As filed via EDGAR with the Securities and Exchange Commission on
March 14, 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. 42 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
Post-Effective Amendment No. 81 |X|
-------------------------------
MUTUAL FUND GROUP
(Exact Name of Registrant as Specified in Charter)
101 Park Avenue
New York, New York 10178
--------------------------------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (212) 492-1600
George Martinez, Esq. Niall L. O'Toole, Esq. Gary S. Schpero, Esq.
BISYS Fund Services, Inc. Chase Manhattan Bank Simpson Thacher & Bartlett
3435 Stelzer Road 270 Park Avenue 425 Lexington Avenue
Columbus, Ohio 43219 New York, New York 10017 New York, New York 10017
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
| | immediately upon filing pursuant to | | on ( ) pursuant to
paragraph (b) paragraph (b)
|X| 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.
------------------
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.
The Trustees of the Hub Portfolios have also executed this registration
statement.
<PAGE>
MUTUAL FUND GROUP
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933
VISTA(SM) U.S. TREASURY INCOME FUND
VISTA(SM) BALANCED FUND
VISTA(SM) EQUITY INCOME FUND
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) CAPITAL GROWTH FUND
VISTA(SM) LARGE CAP EQUITY FUND
VISTA(SM) BOND FUND
VISTA(SM) SHORT-TERM BOND FUND
VISTA(SM) 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
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
Captions apply to all Prospectuses except where
indicated in parenthesis. Parenthesis indicate
captions for Institutional Shares Prospectuses
1 Front Cover Page *
2(a) Expense Summary *
(b) Not Applicable *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance Information *
4(a)(b) Other Information *
Concerning the Fund;
Fund Objective; Investment
Policies
(c) Fund Objective; Investment *
Policies
(d) Not Applicable *
5(a) Management *
(b) Management *
(c)(d) Management; Other Information Concerning the Fund *
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(e) Other Information Concerning *
the Fund; Back Cover Page
(f) Other Information Concerning *
the Fund
(g) Not Applicable *
5A Not Applicable *
6(a) Other Information Concerning *
the Fund
(b) Not Applicable *
(c) Not Applicable *
(d) Not Applicable *
(e)(f) About Your Investment; How to Buy, Sell *
and Exchange Shares (How to Purchase, Redeem
and Exchange Shares); How Distributions Are
Made; Tax Information; Other Information
Concerning the Fund; Make the Most of Your
Vista Privileges.
(f) How Distributions are Made; *
Tax Information
(g) How Distributions are Made; Tax Matters
Tax Information
(h) About Your Investment; How to Buy, *
Sell and Exchange Shares (How to
Purchase, Redeem and Exchange Shares);
Other Information Concerning the Fund
7(a) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(b) How the Fund Values its Shares; *
How to Buy, Sell and Exchange
Shares (How to Purchase, Redeem
and Exchange Shares)
(c) Not Applicable *
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem and
Exchange Shares)
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(e) Management; Other Information *
Concerning the Fund
(f) Other Information Concerning the *
Fund
8(a) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(b) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(c) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
(d) How to Buy, Sell and Exchange *
Shares (How to Purchase, Redeem
and Exchange Shares)
9 Not Applicable *
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13(a)(b) Fund Objective; Investment Investment Policies
Policies and Restrictions
14(c) * Management of the Trust and
Funds or Portfolios
(b) * Not Applicable
(c) * Management of the Trust and
Funds or Portfolios
15(a) * Not Applicable
(b) * General Information
(c) * General Information
16(a) Management Management of the Trust and
Funds or Portfolios
(b) Management Management of the Trust and
Funds or Portfolios
(c) Other Information Concerning Management of the Trust and
the Fund Funds or Portfolios
(d) Management Management of the Trust and
Funds or Portfolios
(e) * Not Applicable
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(f) How to Buy, Sell and Exchange Shares Management of the Trust and
(How to Purchase, Redeem and Exchange Shares); Funds or Portfolios
Other Information Concerning the Fund
(g) * Not Applicable
(h) * Management of the Trust and
Funds or Portfolios;
Independent Accountants
(i) * Not Applicable
17 Investment Policies Investment Policies and Restrictions
18(a) Other Information Concerning the Fund; General Information
How to Buy, Sell and Exchange Shares
(How to Purchase, Redeem and Exchange
Shares)
(b) * Not Applicable
19(a) How to Buy, Sell and Exchange Shares Purchases, Redemptions and Exchanges
(How to Purchase, Redeem and Exchange
Shares)
(b) How the Fund Values its Shares; How to Determination of Net Asset Value
Buy, Sell and Exchange Shares (How to
Purchase, Redeem and Exchange Shares)
(c) * Purchases, Redemptions and Exchanges
20 How Distributions are Made; Tax Information Tax Matters
21(a) * Management of the Trust and Funds
or Portfolios
(b) * Management of the Trust and Funds
or Portfolios
(c) * Not Applicable
22 * Performance Information
23 * Not Applicable
</TABLE>
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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 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 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.
