As filed via EDGAR with the Securities and Exchange Commission on
December 15, 1997
File No. 811-5151
Registration No. 33-14196
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 47 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
Post-Effective Amendment No. 86 |X|
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MUTUAL FUND GROUP
(Exact Name of Registrant as Specified in Charter)
One Chase Manhattan Plaza
New York, New York 10081
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(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (212) 492-1600
George Martinez, Esq. Peter Eldridge, 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
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
|X| immediately upon filing pursuant to | | on (________________)
paragraph (b) pursuant toparagraph (b)
| | 60 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
| | 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.
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The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its series under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940 on July 18, 1994 and
Registrant's Rule 24f-2 Notice was filed on November 27, 1996.
<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) 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) SMALL CAP OPPORTUNITIES FUND
VISTA(SM) SELECT GROWTH AND INCOME FUND
VISTA(SM) LATIN AMERICAN EQUITY FUND
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
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<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>
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<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 *
S
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>
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<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>
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<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>
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<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>
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<PAGE>
EXPLANATORY NOTE
Prospectuses for Class A and Class B Shares of Vista Balanced Fund, Vista
Bond Fund, Vista Capital Growth Fund, Vista Equity Income Fund, Vista European
Fund, Vista Growth and Income Fund, Vista International Equity Fund, Vista Japan
Fund, Vista Large Cap Equity Fund, Vista Small Cap Equity Fund, Vista Southeast
Asian Fund and Vista U.S. Treasury Income Fund, the Prospectuses for Class A
Shares of Vista Short-Term Bond Fund, Vista U.S. Government Securities Fund and
Vista U.S. Treasury Income Fund, the Prospectus for Shares of Vista American
Value Fund, and the Prospectuses for Institutional Shares of Vista Bond Fund,
Vista Capital Growth Fund, Vista Growth and Income Fund, Vista Large Cap Equity
Fund, Vista Small Cap Equity Fund, Vista Short-Term Bond Fund and Vista U.S.
Government Securities Fund are incorporated by reference to Amendment No. 41 to
the Registration Statement on Form N-1A of the Registrant filed on February 28,
1997.
The Prospectus for Shares of Vista Latin American Equity Fund is
incorporated by reference to Amendment No. 46 to the Registration Statement on
Form N-1A of the Registrant filed on December 1, 1997.
The Prospectus for shares of Vista Small Cap Opportunities Fund is
incorporated by reference to Amendment No. 43 to the Registration Statement on
Form N-1A of the Registrant filed on May 13, 1997.
The Prospectus Supplement for Class A and Class B Shares of Vista Large Cap
Equity Fund and Institutional Shares of Vista Large Cap Equity Fund are
incorporated by reference to the Registrant's filing of a definitive copy under
Rule 497(e) of the Securities Act of 1933, as amended (the "Securities Act").
The Prospectus Supplement for Class A and Class B Shares of the Vista Bond
Fund and the Institutional Shares of the Vista Bond Fond are incorporated by
reference to the Registrant's filing of a definitive copy under Rule 497(e) of
the Securities Act.
The Statement of Additional Information for Vista U.S. Treasury Income
Fund, Vista Balanced Fund, Vista Equity Income Fund, Vista Growth and Income
Fund, Vista Capital Growth Fund, Vista Large Cap Equity Fund, Vista Bond Fund,
Vista Short-Term Bond Fund, Vista Small Cap Equity Fund, Vista Government
Securities Fund, Vista American Value Fund, Vista Small Cap Opportunities Fund
and Vista Select Growth and Income Fund is incorporated by reference to
Amendment No. 43 to the Registration Statement on Form N-1A of the Registrant
filed on May 13, 1997.
The Statement of Additional Information for Vista European Fund, Vista
International Equity Fund, Vista Japan Fund and Vista Southeast Asian Fund is
incorporated by reference to Amendment No. 41 to the Registration Statement on
Form N-1A of the Registrant filed on February 28, 1997.
The Statement of Additional Information for Vista Latin American Equity
Fund is incorporated by reference to Amendment No. 46 to the Registration
Statementon Form N-1A of the Registrant filed on December 1, 1997.
The Prospectuses for Class A, B and C shares of, and the Statement of
Additional Information for, Vista Capital Growth Fund, Vista Equity Income Fund,
Vista Growth and Income Fund and Vista Small Cap Opportunities Fund are
incorporated by reference to Amendment No. 45 to the Registration Statement on
Form N-1A of the Registrant filed on October 28, 1997.
<PAGE>
[CHASE VISTA LOGO]
PROSPECTUS
VISTA(SM) SELECT GROWTH AND INCOME FUND
--------------------
INVESTMENT STRATEGY:
GROWTH AND INCOME
--------------------
December 15, 1997
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 December 15, 1997 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-622-4273. 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 Growth and Income Portfolio (the
"Portfolio"), an open-end management investment company with investment
objectives 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
14.
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 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 the FDIC, the Federal Reserve Board or any other government agency.
Investments in mutual funds involve risk, including the possible loss of the
principal amount invested.
<PAGE>
TABLE OF CONTENTS
Expense Summary ............................................................ 3
The expenses you might pay on your Fund investment, including examples
Fund Objectives ............................................................ 4
Investment Policies ......................................................... 4
The kinds of securities in which the Fund invests, investment policies and
techniques, and risks
Management .................................................................. 8
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management, the
Fund's sub-adviser, and the individuals who manage the Fund
How to Purchase and Redeem Shares .......................................... 9
How the Fund Values Its Shares ............................................. 11
How Distributions Are Made; Tax Information ................................. 11
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 and regulatory matters
Performance Information ................................................... 15
How performance is determined, stated and/or advertised
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.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fee ................. 0.40%
12b-1 Fee ............................... None
Shareholder Servicing Fee ............... None
Other Expenses .......................... 0.25%
----
Total Fund Operating Expenses ........... 0.65%
====
EXAMPLES
Your investment of $1,000 would incur the
following expenses, assuming 5% annual return: 1 Year 3 Years
------- -------
Shares ....................................... $7 $21
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.
3
<PAGE>
FUND OBJECTIVES
- ---------------
Vista Select Growth and Income Fund seeks to provide long-term capital
appreciation and dividend income. The Fund is not intended to be a complete
investment program, and there is no assurance it will achieve its objectives.
INVESTMENT POLICIES
- -------------------
INVESTMENT APPROACH
The Fund seeks to achieve its objective by investing all of its investable
assets in the Portfolio. The Portfolio invests in common stocks of issuers with
a broad range of market capitalizations. Under normal market conditions, the
Portfolio will invest at least 80% of its total assets in common stocks. In
addition, the Portfolio may invest up to 20% of its total assets in convertible
securities.
The Portfolio's advisers intend to utilize both quantitative and fundamental
research to identify undervalued stocks with a catalyst for positive change.
The advisers believe that the market risk involved in seeking capital
appreciation will be moderated to an extent by the anticipated dividend returns
on the stocks in which the Portfolio invests.
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 as described
above in high quality money market instruments and repurchase agreements. For
temporary defensive purposes, the Portfolio may invest without limitation in
these instruments as well as investment grade debt securities. 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 (exclusive of any investments in money market
instruments). 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.
4
<PAGE>
FOREIGN SECURITIES. The Portfolio may invest up to 20% of its total assets in
foreign securities, including Depositary Receipts, which are described below.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's foreign investments may be influenced
by currency exchange rates and exchange control regulations. There may be less
information publicly available about foreign issuers than U.S. issuers, and
they are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the U.S. Foreign securities may
be less liquid and more volatile than comparable U.S. securities. Foreign
settlement procedures and trade regulations may involve certain expenses and
risks. One risk would be the delay in payment or delivery of securities or in
the recovery of the Portfolio's assets held abroad. It is possible that
nationalization or expropriation of assets, imposition of currency exchange
controls, taxation, by withholding Portfolio assets, 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 emerging market securities.
The Portfolio may invest its assets in securities of foreign issuers in the
form of American Depositary Receipts, European Depositary Receipts, Global
Depositary Receipts or other similar securities representing securities of
foreign issuers (collectively, "Depositary Receipts"). The 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).
SUPRANATIONAL AND ECU OBLIGATIONS. The Portfolio may invest in debt securities
issued by supranational organizations, which include organizations such as The
World Bank, the European Community, the European Coal and Steel Community and
the Asian Development Bank. The Portfolio may also invest in securities
denominated in the ECU, which is a "basket" consisting of specified amounts of
the currencies of certain member states of the European Community. These
securities are typically issued by European governments and supranational
organizations.
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
5
<PAGE>
fluctuations in the market value of the underlying common or preferred stock.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government obligations include obligations
issued 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. These 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.
INVESTMENT GRADE DEBT SECURITIES. Investment grade debt securities are
securities rated in the category BBB or higher by Standard & Poor's Corporation
("S&P"), or Baa or higher by Moody's Investors Services, Inc. ("Moody's") or
the equivalent by another national rating organization, or, if unrated,
determined by the advisers to be of comparable quality.
