio may contain floating or variable rate securities on which stated
minimum or maximum rates, or maximum rates set by state law, limit the degree to
which interest on such floating or variable rate securities may fluctuate; to
the extent it does, increases or decreases in value may be somewhat greater than
would be the case without such limits. Because the adjustment of interest rates
on the floating or variable rate securities is made in relation to movements of
the applicable banks' "prime rates" or other short-term rate adjustment indices,
the floating or variable rate securities are not comparable to long-term fixed
rate securities. Accordingly, interest rates on the floating or variable rate
securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i) the
notice period required before a Fund or 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.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of
securities held by a Fund or Portfolio with an agreement to repurchase the
securities at an agreed upon price and date. The repurchase price is generally
equal to the original sales price plus interest. Reverse repurchase agreements
are usually for seven days or less and cannot be repaid prior to their
expiration dates. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities transferred may decline below the price at
which the Fund or Portfolio is obliged to purchase the securities.
Zero Coupon, Payment-in-kind And Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities of
longer than ten years are eligible to be traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are separately
issued by the United States Treasury at the request of depository financial
institutions, which then trade the component parts separately. The interest
component of STRIPS may be more volatile than that of United States Treasury
bills with comparable maturities.
Zero coupon obligations are sold at a substantial discount from their value at
maturity and, when held to maturity, their entire return, which consists of the
amortization of discount, comes from the difference between their purchase price
and maturity value. Because interest on a zero coupon obligation is not
distributed on a current basis, the obligation tends to be subject to greater
price fluctuations in response to changes in interest rates than are ordinary
interest-paying securities with similar maturities. The value of zero coupon
obligations appreciates more than such ordinary interest-paying securities
during periods of declining interest rates and depreciates
6
<PAGE>
more than such ordinary interest-paying securities during periods of rising
interest rates. Under the stripped bond rules of the Internal Revenue Code of
1986, as amended, investments by a Fund or Portfolio in zero coupon obligations
will result in the accrual of interest income on such investments in advance of
the receipt of the cash corresponding to such income.
Zero coupon securities may be created when a dealer deposits a U.S. Treasury or
federal agency security with a custodian and then sells the coupon payments and
principal payment that will be generated by this security separately.
Proprietary receipts, such as Certificates of Accrual on Treasury Securities,
Treasury Investment Growth Receipts and generic Treasury Receipts, are examples
of stripped U.S. Treasury securities separated into their component parts
through such custodial arrangements.
Payment-in-kind ("PIK") bonds are debt obligations which provide that the issuer
thereof may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest. A Fund or Portfolio will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's or Portfolio's
distribution obligations.
Illiquid Securities. For purposes of its limitation on investments in illiquid
securities, each Fund and Portfolio may elect to treat as liquid, in accordance
with procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as a Fund
or Portfolio who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale of Section 4(2) paper by the
purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted securities
may now be liquid, though there is no assurance that a liquid market for Rule
144A securities or Section 4(2) paper will develop or be maintained. The
Trustees have adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A and Section 4(2)
paper are liquid or illiquid for purposes of the limitation on investment in
illiquid securities. Pursuant to those policies and procedures, the Trustees
have delegated to the advisers the determination as to whether a particular
instrument is liquid or illiquid, requiring that consideration be given to,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, the nature of
the security and the time needed to dispose of the security. The Trustees will
periodically review the Funds' and Portfolios' purchases and sales of Rule 144A
securities and Section 4(2) paper.
Stand-by Commitments. In a put transaction, a Fund or Portfolio acquires the
right to sell a security at an agreed upon price within a specified period prior
to its maturity date, and a stand-by commitment entitles a Fund or Portfolio to
same-day settlement and to receive an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. Stand-by commitments are subject to certain risks, which include the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, the fact that the commitment is not marketable by a
Fund or Portfolio, and that the maturity of the underlying security will
generally be different from that of the commitment.
Securities Loans. To the extent specified in its Prospectus, each Fund and
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 a Fund's or Portfolio's
total assets. In connection with such loans, a Fund or 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 102% of the
current market value plus accrued interest of the securities loaned. A Fund or
Portfolio can increase its income through the investment of such collateral. A
Fund or Portfolio continues to be entitled to the interest payable or any
dividend-equivalent payments received on a loaned security and, in addition, to
receive interest on the amount of the loan. However, the receipt of any
dividend-equivalent payments by a Fund or 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. A Fund or Portfolio might
experience risk of loss if the institutions with which it has engaged in
portfolio loan transactions breach their agreements with such Fund or 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 advisers to be of good standing and will not be made unless, in
the judgment of the advisers, the consideration to be earned from such loans
justifies the risk.
Additional Policies Regarding Derivative And Related Transactions Introduction.
As explained more fully below, the Funds and Portfolios may employ derivative
and related instruments as tools in the management of portfolio assets. Put
briefly, a "derivative" instrument may be considered a security or other
instrument which derives its value from the value or performance of
7
<PAGE>
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. Lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction costs,
quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for a Fund or Portfolio.
Each Fund and Portfolio may invest its assets in derivative and related
instruments subject only to the Fund's or Portfolio's investment objective and
policies and the requirement that the Fund or 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 Fund or Portfolio.
The value of some derivative or similar instruments in which the Funds or
Portfolios may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Funds and Portfolios--the ability of a Fund or Portfolio to successfully utilize
these instruments may depend in part upon the ability of the advisers to
forecast interest rates and other economic factors correctly. If the advisers
inaccurately forecast such factors and has taken positions in derivative or
similar instruments contrary to prevailing market trends, a Fund or Portfolio
could be exposed to the risk of a loss. The Funds and 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 Funds or Portfolios may employ along with risks or
special attributes associated with them. This discussion is intended to
supplement the Funds' current prospectuses as well as provide useful information
to prospective investors.
Risk Factors. As explained more fully below and in the discussions of particular
strategies or instruments, there are a number of risks associated with the use
of derivatives and related instruments. There can be no guarantee that there
will be a correlation between price movements in a hedging vehicle and in the
portfolio assets being hedged. An incorrect correlation could result in a loss
on both the hedged assets in a Fund or 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. The advisers may inaccurately forecast interest rates, market values
or other economic factors in utilizing a derivatives strategy. In such a case, a
Fund or Portfolio may have been in a better position had it not entered into
such strategy. Hedging strategies, while reducing risk of loss, can also reduce
the opportunity for gain. In other words, hedging usually limits both potential
losses as well as potential gains. Strategies not involving hedging may increase
the risk to a Fund or Portfolio. Certain strategies, such as yield enhancement,
can have speculative characteristics and may result in more risk to a Fund or
Portfolio than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when a Fund or 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 Fund from liquidating an
unfavorable position. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price distortions in these markets. In certain instances, particularly
those involving over-the-counter transactions, forward contracts there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a default, a Fund or Portfolio
may experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, governmental policies and market forces.
Specific Uses And Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund or Portfolio.
Options On Securities, Securities Indexes And Debt Instruments. A Fund or
Portfolio may PURCHASE, SELL or EXERCISE call and put options on (i) securities,
(ii) securities indexes, and (iii) debt instruments.
Although in most cases these options will be exchange-traded, the Funds and
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 Fund intends
8
<PAGE>
to purchase pending its ability to invest in such securities in an orderly
manner. A Fund or 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 Fund or 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 Fund or
Portfolio may write a call or put option in order to earn the related premium
from such transactions. Prior to exercise or expiration, an option may be closed
out by an offsetting purchase or sale of a similar option. The Funds will not
write uncovered options.
In addition to the general risk factors noted above, the purchase and writing of
options involve certain special risks. During the option period, a Fund or
Portfolio writing a covered call (i.e., where the underlying securities are held
by the Fund or Portfolio) 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 a Fund or 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, such Fund or 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 Fund or Portfolio seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options markets, a Fund or Portfolio may be unable to close out a position.
Futures Contracts And Options On Futures Contracts. A Fund or Portfolio may
purchase or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments or indices, and (iii) options on these futures contracts
("futures options").
The futures contracts and futures options may be based on various instruments or
indices in which the Funds and 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).
Futures contracts and futures options may be used to hedge portfolio positions
and transactions as well as to gain exposure to markets. For example, a Fund or
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 Fund or Portfolio intends to
acquire an instrument or enter into a position. For example, a Fund or 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 Funds and 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 or market movements. Such strategies may entail additional risks in
certain instances. The Funds and 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.
Investments in futures contracts and options thereon involve risks similar to
those associated with options transactions discussed above. The Funds and
Portfolios will only enter into futures contracts or options on futures
contracts which are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system.
Forward Contracts. A Fund and Portfolio may use foreign currency and
interest-rate forward contracts for various purposes as
described below.
Foreign currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. A Fund or Portfolio that may
invest in securities denominated in foreign currencies may, in addition to
buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be a fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, a Fund or 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 Fund or Portfolio
reduces its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the value of a Fund or 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."
9
<PAGE>
A Fund or Portfolio may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Fund's or Portfolio' investments
or anticipated investments in securities denominated in foreign currencies. A
Fund or 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 Fund or 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.
Interest Rate And Currency Transactions. A Fund or Portfolio may employ currency
and interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of a Fund's or Portfolio's net
currency exposure will not exceed the total net asset value of its portfolio.
However, to the extent that a Fund or Portfolio is fully invested while also
maintaining currency positions, it may be exposed to greater combined risk.
The Funds and Portfolios will only enter into interest rate and currency swaps
on a net basis, i.e., the two payment streams are netted out, with the Fund or
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. Interest rate and currency swaps do not involve the delivery of
securities, the underlying currency, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and currency swaps
is limited to the net amount of interest or currency payments that a Fund or
Portfolio is contractually obligated to make. If the other party to an interest
rate or currency swap defaults, a Fund's or Portfolio's risk of loss consists of
the net amount of interest or currency payments that the Fund or Portfolio is
contractually entitled to receive. Since interest rate and currency swaps are
individually negotiated, the Funds and Portfolios expect to achieve an
acceptable degree of correlation between their portfolio investments and their
interest rate or currency swap positions.
A Fund or Portfolio may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate.
A Fund or Portfolio may purchase or sell without limitation as to a percentage
of its assets forward foreign currency exchange contracts when the advisers
anticipate that the foreign currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities and are not held by such Fund or Portfolio. In addition, a Fund or
Portfolio may enter into forward foreign currency exchange contracts in order to
protect against adverse changes in future foreign currency exchange rates. A
Fund or Portfolio may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if its advisers believe that there is a pattern of
correlation between the two currencies. Forward contracts may reduce the
potential gain from a positive change in the relationship between the U.S.
Dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for a Fund or Portfolio than if it had not
entered into such contracts. The use of foreign currency forward contracts will
not eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on a Fund's or Portfolio's foreign currency
denominated portfolio securities and the use of such techniques will subject the
Fund or Portfolio to certain risks.
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a Fund
or Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices, and this will limit a Fund's or Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to a Fund's or Portfolio's use of cross-hedges, there can be no assurance
that historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying a Fund's or Portfolio's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's or Portfolio's
assets that are the subject of such cross-hedges are denominated.
A Fund or Portfolio may enter into interest rate and currency swaps to the
maximum allowed limits under applicable law. A Fund or Portfolio will typically
use interest rate swaps to shorten the effective duration of its portfolio.
Interest rate swaps involve the exchange by a Fund or Portfolio with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of their respective rights to make or receive payments in
specified currencies.
Mortgage-related Securities. A Fund or Portfolio 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.
10
<PAGE>
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of the principal invested far in
advance of the maturity of the mortgages in the pool. The actual rate of return
of a mortgage-backed security may be adversely affected by the prepayment of
mortgages included in the mortgage pool underlying the security.
A Fund or Portfolio may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, monthly. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, are allocated to different
classes in accordance with the terms of the instruments, and changes in
prepayment rates or assumptions may significantly affect the expected average
life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities. REMICs issued by private
entities are not U.S. Government securities and are not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer.
The advisers expect that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may differ from
customary long-term fixed-rate mortgages. A Fund or Portfolio may also invest in
debentures and other securities of real estate investment trusts. As new types
of mortgage-related securities are developed and offered to investors, the Funds
and Portfolios may consider making investments in such new types of
mortgage-related securities.
Asset-backed Securities. A Fund or Portfolio may invest in asset-backed
securities, including conditional sales contracts, equipment lease certificates
and equipment trust certificates. The advisers expect that other asset-backed
securities (unrelated to mortgage loans) will be offered to investors in the
future. Several types of asset-backed securities already exist, including, for
example, "Certificates for Automobile ReceivablesSM" or "CARSSM" ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are passed-through monthly to certificate holders, and are guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the CARS
trust. An investor's return on CARS may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the CARS trust may be prevented from realizing the full amount due on
a sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the failure
of servicers to take appropriate steps to perfect the CARS trust's rights in the
underlying loans and the servicer's sale of such loans to bona fide purchasers,
giving rise to interests in such loans superior to those of the CARS trust, or
other factors. As a result, certificate holders may experience delays in
payments or losses if the letter of credit is exhausted. A Fund or Portfolio
also may invest in other types of asset-backed securities. In the selection of
other asset-backed securities, the advisers will attempt to assess the liquidity
of the security giving consideration to the nature of the security, the
frequency of trading in the security, the number of dealers making a market in
the security and the overall nature of the marketplace for the security.