<PAGE>
[VISTA LOGO]
PROSPECTUS
VISTA(SM) SMALL CAP OPPORTUNITIES FUND
CLASS A AND B SHARES
---------------------------------------
INVESTMENT STRATEGY: CAPITAL GROWTH
---------------------------------------
May , 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 February 28, 1997 Statement of Additional
Information, as revised May __, 1997, as amended periodically (the "SAI").
For a free copy of the SAI, call the Vista Service Center at 1-800- 34-VISTA.
The SAI has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference.
The Fund, unlike many other investment companies which directly acquire and
manage their own portfolios of securities, seeks its investment objective by
investing all of its investable assets in Small Cap Opportunities Portfolio
(the "Portfolio"), an open-end management investment company with an investment
objective identical to those of the Fund. Investors should carefully consider
this investment approach. For additional information regarding this investment
structure, see "Unique Characteristics of Master/Feeder Fund Structure" on page
15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Investments in the Fund are 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 ............................................................ 4
The expenses you might pay on your Fund investment, including examples
Fund Objective ............................................................. 6
Investment Policies ........................................................ 6
The kinds of securities in which the Fund invests, investment policies and
techniques, and risks
Management ................................................................. 11
Chase Manhattan Bank, the Portfolio's adviser; Chase Asset Management, the
Portfolio's sub-adviser, and the individuals who manage the Portfolio
About Your Investment ...................................................... 11
Choosing a share class
How to Buy, Sell and Exchange Shares ....................................... 12
How the Fund Values its Shares ............................................. 19
How Distributions are Made; Tax Information ................................ 19
How the Fund distributes its earnings, and tax treatment
related to those earnings
Other Information Concerning the Fund ...................................... 21
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and master/feeder Fund structure
Performance Information .................................................... 25
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges ..................................... 26
3
<PAGE>
EXPENSE SUMMARY
---------------
Expenses are one of several factors to consider when investing. The following
table summarizes your costs from investing in the Fund based on estimated
expenses for the current fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
Class B Class A
Shares Shares
------- -------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)* None 5.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fee 0.65% 0.65%
12b-1 Fee** 0.25% 0.75%
Shareholder Servicing Fee 0.00% 0.25%
Other Expenses 0.60% 0.60%
---- ----
Total Fund Operating Expenses 1.50% 2.25%
==== ====
EXAMPLES
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return:
1 3
Year Years
---- ------
Class A Shares+ $ 62 $ 93
Class B Shares:
Assuming complete redemption at the
end of the period++ +++ $ 74 $103
Assuming no redemptions++++ $ 23 $ 70
* The maximum deferred sales charge on Class B shares applies to redemptions
during the first year after purchase; the charge generally declines by 1%
annually thereafter (except in the fourth year), reaching zero after six
years. See "How to Buy, Sell and Exchange Shares."
** Long-term shareholders in mutual funds with 12b-1 fees, such as Class A and
Class B shareholders of the Fund, may pay more than the economic equivalent
of the maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
# Reflects current waiver arrangements to maintain the Total Operating Expenses
at the levels indicated in the table above. Absent such waivers, the
Shareholder Servicing Fee would be 0.25% for Class A shares.
+ Assumes deduction at the time of purchase of the maximum sales charge.
++ Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
+++Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the ninth year after purchase. See "How to Buy, Sell and
Exchange Shares."
The table is provided to help you understand the expenses of investing in the
Fund and your share of the operating expenses that the Fund incurs. The examples
should not be considered representations of past or future expenses or returns;
actual expenses and returns may be greater or less than shown.