REPURCHASE AGREEMENTS, SECURITIES LOANS AND FORWARD AND STAND-BY
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. The Portfolio may enter into put transactions, including those
sometimes referred to as stand-by commitments, with respect to securities 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. A put transaction will increase the cost of the underlying
security and consequently reduce the available yield. Each of these
transactions involves some risk to the 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 to buy
additional securities, known as "leveraging." The Portfolio may also sell and
simultaneously commit to repurchase a portfolio security at an agreed-upon price
and time. This practice may be used to generate cash for shareholder redemptions
without selling securities during unfavorable market conditions. Whenever the
Portfolio enters into a reverse never 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
6
<PAGE>
agreements, which are considered borrowings under federal securities laws.
OTHER INVESTMENT COMPANIES. The Portfolio may invest up to 10% of its total
assets in shares of other investment companies when consistent with its
investment objective and policies, subject to applicable regulatory
limitations. Additional fees may be charged by other investment companies.
STRIPS. The Portfolio may invest up to 20% of its total assets in stripped
obligations (i.e., separately traded principal and interest components of
securities) where the underlying obligation is 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
its 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.
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 its 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 losses that
may exceed the original investment of the Portfolio. 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
7
<PAGE>
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 buy and sell 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."
LIMITING INVESTMENT RISKS
Specific investment restrictions help the Portfolio limit investment risks for
the Fund's shareholders. These restrictions prohibit the Portfolio from: (a)
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);
or (b) 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 (b) above and investment policies designated as
fundamental in the SAI, the investment policies (including their investment
objective) of the Portfolio and the Fund are not fundamental. Shareholder
approval is not required to change any non-fundamental investment 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 Fund's shares will fluctuate based on the value of
the securities held by the Portfolio. The Fund does not constitute a balanced
or complete investment program. The Fund is subject to the general risks and
considerations associated with equity investing.
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.
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
The Chase Manhattan Bank ("Chase") is the Portfolio's investment adviser under
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.
8
<PAGE>
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 0.40% 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
Portfolio's sub-investment adviser under 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 0.20% of the Portfolio's average daily net
assets. CAM provides discretionary investment advisory services to
institutional clients. 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. Greg Adams and Diane Sobin, Senior Portfolio Managers at
Chase, are responsible for the day-to-day management of the Portfolio. Mr.
Adams joined Chase in 1987 and has been a manager of the Portfolio since March
1995. Mr. Adams is also a manager of Vista Balanced Fund and Vista Large Cap
Equity Fund. In addition, Mr. Adams has been responsible for overseeing the
proprietary computer model program used in the U.S. equity selection process.
Ms. Sobin joined Chase in 1997 and has been a manager of the Portfolio since
July 1997. Prior to joining Chase, Ms. Sobin was a senior portfolio manager at
Oppenheimer Funds Inc., where she managed mutual funds. Prior to 1995, Ms.
Sobin was a senior portfolio manager at Dean Witter Discover, where she managed
several mutual funds and other accounts.
Dave Klassen, Director, U.S. Funds Management and Equity Research at Chase, is
responsible for asset allocation and investment strategy for Chase's domestic
equity portfolios. Mr. Klassen joined Chase in 1992 and is a manager of Vista
Small Cap Equity Fund and Vista Capital Growth Portfolio. Prior to joining
Chase in 1992, Mr. Klassen was a vice president and portfolio manager at Dean
Witter Reynolds, responsible for managing several mutual funds and other
accounts.
HOW TO PURCHASE AND REDEEM SHARES
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased through Chase and other selected financial
institutions that have entered into an agreement with the Fund (such
institutions are referred to herein as "Financial Institutions") on each
business day during which Chase and the New York Stock Exchange are open ("Fund
Business Day"). Qualified investors are defined as institutions, trusts,
partnerships, corporations, qualified and other retirement plans and fiduciary
accounts. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time.
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Shares are purchased at their public offering price, which is their next
determined net asset value. Orders received by the account administrator at
your Financial Institution in proper form prior to the New York Stock Exchange
closing time (or such earlier cut-off time as may be established by your
Financial Institution) are confirmed at that day's net asset value, provided
the order is received by the Fund prior to its close of business. Financial
Institutions are responsible for forwarding orders for the purchase of shares
on a timely basis. Shares will be maintained in book entry form and share
certificates will not be issued. Management reserves the right to refuse to
sell shares of the Fund to any institution.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening an account.
MINIMUM INVESTMENTS
Financial Institutions are required to maintain at least $5,000,000 in an
omnibus account with one or more of the Vista Select Funds.
HOW TO REDEEM SHARES
You may redeem all or any portion of the shares in your account at any time at
the net asset value next determined after a redemption request in proper form
is furnished by you to the account administrator at your Financial Institution
and transmitted to and received by the Fund.
In making redemption requests, the names of the registered shareholders on your
account and your account number must be supplied. The price you will receive is
the next net asset value calculated after the Fund receives your request in
proper form. In order to receive that day's net asset value, the Fund must
receive your request before the close of regular trading on the New York Stock
Exchange. Your Financial Institution will be responsible for furnishing all
necessary documentation to the Fund, and may charge you for its services.
The Fund generally sends your Financial Institution payment for your shares in
federal funds on the business day after your request is received in proper
form. Under unusual circumstances, the Fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by federal securities
law.
If a Financial Institution is authorized to act upon redemption and transfer
instructions received by telephone from an investor and the Financial
Institution fails to employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, it 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 the investor's
Financial Institution nor any of their 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 your account
administrator.
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HOW THE FUND
VALUES ITS SHARES
- -----------------
The net asset value 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 Fund Business Day, by dividing the net assets of a
Fund by the total number of outstanding shares of the Fund. 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
- ---------------------
The Fund distributes any net investment income at least quarterly and any net
realized capital gains at least annually. Capital gains are distributed after
deducting any available capital loss carryovers.
DISTRIBUTION PAYMENT OPTION. You can choose from three distribution options if
made available by your Financial Institution: (1) reinvest all distributions in
additional Fund shares; (2) receive distributions from net investment income in
cash while reinvesting capital gains distributions in additional shares; or (3)
receive all distributions in cash. You can change your distribution option by
notifying your account administrator in writing. If your Financial Institution
does not offer distribution reinvestment or if you do not select an option when
you open your account, all distributions will be made in cash.
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.
TAXATION OF DISTRIBUTIONS
All fund distributions of net investment income will be taxable as ordinary
income. Any distributions of net capital gain which are designated as "capital
gain dividends" will be taxable as long-term capital gain, regardless of how
long you have held the shares. The taxation of your distribution is the same
whether received in cash or in shares through the reinvestment of
distributions.
You should carefully consider the tax implications of purchasing shares just
prior to a distribution. This is because you will be taxed on the entire amount
of the distribution received, even though the net asset value per share will be
higher on the date of such purchase as it will include the distribution amount.
A portion of the ordinary income dividends paid by the Fund may qualify for the
70% dividends-received deduction for corporate shareholders.
Early in each calendar year the Fund will notify your Financial Institution of
the amount and tax status of
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distributions paid for the preceding year.
The above is only 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
- -------------------
Your Financial Institution may offer additional services to its customers,
including specialized procedures for the purchase and redemption of Fund
shares, such as pre-authorized or systematic purchase and redemption plans.
Each Financial Institution may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain Financial Institutions 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.
Chase and its affiliates and the Vista Family of Funds, affiliates, agents and
subagents may exchange among themselves and others certain information about
shareholders and their accounts, including information used to offer investment
products and insurance products to them, unless otherwise contractually
prohibited.
ADMINISTRATOR
Chase acts as the administrator for 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 respective average daily
net assets.
SUB-ADMINISTRATOR
AND DISTRIBUTOR
Vista Fund Distributors, Inc. ("VFD") acts as the Fund's sub-administrator and
distributor. VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated
with Chase. For the sub-administrative services it performs, VFD is entitled to
receive a fee from the Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets. 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 One
Chase Manhattan Plaza, 3rd Fl, New York, New York 10081.
CUSTODIAN
Chase acts as custodian and fund accountant for the Fund and the Portfolio and
receives compensation under separate agreements with the Trust and the
Portfolio. Portfolio 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
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<PAGE>
Trust and the Portfolio. 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 for custody services,
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 or Portfolio;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, shares of the Fund. In addition, the Fund may allocate transfer
agency and certain other expenses by class if additional classes of the Fund
are established in the future. 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
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 shares 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.
The Fund currently issues a single class of shares but may, in the future,
offer other classes of shares. The categories of investors that are eligible to
purchase shares 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 1-800-622-4273 to obtain additional
information about other classes of shares of the Fund that may be offered in
the future. Any person entitled to receive compensation for selling or
servicing shares of a Fund may receive different levels of compensation with
respect to one class of shares over another. Shares of each class of a Fund
would 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 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
13
<PAGE>
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 a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share
of the Portfolio's expenses. However, other investors investing in the
Portfolio are not required to sell their shares at the same public offering
prices as the Fund, 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
14
<PAGE>
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.