Structured Products. A Fund or Portfolio may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain other investments. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, or specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities ("structured products")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
structured products to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to structured
products is dependent on the extent of the cash flow on the underlying
instruments. A Fund or Portfolio may invest in structured products which
represent derived investment positions based on relationships among different
markets or asset classes.
A Fund or Portfolio may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by a
formula to the price of an underlying instrument. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is
11
<PAGE>
an investment position relating to a difference in the prices or interest rates
of two securities where the value of the investment position is determined by
movements in the difference between the prices or interest rates, as the case
may be, of the respective securities. When a Fund or Portfolio invests in notes
linked to the price of an underlying instrument, the price of the underlying
security is determined by a multiple (based on a formula) of the price of such
underlying security. A structured product may be considered to be leveraged to
the extent its interest rate varies by a magnitude that exceeds the magnitude of
the change in the index rate of interest. Because they are linked to their
underlying markets or securities, investments in structured products generally
are subject to greater volatility than an investment directly in the underlying
market or security. Total return on the structured product is derived by linking
return to one or more characteristics of the underlying instrument. Because
certain structured products of the type in which a Fund or Portfolio may invest
may involve no credit enhancement, the credit risk of those structured products
generally would be equivalent to that of the underlying instruments. A Fund or
Portfolio may invest in a class of structured products that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured products typically have higher yields and present
greater risks than unsubordinated structured products. Although a Fund's or
Portfolio's purchase of subordinatedstructured products would have similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of a Fund's or
Portfolio' fundamental investment limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which a Fund or Portfolio
invests may be deemed illiquid and subject to its limitation on illiquid
investments.
Investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. In addition,
because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions On The Use Of Futures And Option Contracts. None of the
Funds is a "commodity pool" (i.e., a pooled investment vehicle which trades in
commodity futures contracts and options thereon and the operator of which is
registered with the CFTC and futures contracts and futures options will be
purchased, sold or entered into only for bona fide hedging purposes, provided
that a Fund may enter into such transactions for purposes other than bona fide
hedging if, immediately thereafter, the sum of the amount of its initial margin
and premiums on open contracts and options would not exceed 5% of the
liquidation value of the Fund's portfolio, provided, further, that, in the case
of an option that is in-the-money, the in-the-money amount may be excluded in
calculating the 5% limitation.
When a Fund or Portfolio purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with such Fund's or Portfolio's custodian or sub-custodian so that the
amount so segregated, plus the initial deposit and variation margin held in the
account of its broker, will at all times equal the value of the futures
contract, thereby insuring that the use of such futures is unleveraged.
A Fund's or Portfolio's ability to engage in the transactions described herein
may be limited by the current federal income tax requirement that a Fund or
Portfolio derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months.
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 a
Fund or total beneficial interests of a Portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of a Fund or total beneficial
interests of a Portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding shares of a Fund or total beneficial interests of a
Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of a Portfolio,
the Trust will hold a meeting of shareholders of the Fund that invests in such
Portfolio and will cast its votes as instructed by the shareholders of such
Fund.
With respect to the Growth and Income Fund, Emerging Growth 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 in which it invests, the
Fund's investment objective and policies shall be identical to the Portfolio's
investment objective and policies, except for the following: a Fund (1) may
invest more than 10% of its net assets in the securities of a registered
investment company, (2) may hold more than 10% of the voting securities of a
registered investment company, and (3) will concentrate its investments in the
investment company. It is a fundamental investment policy of each such Fund that
when the Fund holds only portfolio securities other than interests in the
Portfolio, the Fund's investment objective and policies shall be identical to
the investment objective and policies of the Portfolio at the time the assets of
the Fund were withdrawn from the Portfolio.
12
<PAGE>
Each Fund and Portfolio may not: (1) borrow money, except that each Fund and
Portfolio may borrow money for temporary or emergency purposes, or by engaging
in reverse repurchase transactions, in an amount not exceeding 33-1/3% of the
value of its total assets at the time when the loan is made and may pledge,
mortgage or hypothecate no more than 1/3 of its net assets to secure such
borrowings. Any borrowings representing more than 5% of a Fund's or Portfolio's
total assets must be repaid before the Fund or Portfolio may make additional
investments;
(2) make loans, except that each Fund and Portfolio may: (i) purchase and hold
debt instruments (including without limitation, bonds, notes, debentures or
other obligations and certificates of deposit, bankers' acceptances and fixed
time deposits) in accordance with its investment objectives and policies; (ii)
enter into repurchase agreements with respect to portfolio securities; and (iii)
lend portfolio securities with a value not in excess of one-third of the value
of its total assets;
(3) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's or Portfolio's total assets would be invested in the securities of
companies whose principal business activities are in the same industry.
Notwithstanding the foregoing, with respect to a Fund's or Portfolio's
permissible futures and options transactions in U.S. Government securities,
positions in such options and futures shall not be subject to this restriction;
(4) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments but this shall not prevent a Fund
or Portfolio from (i) purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical commodities
or (ii) engaging in forward purchases or sales of foreign currencies or
securities;
(5) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Fund or Portfolio
from investing insecurities or other instruments backed by real estate or
securities of companies engaged in the real estate business). Investments by a
Fund or Portfolio in securities backed by mortgages on real estate or in
marketable securities of companies engaged in such activities are not hereby
precluded;
(6) issue any senior security (as defined in the 1940 Act), except that (a) a
Fund or Portfolio may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) a Fund or Portfolio
may acquire other securities, the acquisition of which may result in the
issuance of a senior security, to the extent permitted under applicable
regulations or interpretations of the 1940 Act; and (c) subject to the
restrictions set forth above, a Fund or Portfolio may borrow money as authorized
by the 1940 Act. For purposes of this restriction, collateral arrangements with
respect to permissible options and futures transactions, including deposits of
initial and variation margin, are not considered to be the issuance of a senior
security; or
(7) underwrite securities issued by other persons except insofar as a Fund or
Portfolio may technically be deemed to be an underwriter under the Securities
Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (5) above, real estate includes
Real Estate Limited Partnerships. For purposes of investment restriction (3)
above, industrial development bonds, where the payment of principal and interest
is the ultimate responsibility of companies within the same industry, are
grouped together as an "industry." Investment restriction (3) above, however, is
not applicable to investments by a Fund or Portfolio in municipal obligations
where the issuer is regarded as a state, city, municipality or other public
authority since such entities are not members of an "industry." Supranational
organizations are collectively considered to be members of a single "industry"
for purposes of restriction (3) above.
In addition, each Fund and Portfolio is subject to the following nonfundamental
restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Capital Growth Fund, Growth and Income Fund,
Emerging Growth Fund, Small Cap Equity Fund and U.S. Treasury Income Fund may
not, with respect to 75% of its assets, hold more than 10% of the outstanding
voting securities of any issuer or invest more than 5% of its assets in the
securities of any one issuer (other than obligations of the U.S. Government, its
agencies and instrumentalities); Each Portfolio and each of the Capital Growth
Fund, Growth and Income Fund, Emerging Growth Fund, Small Cap Equity Fund and
U.S. Treasury Income Fund may not, with respect to 50% of its assets, hold more
than 10% of the outstanding voting securities of any issuer.
(2) Each Fund and Portfolio may not make short sales of securities, other than
short sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions, provided
that this restriction will not be applied to limit the use of options, futures
contracts and related options, in the manner otherwise permitted by the
investment restrictions, policies and investment program of a Fund or Portfolio.
(3) Each Fund and Portfolio may not purchase or sell interests in oil, gas or
mineral leases.
(4) Each Fund and Portfolio may not invest more than 15% of its net assets in
illiquid securities.
13
<PAGE>
(5) Each Fund and Portfolio may not write, purchase or sell any put or call
option or any combination thereof, provided that this shall not prevent (i) the
writing, purchasing or selling of puts, calls or combinations thereof with
respect to portfolio securities or (ii) with respect to a Fund's or Portfolio's
permissible futures and options transactions, the writing, purchasing,
ownership, holding or selling of futures and options positions or of puts, calls
or combinations thereof with respect to futures.
(6) Each Fund may invest up to 5% of its total assets in the securities of any
one investment company, but may not own more than 3% of the securities of any
one investment company or invest more than 10% of its total assets in the
securities of other investment companies.
It is the Trust's position that proprietary strips, such as CATS and TIGRS, are
United States Government securities. However, the Trust has been advised that
the staff of the Securities and Exchange Commission's Division of Investment
Management does not consider these to be United States Government securities, as
defined under the Investment Company Act of 1940, as amended.
For purposes of the Funds' and Portfolios' investment restrictions, the issuer
of a tax-exempt security is deemed to be the entity (public or private)
ultimately responsible for the payment of the principal of and interest on the
security.
In order to permit the sale of its shares in certain states, a Fund or Portfolio
may make commitments more restrictive than the investment policies and
limitations described above and in its Prospectus. Should a Fund or Portfolio
determine that any such commitment is no longer in its best interests, it will
revoke the commitment by terminating sales of its shares in the state involved.
In order to comply with certain federal and state statutes and regulatory
policies, as a matter of operating policy, each Fund and Portfolio will not: (i)
invest more than 5% of its assets in companies which, including predecessors,
have a record of less than three years' continuous operation, except for the
Small Cap Equity Fund which may invest up to 15% of its assets in such
companies, (ii) invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its 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 (iii) purchase or retain in its 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.
If a percentage or rating restriction on investment or use of assets set forth
herein or in a Prospectus is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by a
Fund or Portfolio will not be considered a violation. If the value of a Fund's
or Portfolio's holdings of illiquid securities at any time exceeds the
percentage limitation applicable at the time of acquisition due to subsequent
fluctuations in value or other reasons, the Board of Trustees will consider what
actions, if any, are appropriate to maintain adequate liquidity.
Portfolio Transactions And Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund or Portfolio are
made by a portfolio manager who is an employee of the adviser or sub-adviser to
such Fund or Portfolio and who is appointed and supervised by senior officers of
such adviser or sub-adviser. Changes in a Fund's or Portfolio's investments are
reviewed by the Board of Trustees of the Trust or Portfolio. The port- folio
managers may serve other clients of the advisers in a similar capacity.
The frequency of a Fund's or 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, the advisers will weigh the added costs of
short-term investment against anticipated gains. Each Fund or Portfolio will
engage in portfolio trading if its advisers believe a transaction, net of costs
(including custodian charges), will help it achieve its investment objective.
Funds investing in both equity and debt securities apply this policy with
respect to both the equity and debt portions of their portfolios.
For the fiscal years ended October 31, 1993, 1994 and 1995, the annual rates of
portfolio turnover for the following Funds were as follows:
1993 1994 1995
---- ---- ----
Balanced Fund .................... -- 77% 68%
U.S. Treasury Income Fund ........ 296 163% 164%
Growth and Income Fund ........... 41% * *
Capital Growth Fund .............. 43% * *
Equity Income Fund ............... -- 75% 91%
Bond Fund ........................ 20% 17% 30%
Short-Term Bond Fund ............. 17% 44% 62%
14
<PAGE>
Large Cap Equity Fund ............ 33% 53% 45%
* The Growth and Income Fund, Emerging Growth 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 portfolio turnover rates for the Growth and Income
Portfolio and the Capital Growth Portfolio for the fiscal year ended October 31,
1994 were 57% and 60%, respectively, and for the fiscal year ended October 31,
1995, the portfolio turnover rates were 71% and 86%, respectively. For the
period November 4, 1992 through October 31, 1993, the annual portfolio turnover
rate for the Balanced Fund was 65%. For the period July 16, 1993 through October
31, 1993, the Equity Income Fund had a portfolio turnover rate of 54%. For the
period December 20, 1994 through October 31, 1995, the Small Cap Equity Fund had
a portfolio turnover rate of 75%.
For the fiscal period ending October 31, 1996, the annual portfolio turnover
rates for the American Value Fund and U.S. Government Securities Fund are
expected not to exceed 100%.
For the fiscal year ending October 31, 1996 the annual rate of portfolio
turnover for the Emerging Growth Porfolio is expected to exceed to 80%.