4
<PAGE>
Charges or credits, not reflected in the expense table above, may be incurred
directly by customers of financial institutions in connection with an investment
in the Fund. The Fund understands that Shareholder Servicing Agents may credit
to the accounts of their customers from whom they are already receiving other
fees amounts not exceeding such other fees or the fees received by the
Shareholder Servicing Agent from the Fund with respect to those accounts. See
"Other Information Concerning the Fund."
5
<PAGE>
FUND OBJECTIVE
Vista Small Cap Opportunities Fund seeks long-term capital growth. The Fund
is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
INVESTMENT POLICIES
- -------------------
INVESTMENT APPROACH
The Fund seeks to achieve its objective by investing all of its investable
assets in the Portfolio. Under normal market conditions, the Portfolio will
invest at least 80% of its total assets in equity securities and at least 65% of
its total assets in equity securities of small cap companies. The Portfolio's
advisers define small cap companies as those with market capitalizations of up
to $1 billion at the time of purchase by the Portfolio. To pursue the
Portfolio's objective the advisers will seek to invest in companies with
consistent, accelerating earnings and attractive stock valuations. The
Portfolio's advisers intend to utilize both quantitative and fundamental
research to identify those equities offering the best combination of value and
growth among small cap stocks. Current income is an incidental consideration to
the Portfolio's objective. You should be aware that an investment in small
cap companies may be more volatile than investments in companies with
greater capitalization, as described under "Risk Factors" below.
To retain investment flexibility, the Fund and other investors in the Portfolio
may determine to discontinue selling new shares when the Portfolio's net assets
reach approximately $1 billion. Were the Fund to do so, existing shareholders
of the Fund would be permitted to continue making additional purchases of Fund
shares.
The Portfolio is classified as a "non-diversified" fund under federal securities
law. The Portfolio's assets may be more concentrated in the securities of any
single issuer or group of issuers than if the Portfolio were diversified.
The Portfolio may invest any portion of its assets not invested in equity
securities in high quality money market instruments and repurchase agreements.
In addition, at times when the Portfolio's advisers deem it advisable to limit
the Portfolio's exposure to the equity markets, the Portfolio may invest up to
20% of its total assets in U.S. Government obligations other than money market
instruments. For temporary defensive purposes, the Portfolio may invest without
limitation in money market instruments and repurchase agreements. To the extent
that the Portfolio departs from its investment policies during temporary
defensive periods, the Fund's investment objective may not be achieved.
WHO MAY WANT TO INVEST
This Fund may be most suitable for investors who. . .
6
<PAGE>
(bullet) Are seeking long-term growth of capital
(bullet) Are investing for goals several years away
(bullet) Own or plan to own other types of investments for diversification
purposes
(bullet) Can assume above-average market risk
This Fund may NOT be appropriate for investors who are unable to tolerate
frequent up and down price changes, are investing for short-term goals or who
are in need of current income.
FUND STRUCTURE
The Portfolio has an objective identical to that of the Fund. The Fund may
withdraw its investment from the Portfolio at any time if the Trustees determine
that it is in the best interest of the Fund to do so. Upon any such withdrawal,
the Trustees would consider what action might be taken, including investing all
of the Fund's investable assets in another pooled investment entity having
substantially the same objective and policies as the Fund or retaining an
investment adviser to manage the Fund's assets directly.
OTHER INVESTMENT PRACTICES
The Portfolio may also engage in the following investment practices, when
consistent with the Portfolio's overall objective and policies. These practices,
and certain associated risks, are more fully described in the SAI.
FOREIGN SECURITIES. The Portfolio may invest up to 20% of its total assets in
foreign securities, including Depositary Receipts, 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 Fund 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 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).
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in cash or high-quality,
short-term money
7
<PAGE>
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.
REPURCHASE AGREEMENTS, SECURITIES LOANS AND FORWARD COMMITMENTS. The Portfolio
may enter into agreements to purchase and resell securities at an agreed-upon
price and time. The Portfolio also has the ability to lend portfolio securities
in an amount equal to not more than 30% of its total assets to generate
additional income. These transactions must be fully collateralized at all times.
The Portfolio may purchase securities for delivery at a future date, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow money
from banks for temporary or short-term purposes, but will not borrow money 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. The Fund may use this practice to generate cash for shareholder
redemptions without selling securities in a down market. Whenever the Portfolio
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets on a daily basis in an amount at
least equal to the repurchase price (including accrued interest). The Portfolio
would be required to pay interest on amounts obtained through reverse repurchase
agreements, which are considered borrowing under federal securities laws.