The same individuals who are disinterested Trustees of the Trust serve as
Trustees of the Portfolio. The Trustees of the Trust, including a majority of
the disinterested Trustees, have adopted procedures they believe are reasonably
appropriate to deal with any resulting conflict of interest up to and including
creating a separate Board of Trustees.
Investors in the Fund may obtain information about
whether an investment in the Portfolio may be available through other funds by
calling the Fund at 1-800-622-4273.
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, in the manner described in the SAI. "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 public offering price. Total return may also be presented for
other periods.
All performance data is based on the Fund's past investment results and does
not predict future performance. The performance data for the Fund prior to
December 15, 1997 includes the historical performance of Class A shares of the
Vista Growth and Income Fund, an investment company which invests all of its
investable assets in the Portfolio, adjusted to eliminate the effects of any
sales charges with respect to such Class A shares. Investment performance,
which will vary, is based on many factors, including market conditions, the
composition of the Fund's portfolio and the Fund's operating expenses.
Investment performance also often reflects the risks associated with the Fund's
investment objectives and policies. These factors should be considered when
comparing the Fund's investment results to those of other mutual funds and
other investment vehicles. Quotation of investment performance for any period
when a fee waiver or expense limitation was in effect will be greater than if
the waiver or limitation had not been in effect. The Fund's performance may be
compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
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<PAGE>
TRANSFER AGENT AND DIVIDEND PAYING AGENT
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
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
[CHASE VISTA LOGO]
P.O. Box 419392
Kansas City, MO 64141-6392
VSGI-1-1297X
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
DECEMBER 15, 1997
VISTASM SELECT GROWTH AND INCOME FUND
One Chase Manhattan Plaza, Third Floor, New York, New York 10081
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectus offering shares of the Fund. This Statement of Additional
Information should be read in conjunction with the Prospectus offering shares
of Vista Select Growth and Income Fund (the "Fund"). Any references to a
"Prospectus" in this Statement of Additional Information is a reference to the
foregoing Prospectus, as the context requires. Copies of the Prospectus may be
obtained by an investor without charge by contacting Vista Fund Distributors,
Inc.("VFD"), the Fund's distributor (the "Distributor"), at the above-listed
address. This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
For more information about the Fund, simply call or write the Vista Select
Service Center at:
1-800-622-4273
Vista Select Service Center
P.O. Box 419392
Kansas City, MO 64141
VSGI-SAI
<PAGE>
<TABLE>
<S> <C>
Table of Contents
- ------------------------------------------------------------------------------------------------
Page
- -------------------------------------------------------------------------------------------
The Fund ................................................................................ 3
Investment Policies and Restrictions .................................................... 3
Performance Information .................................................................. 18
Determination of Net Asset Value ........................................................ 19
Purchases and Redemptions ................................................................ 20
Tax Matters .............................................................................. 20
Management of the Trust and the Fund or Portfolio ........................................ 25
Independent Accountants .................................................................. 32
General Information ...................................................................... 33
Appendix A--Description of Certain Obligations Issued or Guaranteed by U.S. Government
Agencies
or Instrumentalities .................................................................... A-1
Appendix B--Description of Ratings ...................................................... B-1
</TABLE>
2
<PAGE>
THE FUND
Mutual Fund 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
18 separate series, including Vista Select Growth and Income Fund (the "Fund").
The Fund is non-diversified, as such term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). The shares of the Fund are
collectively referred to in this Statement of Additional Information as the
"Shares."
The Vista Select Growth and Income Fund will operate with a master
fund/feeder fund structure. Under this structure, the Fund 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 the
Fund. The Vista Select Growth and Income Fund invests in the Growth and Income
Portfolio (the "Portfolio"). The Portfolio is a New York trust with its
principal office in New York. Certain qualified investors, in addition to the
Fund, may invest in the Portfolio. For purposes of this Statement of Additional
Information, any information or references to the Portfolio refer to the
operations and activities after implementation of the master fund/feeder fund
structure.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Fund. In the case of the Portfolio, a
separate Board of Trustees, with the same members as the Board of Trustees of
the Trust, provides broad supervision. The Chase Manhattan Bank ("Chase") is
the investment adviser for the Portfolio. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration
of the Trust, including the Fund, and is the administrator of the Portfolio. 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 Portfolio
are not affiliated with the investment adviser or sub-adviser.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectus sets forth the various investment policies of the Fund and
Portfolio. The following information supplements and should be read in
conjunction with the related sections of the 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 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
3
<PAGE>
right of the issuer to borrow from the U.S. Treasury, such as obligations of
the Federal Home Loan Banks, and obligations that are supported by the
creditworthiness of the particular instrumentality, such as obligations of the
Federal National Mortgage Association or Federal Home Loan Mortgage
Corporation. For a description of certain obligations issued or guaranteed by
U.S. Government agencies and instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small Business
Administration, Federal Aviation Administration, Department of Defense, Bureau
of Indian Affairs and Private Export Funding Corporation, which often provide
higher yields than are available from the more common types of
government-backed instruments. However, such specialized instruments may only
be available from a few sources, in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if the Fund or Portfolio were required to
liquidate any of them, it might not be able to do so advantageously;
accordingly, the Fund and Portfolio normally 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 the 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. The 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
4
<PAGE>
investment). A purchaser of an unsponsored Depositary Receipt may not have
unlimited voting rights and may not receive as much information about the
issuer of the underlying securities as with a sponsored Depositary Receipt.
ECU Obligations. The specific amounts of currencies comprising the ECU may
be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Trustees do not
believe that such adjustments will adversely affect holders of ECU-denominated
securities or the marketability of such securities.
Supranational Obligations. Supranational organizations, include
organizations such as The World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union
of various European nations steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations of the Asian and Pacific regions.
Corporate Reorganizations. In general, securities that are the subject of
a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal.
The increased market price of these securities may also discount what the
stated or appraised value of the security would be if the contemplated action
were approved or consummated. These investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility that
the offer or proposal may be replaced or superseded by an offer or proposal of
greater value. The evaluation of these contingencies requires unusually broad
knowledge and experience on the part of the advisers that must appraise not
only the value of the issuer and its component businesses as well as the assets
or securities to be received as a result of the contemplated transaction, but
also the financial resources and business motivation of the offeror as well as
the dynamics of the business climate when the offer or proposal is in progress.
Investments in reorganization securities may tend to increase the turnover
ratio of the Fund or Portfolio 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. The 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 the Fund or Portfolio are permitted to invest. Under the terms of a
typical repurchase agreement, the 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
5
<PAGE>
market fluctuations during such period. A repurchase agreement is subject to
the risk that the seller may fail to repurchase the security. Repurchase
agreements are considered under the 1940 Act to be loans collateralized by the
underlying securities. All repurchase agreements entered into by the Fund 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 100% 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, the 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 the Fund or Portfolio. Repurchase agreements maturing
in more than seven days are treated as illiquid for purposes of the Fund's and
Portfolio's restrictions on purchases of illiquid securities. Repurchase
agreements are also subject to the risks described below with respect to
stand-by commitments.
Forward Commitments. In order to invest the Fund's and Portfolio's assets
immediately, while awaiting delivery of securities purchased on a forward
commitment basis, short-term obligations that offer same-day settlement and
earnings will normally be purchased. When a commitment to purchase a security
on a forward commitment basis is made, procedures are established consistent
with the General Statement of Policy of the Securities and Exchange Commission
concerning such purchases. Since that policy currently recommends that an
amount of the Fund's 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 the Fund or Portfolio consisting of cash, cash equivalents or high
quality debt securities equal to the amount of the Fund's or Portfolio's
commitments securities will be established at the 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 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 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 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 the 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 the 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.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by the Fund or Portfolio with an agreement to
repurchase the securities at an agreed upon price and
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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.
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.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, the 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 the Fund and 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 Fund's and Portfolio's purchases and
sales of Rule 144A securities and Section 4(2) paper.
Stand-by Commitments. In a put transaction, the 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 the 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 the 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 the Prospectus, the Fund and
Portfolio are permitted to lend their securities to broker-dealers and other
institutional investors in order to generate additional income. Such loans of
portfolio securities may not exceed 30% of the value of the Fund's or
Portfolio's total assets. In connection with such loans, the 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
100% of the current market value plus accrued interest of the securities
loaned. The Fund or Portfolio can increase its income through the investment of
such
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collateral. The 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 the 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. The
Fund or Portfolio might experience risk of loss if the institutions with which
it has engaged in portfolio loan transactions breach their agreements with the
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 Fund and Portfolio 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 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 the Fund or Portfolio.