Under the advisory agreement and the sub-advisory agreements, the adviser and
sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds and Portfolios. In assessing the
best overall terms available for any transaction, the adviser and sub-advisers
consider all factors they deem relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the adviser or
sub-advisers, and the reasonableness of the commissions, if any, both for the
specific transaction and on a continuing basis. The adviser and sub-advisers are
not required to obtain the lowest commission or the best net price for any Fund
or Portfolio on any particular transaction, and are not required to execute any
order in a fashion either preferential to any or Portfolio Fund relative to
other accounts they manage or otherwise materially adverse to such other
accounts.
Debt securities are traded principally in the over-the-counter market through
dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund or Portfolio normally seeks to deal directly with the
primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
adviser or sub-adviser on the tender of a Fund's or Portfolio's portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for a Funds and Portfolios by the adviser and
sub-advisers. At present, no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section 28(e)
of the Securities Exchange Act of 1934, the adviser or sub-advisers may cause
the Funds and Portfolios to pay a broker-dealer which provides brokerage and
research services to the adviser or sub-advisers, the Funds or Portfolios and/or
other accounts for which they exercise investment discretion an amount of
commission for effecting a securities transaction for a Fund or Portfolio in
excess of the amount other broker-dealers would have charged for the transaction
if they determine in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
their overall responsibilities to accounts over which they exercise investment
discretion. Not all of such services are useful or of value in advising the
Funds and Portfolios. The adviser and sub-advisers report to the Board of
Trustees regarding overall commissions paid by the Funds and Portfolios and
their reasonableness in relation to the benefits to the Funds and 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.
The management fees that the Funds and Portfolios pay to the adviser will not be
reduced as a consequence of the adviser's or sub-advisers' receipt of brokerage
and research services. To the extent the Funds' or Portfolios' portfolio
transactions are used to obtain such services, the brokerage commissions paid by
the Funds or 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 or sub-advisers in serving one or more of
their other clients and, conversely, such services obtained by the placement of
brokerage business of other clients generally would be useful to the adviser and
sub-advisers in carrying out their obligations to the Funds and Portfolios.
While such services are not expected to reduce the expenses of the adviser or
sub-advisers, they advisers would, through use of the services, avoid the
additional expenses which would be incurred if they should attempt to develop
comparable information through their own staffs.
In certain instances, there may be securities that are suitable for one or more
of the Funds and Portfolios as well as one or more of the adviser's or
sub-advisers' other clients. Investment decisions for the Funds and Portfolios
and for other clients are made with a view to achieving their respective
investment objectives. It may develop that the same investment decision is made
for more than one client or that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more Funds or
Portfolios or other clients are simultaneously engaged in the purchase or sale
of the same security, the securities are allocated among clients in a
15
<PAGE>
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Funds or Portfolios are concerned. However, it is
believed that the ability of the Funds and Portfolios to participate in volume
transactions will generally produce better executions for the Funds and
Portfolios.
For the fiscal years ended October 31, 1991, 1992 and 1993, the Capital Growth
Fund paid aggregate brokerage commissions of $6,495, $60,979 and $283,972,
respectively. For the fiscal years ended October 31, 1994 and 1995, the Capital
Growth Portfolio paid aggregate brokerage commission of $1,242,652 and
$2,311,291, respectively. For the fiscal years ended October 31, 1991, 1992 and
1993, 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 Growth and Income Portfolio paid aggregate
brokerage commissions of $1,515,504 and $2,352,596, respectively.
For the period from November 30, 1990 through June 30, 1991, the fiscal year
ended June 30, 1992 and the fiscal period July 1, 1992 through October 31, 1992,
the Vista Large Cap Equity Fund paid aggregate brokerage commissions of $57,804,
$49,230 and $37,288, respectively. For the fiscal years ended October 31, 1993,
1994 and 1995, the Large Cap Equity Fund paid aggregate brokerage commissions of
$129,600, $202,556 and $23,824, respectively.
For the period from November 4, 1992 through October 31, 1993, and the fiscal
years ended October 31, 1994 and October 31, 1995, the Balanced Fund paid
aggregate brokerage commissions of $10,667, $26,724, and $27,315, respectively.
For the period from July 16, 1993 through October 31, 1993, and the fiscal years
ended October 31, 1994 and October 31, 1995, the Equity Income Fund paid
aggregate brokerage commissions of $1,241, $23,520 and $23,824, respectively.
For the period December 20, 1994 through October 31, 1995, the Small Cap Equity
Fund paid aggregate brokerage commissions of $56,980.
No portfolio transactions are executed with the advisers or a Shareholder
Servicing Agent, or with any affiliate of the advisers or a Shareholder
Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
past investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the performance
and yield of a Fund or its classes. A Fund's performance may be compared with
indices such as the Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Government Bond Index, the Lehman Government Bond 1-3 Year Index and
the Lehman Aggregate Bond Index; the S&P 500 Index, the Dow Jones Industrial
Average or any other commonly quoted index of common stock prices; and the
Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund may,
with proper authorization, reprint articles written about such Fund and provide
them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The "total
rate of return" refers to the change in the value of an investment in a Fund
over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class B
shares, the average annual total rate of return figures will assume deduction of
the applicable contingent deferred sales charge imposed on a total redemption of
shares held for the 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 a Fund will vary based on market conditions, the current market value
of the securities held by the Fund and changes in the Fund's expenses. The
advisers, Shareholder Servicing Agents, the Administrator, the Distributor and
other service providers may voluntarily waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of a
Fund's operating expenses on a month-to-month basis. These actions would have
the effect of increasing the net income (and therefore the yield and total rate
of return) of the classes of shares of the Fund during the period such waivers
are in effect. These factors and possible differences in the methods used to
calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of the classes of shares of a Fund
to yields and total rates of return published for other investment companies and
other investment vehicles (including different classes of shares). The Trust 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
16
<PAGE>
Shareholder Servicing Agent fees received, 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.
In connection with the Hanover Reorganization, the Vista U.S. Government
Securities and Vista American Value Fund were established to receive the assets
of The Hanover U.S. Government Securities Fund and The Hanover American Value
Fund, respectively. Performance results presented for each class of the Vista
U.S. Government Securities Fund and Vista American Value Fund will be based upon
the performance of The Hanover U.S. Government Securities Fund and The Hanover
American Value Fund, respectively, for periods prior to the consummation of the
Hanover Reorganization.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as well
as legislative, regulatory and monetary developments, and may include investment
strategies and related matters believed to be of relevance to a Fund.
Advertisements for the Vista funds may include references to the asset size of
other financial products made available by Chase, such as the offshore assets of
other funds.
Total Rate Of Return
A Fund's or class' total rate of return for any period will be calculated by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share on the first day of such period, and (b)
subtracting 1 from the result. The average annual rate of return quotation will
be calculated by (x) adding 1 to the period total rate of return quotation as
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.
The average annual total rate of return figures for the following Funds,
reflecting the initial investment and reinvested dividends (but excluding the
effects of any applicable sales charges) for the one and five year periods ended
October 31, 1995 (November 30, 1995 with respect to American Value Fund and U.S.
Government Securities Fund), and for the period from commencement of business
operations of each such Fund to October 31, 1995 (November 30, 1995 with respect
to American Value Fund and U.S. Government Securities Fund), were as follows:
Date of
One Five Since Fund
Year Years Inception Inception
------ ----- --------- ---------
American Value Fund* ............. -- -- -- 2/3/95
U.S. Treasury Income Fund
A Shares ....................... 14.59% 8.68% 9.64% 9/8/87
B Shares ....................... 13.80% -- 3.90% 11/4/93
Balanced Fund
A Shares ....................... 17.70% -- 12.09% 11/4/93
B Shares ....................... 16.93% -- 9.36% 11/4/93
Equity Income Fund ............... 17.97% -- 9.54% 7/15/93
Growth and Income Fund
A Shares ....................... 17.79% 21.01% 22.99% 9/8/87
B Shares ....................... 17.21% -- 9.15% 11/5/93
Institutional Shares ........... -- -- -- 11/4/95
Capital Growth Fund
A Shares ....................... 13.89% 25.37% 20.32% 9/8/87
B Shares ....................... 13.34% -- 8.72% 11/5/93
Institutional Shares ........... -- -- -- 11/4/95
Bond Fund
Class A Shares ................. -- -- -- 5/6/96
Class B Shares ................. -- -- -- 5/6/96
Institutional Shares ........... 15.83% -- 9.14% 11/30/90
Short-Term Bond Fund
Class A Shares ................. -- -- -- 5/6/96
Institutional Shares ........... 7.37% -- 5.81% 11/30/90
Large Cap Equity Fund
Class A Shares ................. -- -- -- 5/6/96
Class B Shares ................. -- -- -- 5/6/96
17
<PAGE>
Institutional Shares ........... 20.41% -- 14.12% 11/30/90
Small Cap Equity Fund
A Shares ....................... -- -- -- 12/20/94
B Shares ....................... -- -- -- 3/28/95
Institutional Shares ........... -- -- -- 11/4/95
U.S. Government Securities Fund*
A Shares ....................... 16.82% -- 6.31% 2/19/93
Institutional Shares ........... 16.82% -- 6.31% 2/19/93
Emerging Growth Fund
A Shares ....................... -- -- -- /96
B Shares ....................... -- -- -- /96
*Performance presented in the table above and in each table that follows for
each class of these Funds is based upon the performance of their respective
predecessor funds (which had fiscal years ending on November 30, 1995) for
periods prior to the consummation of the Hanover Reorganization. PERFORMANCE
PRESENTED FOR EACH CLASS OF EACH OF THESE FUNDS IS BASED ON THE HISTORICAL
EXPENSES AND PERFORMANCE OF A SINGLE CLASS OF SHARES OF ITS PREDECESSOR FUND AND
DOES NOT REFLECT THE CURRENT DISTRIBUTION, SERVICE AND/OR OTHER EXPENSES THAT AN
INVESTOR WOULD INCUR AS A HOLDER OF SUCH CLASS OF SUCH FUND. Class A shares of
the Vista U.S. Government Securities Fund currently bear expenses in excess of
those borne by its Institutional Shares. If such current expenses were reflected
in the table above and in each table that follows for the Vista U.S. Government
Securities Fund, the performance for its Institutional Shares would exceed that
presented for its Class A shares.
With the current maximum sales charge for Class A shares (4.50% for the U.S.
Treasury Income Fund, Balanced Fund and Equity Income Fund and 4.75% for the
Small Cap Equity Fund, Growth and Income Fund and Capital Growth Fund) reflected
and the currently applicable CDSC for Class B shares for each period length, the
average annual total rate of return figures for the same periods would be as
follows:
Since
One Five Fund
Year Years Inception
----- ----- ---------
U.S. Treasury Income Fund
A Shares ............................ 9.43% 7.69% 9.02%
B Shares ............................ 8.80% -- --
Balanced Fund
A Shares ............................ 12.40% -- 10.38%
B Shares ............................ 11.95%
Equity Income Fund .................... 12.66% -- 7.36%
Growth and Income Fund
A Shares ............................ 12.19% 19.84% 22.25%
B Shares ............................ 12.21% -- 7.29%
Institutional Shares
Capital Growth Fund
A Shares ............................ 8.48% 24.15% 19.60%
B Shares ............................ 8.34% -- 6.85%
Institutional Shares .................. -- -- --
Small Cap Equity Fund
A Shares ............................ -- -- --
B Shares ............................ -- -- --
Institutional Shares ................ -- -- --
U.S. Government Securities Fund
A Shares ............................ 4.56% -- 11.56%
Emerging Growth Fund
A Shares ............................ -- -- --
B Shares ............................ -- -- --
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of a
Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for a class of shares shall consist of an
annualized hypothetical yield, carried at least to the nearest hundredth of one
percent, based on a thirty calendar day period and shall be calculated by (a)
raising to the sixth power the sum of 1
18
<PAGE>
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.
The yields of the shares of the Funds for the thirty-day period ended October
31, 1995 (November 30, 1995 with respect to American Value Fund and U.S.
Government Securities Fund) were as follows:
Class A Class B Institutional
------- ------- -------------
U.S. Treasury Income Fund 5.09% 4.58% N/A
Capital Growth Fund 0.49% 0.02% **
Balanced Fund 2.74% 2.12% N/A
Large Cap Equity Fund 1.87% * 1.87%
Equity Income Fund 2.04% * N/A
Bond Fund 6.15% * 6.15%
Growth and Income Fund 1.50% 1.08% **
Short-Term Bond Fund 5.69% N/A 5.69%
Small Cap Equity Fund 1.39% 0.73% **
U.S. Government Securities Fund 5.34% N/A 5.34%
American Value Fund -- N/A N/A
Emerging Growth Fund -- -- N/A
* Commencement of offering of class of shares on May 6, 1996.
** The Institutional Shares of the Growth and Income, Capital Growth and Small
Cap Equity Funds were first offered January 8, 1996.
Advertisements for the Funds may include references to the asset size of other
financial products made available by Chase, such as the offshore assets of other
funds advised by Chase.