STAND-BY COMMITMENTS. The Portfolio may enter into put transactions, including
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. These transactions involve some risk to the Portfolio if the
other party should default on its obligation and the Portfolio is delayed or
prevented from recovering the collateral or completing the transaction. A put
transaction will increase the cost of the underlying security and consequently
reduce the available yield.
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
8
<PAGE>
decline as interest rates increase, and increase as interest rates decline.
Because of the conversion feature, the market value of convertible securities
also tends to vary with fluctuations in the market value of the underlying
common or preferred stock.
OTHER INVESTMENT COMPANIES. The Portfolio may invest up to 10% of its total
assets in shares of other investment companies 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 obligations are backed by the full faith and
credit of the U.S. Government, including instruments known as "STRIPS". The
value of these instruments tends to fluctuate more in response to changes in
interest rates than the value of ordinary interest-paying debt securities with
similar maturities. The risk is greater when the period to maturity is longer.
DERIVATIVES AND RELATED INSTRUMENTS. The Portfolio may invest its assets in
derivative and related instruments to hedge various market risks or to increase
the Portfolio's income or gain. Some of these instruments will be subject to
asset segregation requirements to cover the Portfolio's obligations. The
Portfolio may (i) purchase, write and exercise call and put options on
securities and securities indexes (including using options in combination with
securities, other options or derivative instruments); (ii) enter into swaps,
futures contracts and options on futures contracts; (iii) employ forward
currency contracts; and (iv) purchase and sell structured products, which are
instruments designed to restructure or reflect the characteristics of certain
other investments.
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 Fund. 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
9
<PAGE>
futures and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in derivatives markets. In
certain instances, particularly those involving over-the-counter transactions or
forward contracts, there is a greater potential that a counterparty or broker
may default. In the event of a default, the Portfolio may experience a loss. For
additional information concerning derivatives, related instruments and the
associated risks, see the SAI.
PORTFOLIO TURNOVER. The frequency of the Portfolio's 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 of
the Portfolio); 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 of the Portfolio
and the Fund (including their investment objective) are not fundamental.
Shareholder approval is not required to change any non-fundamental policy.
However, in the event of a change in the Fund's or Portfolio's investment
objective, shareholders will be given at least 30 days' prior written notice.
RISK FACTORS
The net asset value of the Fund's shares will fluctuate based on the value of
the securities held by the Portfolio. The Portfolio is aggresively managed and,
therefore, the value of the shares of the Fund is subject to greater fluctuation
and an investment in the Fund's shares involves a higher degree of risk than an
investment in a conservative equity fund or a growth fund investing entirely in
proven growth equities. An investment in the Fund should not be considered a
complete investment program and may not be appropriate for all investors.
The securities of small cap companies often trade less frequently and in more
limited volume, and may be subject to more abrupt or erratic price movements,
than securities of larger, more established companies. Such companies may have
limited product lines, markets or financial resources, or may depend on a
limited management group.
10
<PAGE>
Because the Portfolio is "non-diversified," the value of the Fund's shares is
more susceptible to developments affecting issuers in which the Portfolio
invests.
To the extent the Portfolio invests in longer-term U.S. Government obligations,
the performance of the Portfolio may also be affected by interest rate changes.
As interest rates increase, the value of any fixed income securities held by the
Portfolio will tend to decrease.
For a discussion of certain other risks associated with the Portfolio's
additional investment activities, see "Other Investment Practices" above.
MANAGEMENT
- ----------
THE PORTFOLIO'S ADVISERS
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.
For its investment advisory services to the Portfolio, Chase is entitled to
receive an annual fee computed daily and paid monthly based at an annual rate
equal to 0.65% of the Portfolio's average daily net assets. Chase is located at
270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is the
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 0.30% of the Portfolio's average daily net
assets. CAM was recently formed for the purpose of providing discretionary
investment advisory services to institutional clients and to consolidate Chase's
investment management function. The same individuals who serve as portfolio
managers for Chase also serve as portfolio managers for CAM. CAM is located at
1211 Avenue of the Americas, New York, New York 10036.
PORTFOLIO MANAGERS. Jill Greenwald and Ronald Zibelli, Vice Presidents and
Senior Portfolio Managers at Chase, are responsible for the management of the
Portfolio. Ms. Greenwald joined Chase in 1993, specializing in small cap issues.