The 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 Fund or
Portfolio may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Fund and Portfolio--the ability of the 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 have taken positions in
derivative or similar instruments contrary to prevailing market trends, the
Fund and Portfolio could be exposed to the risk of a loss. The Fund or
Portfolio might not employ any or all of the strategies described herein, and
no assurance can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Fund and Portfolio may employ along with risks or
special attributes associated with them. This discussion is intended to
supplement the Fund's current prospectus as well as provide useful information
to prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can
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be no guarantee that there will be a correlation between price movements in a
hedging vehicle and in the portfolio assets being hedged. An incorrect
correlation could result in a loss on both the hedged assets in the 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, the 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 the Fund or
Portfolio. Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to the 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 the 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 the Fund or Portfolio 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 and forward
contracts, there is a greater potential that a counterparty or broker may
default or be unable to perform on its commitments. In the event of such a
default, the Fund 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
the Fund or Portfolio.
Options On Securities, Securities Indexes And Debt Instruments. The 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 Fund or
Portfolio 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 or Portfolio intends to purchase
pending its ability to invest in such securities in an orderly manner. The 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, the 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. The 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 Fund and
Portfolio 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,
where the Fund or Portfolio has written a covered call (i.e., where the
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underlying securities are held by the Fund or Portfolio), it has, in return for
the premium on the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but has
retained the risk of loss should the price of the underlying securities
decline. The writer of an option has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price.
If a put or call option purchased by the Fund 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, the 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 the Fund or Portfolio
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund or Portfolio may be
unable to close out a position.
Futures Contracts And Options On Futures Contracts. The 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 Fund and Portfolio may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
the Fund 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 the Fund or Portfolio
intends to acquire an instrument or enter into a position. For example, the
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 Fund and Portfolio may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may entail
additional risks in certain instances. The Fund and Portfolio may engage in
cross-hedging by purchasing or selling futures or options on a security or
currency different from the security or currency position being hedged to take
advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Fund and
Portfolio will only enter into futures contracts or options on futures
contracts which are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system.
Forward Contracts. The Fund 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
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factors, as seen from an international perspective. The Fund or Portfolio may
invest in securities denominated in foreign currencies and may, in addition to
buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency contract, the Fund 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, the
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 the 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."
The Fund or Portfolio may enter into these contracts for the purpose of
hedging against foreign exchange risk arising from the Fund's or Portfolio's
investments or anticipated investments in securities denominated in foreign
currencies. The 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.
The 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. The 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 the Fund's or Portfolio's net
currency exposure will not exceed the total net asset value of its portfolio.
However, to the extent that the Fund or Portfolio is fully invested while also
maintaining currency positions, it may be exposed to greater combined risk.
The Fund and Portfolio 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 the Fund or Portfolio is contractually obligated to make. If the other
party to an interest rate or currency swap defaults, the 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 Fund and Portfolio expect
to achieve an acceptable degree of correlation between its portfolio
investments and its interest rate or currency swap positions.
The 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.
The 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 the Fund or Portfolio. In
addition, the Fund or Portfolio may enter into forward foreign currency
exchange contracts in order to protect against adverse changes in future
foreign currency
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exchange rates. The 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 the 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 the 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, the Fund or Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices, and this will limit the Fund's
or Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to the 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 the 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.
The Fund or Portfolio may enter into interest rate and currency swaps to
the maximum allowed limits under applicable law. The Fund or Portfolio will
typically use interest rate swaps to shorten the effective duration of its
portfolio. Interest rate swaps involve the exchange by the 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.
Structured Products. The 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. The Fund or Portfolio may invest in structured products
which represent derived investment positions based on relationships among
different markets or asset classes.
The 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 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
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the case may be, of the respective securities. When the 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
the 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. The 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 the Fund's or Portfolio's purchase of subordinated
structured products would have similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leverage for purposes of the Fund's or Portfolio's fundamental investment
limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's or Portfolio'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 the 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. The
Fund and Portfolio are not "commodity pools" (i.e., a pooled investment vehicle
which trades in commodity futures contracts and options thereon and the
operator of which is registered with the CFTC) and futures contracts and
futures options will be purchased, sold or entered into only for bona fide
hedging purposes, provided that the Fund or Portfolio 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 or Portfolio's portfolio, provided, further, that, in the case of an
option that is in-the-money, the in-the-money amount may be excluded in
calculating the 5% limitation.
When the Fund 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 the 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.
The Fund's or Portfolio's ability to engage in the transactions described
herein may be limited by the current federal income tax requirement that the
Fund and Portfolio derive less than 30% of their gross income from the sale or
other disposition of stock or securities held for less than three months.
Investment Restrictions
The Fund and Portfolio have adopted the following investment restrictions
which may not be changed without approval by a "majority of the outstanding
shares" of the Fund or Portfolio which, as used in this Statement of Additional
Information, means the vote of the lesser of (i) 67% or more of the shares of
the Fund or
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total beneficial interests of the Portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund or total
beneficial interests of the Portfolio are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Fund or total beneficial
interests of the Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast its votes as instructed by the shareholders of the Fund.
It is a fundamental policy of the Fund that when the Fund holds no
portfolio securities except interests in the Portfolio, the Fund's investment
objective and policies shall be identical to the Portfolio's investment
objective and policies, except for the following: the Fund (1) may invest more
than 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 the 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.
The Fund and Portfolio may not:
(1) borrow money, except that the 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 the Fund's or Portfolio's
total assets must be repaid before the Fund or Portfolio may make
additional investments;
(2) make loans, except that the 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 the 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
the 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
the 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 the 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) the 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) the Fund
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<PAGE>
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, the 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
the 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, the 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 the 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, the Fund and Portfolio are subject to the following
nonfundamental restrictions which may be changed without shareholder approval:
(1) The Fund and Portfolio may not, with respect to 50% of their
respective assets, hold more than 10% of the outstanding voting securities
of any issuer.
(2) The 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 the Fund or Portfolio. Neither the Fund nor the
Portfolio has the current intention of making short sales against the box.
(3) The Fund and Portfolio may not purchase or sell interests in oil,
gas or mineral leases.
(4) The Fund and Portfolio may not invest more than 15% of their
respective net assets in illiquid securities.
(5) The 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 the 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) The Fund and Portfolio may invest up to 5% of their respective
total assets in the securities of any one investment company, but may not
own more than 3% of the securities of any one investment company or invest
more than 10% of its total assets in the securities of other investment
companies.
For purposes of the Fund's and Portfolio's investment restrictions,
the issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of the principal of and
interest on the security.
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<PAGE>
In order to permit the sale of its shares in certain states, the Fund
or Portfolio may make commitments more restrictive than the investment
policies and limitations described above and in the Fund's Prospectus.
Should the 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, the 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, (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 the Prospectus is adhered to at the time a
transaction is effected, later changes in percentage resulting from any
cause other than actions by the Fund or Portfolio will not be considered a
violation. If the value of the 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 the Portfolio are
made by a portfolio manager who is an employee of the adviser or sub-adviser to
the Portfolio and who is appointed and supervised by senior officers of such
adviser or sub-adviser. Changes in the Portfolio's investments are reviewed by
the Board of Trustees of the Trust or Portfolio. The portfolio managers may
serve other clients of the advisers in a similar capacity.
The frequency of the 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. The 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.
The Portfolio applies this policy with respect to both the equity and debt
portions of its portfolio.
The Vista Select Growth and Income Fund invests all of its investable
assets in the Portfolio and does not invest directly in a portfolio of assets,
and therefore does not have reportable portfolio turnover rates. The portfolio
turnover rate for the Growth and Income Portfolio for the fiscal year ended
October 31, 1995, 1996 and 1997, was 71%, 62% and 64%, respectively.
Under the advisory agreement and the sub-advisory agreement, the adviser
and sub-adviser 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 Portfolio. 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-adviser
are not required to obtain the lowest commission or the best net price for the
Portfolio on any
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<PAGE>
particular transaction, and are not required to execute any order in a fashion
either preferential to the Portfolio 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 the 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 the Portfolio's portfolio securities in so-called tender or exchange
offers. Such soliciting dealer fees are in effect recaptured for the Portfolio
by the adviser and sub-advisers. At present, no other recapture arrangements
are in effect.
Under the advisory and sub-advisory agreement and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-adviser may
cause the Portfolio to pay a broker-dealer which provides brokerage and
research services to the adviser or sub-adviser, the Portfolio and/or other
accounts for which they exercise investment discretion an amount of commission
for effecting a securities transaction for the 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
Portfolio. The adviser and sub-adviser report to the Board of Trustees
regarding overall commissions paid by the Portfolio and their reasonableness in
relation to the benefits to the Portfolio. 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 Portfolio pays to the adviser will not be
reduced as a consequence of the adviser's or sub-adviser's receipt of brokerage
and research services. To the extent the Portfolio's portfolio transactions are
used to obtain such services, the brokerage commissions paid by the Portfolio
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-adviser 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 Portfolio. While such services are not
expected to reduce the expenses of the adviser or sub-adviser, 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 the
Portfolio as well as one or more of the adviser's or sub-adviser's other
clients. Investment decisions for the Portfolio 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 the Portfolio and one or more other clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the secu-
17
<PAGE>
rity as far as the Portfolio is concerned. However, it is believed that the
ability of the Portfolio to participate in volume transactions will generally
produce better executions for the Portfolio.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Growth and
Income Portfolio paid aggregate brokerage commissions of $2,352,596, $1,004,272
and $3,456,492, respectively.