Non-standardized Performance Results
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in the following Funds (excluding the effects of any
applicable sale charges) for the period from the commencement date of business
for each such Fund through October 31, 1995 (November 30, 1995 with respect to
the American Value Fund and U.S. Government Securities Fund). The values reflect
an assumption that capital gain distributions and income dividends, if any, have
been invested in additional shares of the same class. From time to time, the
Funds may provide these performance results in addition to the total rate of
return quotations required by the Securities and Exchange Commission. As
discussed more fully in the Prospectuses, neither these performance results, nor
total rate of return quotations, should be considered as representative of the
performance of the Funds in the future. These factors and the possible
differences in the methods used to calculate performance results and total rates
of return should be considered when comparing such performance results and total
rate of return quotations of the Funds with those published for other investment
companies and other investment vehicles.
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of
$10,000 Gains Reinvested
Investment Distributions Dividends Total Value
---------- ------------- --------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury
Income Fund
A Shares ........................ $11,400.00 $1,065.04 $8,176.49 $21,181.53
B Shares ........................ 9,490.82 183.40 1,115.89 10,790.11
Balanced Fund
A Shares ........................ 12,450.00 239.70 1,334.82 14,074.53
B Shares ........................ 11,025.87 247.10 674.74 11,947.71
Equity Income Fund
A Shares ........................ 10,190.25 1,538.96 596.70 12,325.92
Growth and Income Fund
A Shares ........................ 34,960.00 12,306.73 6,310.85 53,577.58
B Shares ........................ 11,454.43 132.30 315.91 11,902.64
Capital Growth Fund
A Shares ........................ 35,650.00 6,047.67 3,139.91 44,837.58
B Shares ........................ 11,277.88 481.89 48.83 11,808.60
Large Cap Equity Fund
19
<PAGE>
Institutional Shares ............ 12,240.00 5,436.94 1,480.01 19,156.95
Small Cap Equity Fund
A Shares ........................ 15,070.00 -- 55.16 15,125.16
B Shares ........................ 13,178.23 -- 31.09 13,209.32
Bond Fund
Institutional Shares ............ 10,910.00 273.37 4,193.78 15,377.14
Short Term Bond Fund
Institutional Shares ............ 10,080.00 16.32 3,107.56 3,203.88
U.S. Government Securities Fund
A Shares ........................ 10,180.00 117.72 1,555.80 11,853.52
Institutional Shares ............ 10,180.00 117.72 1,555.80 11,853.52
American Value Fund ............... 12,180.00 -- 79.53 12,179.53
</TABLE>
With the current maximum sales charge for Class A shares (4.50% for the U.S.
Treasury Income Fund, Balanced Fund and Equity Income Fund and 4.75% for the
Growth and Income Fund, Capital Growth Fund and Small Cap Equity Fund)
reflected, and the currently applicable CDSC for Class B shares for each period
length, the performance figures for the same periods would be as follows:
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of
Period Ended $10,000 Gains Reinvested
October 31, 1995 Investment Distributions Dividends Total Value
- ---------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury
Income Fund
A Shares ..................... $10,887.00 $1,017.11 $8,324.25 $20,228.36
B Shares ..................... 9,111.19 183.40 1,115.89 10,410.48
Balanced Fund
A Shares ..................... 11,889.75 276.67 1,274.76 13,441.17
B Shares ..................... 10,625.87 247.10 674.74 11,547.71
Equity Income Fund
A Shares ..................... 9,731.70 1,469.70 569.85 11,771.25
Growth and Income Fund
A Shares ..................... 33,299.40 11,722.16 6,011.09 51,032.65
B Shares ..................... 11,054.43 132.30 315.91 11,502.64
Capital Growth Fund
A Shares ..................... 33,956.63 5,760.40 2,990.77 42,707.80
B Shares ..................... 10,877.88 481.89 48.83 11,408.60
Small Cap Equity Fund
A Shares ..................... 14,354.18 -- 52.54 14,406.72
B Shares ..................... 12,709.32 -- 31.09 12,709.32
U.S. Government
Securities Fund ................ 9,721.90 112.42 1,485.79 11,320.11
</TABLE>
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York Stock
Exchange is open for trading every weekday except for the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Equity securities in a Fund's or 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 Fund's or 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.
20
<PAGE>
Interest income on long-term obligations in a Fund's or Portfolio's portfolio is
determined on the basis of coupon interest accrued plus amortization of discount
(the difference between acquisition price and stated redemption price at
maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined on
the basis of interest and discount accrued less amortization of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to change
from time to time, for purchase, redemption, and exchange orders, including
procedures for accepting telephone instructions and effecting automatic
investments and redemptions. The Funds' Transfer Agent may defer acting on a
shareholder's instructions until it has received them in proper form. In
addition, the privileges described in the Prospectuses are not available until a
completed and signed account application has been received by the Transfer
Agent. Telephone transaction privileges are made available to shareholders
automatically upon opening an account unless the privilege is declined in
Section 6 of the Account Application.
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, a Fund or its agent is authorized, without notifying the
shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest account application or
other written request for services, including purchasing, exchanging, or
redeeming shares of such Fund and depositing and withdrawing monies from the
bank account specified in the Bank Account Registration section of the
shareholder's latest account application or as otherwise properly specified to
such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved the
right to pay the redemption price of its Shares, either totally or partially, by
a distribution in kind of readily marketable portfolio securities (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust has
filed an election under Rule 18f-1 committing to pay in cash all redemptions by
a shareholder of record up to amounts specified by the rule (approximately
$250,000).
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. Once each such day, based upon prices 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., Eastern time) 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 such time 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 such 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 such time on the following day the
New York Stock Exchange is open for trading.
Investors in Class A shares may qualify for reduced initial sales charges by
signing a statement of intention (the "Statement"). This enables the investor to
aggregate purchases of Class A shares in the Fund with purchases of Class A
shares of any other Fund in the Trust (or if a Fund has only one class, shares
of such Fund), excluding shares of any Vista money market fund, during a
13-month period. The sales charge is based on the total amount to be invested in
Class A shares during the 13-month period. All Class A or other qualifying
shares of these Funds currently owned by the investor will be credited as
purchases (at their current offering prices on the date the Statement is signed)
toward completion of the Statement. A 90-day back-dating period can be used to
include earlier purchases at the investor's cost. The 13-month period would then
begin on the date of the first purchase during the 90-day period. No retroactive
adjustment will be made if purchases exceed the amount indicated in the
Statement. A shareholder must notify the Transfer Agent or Distributor whenever
a purchase is being made pursuant to a Statement.
Under the Exchange Privilege, shares may be exchanged for shares of another fund
only if shares of the fund exchanged into are registered in the state where the
exchange is to be made. Shares of a Fund may only be exchanged into another fund
if the account registrations are identical. With respect to exchanges from any
Vista money market fund, shareholders must have acquired their shares in such
money market fund by exchange from one of the Vista non-money market funds or
the exchange will be done at relative net asset value plus the appropriate sales
charge. Any such exchange may create a gain or loss to be recognized for federal
income tax
21
<PAGE>
purposes. Normally, shares of the fund to be acquired are purchased on the
redemption rate, but such purchase may be delayed by either fund for up to five
business days if a fund determines that it would be disadvantaged by an
immediate transfer of the proceeds.
The contingent deferred sales charge for Class B shares will be waived for
certain exchanges and for redemptions in connection with a Fund's systematic
withdrawal plan, subject to the conditions described in the Prospectuses. In
addition, subject to confirmation of a shareholder's status, the contingent
deferred sales charge will be waived for: (i) a total or partial redemption made
within one year of the shareholder's death or initial qualification for Social
Security disability payments; (ii) a redemption in connection with a Minimum
Required Distribution from an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code or a mandatory distribution from a qualified
plan; (iii) redemptions made from an IRA, Keogh or custodial account under
section 403(b) of the Internal Revenue Code through an established Systematic
Redemption Plan; (iv) a redemption resulting from an over-contribution to an
IRA; and (v) an involuntary redemption of an account balance under $500.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares attributable to the
Class B shares then converting. The conversion of Class B shares purchased on or
after May 1, 1996, will be effected at the relative net asset values per share
of the two classes on the first business day of the month following the eighth
anniversary of the original purchase. The conversion of Class B shares purchased
prior to May 1, 1996, will be effected at the relative net asset values per
share of the two classes on the first business day of the month following the
seventh anniversary of the original purchase. If any exchanges of Class B shares
during the CDSC Period occurred, the holding period for the shares exchanged
will be counted toward the CDSC Period. At the time of the conversion the net
asset value per share of the Class A shares may be higher or lower than the net
asset value per share of the Class B shares; as a result, depending on the
relative net asset values per share, a shareholder may receive fewer or more
Class A shares than the number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders request be
made in Fund records with respect to their accounts, including but not limited
to, changes in bank accounts, for any written requests for additional account
services made after a shareholder has submitted an initial account application
to the Fund, and in certain other circumstances described in the Prospectuses. A
Fund may also refuse to accept or carry out any transaction that does not
satisfy any restrictions then in effect. A signature guarantee may be obtained
from a bank, trust company, broker-dealer or other member of a national
securities exchange. Please note that a notary public cannot provide a signature
guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the 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) 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
22
<PAGE>
or forward contracts thereon) held for less than three months (the "Short-Short
Gain Test"). 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, 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 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 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 (1) 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 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.
23
<PAGE>
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"). 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).
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its 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 Class A and
Class B shares are calculated at the same time. In general, dividends on Class B
shares are expected to be lower than those on Class A shares due to the higher
distribution expenses borne by the Class B 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 realized 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.
Conversely, if a Fund elects to retain its net realized 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 a Fund with respect to a taxable year will
qualify for the 70% dividends- received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by a
Fund from domestic corporations
24
<PAGE>
for the taxable year. A dividend received by a Fund will not be treated as a
qualifying dividend (1) if it has been received with respect to any share of
stock that the Fund has held for less than 46 days (91 days in the case of
certain preferred stock), 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 a 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 a
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (1) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a 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 AMT. However, corporate shareholders will generally
be required to take the full amount of any dividend received from a Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings.
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, or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
Sale or Redemption of Shares
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
25
<PAGE>
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 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 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 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.
MANAGEMENT OF THE TRUST AND THE FUNDS OR PORTFOLIOS
Trustees and Officers
The Trustees and officers of the Trust and their principal occupations for at
least the past five years are set forth below. Their titles may have varied
during that period.
Fergus Reid, III--Chairman of the Trust. Chairman and Chief Executive Officer,
Lumelite Corporation, since September 1985; Trustee, Morgan Stanley Funds. Age:
63. Address: 202 June Road, Stamford, CT 06903.
Richard E. Ten Haken--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New York;
Chairman of the Board and President, New York State Teachers' Retirement System.
Age: 61. Address: 4 Barnfield Road, Pittsford, NY 14534.
William J. Armstrong--Trustee. Vice President and Treasurer, Ingersoll-Rand
Company. Age: 54. Address: 49 Aspen Way, Upper Saddle River, NJ 07458.
26
<PAGE>
John R.H. Blum--Trustee. Attorney in private practice; formerly, partner in the
law firm of Richards, O'Neil & Allegaert; Commissioner of Agriculture - State of
Connecticut, 1992-1995. Age: 66. Address: 322 Main Street, Lakeville, CT 06039.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and Executive
Vice President of The Chase Manhattan Bank, N.A. from 1985 through 1989. He has
been employed by Chase in numerous capacities and offices since 1954. Director
of Blessings Corporation, Jefferson Insurance Company of New York, Monticello
Insurance Company and Nationar. Age: 64. Address: 257 Plantation Circle South,
Ponte Vedra Beach, FL 32082.
*H. Richard Vartabedian--Trustee and President of the Trust; Chairman of the
Portfolios. Consultant, Republic Bank of New York; formerly, Senior Investment
Officer, Division Executive of the Investment Management Division of The Chase
Manhattan Bank, N.A., 1980 through 1991. Age: 60. Address: P.O. Box 296, Beach
Road, Hendrick's Head, Southport, ME 04576.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield Testing
Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 63. Address: 108 Valley
Road, Cos Cob, CT 06807.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron Systems.
He has previously served in a number of executive positions with Control Data
Corp., including President of its Latin American Operations, and General Manager
of its Data Services business. Age: 64. Address: 80 Perkins Road, Greenwich, CT
06830.
*W. Perry Neff--Trustee. Independent Financial Consultant; Director of North
America Life Assurance Co., Petroleum & Resources Corp. and The Adams Express
Co.; Director and Chairman of The Hanover Funds, Inc.; Director, Chairman and
President of The Hanover Investment Funds, Inc. Age: 68. Address: RR 1 Box 102,
Weston, VT 05181.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief Executive
Officer, Eastern States Bankcard Association Inc. (1971-1988); Director, Janel
Hydraulics, Inc.; Director of The Hanover Funds, Inc. Age: 63. Address: 105
Coventry Place, Palm Beach Gardens, FL 33418.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; Director of The Hanover
Funds, Inc. and The Hanover Investment Funds, Inc. Age: 68. Address: 624 East
45th Street, Savannah, GA 31405
Martin R. Dean--Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age: 32. Address: 3435 Stelzer Road, Columbus, OH 43219.