No portfolio transactions are executed with the advisers or with any
affiliate of the advisers acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based
on past investment results, it should not be considered as an indication or
representation of the performance of the Fund in the future. From time to time,
the performance and yield of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives, unmanaged investment
accounts, including savings accounts, or other similar products and to stock or
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund may be compared to data
prepared by Lipper Analytical Services, Inc. or Morningstar Mutual Funds on
Disc, widely recognized independent services which monitor the performance of
mutual funds. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in local or regional
publications, may also be used in comparing the performance and yield of the
Fund. The Fund's performance may be compared with indices such as the Lehman
Brothers Government/Corporate Bond Index, the Lehman Brothers Government Bond
Index, the Lehman Government Bond 1-3 Year Index and the Lehman Aggregate Bond
Index; the S&P 500 Index, the Dow Jones Industrial Average or any other
commonly quoted index of common stock prices; and the Russell 2000 Index and
the NASDAQ Composite Index. Additionally, the Fund may, with proper
authorization, reprint articles written about the Fund and provide them to
prospective shareholders.
The Fund may provide period and average annual "total rates of return."
The "total rate of return" refers to the change in the value of an investment
in the Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period.
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 shares of the
Fund will vary based on market conditions, the current market value of the
securities held by the Fund and changes in the Fund's expenses. The advisers,
the Administrator, the Distributor and other service providers may voluntarily
waive a portion of their fees on a month-to-month basis. In addition, the
Distributor may assume a portion of the Fund's operating expenses on a
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 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 shares of the Fund to yields and total rates of return published for other
investment companies and other investment vehicles.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to the
Fund.
Advertisements for the Fund may include references to the asset size of
other financial products made available by Chase, such as the offshore assets
of other funds.
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<PAGE>
Total Rate Of Return
The Fund's total rate of return for any period will be calculated by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect
to shares purchased with such dividends and capital gains distributions, by
(ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. The average annual rate of return quotation
will be calculated by (x) adding 1 to the period total rate of return quotation
as calculated above, (y) raising such sum to a power which is equal to 365
divided by the number of days in such period, and (z) subtracting 1 from the
result.
The Fund 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
the Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for shares shall consist of an annualized
hypothetical yield, carried at least to the nearest hundredth of one percent,
based on a thirty calendar day period and shall be calculated by (a) raising to
the sixth power the sum of 1 plus the quotient obtained by dividing the Fund's
net investment income earned during the period by the product of the average
daily number of shares outstanding during the period that were entitled to
receive dividends and the maximum offering price per share on the last day of
the period, (b) subtracting 1 from the result, and (c) multiplying the result
by 2.
Advertisements for the Fund 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 Fund may prepare a chart reflecting the net change in the value of an
assumed initial investment of $10,000 in the Fund (excluding the effects of any
applicable sale charges) for the period from the commencement date of business.
The values reflect an assumption that capital gain distributions and income
dividends, if any, have been invested in additional shares. From time to time,
the Fund may provide these performance results in addition to the total rate of
return quotations required by the Securities and Exchange Commission. As
discussed more fully in the Prospectus, neither these performance results, nor
total rate of return quotations, should be considered as representative of the
performance of the Fund in the future. These factors and the possible
differences in the methods used to calculate performance results and total
rates of return should be considered when comparing such performance results
and total rate of return quotations of the Fund with those published for other
investment companies and other investment vehicles.
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. In addition to
the days listed above (other than Good Friday), Chase is closed for business on
the following holidays: Martin Luther King Day, Columbus Day and Veteran's Day.
Equity securities in the 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 the 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
19
<PAGE>
making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data processing techniques that take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in the Fund's 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 AND REDEMPTIONS
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectus are not available
until a completed and signed account application has been received by the
Transfer Agent.
Subject to compliance with applicable regulations, the Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and in
the Fund's Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As
a regulated investment company, the Fund is not subject to federal income tax
on the portion of its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, without regard to the
deduction for dividends paid) and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
shareholders, provided that it distributes at least 90% of its net investment
income for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Because the
Fund invests all of its assets in the Portfolio which will be classified as a
partnership for federal income tax purposes, the Fund will be deemed to own a
proportionate share of the income of the Portfolio for purposes of determining
whether the Fund satisfies the Distribution Requirement and the other require-
20
<PAGE>
ments 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 for taxable
years beginning on or before August 5, 1997 (2) derive less than 30% of its
gross income.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
The Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Fund and defer recognition of certain
of the Fund's losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. In addition, these provisions (1)
will require a Fund to "mark-to-market" certain types of positions in its
portfolio (that is, treat them as if they were closed out) and (2) may cause a
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the Distribution Requirement
and avoid the 4% excise tax (described below). The Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate
the effect of these rules.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax On Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next cal-
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<PAGE>
endar 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.
The Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its net investment
income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below.
The Fund may either retain or distribute to shareholders its net realized
capital gain for each taxable year. The Fund currently intends to distribute
any such amounts. If net capital gain is distributed and designated as a
capital gain dividend, it will be taxable to shareholders as long-term capital
gain, regardless of the length of time the shareholder has held his shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares.
Under recently enacted legislation, the maximum rate of tax on long-term
capital gains of individuals will generally be reduced from 28% to 20% (10% for
gains otherwise taxed at 15%) for long-term capital gains realized after July
28, 1997 with respect to capital assets held for more than 18 months.
Additionally, beginning after December 31, 2000, the maximum tax rate for
capital assets with a holding period beginning after that date and held for
more than five years will be 18%. Under a literal reading of the legislation,
capital gain dividends paid by a regulated investment company would not appear
eligible for the reduced capital gain rates. However, the legislation
authorizes the Treasury Department to promulgate regulations that would apply
the new rates to capital gain dividends paid by a regulated investment company.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by
the Fund from domestic corporations for the taxable year. A dividend received
by the Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock) during the 90 day
period beginning on the date which is 45 days before the date on which such
share becomes ex-dividend with respect to such dividend (during the 190 day
period beginning 90 days before such date in the case of certain preferred
stock) under the Rules of Code Section 246(c)(3) and (4); (2) to the extent
that the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or
related property; or (3) to the extent the stock on which the dividend is paid
is treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund. In the case where the Fund
invests all of its assets in the
22
<PAGE>
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 the Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance
since the amount of the Fund's assets to be invested in various countries is
not known.
Distributions by the Fund that do not constitute ordinary income
dividends, or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net asset
value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is
a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long- term capital gain or loss if the shares were
held for longer than one year.
23
<PAGE>
However, any capital loss arising from the sale or redemption of shares held
for six months or less will be disallowed to the extent of the amount of
exempt-interest dividends received on such shares and (to the extent not
disallowed) will be treated as a long-term capital loss to the extent of the
amount of capital gain dividends received on such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income 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 and
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund, including the applicability of foreign taxes.
State and Local Tax Matters
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding
taxes. Most states provide that a RIC may pass through (without restriction) to
its shareholders state and local income tax exemptions available to direct
owners of certain types of U.S. government securities (such as U.S. Treasury
obligations). Thus, for residents of these states, distributions derived from a
Fund's investment in certain types of U.S. government securities should be free
from state and local income taxes to the extent that the interest income from
such investments would have been exempt from state and local income taxes if
such securities had been held directly by the respective shareholders
themselves. Certain states, however, do not allow a RIC to pass through to its
shareholders the state and local income tax exemptions available to direct
owners of certain types of U.S. government securities unless the RIC holds at
least a required amount of U.S. government securities. Accordingly, for
residents of these states, distributions derived from a Fund's investment in
certain types of U.S. government securities may not be entitled to the
exemptions from state and local income taxes that would be available if the
shareholders had purchased U.S. government securities directly. Shareholders'
dividends attributable to a Fund's income from repurchase agreements generally
are subject to state and local income taxes, although states and regulations
vary in their treatment of such income. The exemption from state and local
income taxes does not preclude states from asserting other taxes on the
ownership of U.S. government securities. To the extent that a Fund invests to a
substantial degree in U.S. government securities which are subject to favorable
state and local tax treatment, shareholders of such Fund will be notified as to
the extent to which distributions from
24
<PAGE>
the Fund are attributable to interest on such securities. Rules of state and
local taxation or ordinary income dividends and capital gain dividends from
RICs may differ from the rules for U.S. federal income taxation in other
respects. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting investment
in a Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
MANAGEMENT OF THE TRUST AND THE FUND OR PORTFOLIO
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: 65. Address: 202 June Road, Stamford, CT 06903.
*H. Richard Vartabedian--Trustee and President of the Trust; Chairman of
the Portfolios. Investment Management Consultant; formerly, Senior Investment
Officer, Division Executive of the Investment Management Division of The Chase
Manhattan Bank, N.A., 1980 through 1991. Age: 61. Address: P.O. Box 296, Beach
Road, Hendrick's Head, Southport, ME 04576.
William J. Armstrong--Trustee. Vice President and Treasurer,
Ingersoll-Rand Company. Age: 55. Address: 49 Aspen Way, Upper Saddle River, NJ
07458.
John R.H. Blum--Trustee. Attorney in private practice; formerly, partner
in the law firm of Richards, O'Neil & Allegaert; Commissioner of
Agriculture--State of Connecticut, 1992-1995. Age: 68. Address: 322 Main
Street, Lakeville, CT 06039.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 64. Address: 108 Valley
Road, Cos Cob, CT 06807.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc. (1971-1988);
Director, Janel Hydraulics, Inc.; Director of The Hanover Funds, Inc. Age: 65.
Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He has been employed by Chase in numerous capacities and offices since
1954. Director of Blessings Corporation, Jefferson Insurance Company of New
York, Monticello Insurance Company and National. Age: 65. Address: 257
Plantation Circle South, Ponte Vedra Beach, FL 32082.
25
<PAGE>
*Sarah E. Jones--Trustee. President and Chief Operating Officer of Chase
Manhattan Funds Corp.; formerly Managing Director for the Global Asset
Management and Private Banking Division of The Chase Manhattan Bank. Age: 46.
Address: One Chase Manhattan Plaza, 3rd Fl., New York, NY 10081.
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.; formerly Director of The
Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Age: 70. Address:
624 East 45th Street, Savannah, GA 31405
W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; formerly Director and Chairman of The Hanover Funds, Inc.;
Director, Chairman and President of The Hanover Investment Funds, Inc. Age: 70.
Address: RR 1 Box 102, Weston, VT 05181.
*Leonard M. Spalding, Jr.--Trustee. Executive Vice President and Chief
Executive Officer for Chase Mutual Funds Corp.; President and Chief Executive
Officer of Vista Capital Management in 1993 and formerly Chief Investment
Executive of The Chase Manhattan Private Bank. Age: 62. Address: 2025 Lincoln
Park Road, Springfield, KY 40069.
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: 63. Address: 4 Barnfield Road, Pittsford, NY 14534.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 66. Address: 80 Perkins
Road, Greenwich, CT 06830.
Martin R. Dean--Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age: 33. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lee Schultheis--Assistant Treasurer and Assistant Secretary. President,
BISYS Fund Distributors; formerly Managing Director, Forum Financial Group.
Age: 41. Address: One Chase Manhattan Plaza, 3rd Fl., New York, NY 10081.
W. Anthony Turner--Secretary. Senior Vice President and Regional Client
Executive, BISYS Fund Services; formerly Senior Vice President, First Union
Brokerage Services, Inc. and Senior Vice President, NationsBank. Age: 37.
Address: 125 W. 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, 1997.
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
26
<PAGE>
other investment companies advised by the advisers. Each Trustee receives a
fee, allocated among all investment companies for which the Trustee serves,
which consists of an annual retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1997 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from
as Fund Expenses(1) "Fund Complex"(2)
--------------------- ------------------
<S> <C> <C>
Fergus Reid, III, Trustee $56,368 $129,500
H. Richard Vartabedian, Trustee 47,622 102,750
William J. Armstrong, Trustee 38,372 67,000
John R.H. Blum, Trustee 41,363 73,000
Stuart W. Cragin, Jr., Trustee 34,965 68,500
Roland R. Eppley, Jr., Trustee 53,267 68,500
Joseph J. Harkins, Trustee 52,508 71,500
Sarah Jones, Trustee -- --
W.D. MacCallan, Trustee 66,323 68,500
W. Perry Neff, Trustee 66,323 71,500
Len M. Spalding, Jr., Trustee -- --
Richard E. Ten Haken, Trustee 31,463 68,500
Irving L. Thode, Trustee 41,876 68,500
</TABLE>
- ----------
(1) Data reflects total benefits accrued by the Trust, Mutual Fund Select
Group, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio for the fiscal year ended October 31, 1997,
and by Mutual Fund Trust, Mutual Fund Select Trust and Mutual Fund
Variable Annuity Trust for the fiscal year ended August 31, 1997.
(2) Data reflects total compensation earned during the period from January 1,
1997 to December 31, 1997 for service as a Trustee to the Trust, Mutual
Fund Trust, Mutual Fund Variable Annuity Trust, Mutual Fund Select Group,
Mutual Fund Select Trust, Capital Growth Portfolio, Growth and Income
Portfolio and International Equity Portfolio.
As of December 15, 1997, the Trustees and officers as a group owned less
than 1% of the shares of the Funds. For the fiscal year ended October 31, 1997,
the Trust paid its disinterested Trustees' fees and expenses for all of the
meetings of the Board and any committee meetings attended in the aggregate
amount of approximately $9,200, which was apportioned between the Funds
comprising the Trust.
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 Vista Funds, the advisers, administrator or
distributor or any of their affiliates) may be entitled to certain benefits
upon retirement from the Board of Trustees. Pursuant to the Plan, the normal
retirement date is the date on which the eligible Trustee has attained age 65
and has completed at least five years of continuous service with one or more of
the investment companies advised by the adviser (collectively, the "Covered
Funds"). Each Eligible Trustee is entitled to receive from the Covered Funds an
annual benefit commencing on the first day of the calendar quarter coincident
with or following his date of retirement equal to (i) the sum of 8% of the
highest annual compensation received from the Covered Funds multiplied by the
number of such Trustee's years of service (not in excess of 10 years) completed
with respect to any of the Covered Funds and (ii) 4% of the highest annual
compensation received from the Covered Funds for each year of service in excess
of 10 years, provided that
27
<PAGE>
no Trustee's annual benefit will exceed the highest annual compensation
received by that Trustee from the Covered Funds. Such benefit is payable to
each eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of October 31, 1997, the estimated credited years
of service for Messrs. Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, Neff, MacCallan, Spalding, TenHaken, Thode and Ms. Jones are 12, 4, 9,
12, 4, 8, 6, 7, 7, 0, 12, 4 and 0, respectively.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by All Vista Funds
-------------------------------------------------------------
$60,000 $80,000 $100,000 $120,000 $140,000
Years of
Service Estimated Annual Benefits Upon Retirement
- ---- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14 $57,600 $76,800 $ 96,000 $115,200 $134,400
12 52,800 70,400 88,000 105,600 123,200
10 48,000 64,000 80,000 96,000 112,000
8 38,400 51,200 64,000 76,800 89,600
6 28,800 38,400 48,000 57,600 67,200
4 19,200 25,600 32,000 38,400 44,800
</TABLE>
Effective August 21, 1995, the Trustees instituted a Deferred Compensation
Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which
each Trustee (who is not an employee of any of the Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustee's fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination of
service). The deferred amounts are invested in shares of 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. Eppley, Ten Haken, Thode and Vartabedian have each executed a
deferred compensation agreement for the 1997 calendar year and as of October
31, 1997 they had contributed $55,334, $27,669, $49,803 and $83,000,
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.
Adviser and Sub-adviser
Chase acts as investment adviser to the Portfolio pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees may determine, Chase is responsible for
investment decisions for the Portfolio. Pursuant to the terms of the Advisory
Agreement, Chase provides the Portfolio with such investment advice and
supervision as it deems necessary for the proper
28
<PAGE>
supervision of the Portfolio's 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 Portfolio's assets shall
be held uninvested. The advisers to the Portfolio furnish, at their own
expense, all services, facilities and personnel necessary in connection with
managing the investments and effecting portfolio transactions for the
Portfolio. The Advisory Agreement for the Portfolio will continue in effect
from year to year only if such continuance is specifically approved at least
annually by the Board of Trustees or by vote of a majority of the 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 Portfolio
with greater opportunities and flexibility in accessing investment expertise.
Pursuant to the terms of the Advisory Agreement and the sub-adviser's
agreement with the adviser, the adviser and sub-adviser are permitted to render
services to others. Each advisory agreement is terminable without penalty by
the Portfolio on not more than 60 days', nor less than 30 days', written notice
when authorized either by a majority vote of a Portfolio's shareholders or by a
vote of a majority of the Board of Trustees of the Portfolio, 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 Portfolio,
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.
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 Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of the Fund are qualified for sale, as such
limitations may be raised or lowered from time to time, the adviser shall
reduce its advisory fee (which fee is described below) to the extent of its
share of such excess expenses. The amount of any such reduction to be borne by
the adviser shall be deducted from the monthly advisory fee otherwise payable
with respect to the Fund during such fiscal year; and if such amounts should
exceed the monthly fee, the adviser shall pay to the Fund its share of such
excess expenses no later than the last day of the first month of the next
succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser of the Portfolio 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 Portfolio, has entered into an investment
sub-advisory agreement dated as of May 6, 1996 with Chase Asset Management,
Inc. ("CAM"). With respect to the day-to-day management of the Portfolio, under
the sub-advisory agreement, the sub-adviser makes decisions concerning, and
places
29
<PAGE>
all orders for, purchases and sales of securities and helps maintain the
records relating to such purchases and sales. The sub-adviser may, in its
discretion, provide such services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser to the Company under applicable laws and are under the common control
of Chase; provided that (i) all persons, when providing services under the
sub-advisory agreement, are functioning as part of an organized group of
persons, and (ii) such organized group of persons is managed at all times by
authorized officers of the sub-adviser. This arrangement will not result in the
payment of additional fees by the Portfolio.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. Also included among Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment adviser
and provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from the Portfolio an
investment advisory fee computed daily and paid monthly based on a rate equal
to a percentage of the 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 will be entitled to receive, with respect
to the Portfolio, such compensation, payable by the adviser out of its advisory
fee, as is described in the relevant Prospectuses.