Ann E. Bergin--Secretary. First Vice President, BISYS Fund Services, Inc.;
formerly, Senior Vice President, Administration, Concord Financial Group
(1991-1995); Assistant Vice President, Dreyfus Service Corporation (1982-1991).
Age: 35. Address: 125 West 55th Street, New York, NY 10019.
* Asterisks indicate those Trustees that are "interested persons" (as defined in
the 1940 Act). Mr. Reid is not an interested person of the Trust's investment
advisers or principal underwriter, but may be deemed an interested person of the
Trust solely by reason of being an officer of the Trust.
The Board of Trustees of the Trust presently has an Audit Committee. The members
of the Audit Committee are Messrs. Ten Haken (Chairman), Blum, Cragin, Thode,
Armstrong, Harkins, Reid and Vartabedian. The function of the Audit Committee is
to recommend independent auditors and monitor accounting and financial matters.
The Audit Committee met two times during the fiscal year ended October 31, 1995.
The Board of Trustees of the Trust has established an Investment Committee. The
members of the Investment Committee are Messrs. Vartabedian (Chairman) and Reid,
as well as Leonard M. Spalding, President of Vista Capital Management. The
function of the Investment Committee is to review the investment management
process of the Trust.
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting of
the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the Trustee
serves, which consists of an annual retainer component and a meeting fee
component. Effective August 21, 1995, each Trustee of the Vista Funds receives a
quarterly retainer of $12,000 and an additional per meeting fee of $1,500.
Members of committees receive a meeting fee only if the committee meeting is
held on a day other than a day on which a regularly scheduled meeting is held.
Prior to August 21, 1995, the quarterly retainer was $9,000 and the per-meeting
27
<PAGE>
fee was $1,000. The Chairman of the Trustees and the Chairman of the Investment
Committee each receive a 50% increment over regular Trustee total compensation
for serving in such capacities for all the investment companies advised by the
adviser.
Set forth below is information regarding compensation paid or accrued during the
fiscal year ended October 31, 1995 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Equity Growth Capital Large Cap
Balanced Income and Income Growth Equity Bond
Fund Fund Fund Fund Fund Fund
-------- ------ ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, .......... $241.30 $96.13 $14,393.16 $7,594.67 $540.99 $468.64
Trustee
Richard E. Ten Haken, ...... 160.88 64.07 9,595.45 5,063.12 360.67 312.41
Trustee
William J. Armstrong, ...... 160.88 64.07 9,595.45 5,063.12 360.67 312.41
Trustee
John R.H. Blum, ............ 190.83 62.60 9,376.63 4,955.42 352.06 305.11
Trustee
Joseph J. Harkins, ......... 160.88 64.07 9,595.45 5,063.12 360.67 312.41
Trustee
H. Richard Vartabedian, .... 169.60 67.79 10,159.13 5,376.61 330.18 330.18
Trustee
Stuart W. Cragin, Jr., ..... 160.88 64.07 9,595.45 5,063.12 360.67 312.41
Trustee
Irving L. Thode, ........... 160.88 64.07 9,595.45 5,063.12 360.67 312.41
Trustee
W. Perry Neff, Trustee ..... 0 0 0 0 0 0
Ronald R. Eppley, Jr., ..... 0 0 0 0 0 0
Trustee
W.D. MacCallan, Trustee .... 0 0 0 0 0 0
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Short- U.S. Inter- Global
Term Treasury Small Cap national Fixed Southeast
Bond Income Equity Equity Income Asian Japan European
Fund Fund Fund Fund Fund Fund Fund Fund
------- -------- -------- ------- ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$298.13 $919.27 $172.16 $315.97 $8.47 0 0 0
Fergus Reid, III, ..........
Trustee 195.40 612.85 114.79 210.64 5.64 0 0 0
Richard E. Ten Haken, ......
Trustee 195.40 612.85 114.79 210.64 5.64 0 0 0
William J. Armstrong, ......
Trustee 190.83 598.68 114.79 205.42 5.64 0 0 0
John R.H. Blum, ............
Trustee 195.40 612.85 114.79 210.64 5.64 0 0 0
Joseph J. Harkins, .........
Trustee 206.44 646.75 133.68 219.47 5.64 0 0 0
H. Richard Vartabedian, ....
Trustee 195.40 612.85 114.79 210.64 5.64 0 0 0
Stuart W. Cragin, Jr., .....
Trustee 195.40 612.85 114.79 210.64 5.64 0 0 0
Irving L. Thode, ...........
Trustee 0 0 0 0 0 0 0 0
W. Perry Neff, Trustee .....
Ronald R. Eppley, Jr., ..... 0 0 0 0 0 0 0 0
Trustee
W.D. MacCallan, Trustee .... 0 0 0 0 0 0 0 0
</TABLE>
Pension or Total
Retirement Compensation
Benefits Accrued from
as Fund Expenses "Fund Complex"(1)
---------------- -----------------
Fergus Reid, III, .......... 0 $78,456.65
Trustee
Richard E. Ten Haken, ...... 0 52,304.39
Trustee
William J. Armstrong, ...... 0 52,304.39
Trustee
John R.H. Blum, ............ 0 51,304.37
Trustee
Joseph J. Harkins, ......... 0 52,304.39
Trustee
H. Richard Vartabedian, .... 0 74,804.44
Trustee
Stuart W. Cragin, Jr., ..... 0 52,304.39
Trustee
Irving L. Thode, ........... 0 52,304.39
Trustee
W. Perry Neff, Trustee ..... 0 0
Ronald R. Eppley, Jr., ..... 0 0
Trustee
W.D. MacCallan, Trustee .... 0 0
(1) Data reflects total compensation earned during the period January 1, 1995 to
December 31, 1995 for service as a Trustee to all Funds advised by the adviser.
Vista Funds Retirement Plan for Eligible Trustees Effective August 21, 1995, the
Trustees also instituted a Retirement Plan for Eligible Trustees (the "Plan")
pursuant to which each Trustee (who is not an employee of any of the Funds, the
advisers administrator or distributor or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Trustees.
Pursuant to the
29
<PAGE>
Plan, the normal retirement date is the date on which the eligible Trustee has
attained age 65 and has completed at least five years of continuous service with
one or more of the investment companies advised by the adviser (collectively,
the "Covered Funds"). Each Eligible Trustee is entitled to receive from the
Covered Funds an annual benefit commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 10% of the
highest annual compensation received from the Covered Funds multiplied by the
number of such Trustee's years of service (not in excess of 10 years) completed
with respect to any of the Covered Funds. Such benefit is payable to each
eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to an
eligible Trustee upon retirement assuming various compensation and years of
service classifications. The estimated credited years of service for Messrs.
Reid, Ten Haken, Armstrong, Blum, Harkins, Vartabedian, Cragin, and Thode are
11, 11, 8, 11, 5, 3, 3 and 3 respectively.
Highest Annual Compensation Paid by All Vista Funds
------------------------------------------------------------
$40,000 $45,000 $50,000 $55,000
Years of
Service Estimated Annual Benefits upon Retirement
- ------------------- ------------------------------------------
10 ....... $40,000 $45,000 $50,000 $55,000
9 ........ 36,000 40,500 45,000 49,500
8 ........ 32,000 36,000 40,000 44,000
7 ........ 28,000 31,500 35,000 38,500
6 ........ 24,000 27,000 30,000 33,000
5 ........ 20,000 22,500 25,000 27,500
Effective August 21, 1995, the Trustees instituted a Deferred Compensation Plan
for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which each
Trustee (who is not an employee of any of the Funds, the advisers, administrator
or distributor or any of their affiliates) may enter into agreements with the
Funds whereby payment of the Trustee's fees are deferred until the payment date
elected by the Trustee (or the Trustee's termination of service). The deferred
amounts are invested in shares of Vista funds selected by the Trustee. The
deferred amounts are paid out in a lump sum or over a period of several years as
elected by the Trustee at the time of deferral. If a deferring Trustee dies
prior to the distribution of amounts held in the deferral account, the balance
of the deferral account will be distributed to the Trustee's designated
beneficiary in a single lump sum payment as soon as practicable after such
deferring Trustee's death.
Messrs. Ten Haken, Thode and Vartabedian have each executed a deferred
compensation agreement for the 1996 calendar year and as of March 29, 1996 they
had contributed $4,700, $9,500 and $14,250 respectively.
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.
As of April 15, 1996, the Trustees and officers as a group owned less than 1% of
each Fund's outstanding shares, all of which were acquired for investment
purposes. For the fiscal year ended October 31, 1995, the Trust paid its
disinterested Trustees fees and expenses for all of the meetings of the Board
and any committees attended in the aggregate amount of approximately $39,790
which amount is then apportioned between the Funds comprising the Trust.
Adviser and Sub-adviser
Chase acts as investment adviser to the Funds or Portfolios pursuant to an
Investment Advisory Agreement, dated as of May 6, 1996 (the "Advisory
Agreement"). Subject to such policies as the Board of Trustees may determine,
Chase is responsible for investment decisions for the Funds or Portfolios.
Pursuant to the terms of the Advisory Agreement, Chase provides the Funds or
Portfolios with such investment advice and supervision as it deems necessary for
the proper supervision of the Funds' or Portfolios' investments. The advisers
continuously provide investment programs and determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the Funds'
or Portfolios' assets shall be held uninvested. The advisers to the Funds or
Portfolios furnish, at their own expense, all services, facilities and personnel
necessary in connection with managing the investments and effecting portfolio
transactions for the Funds or Portfolios. The Advisory Agreement for the Funds
or Portfolios will continue in effect from year
30
<PAGE>
to year only if such continuance is specifically approved at least annually by
the Board of Trustees or by vote of a majority of a Fund's or Portfolio's
outstanding voting securities and by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on such Advisory Agreement.
Under the Advisory Agreement, the adviser may utilize the specialized portfolio
skills of all its various affiliates, thereby providing the Funds and Portfolios
with greater opportunities and flexibility in accessing investment expertise.
Pursuant to the terms of the Advisory Agreement and the sub-advisers' agreements
with the adviser, the adviser and sub-advisers are permitted to render services
to others. Each advisory agreement is terminable without penalty by the Trust on
behalf of the Funds on not more than 60 days', nor less than 30 days', written
notice when authorized either by a majority vote of a Fund's shareholders or by
a vote of a majority of the Board of Trustees of the Trust, or by the adviser or
sub-adviser on not more than 60 days', nor less than 30 days', written notice,
and will automatically terminate in the event of its "assignment" (as defined in
the 1940 Act). The advisory agreements provide that the adviser or sub-adviser
under such agreement shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the execution of portfolio transactions for the respective Fund, except for
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.
With respect to the Equity Funds or Equity Portfolios, the equity research team
of the adviser looks for two key variables when analyzing stocks for potential
investment by 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.
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Funds imposed by the securities laws or regulations thereunder
of any state in which the shares of the Funds are qualified for sale, as such
limitations may be raised or lowered from time to time, the adviser shall reduce
its advisory fee (which fee is described below) to the extent of its share of
such excess expenses. The amount of any such reduction to be borne by the
adviser shall be deducted from the monthly advisory fee otherwise payable with
respect to the Funds during such fiscal year; and if such amounts should exceed
the monthly fee, the adviser shall pay to a Fund its share of such excess
expenses no later than the last day of the first month of the next succeeding
fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of one
or more affiliated companies that are qualified to act as an investment adviser
of the Fund and are under the common control of Chase as long as all such
persons are functioning as part of an organized group of persons, managed by
authorized officers of Chase.
Chase, on behalf of the Funds or Portfolios (except the American Value Fund),
has entered into an investment sub-advisory agreement dated as of May 6, 1996
with Chase Asset Management, Inc. ("CAM"). With respect to the American Value
Fund, Chase has entered into an investment sub-advisory agreement with Van
Deventer & Hoch ("VDH") dated as of May 6, 1996. With respect to the day-to-day
management of the Funds or Portfolios, under the sub-advisory agreements, the
sub-advisers make decisions concerning, and place all orders for, purchases and
sales of securities and helps maintain the records relating to such purchases
and sales. The sub-advisers may, in their discretion, provide such services
through their own employees or the employees of one or more affiliated companies
that are qualified to act as an investment adviser to the Company under
applicable laws and are under the common control of Chase; provided that (i) all
persons, when providing services under the sub-advisory agreement, are
functioning as part of an organized group of persons, and (ii) such organized
group of persons is managed at all times by authorized officers of the
sub-advisers. This arrangement will not result in the payment of additional fees
by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. The Chase Manhattan Corporation is the entity resulting from
the merger of The Chase Manhattan Corporation into Chemical Banking Corporation
on March 31, 1996. Chemical Banking Corporation was thereupon renamed The Chase
Manhattan Corporation. Also included among Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is registered
with the Securities and Exchange Commission as an investment adviser and was
formed for the purpose of providing discretionary investment advisory services
to institutional clients and to consolidate Chase's investment management
function, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase.