With respect to the Growth and Income Portfolio, for the fiscal year ended
October 31, 1995, 1996 and 1997, Chase was paid or accrued investment advisory
fees of $6,815,197, $8,101,188 and $9,877,868, respectively, with respect to
the Portfolio.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Fund and the administrator of
the Portfolio. Chase provides certain administrative services to the Fund and
Portfolio, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Fund's and Portfolio's independent contractors and agents;
preparation for signature by an officer of the Trust and Portfolio of all
documents required to be filed for compliance by the Trust and Portfolio with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including
net asset value and yield; responding to shareholder inquiries; and arranging
for the maintenance of books and records of the Fund and Portfolio and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. Chase in its capacity as administrator does
not have any responsibility or authority for the management of the Fund or
Portfolio, 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 the 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"
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(as defined in the 1940 Act) of any such party. The Administration Agreements
are terminable without penalty by the Trust on behalf of the Fund or by the
Portfolio on 60 days' written notice when authorized either by a majority vote
of the 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 Portfolio, 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 Chase or its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or Portfolio, 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 the 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
the Fund imposed by the securities laws or regulations thereunder of any state
in which the shares of the Fund are qualified for sale, as such limitations may
be raised or lowered from time to time, Chase shall reduce its administration
fee (which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by Chase shall be
deducted from the monthly administration fee otherwise payable to Chase during
such fiscal year, and if such amounts should exceed the monthly fee, Chase
shall pay to 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 the Fund and the Portfolio a fee
computed daily and paid monthly at an annual rate equal to 0.05% of their
respective average daily net assets. Chase may voluntarily waive a portion of
the fees payable to it with respect to the Fund on a month-to-month basis.
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 Fund's exclusive underwriter,
provides certain administration services and promotes and arranges for the sale
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 the Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of the Fund on
60 days' written notice when authorized either by a majority vote of the Fund's
shareholders or by vote of a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days'
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or
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connected with, rendering services under the Distribution Agreement, except for
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties.
In the event the operating expenses of the Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of the Fund are qualified for sale, as such
limitations may be raised or lowered from time to time, the Distributor shall
reduce its sub-administration fee with respect to the Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to the Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to the Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of the Fund. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable
to it under the Distribution Agreement with respect to the Fund on a
month-to-month basis.
Transfer Agent and Custodian
The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of the Fund and receives such compensation as is from time to time
agreed upon by the Trust and Chase. As custodian, Chase provides oversight and
record keeping for the assets held in the portfolios of the Fund. Chase also
provides fund accounting services for the income, expenses and shares
outstanding for the Fund. Chase is located at 3 Metrotech Center, Brooklyn, NY
11245.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants of the Fund, provides the Fund with audit
services, tax return preparation and assistance and consultation with respect
to the preparation of filings with the Securities and Exchange Commission.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and generally
prohibit banks from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks or their affiliates from acting as investment
adviser, administrator or custodian to mutual funds or from purchasing mutual
fund shares as agent for a customer. Chase and the Trust believe that Chase
(including its affiliates) may perform the services to be performed by it as
described in 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
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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.
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 18
series of shares of beneficial interest, par value $.001 per share. 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 among all the series
in a manner believed by management of the Trust to be fair and equitable.
Shares have no pre-emptive or conversion rights. Shares when issued are fully
paid and non-assessable, except as set forth below. Shareholders are entitled
to one vote for each share held. Shares of each series or class generally vote
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 currently issues a single class of shares but may, in the future,
offer other classes of shares. The categories of investors that are eligible to
purchase shares may be different for each class of Fund shares. Other classes
of 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.
Any person entitled to receive compensation for selling or servicing
shares of the Fund may receive different levels of compensation for selling one
particular class of shares rather than another.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders
also have, in certain circumstances, the right to remove one or more Trustees
without a meeting. No material amendment may be made to the Trust's Declaration
of Trust without the affirmative vote of the holders of a majority of the
outstanding shares of each portfolio affected by the amendment. Shares have no
preemptive or conversion rights. Shares, when issued, are fully paid and non-
assessable, except as set forth below. Any series or class may be terminated
(i) upon the merger or
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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.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designed to address potential conflicts of
interest that can arise in connection with the personal trading activities of
such persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions,
pre-clearance requirements and blackout periods.
Principal Holders
As of November 30, 1997, no person owned of record 5% or more of the
outstanding shares of the Fund.
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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.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
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New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured
by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
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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"
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indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from "AAA"
issues only in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to
repay principal and pay interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have
an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions
B-2
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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.
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
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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 the Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, the Fund's
investment manager will consider such event in its determination of whether the
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, the 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.
B-4
<PAGE>
PART C
MUTUAL FUND GROUP
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial statements
In Part A: Financial Highlights
In Part B: Financial Statements and the Reports
thereon for the Funds filed herein are
incorporated by reference into Part B
as part of the 1996 Annual Reports to
Shareholders for such Funds as filed with the
Securities and Exchange Commission by Mutual
Fund Group on Form N-30D on January 3, 1997,
accession number 0000950123-97-000025, 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.(6)
1(c) Certificate of Amendment to Declaration of Trust dated October 19,
1995.(6)
1(d) Certificate of Amendment to Declaration of Trust dated July 25,
1993.(6)
1(e) Certificate of Amendment of Declaration of Trust dated
November 1997.(10)
2 By-laws, as amended. (1)
3 None.
4 Specimen share certificate. (1)
5(a) Form of Proposed Investment Advisory Agreement.(6)
5(b) Form of Proposed Sub-Advisory Agreement between The Chase Manhattan
Bank and Chase Asset Management, Inc.(6)
5(c) Form of Proposed Investment Subadvisory Agreement between The Chase
Manhattan Bank and Van Deventer & Hoch(6).
6(a) Distribution and Sub-Administration Agreement dated August 21,
1995.(6)
7(a) Retirement Plan for Eligible Trustees.(6)
7(b) Deferred Compensation Plan for Eligible Trustees.(6)
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. (6)
C-1
<PAGE>
9(f) Agreement and Plan of Reorganization and Liquidation.(6)
9(g) Form of Administration Agreement.(6)
10 Opinion re: Legality of Securities being Registered.(1)
11 Consent of Price Waterhouse LLP.(7)
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.(2)
15(d) Form of Rule 12b-1 Distribution Plan for Class B shares of the Vista
Prime Money Market Fund.(3)
15(e) Form of Rule 12b-1 Distribution Plan for Vista Small Cap Equity
Fund.(4)
15(f) Form of Rule 12b-1 Distribution Plan - Class A Shares - Vista
American Value Fund (including forms of Selected Dealer Agreement
and Shareholder Servicing Agreement).(6)
15(g) Rule 12b-1 Distribution Plan - Class B Shares (including forms of
Selected Dealer Agreement and Shareholder Servicing Agreement).(6)
15(h) Form of Rule 12b-1 Distribution Plan - Class C Shares (including
forms of Shareholder Servicing Agreements).(9)
16 Schedule for Computation for Each Performance Quotation.(5)
17 Financial Data Schedule.(7)
18 Form of Rule 18f-3 Multi-Class Plan.(6)
99(a) Powers of Attorney for: Fergus Reid, III, H. Richard Vartabedian,
William J. Armstrong, John R.H. Blum, Stuart W. Cragin, Jr., Roland
R. Eppley, Jr., Joseph J. Harkins, W.D. MacCallan, W. Perry Neff,
Richard E. Ten Haken, Irving L. Thode.(8)
99(b) Powers of Attorney for: Sarah E. Jones and Leonard M. Spalding,
Jr.(9)
- --------------------
(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. 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Filed as an Exhibit to Amendment No. 42 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on February 28, 1997.
(8) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A of Mutual Fund Trust (File No.
33-75250) as filed with the Securities and Exchange Commission on September
6, 1996.
(9) Filed as an Exhibit to Amendment No. 45 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) filed on October 28, 1997.
(10) Filed as an Exhibit to Amendment No. 46 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) filed on December 1, 1997.
ITEM 25. Persons Controlled by or Under Common
Control with Registrant
Not applicable
C-2
<PAGE>
ITEM 26. Number of Holders of Securities
Number of Record Holders
Mutual Fund Group as of October 31, 1997
- ----------------- -----------------------------
A B Institutional
Shares Shares Shares
------ ------ -------------
VISTA U.S. Treasury Income Fund 2,171 681 n/a
VISTA U.S. Government Securities Fund 81 n/a 78
VISTA Balanced Fund 2,020 981 n/a
VISTA Short-Term Bond Fund 165 n/a 59
VISTA Bond Fund 186 100 54
VISTA Large Cap Equity Fund 699 307 173
VISTA American Value Fund 188 n/a n/a
VISTA Equity Income Fund 1,867 976 n/a
VISTA Small Cap Equity Fund 8,642 7,362 11
VISTA Growth and Income Fund 68,657 25,819 8
VISTA Capital Growth Fund 34,476 24,818 12
VISTA International Equity Fund 2,031 1,162 n/a
VISTA Southeast Asian Fund 397 225 n/a
VISTA European Fund 273 243 n/a
VISTA Japan Fund 108 96 n/a
VISTA Select Growth and Income Fund n/a n/a none
VISTA Latin American Equity Fund none none n/a
VISTA Small Cap Opportunities Fund 2,982 2,933 n/a
ITEM 27. Indemnification
Reference is hereby made to Article V of the Registrant's Declaration
of Trust.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser, administrator and distributor are insured under
an errors and omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940.
Under the terms of the Registrant's Declaration of Trust, the
Registrant may indemnify any person who was or is a Trustee, officer or employee
of the Registrant to the maximum extent permitted by law; provided, however,
that any such indemnification (unless ordered by a court) shall be made by the
Registrant only as authorized in the specific case upon a determination that
indemnification of such persons is proper in the circumstances. Such
determination shall be made (i) by the Trustees, by a majority vote of a quorum
which consists of Trustees who are neither in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the proceeding, or (ii) if the required
quorum is not obtainable or, if a quorum of such Trustees so directs, by
independent legal counsel in a written opinion. No indemnification will be
provided by the Registrant to any Trustee or officer of the Registrant for any
liability to the Registrant or shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
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(a). Business and Other Connections of Investment Adviser
The Chase Manhattan Bank (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 President and Chief Operating Officer Chairman, Chief Executive Officer
and Director and a Director of The Chase
Manhattan Corporation and a Director
of AMAX, Inc.
M. Anthony Burns Director Chairman of the Board, President
and Chief Executive Officer of
Ryder System, Inc.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director of
Amoco Corporation and Director of
Abbott Laboratories
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.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.
Frank A. Bennack, Jr. Director President and Chief Executive Officer
The Hearst Corporation
Susan V. Berresford Director President, The Ford Foundation
Melvin R. Goodes Director Chairman of the Board and Chief Executive
Officer, The Warner-Lambert Company
George V. Grune Director Retired Chairman and Chief Executive
Officer, The Reader's Digest Association,
Inc.; Chairman, The DeWitt Wallace-
Reader's Digest Fund; The Lila-Wallace
Reader's Digest Fund
William B. Harrison, Jr. Vice Chairman of the Board
Harold S. Hook Director Chairman and Chief Executive Officer,
General Corporation
Helen L. Kaplan Director Of Counsel, Skadden, Arps, Slate, Meagher
& Flom
Walter V. Shipley Chairman of the Board and
Chief Executive Officer
Andrew C. Sigler Director Chairman of the Board and Chief
Executive Officer, Champion International
Corporation
John R. Stafford Director Chairman, President and Chief Executive
Officer, American Home Products
Corporation
Marina v. N. Whitman Director Professor of Business Administration and
Public Policy, University of Michigan
</TABLE>
C-6
<PAGE>
Item 28(b)
Chase Asset Management ("CAM") is an Investment Advisor providing investment
services to institutional clients.
To the knowledge of the Registrant, none of the Directors or executive
officers of the CAM, 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 CAM also hold or have held various positions with bank
and non-bank affiliates of the Advisor, including its parent, The Chase
Manhattan Corporation.
Principal Occupation or Other
Position with Employment of a Substantial
Name the Sub-Advisor Nature During Past Two Years
- ---- --------------- ----------------------------
James Zeigon Chairman and Director Director of Chase
Asset Management
(London) Limited
Steven Prostano Executive Vice President Chief Operating Officer
and Chief Operating Officer and Director of Chase
Asset Management
(London) Limited
Mark Richardson President and Chief Chief Investment Officer
Investment Officer and Director of Chase
Asset Management
(London) Limited
Item 28(c)
Chase Asset Management (London) Limited ("CAM London") is an Investment
Advisor providing investment services to institutional clients.
To the knowledge of the Registrant, none of the Directors or executive
officers of CAM London, 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 CAM London also hold or have held various positions
with bank and non-bank affiliates of the Advisor, including its parent, The
Chase Manhattan Corporation.
Principal Occupation or Other
Position with Employment of a Substantial
Name the Sub-Advisor Nature During Past Two Years
- ---- --------------- ----------------------------
Michael Browne Director Fund Manager, The Chase Manhattan
Bank, N.A.; Fund Manager, BZW
Investment Management
David Gordon Ross Director Head of Global Fixed Income
Management, Chase Asset Management,
Inc.; Vice President, The Chase
Manhattan Bank, N.A.
Brian Harte Director Investment Manager, The Chase
Manhattan Bank, N.A.
Cornelia L. Kiley Director
James Zeigon Director Chairman and Director of Chase
Asset Management, Inc.
Mark Richardson Chief Investment Director, President and Chief
Officer and Director Operating Officer of Chase Asset
Management, Inc.
Steve Prostano Chief Operating Director, Executive Vice President
Officer and and Chief Operating Officer of Chase
Director Asset Management, Inc.
C-7
<PAGE>
ITEM 29. Principal Underwriters
(a) Vista Fund Distributors, Inc., a wholly-owned subsidiary of
The BISYS Group, Inc. is the underwriter for Mutual Fund Group, Mutual Fund
Trust and Mutual Fund Select Trust.
(b) The following are the Directors and officers of Vista Fund
Distributors, Inc. The principal business address of each of these persons, is
listed below.
<TABLE>
<CAPTION>
Position and Offices Position and Offices
Name and Address with Distributor with the Registrant
- ---------------- -------------------- --------------------
<S> <C> <C>
Lynn J. Mangum Chairman None
150 Clove Street
Little Falls, NJ 07424
Robert J. McMullan Director and Exec. Vice President None
150 Clove Street
Little Falls, NJ 07424
Lee W. Schultheis President None
101 Park Avenue, 16th Floor
New York, NY 10178
George O. Martinez Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219
Irimga McKay Vice President None
1230 Columbia Street
5th Floor, Suite 500
San Diego, CA 92101
Michael Burns Vice President/Compliance None
3435 Stelzer Road
Columbus, OH 43219
William Blundin Vice President None
125 West 55th Avenue
11th Floor
New York, NY 10019
Dennis Sheehan Vice President None
150 Clove Street
Little Falls, NJ 07424
Annamaria Porcaro Assistant Secretary None
150 Clove Street
Little Falls, NJ 97424
Robert Tuch Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219
Stephen Mintos Executive Vice President/COO None
3435 Stelzer Road
Columbus, OH 43219
Dale Smith Vice President/CFO None
3435 Stelzer Road
Columbus, OH 43219
William J. Tomko Vice President None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
(c) Not applicable
C-8
<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. One Chase Manhattan Plaza, 3rd Floor
New York, NY 10081
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
Chase Asset Management, Ltd. (London) Colvile House
32 Curzon Street
London, England W1Y8AL
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 post-effective
amendment to the registration statement relating to Vista Small Cap
Opportunities Fund except as is otherwise permitted by the Staff of the
Securities and Exchange Commission.
(4) 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 post-effective
amendment to the registration statement relating to Vista Latin American Equity
Fund except as is otherwise permitted by the Staff of the Securities and
Exchange Commission.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has certified that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of New York and the
State of New York on the 12th day of December, 1997.
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 December 12, 1997
- -------------------------------
Fergus Reid, III
/s/ H. Richard Vartabedian President December 12, 1997
- ------------------------------- and Trustee
H. Richard Vartabedian
* Trustee December 12, 1997
- -------------------------------
William J. Armstrong
* Trustee December 12, 1997
- -------------------------------
John R.H. Blum
* Trustee December 12, 1997
- -------------------------------
Stuart W. Cragin, Jr.
*
- ------------------------------- Trustee December 12, 1997
Roland R. Eppley, Jr.
* Trustee December 12, 1997
- -------------------------------
Joseph J. Harkins
- ------------------------------- Trustee December 12, 1997
Sarah E. Jones
*
- ------------------------------- Trustee December 12, 1997
W.D. MacCallan
*
- ------------------------------- Trustee December 12, 1997
W. Perry Neff
- ------------------------------- Trustee December 12, 1997
Leonard M. Spalding, Jr.
<PAGE>
* Trustee December 12, 1997
- -------------------------------
Irv Thode
* Trustee December 12, 1997
- -------------------------------
Richard E. Ten Haken
/s/ Martin R. Dean Treasurer and December 12, 1997
_______________________________ Principal Financial
Martin R. Dean Officer
/s/ H. Richard Vartabedian Attorney in December 12, 1997
_______________________________ Fact
H. Richard Vartabedian