VDH has been in the investment counselling business since 1969 and is ultimately
controlled and equally owned by key professionals of VDH and Chase Manhattan
Corporation. VDH provides a wide range of asset management services to
individuals, corporations, private and charitable trusts, endowments,
foundations and retirement funds.
31
<PAGE>
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund or
Portfolio an investment advisory fee computed daily and paid monthly based on a
rate equal to a percentage of such Fund's or Portfolio's average daily net
assets specified in the relevant Prospectuses. However, the adviser may
voluntarily agree to waive a portion of the fees payable to it on a
month-to-month basis. For its services under its sub-advisory agreement, CAM (or
VDH in the case of the American Value Fund) will be entitled to receive, with
respect to each such Fund or Portfolio, such compensation, payable by the
adviser out of its advisory fee, as is described in the relevant Prospectuses.
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 Portfolios, and voluntarily waived the amounts in parentheses
following such fees with respect to each such period:
Fiscal Year-Ended October 31,
<TABLE>
<CAPTION>
1993 1994 1995
Fund paid/accrued waived paid/accrued waived paid/accrued waived
- ---- ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Income Fund ............. $ 227,496 ($107,208) $351,680 ($234,236) $319,705 ($220,998)
Growth and
Income Fund ............. $1,878,340 -- * -- * --
Capital Growth
Fund .................... $ 430,099 -- * -- * --
Balanced Fund ........... -- -- $103,522 ($103,522) $145,295 ($145,295)
Equity Income Fund ...... -- -- $ 52,804 ($ 31,989) $ 44,277 ($ 35,433)
Large Cap Equity Fund ... $ 463,533 $463,533 $378,813 ($378,813) $250,452 ($250,452)
Bond Fund ............... $ 166,164 $166,164 $167,780 ($167,780) $162,618 ($162,618)
Short-Term Bond Fund .... $ 177,700 $177,700 $137,634 ($137,634) $ 85,353 ($ 85,353)
Small Cap Equity Fund ... -- -- -- -- $130,401 ($130,401)
</TABLE>
* On November 23, 1993, these Funds changed their structure to a Master/Feeder
Fund Structure and do not have an investment adviser because the Trust seeks to
achieve the investment objective of the Funds by investing all of the investable
assets of each respective Fund in each respective Portfolio. The Portfolios'
investment adviser is Chase. For the period October 31, 1993 to November 22,
1993, with respect to the Growth and Income Fund and the Capital Growth Fund,
Chase was paid or accrued, and voluntarily waived those amounts in parentheses
following such fees: $296,161 ($0.00) and $71,213 ($0.00), respectively. With
respect to the Growth and Income Portfolio and the Capital Growth Portfolio, for
the period November 23, 1993 to October 31, 1994, Chase was paid or accrued the
following investment advisory fees, and voluntarily waived the amounts in
parentheses following such fees: $4,805,067 ($0.00) and $1,649,889 ($0.00),
respectively. For the fiscal year ended October 31, 1995, Chase was paid or
accrued the following investment advisory fees, and voluntarily waived the
amounts in parentheses following such fees: $6,815,197 ($0.00) and $3,563,194
($0.00), respectively, with respect to such Portfolios.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Funds and the administrator of
each Portfolio. Chase provides certain administrative services to the Funds and
Portfolios, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Funds' and Portfolios' 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 Funds and Portfolios and providing,
at its own expense, office facilities, equipment and personnel necessary to
carry out its duties. Chase in its capacity as administrator does not have any
responsibility or authority for the management of the Funds or Portfolios, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
Under the Administration Agreements Chase is permitted to render 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 of the Trust or
Portfolio 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 Agreements or "interested persons" (as defined in
the 1940 Act) of any such party. The Administration Agreements are terminable
without penalty by the Trust on behalf of each Fund or by a Portfolio on 60
days' written notice when authorized either by a majority vote of such Fund's or
Portfolio 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 Chase on 60 days'
written notice, and will automatically terminate in the event of their
"assignment" (as defined in the 1940 Act). The Administration Agreements also
provide that neither
32
<PAGE>
Chase or its personnel shall be liable for any error of judgment or mistake of
law or for any act or omission in the administration of the Funds or Portfolios,
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 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, Chase receives from each Fund a fee computed daily
and paid monthly at an annual rate equal to 0.10% of each of the Fund's average
daily net assets, on an annualized basis for the Fund's then-current fiscal
year, except that with respect to the Growth and Income Fund, Capital Growth
Fund and Emerging Growth Fund , Chase receives from each of the Funds and the
Portfolios a fee computed daily and paid monthly at an annual rate equal to
0.05% of their respective average daily net assets. Chase may voluntarily waive
a portion of the fees payable to it with respect to each Fund on a
month-to-month basis.
For the fiscal years ended 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:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
1993 1994 1995
Fund paid/accrued waived paid/accrued waived paid/accrued waived
- ---- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Income Fund .............. $ 75,832 ($35,736) $117,228 ($78,078) $106,559 ($ 76,094)
Growth and
Income Fund .............. $469,785 none $637,264 none $830,077 ($252,586)
Capital Growth Fund ...... $107,524 none $208,866 none $435,695 ($116,282)
Balanced Fund ............ -- -- $ 20,704 ($20,704) $ 29,053 ($ 29,053)
Equity Income Fund ....... -- -- $ 13,201 ($ 7,764) $ 11,069 ($ 8,855)
Large Cap Equity Fund .... * * $ 94,703 ($94,703) $ 62,613 ($ 62,613)
Bond Fund ................ * * $ 55,927 ($55,927) $ 54,206 ($ 54,206)
Short-Term Bond Fund ..... * * $ 55,054 ($55,054) $ 34,141 ($ 34,141)
Small Cap Equity Fund .... -- -- -- -- $ 20,040 ($ 20,040)
</TABLE>
* For the fiscal year ended October 31, 1993, with respect to the Large Cap
Equity Fund, Bond Fund and Short-Term Bond Fund, Chase voluntarily waived its
entire administration fee of $155,883, $55,388 and $71,080, respectively.
Distribution Plans The Trust has adopted separate plans of distribution pursuant
to Rule 12b-1 under the 1940 Act (a "Distribution Plan") on behalf of certain
classes of shares of certain Funds as described in the Prospectuses, which
provide such classes of such Funds shall pay for distribution services a
distribution fee (the "Distribution Fee"), including payments to the
Distributor, at annual rates not to exceed the amounts set forth in their
respective Prospectuses. The Distributor may use all or any portion of such
Distribution Fee to pay for Fund expenses of printing prospectuses and reports
used for sales purposes, expenses of the preparation and printing of sales
literature and other such distribution-related expenses.
Class B shares pay a Distribution Fee of up to 0.75% of average daily net
assets. The Distributor currently expects to pay sales commissions to a dealer
at the time of sale of Class B shares of up to 4.00% of the purchase price of
the shares sold by such dealer. The Distributor will use its own funds (which
may be borrowed or otherwise financed) to pay such amounts. Because the
Distributor will receive a maximum Distribution Fee of 0.75% of average daily
net assets with respect to Class B shares, it will take the Distributor several
years to recoup the sales commissions paid to dealers and other sales expenses.
33
<PAGE>
Some payments under the Distribution Plans may be used to compensate
broker-dealers with trail or maintenance commissions in an amount not to exceed
0.25% annualized of the average net asset values of Class A shares, or 0.25%
annualized of the average net asset value of the Class B shares, or 0.25%
annualized of the average net asset value of the shares of the American Value
Fund maintained in a Fund by such broker-dealers' customers. Trail or
maintenance commissions on Class B shares will be paid to broker-dealers
beginning the 13th month following the purchase of such Class B shares. Since
the distribution fees are not directly tied to expenses, the amount of
distribution fees paid by a Fund during any year may be more or less than actual
expenses incurred pursuant to the Distribution Plans. For this reason, this type
of distribution fee arrangement is characterized by the staff of the Securities
and Exchange Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements by which a distributor's payments are directly
linked to its expenses). With respect to Class B shares, because of the 0.75%
annual limitation on the compensation paid to the Distributor during a fiscal
year, compensation relating to a large portion of the commissions attributable
to sales of Class B shares in any one year will be accrued and paid by a Fund to
the Distributor in fiscal years subsequent thereto. In determining whether to
purchase Class B shares, investors should consider that compensation payments
could continue until the Distributor has been fully reimbursed for the
commissions paid on sales of Class B shares. However, the Shares are not liable
for any distribution expenses incurred in excess of the Distribution Fee paid.
Each class of shares is entitled to exclusive voting rights with respect to
matters concerning its Distribution Plan.
Each Distribution Plan provides that it will continue in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Distribution Plans or in any
agreement related to such Plan ("Qualified Trustees"). The continuance of each
Distribution Plan was most recently approved on October 13, 1995. Each
Distribution Plan requires that the Trust shall provide to the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended (and the purposes therefor) under the
Distribution Plan. Each Distribution Plan further provides that the selection
and nomination of Qualified Trustees shall be committed to the discretion of the
disinterested Trustees (as defined in the 1940 Act) then in office. Each
Distribution Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or, with respect to a particular Fund, by vote of a majority
of the outstanding voting Shares of the class of such Fund to which it applies
(as defined in the 1940 Act). Each Distribution Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without a
vote of the majority of both the Trustees and the Qualified Trustees. Each of
the Funds will preserve copies of any plan, agreement or report made pursuant to
a Distribution Plan for a period of not less than six years from the date of the
Distribution Plan, and for the first two years such copies will be preserved in
an easily accessible place. For the fiscal year ended October 31, 1995, the
Distributor was paid or accrued the following Basic Distribution Fees and
voluntarily waived the amounts of such fees:
Fund Paid/Accrued Waived
- ---- ------------ ------
U.S. Treasury Income Fund
A Shares .................... $ 246,262 $49,250
B Shares .................... $ 60,477 none
Growth and Income Fund
A Shares .................... $3,610,606 none
B Shares .................... $1,619,344 none
Capital Growth Fund
A Shares .................... $1,673,901 none
B Shares .................... $1,501,615 none
Balanced Fund
A Shares .................... $ 60,657 $12,130
B Shares .................... $ 35,952 none
Equity Income Fund ............ $ 27,673 $ 5,535
Large Cap Equity Fund ......... $ 156,533 $55,921
Bond Fund ..................... $ 135,515 $88,485
Short-Term Bond Fund .......... $ 85,353 $77,817
Small Cap Equity Fund
A Shares .................... $ 35,265 $ 8,946
B Shares .................... $ 44,661 none
With respect to the Class A shares of the Funds, the Basic Distribution Fee was
allocated as follows:
<TABLE>
<CAPTION>
Printing, Postage Sales Advertising &
Fund and Handling Compensation Administrative Filings
- ---- ----------------- ------------ ----------------------
<S> <C> <C> <C>
U.S. Treasury Income Fund .... $ 42,141 $ 120,768 $ 34,063
Growth and Income Fund ....... $772,309 $2,213,301 $624,274
34
<PAGE>
Capital Growth Fund .......... $358,047 $1,026,101 $289,417
Balanced Fund ................ $ 10,380 $ 29,747 $ 8,390
Equity Income Fund ........... $ 4,735 $ 13,571 $ 3,828
Large Cap Equity Fund ........ $ 21,521 $ 61,675 $ 17,396
Bond Fund .................... $ 10,060 $ 28,829 $ 8,131
Short-Term Bond Fund ......... $ 1,612 $ 4,620 $ 1,303
Small Cap Equity Fund ........ $ 5,630 $ 16,134 $ 4,551
</TABLE>
Distribution and Sub-administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement dated
August 24, 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
class of Shares. The Distributor is a wholly-owned subsidiary of BISYS Fund
Services, Inc. The Distribution Agreement provides that the Distributor will
bear the expenses of printing, distributing and filing prospectuses and
statements of additional information and reports used for sales purposes, and of
preparing and printing sales literature and advertisements not paid for by the
Distribution Plan. The Trust pays for all of the expenses for qualification of
the shares of each Fund for sale in connection with the public offering of such
shares, and all legal expenses in connection therewith. In addition, pursuant to
the Distribution Agreement, the Distributor provides certain sub-administration
services to the Trust, including providing officers, clerical staff and office
space.
The Distribution Agreement is currently in effect and will continue in effect
with respect to each Fund only if such continuance is specifically approved at
least annually by the Board of Trustees or by vote of a majority of such Fund's
outstanding voting securities and, in either case, by a majority of the Trustees
who are not parties to the Distribution Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Distribution Agreement is
terminable without penalty by the Trust on behalf of each Fund on 60 days'
written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days' written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of such Fund are qualified for sale, as such
limitations may be raised or lowered from time to time, the Distributor shall
reduce its sub-administration fee with respect to such Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to such Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to such Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the Distributor
pursuant to the Distribution Agreement, the Distributor receives an annual fee,
payable monthly, of 0.05% of the net assets of each Fund. However, the
Distributor has voluntarily agreed to waive a portion of the fees payable to it
under the Distribution Agreement with respect to each Fund on a month-to-month
basis. For 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:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
1993 1994 1995
Fund payable waived payable waived payable waived
- ---- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund .... $ 37,917 ($17,868) $ 58,614 none $ 53,284 none
Growth and Income Fund ....... $234,794 none $637,264 none $830,077 none
Capital Growth Fund .......... $ 53,763 none $208,866 none $435,488 none
Balanced Fund ................ -- -- $ 10,352 ($10,352) $ 14,527 ($14,527)
Equity Income Fund ........... -- -- $ 6,601 none $ 5,535 none
35
<PAGE>
Large Cap Equity Fund ........ * * $ 47,352 none $ 31,306 none
Bond Fund .................... * * $ 27,963 none $ 27,103 none
Short-Term Bond Fund ......... * * $ 27,527 none $ 17,071 none
Small Cap Equity Fund ........ -- -- -- -- $ 10,030 $ 3,488
</TABLE>
* For the fiscal year ended June 30, 1992, Trinity Equity Fund, Trinity Bond
Fund and Trinity Short-Term Bond Fund paid Trinity Capital Management
distribution and sub-administration fees equal to $98,825, $39,198 and $75,404,
respectively.
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
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. Shareholder servicing agents may be required to register pursuant to
state securities law.
Each Shareholder Servicing Agent may voluntarily agree from time to time 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:
36
<PAGE>
Fiscal Year-Ended October 31,
<TABLE>
<CAPTION>
1993 1994 1995
Fund payable waived payable waived payable waived
- ---- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund
Class A ................ $ 211,063 ($99,758) $ 285,388 ($177,004) $ 246,251 ($197,001)
Class B ................ n/a n/a $ 7,681 -- $ 20,153 --
Growth and Income Fund
Class A ................ $1,126,760 -- $2,999,532 -- $3,610,762 --
Class B ................ n/a n/a $ 186,791 -- $ 539,805 --
Capital Growth Fund
Class A ................ $ 261,208 -- $ 936,977 -- $1,674,668 --
Class B ................ n/a n/a $ 107,015 -- $ 503,805 --
Balanced Fund
Class A ................ n/a n/a $ 47,750 ($ 45,962) $ 60,650 ($ 48,520)
Class B ................ n/a n/a $ 4,011 -- $ 11,983 --
Equity Income Fund
Class A ................ n/a n/a $ 33,030 ($ 22,131) $ 27,673 ($ 26,964)
Small Cap Equity Fund
Class A ................ n/a n/a n/a -- -- --
Class B ................ n/a n/a n/a $ 14,689 -- --
</TABLE>
The Trust has also entered into a Transfer Agency Agreement with DST Systems,
Inc. ("DST") pursuant to which DST acts as transfer agent for the Trust. DST's
address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets of
each Fund and receives such compensation as is from time to time agreed upon by
the Trust and Chase. As custodian, Chase provides oversight and record keeping
for the assets held in the portfolios of each Fund. Chase also provides fund
accounting services for the income, expenses and shares outstanding for such
Funds. Chase is located at 3 Metrotech Center, Brooklyn, NY 11245. Investors
Bank and Trust Co., One First Canadian Place, Toronto, Canada, M5X 1C8, provides
similar services for the Capital Growth and Growth and Income Portfolios.
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, and
the related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses 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 LLP provides the Funds with
audit services, tax return preparation and assistance and consultation with
respect to the preparation of filings with the Securities and Exchange
Commission.
The financial statements incorporated herein by reference from The Hanover
Investment Funds, Inc.'s Annual Reports to Shareholders for the fiscal year
ended November 30, 1995, and the related financial highlights which appear in
the Prospectuses, have been incorporated herein and included in the Prospectuses
in reliance on the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing. KPMG Peat Marwick LLP has offices at 345 Park Avenue, New York,
New York 10154.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment company
organized as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1987. The Trust currently consists of 17 series of shares of
beneficial interest, par value $.001 per share. With respect to certain 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-
37
<PAGE>
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 together,
except when required under federal securities laws to vote separately on matters
that only affect a particular class, such as the approval of distribution plans
for a particular class. With respect to shares purchased through a Shareholder
Servicing Agent and, in the event written proxy instructions are not received by
a 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.
Certain Funds offer both Class A and Class B shares. The classes of shares have
several different attributes relating to sales charges and expenses, as
described herein and in the Prospectuses. In addition to such differences,
expenses borne by each class of a Fund may differ slightly because of the
allocation of other class-specific expenses. For example, a higher transfer
agency fee may be imposed on 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 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. No certificates are issued for Class B shares due to their
conversion feature. No certificates are issued for Institutional Shares.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Trust. The Trust's
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to act,
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
The Board of Trustees has adopted a Code of Ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The Code of Ethics substantially conforms to the
recommendations made by the Investment Company Institute ("ICI") (except where
noted) and includes such provisions as: Prohibitions on investment personnel
acquiring securities in initial offerings;
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;
38
<PAGE>
A restriction on access persons executing transactions for securities on a
recommended list until 14 days after distribution of that list;
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;
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;
A requirement for pre-clearance of any buy or sell transaction in a particular
security after 30 days, but within 60 days;
A requirement that any gift exceeding $75.00 from a customer must be reported to
the appropriate compliance officer;
A requirement that access persons submit in writing any request to serve as a
director or trustee of a publicly traded company;
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);
A requirement that all access persons direct their broker-dealer to submit
duplicate confirmation and customer statements to the appropriate compliance
unit; and
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 March 31, 1996, the following persons owned of record 5% or more of the
outstanding shares of the following classes of the following Funds:
Vista US Treasury Income Fund--A Shares
Chase Manhattan Bank N/A .......................... 8.85%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech
Center 7th Floor
Brooklyn, NY 11245-0002
Carrier ILA Containter Royalty .................... 9.99%
Fund
One Evertrust Plaza
Jersey City, NJ 07302-3051
Trulin & Co. ...................................... 7.96%
Chase Lincoln First Bank
Attn: Melodie R. Sparks-Stewart
Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
Carrier ILA CFS Trust Fund ........................ 14.99%
c/o CCC Inc.
One Evertrust Plaza
Jersey City, NJ 07302-3051
Testa and Co. ..................................... 5.97%
c/o Chase Manhattan Bank NA
Attn: Mutual Funds T-C
PO Box 1412
Rochester, NY 14603-1412
Vista Growth & Income Fund--A Shares
39
<PAGE>
CMB Thrift Incentive Plan ......................... 14.16%
(Fund 50)
Attn: Jeff Salazar
3 Metrotech Center 5th Floor
Brooklyn, NY 11245-0001
Vista Growth & Income Fund--Institutional Shares
Davis and Company ................................. 65.58%
c/o Marshall & Ilsley Trust Co.
PO Box 8020
Appleton, WI 54913-8020
Chase Manhattan Bank N/A .......................... 34.41%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn NY 11245-0002
Vista Capital Growth Fund--A Shares
Charles Schwab & Co. Inc. ......................... 7.99%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Vista Capital Growth Fund--Institutional Shares
Bankers Trust of the Southwest .................... 67.12%
as TTEE for the MAPCO Inc. & Subsid.
Profit Sharing & Savings Plan
Attn: Deborah L. Turri
648 Grassmere Park Drive
Nashville, TN 37211-3658
Chase Manhattan Bank N/A .......................... 32.88%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
40
<PAGE>
Vista Small Cap Equity Fund--A Shares
Charles Schwab & Co. Inc. ......................... 12.91%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94101-4122
Jupiter & Co. ..................................... 11.74%
c/o Investors Bank Trust Co.
PO Box 1537 Top 57
Boston, MA 02205-1537
Vista Small Cap Equity Fund--Institutional Shares
Vista Broker Dealer Services ......................100.00%
c/o Fund Administration
3435 Stelzer Road
Columbus, OH 43219-6004
Vista Balanced Fund--A Shares
Trulin & Co. ...................................... 8.57%
Chase Lincoln First Bank
One Lincoln First Square
Rochester, NY 14643-0001
Chase Manhattan Bank N/A .......................... 21.55%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Testa and Co. ..................................... 21.55%
c/o Chase Manhattan Bank NA
Attn: Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
Vista Large Cap Equity Fund--Institutional Shares
Liva & Company .................................... 6.01%
c/o Chase Lincoln First Bank NA
Trust Securities--Mutual Fund
Attn: Ed Sheidlower
One Lincoln First Square
Rochester, NY 14643-0001
Trulin & Co. ...................................... 79.49%
c/o Chase Lincoln First NA
Trust Securities/ Mutual Funds
Attn: Ed Sheidlower
One Lincoln First Square
Rochester, NY 14643-0001
Testa and Co. ..................................... 8.31%
c/o Chase Manhattan Bank NA
Attn: Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
Vista Bond Fund--Institutional Shares
Trulin & Co. ...................................... 91.70%
c/o Chase Lincoln First Bank NA
Trust Securities/Mutual Funds
Attn: Ed Sheidlower
One Lincoln First Square
41
<PAGE>
Rochester, NY 14643-0001
Vista Short Term Bond Fund--Institutional Shares
Trulin & Co. ...................................... 73.31%
c/o Chase Lincoln First Bank NA
Trust Securities/Mutual Funds
Attn: Ed Sheidlower
One Lincoln First Square
Rochester, NY 14643-0001
Testa and Co. ..................................... 9.06%
c/o Chase Manhattan Bank NA
Attn: Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
Financial Statements
The 1995 Annual Report to Shareholders of each Fund other than the Vista U.S.
Government Securities Fund and Vista American Value Fund, including the reports
of independent accounts, financial highlights and financial statements for the
fiscal year ended October 31, 1995 contained therein, are incorporated herein by
reference. The 1995 Annual Report to Shareholders of each of The Hanover U.S.
Government Securities Fund and The Hanover American Value Fund, each a series of
The Hanover Investment Funds, Inc., including the reports of independent
auditors, financial highlights and financial statements for the fiscal year
ended November 30, 1995 contained therein, are incorporated herein by reference.
Specimen Computations of Offering Prices per Share
U.S. Treasury Income Fund (Specimen Computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $11.40
Maximum Offering Price per Share ($11.40 divided by .955)
(reduced on purchases of $100,000 or more) ............................ $11.94
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $11.37
Growth and Income Fund (Specimen Computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $34.96
Maximum Offering Price per Share ($34.96 divided by .9525)
(reduced on purchases of $100,000 or more) ............................ $36.70
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $34.81
Capital Growth Fund (Specimen Computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $35.65
Maximum Offering Price per Share ($35.65 divided by .9525)
(reduced on purchases of $100,000 or more ............................. $37.43
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $35.39
Equity Income Fund (Specimen Computations)
A Shares
Net Asset Value and Redemption Price per Share
of Beneficial Interest at
42
<PAGE>
October 31, 1995 ....................................................... $13.39
Maximum Offering Price per Share ($13.39 divided by .955)
(reduced on purchases of $100,000 or more ............................. $14.02
Balanced Fund (Specimen Computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $12.45
Maximum Offering Price per Share ($12.45 divided by .955)
(reduced on purchases of $100,000 or more) ............................ $13.04
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $12.36
Large Cap Equity Fund (Specimen Computations)
Institutional Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $12.24
Bond Fund (Specimen Computations)
Institutional Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $10.91
Short-Term Bond Fund (Specimen Computations)
Institutional Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $10.08
Small Cap Equity Fund (Specimen Computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $15.07
Maximum Offering Price per Share ($15.07 divided by .9525)
(reduced on purchases of $100,000 or more) ............................ $15.82
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1995 ............................ $15.01
43
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the Department
of Transportation of the U.S. Government are guaranteed by the U.S. Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage Association.
These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing Administration of
the U.S. Government and are guaranteed by the U.S. Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of the
U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees Paid to GNMA and
the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures may result in the return of the greater part of principal invested
far in advance of the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee. As the prepayment
rate of individual mortgage pools will vary widely, it is not possible to
accurately predict the average life of a particular issue of GNMA Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates. Principal which is so prepaid will be reinvested although possibly
at a lower rate. In addition, prepayment of mortgages included in the mortgage
pool underlying a GNMA Certificate purchased at a premium could result in a loss
to a Fund. Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate. If agency
securities are purchased at a premium above principal, the premium is not
guaranteed by the issuing agency and a decline in the market value to par may
resultin a loss of the premium, which may be particularly likely in the event of
a prepayment. When and if available, U.S. Government obligations may be
purchased at a discount from face value.
GNMA FHLMC Bonds and GNMA FNMA Bonds--are mortgage-backed bonds issued by the
Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by the
General Services Administration of the U.S. Government and are guaranteed by the
U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured by
the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
44
<PAGE>
SBA Debentures--are debentures fully guaranteed as to principal and interest by
the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by the
Washington Metropolitan Area Transit Authority and guaranteed by the U.S.
Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan Mortgage
Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are notes and
bonds issued by the Student Loan Marketing Association and are not guaranteed by
the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia Armory
Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the U.S.
Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
45
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with respect to
bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated "A" possess many favorable investment qualities and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguared
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only in
small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
46
<PAGE>
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
Standard & Poor's Ratings Group Commercial Paper Ratings
A S&P commercial paper rating is current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded in several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3--Issues carrying this designation have adequate capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Fitch Bond Ratings
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated F-1+ by Fitch.
47
<PAGE>
A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings. Plus and minus signs are used by Fitch to indicate the
relative position of a credit within a rating category. Plus and minus signs,
however, are not used in the AAA category.
Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, although near-term adverse changes
could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are considered
to have adequate capacity to pay principal and interest. However, such bonds may
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event will
require a sale of such security by a Fund. However, a Fund's investment manager
will consider such event in its determination of whether such Fund should
continue to hold the security. To the extent the ratings given by Moody's, S&P
or Fitch may change as a result of changes in such organizations or their rating
systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in this
Prospectus and in the Statement of Additional Information.
48
<PAGE>
PART C
<PAGE>
MUTUAL FUND GROUP
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial statements
In Part A: Financial Highlights (incorporated by
reference to the Registrant's filing of
definitive Prospectuses under Rule 497(c) of
the Securities Act on May 9, 1996 and the
Registrant's filing of a Prospectus Supplement
for the Vista European Fund, Vista Southeast
Asian Fund and Vista Japan Fund on May 30,
1996)
In Part B: Financial Statements and the Reports thereon
for the Funds filed herein, other than Vista
U.S. Government Securities Fund, Vista
American Value Fund, Vista European Fund,
Vista Japan Fund and Vista Southeast Asian
Fund for the fiscal year ended October 31,
1995 are incorporated by reference into Part B
as part of the 1995 Annual Reports to
Shareholders for such Funds as filed with the
Securities and Exchange Commission by Mutual
Fund Group on Form N-30D on December 29, 1995,
accession number 0000950123-95-003915, which
are incorporated into Part B by reference.
Financial Statements and the Reports thereon
for The Hanover U.S. Government Securities
Fund and The Hanover American Value Fund, each
a series of The Hanover Investment Funds,
Inc., for the fiscal year ended November 30,
1995 are incorporated by reference into Part B
as part of the 1995 Annual Reports to
Shareholders for such funds as filed with the
Securities and Exchange Commission by The
Hanover Investment Funds, Inc. on Form N-30D
on February 5, 1996, accession number
0000950123-96-000348, which are incorporated
into Part B by reference.
In Part C: None.
(b) Exhibits:
Exhibit
Number
- -------
1(a) Declaration of Trust, as amended. (1)
1(b) Certificate of Amendment to Declaration of Trust dated December 14,
1995.(12)
1(c) Certificate of Amendment to Declaration of Trust dated October 19,
1995.(12)
1(d) Certificate of Amendment to Declaration of Trust dated July 25,
1993.(12)
2 By-laws, as amended. (1)
3 None.
4 Specimen share certificate. (1)
5(a) Investment Advisory Agreements and Sub-Advisory Agreements(6)
5(b) Form of Investment Advisory Agreement for Vista Small Cap Equity
Fund. (9)
5(c) Administration Agreement.(6)
5(d) Form of Interim Investment Advisory Agreement.(12)
5(e) Form of Proposed Investment Advisory Agreement.(12)
5(f) Form of Proposed Sub-Advisory Agreement between The Chase Manhattan
Bank and Chase Asset Management, Inc.(12)
5(g) Form of Administration Agreement.(12)
5(h) Form of Proposed Investment Subadvisory Agreement between The Chase
Manhattan Bank and [Chase Asset Management, Inc./Van Deventer &
Hoch(12)].
6(a) Distribution and Sub-Administration Agreement.(6)
6(b) Distribution and Sub-Administration Agreement dated August 21,
1995.(12)
7(a) Retirement Plan for Eligible Trustees.(12)
7(b) Deferred Compensation Plan for Eligible Trustees.(12)
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. (12)
C-1
<PAGE>
9(f) Agreement and Plan of Reorganization and Liquidation.(12)
10 Opinion re: Legality of Securities being Registered.(1)
11 Consent of Price Waterhouse LLP.(13)
12 None.
13 Not Applicable
14 None.
15(a) Rule 12b-1 Distribution Plan of Vista Mutual Funds including
Selected Dealer Agreement and Shareholder Service Agreement. (1)
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)
15(g) Proposed Rule 12b-1 Distribution Plan - Class A Shares - Vista
American Value Fund (including forms of Selected Dealer Agreement
and Shareholder Servicing Agreement).(12)
15(h) Rule 12b-1 Distribution Plan - Class B Shares (including forms of
Selected Dealer Agreement and Shareholder Servicing Agreement).(12)
16 Schedule for Computation for Each Performance Quotation.(11)
17 Financial Data Schedule.(13)
18 Form of Rule 18f-3 Multi-Class Plan.(12)
99 Powers of Attorney for: Richard E. Ten Haken; William J. Armstrong;
John R. H. Blum; Joseph J. Harkins; Fergus Reid, III (14)
- --------------------
(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 an 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 an 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 as an Exhibit to Amendment No. 31 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on November 13, 1995.
(12) Filed as an Exhibit to Amendment No. 32 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 28, 1995.
(13) Filed as an Exhibit to Amendment No. 35 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on April 22, 1996.
(14) Filed herewith
ITEM 25. Persons Controlled by or Under Common
Control with Registrant
Not applicable
C-2
<PAGE>
ITEM 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders as of June 30, 1996
--------------- ------------------------------
A B Institutional
Shares Shares Shares
<S> <C> <C> <C>
VISTA(SM) U.S. Treasury Income Fund 8,861 981 N/A
VISTA(SM) Growth and Income Fund 43,113 9,260 647
VISTA(SM) Capital Growth Fund 18,840 8,036 704
VISTA(SM) Balanced Fund 3,790 632 N/A
VISTA(SM) Large Cap Equity Fund 583 0 9,590
VISTA(SM) Bond Fund 40 7 5,755
VISTA(SM) Short-Term Bond Fund 920 N/A 3,749
VISTA(SM) Global Fixed Income Fund 209 36 N/A
VISTA(SM) International Equity Fund 1,962 648 N/A
VISTA(SM) Equity Income Fund 932 6 N/A
VISTA(SM) Southeast Asian Fund 713 83 N/A
VISTA(SM) Japan Fund 506 16 N/A
VISTA(SM) European Fund 519 7 N/A
VISTA(SM) Small Cap Equity Fund 6,768 3,178 2,385
VISTA(SM) U.S. Government Securities Fund 323 N/A 7,680
VISTA(SM) American Value Fund 694 N/A N/A
</TABLE>
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.
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
C-3
<PAGE>
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.
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Thomas G. Labreque Chairman of the Board, Chairman, Chief Executive Officer
and Director and a Director of The Chase
Manhattan Corporation and a
Director of AMAX, Inc.
Richard J. Boyle Vice Chairman of the Vice Chairman of the Board and a
Board and Director 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
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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. Trautlein 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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
ITEM 29. Principal Underwriters
(a) Vista Fund Distributors, Inc., a wholly-owned subsidiary of
The BISYS Group, Inc. is the underwriter for the Registrant.
(b) The following are the Directors and officers of Vista Fund
Distributors, Inc. The principal business address of each of these persons, with
the exception of Mr. Spicer, is 101 Park Avenue, New York, New York 10178. The
principal business address of Mr. Spicer is One Bush Street, San Francisco,
California 94104.
<TABLE>
<CAPTION>
Position and Offices Position and Offices
Name with Distributor with the Registrant
- ---- -------------------- --------------------
<S> <C> <C>
William B. Blundin Director and Chief Executive Officer None
Richard E. Stierwalt Director and Chief Operating Officer None
Timothy M. Spicer Director and Chairman of the Board None
Joseph Kissel President None
George Martinez Chief Compliance Officer Secretary and Assistant
and Secretary Treasurer
</TABLE>
(c) Not applicable
C-6
<PAGE>
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 Fund Distributors, Inc. 101 Park Avenue,
New York, NY 10178
DST Systems, Inc. 210 W. 10th Street,
Kansas City, MO 64105
The Chase Manhattan Bank 270 Park Avenue,
New York, NY 10017
Chase Asset Mangement, Inc. 1211 Avenue of the
Americas,
New York, NY 10036
Van Deventer & Hoch 800 North Brand Boulevard,
300 Glendale, CA 91203
The Chase Manhattan Bank One Chase Square,
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) Registrant undertakes to file a post-effective amendment,
using reasonably current financial statements which need not be certified,
within four to six months from the effective date of the Registrant's 1933 Act
Registration Statement relating to shares of the Vista Emerging Growth Fund (the
"Registration Statement") or the initial public offering thereof, whichever is
later.
(4) Registrant undertakes to file a post-effective amendment
prior to the effectiveness of this amendment which shall include the signatures
of the trustees of Emerging Growth Portfolio, the master fund in which Vista
Emerging Growth Fund intends to invest all of its investable assets.
C-7
<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 2nd day of August, 1996.
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.
* Chairman and Trustee August 2, 1996
- ------------------------------
Fergus Reid, III
* Trustee August 2, 1996
- ------------------------------
William J. Armstrong
* Trustee August 2, 1996
- ------------------------------
John R.H. Blum
* Trustee August 2, 1996
- ------------------------------
Joseph J. Harkins
* Trustee August 2, 1996
- ------------------------------
Richard E. Ten Haken
Trustee August 2, 1996
- ------------------------------
Stuart W. Cragin, Jr.
Trustee August 2, 1996
- ------------------------------
Irv Thode
/s/ H. Richard Vartabedian President August 2, 1996
- ------------------------------ and Trustee
H. Richard Vartabedian
/s/ Martin R. Dean Treasurer and August 2, 1996
- ------------------------------ Principal Financial
Martin R. Dean Officer
- ------------------------------ Trustee August 2, 1996
W. Perry Neff
- ------------------------------ Trustee August 2, 1996
Roland R. Eppley, Jr.
- ------------------------------ Trustee August 2, 1996
W.D. MacCallan
/s/ Susan Penry-Williams
- ------------------------------ Attorney in Fact August 2, 1996
Susan Penry-Williams
C-8
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- -------
99 Powers of Attorney for: Richard E. Ten Haken; William J. Armstrong;
John R.H. Blum; Joseph J. Harkins; Fergus Reid, III
C-13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Carl Frischling, Susan Penry-Williams or Thomas R. Westle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all his capacities as a trustee of MUTUAL FUND GROUP, a Massachusetts
business trust, to sign on his or its behalf any and all Registration Statements
under the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 2nd day of January, 1996.
/s/ Richard E. Ten Haken
______________________________
Richard E. Ten Haken
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Carl Frischling, Susan Penry-Williams or Thomas R. Westle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all his capacities as a trustee of MUTUAL FUND GROUP, a Massachusetts
business trust, to sign on his or its behalf any and all Registration Statements
under the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 2nd day of January, 1996.
/s/ William J. Armstrong
______________________________
William J. Armstrong
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Carl Frischling, Susan Penry-Williams or Thomas R. Westle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all his capacities as a trustee of MUTUAL FUND GROUP, a Massachusetts
business trust, to sign on his or its behalf any and all Registration Statements
under the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 2nd day of January, 1996.
/s/ John R. H. Blum
______________________________
John R. H. Blum
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Carl Frischling, Susan Penry-Williams or Thomas R. Westle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all his capacities as a trustee of MUTUAL FUND GROUP, a Massachusetts
business trust, to sign on his or its behalf any and all Registration Statements
under the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 2nd day of January, 1996.
/s/ Joseph J. Harkins
______________________________
Joseph J. Harkins
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Carl Frischling, Susan Penry-Williams or Thomas R. Westle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all his capacities as a trustee of MUTUAL FUND GROUP, a Massachusetts
business trust, to sign on his or its behalf any and all Registration Statements
under the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 2nd day of January, 1996.
/s/ Fergus Reid, III
______________________________
Fergus Reid, III