Prior to joinging Chase, Ms. Greenwald was a Director for Prudential Equity
Investors and a Senior Analyst for Fred Alger Management, Inc.
Mr. Zibelli joined Chase in June 1996. Most recently, he held a similar position
at The Portfolio Group, Inc. for one year. Prior to that, he was a Director of
Equity Research and Portfolio Manager at Princeton Bank & Trust Company for
seven years, and began his career at J. P. Morgan Investment Management.
ABOUT YOUR INVESTMENT
- ---------------------
CHOOSING A SHARE CLASS
CLASS A SHARES. An investor who purchases Class A shares pays a sales
11
<PAGE>
charge at the time of purchase. As a result, Class A shares are not subject
to any sales charges when they are redeemed. Certain purchases of Class A
shares qualify for reduced sales charges. Class A shares have lower combined
12b-1 and service fees than Class B shares. See "How to Buy, Sell and
Exchange Shares" and "Other Information Concerning the Fund."
CLASS B SHARES. Class B shares are sold without an initial sales charge, but are
subject to a contingent deferred sales charge ("CDSC") if redeemed within a
specified period after purchase. Class B shares also have higher combined 12b-1
and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on relative net
asset value, at the beginning of the ninth year after purchase. For more
information about the conversion of Class B shares, see the SAI. This discussion
will include information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. Class B shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made. Until conversion, Class B shares will have a higher
expense ratio and pay lower dividends than Class A shares because of the higher
combined 12b-1 and service fees. See "How to Buy, Sell and Exchange Shares" and
"Other Information Concerning the Fund."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class of shares
provides a more suitable investment for you depends on a number of factors,
including the amount and intended length of the investment. If you are making an
investment that qualifies for reduced sales charges, you might consider Class A
shares. If you prefer not to pay an initial sales charge, you might consider
Class B shares. In almost all cases, if you are planning to purchase $250,000 or
more of the Fund's shares you will pay lower aggregate charges and expenses by
purchasing Class A shares.
HOW TO BUY, SELL AND
EXCHANGE SHARES
- ---------------
HOW TO BUY SHARES
You can open a Fund account with as little as $2,500 for regular accounts or
$1,000 for IRAs, SEP-IRAs and the Systematic Investment Plan. Additional
investments can be made at any time with as little as $100. You can buy Fund
shares three ways-through an investment representative, through the Fund's
distributor by calling the Vista Service Center, or through the Systematic
Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to the
Vista Funds. Third party checks, credit cards and cash will not be accepted. The
Fund reserves the right to reject any purchase order or cease offering shares
for purchase at any time. When purchases are made by check, redemptions will not
be allowed until check clears, which may take 15 calendar days or longer. In
addition, the redemption of shares purchased through Automated Clearing House
(ACH) will not be allowed until your payment clears,
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<PAGE>
which may take 7 business days or longer.
BUYING SHARES THROUGH THE FUND'S DISTRIBUTOR. Complete and return the enclosed
application and your check in the amount you wish to invest to the Vista Service
Center.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular investments of
$100 or more per transaction through automatic periodic deduction from your bank
checking or savings account. Shareholders electing to start this Systematic
Investment Plan when opening an account should complete Section 8 of the account
application. Current shareholders may begin such a plan at any time by sending a
signed letter and a deposit slip or voided check to the Vista Service Center.
Call the Vista Service Center at 1-800-34-VISTA for complete instructions.
Shares are purchased at the public offering price, which is based on the net
asset value next determined after the Vista Service Center receives your order
in proper form. In most cases, in order to receive that day's public offering
price, the Vista Service Center must receive your order before the close of
regular trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the New York Stock Exchange to receive that day's
public offering price. Orders for shares are accepted by the Fund after funds
are converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or transferring shares to
another person shortly after purchase, you should pay for those shares with a
certified check to avoid any delay in redemption, exchange or transfer.
Otherwise the Fund may delay payment until the purchase price of those shares
has been collected or, if you redeem by telephone, until 15 calendar days after
the purchase date. To eliminate the need for safekeeping, the Fund will not
issue certificates for your Class A shares unless you request them. Due to the
conversion feature of Class B shares, certificates for Class B shares will not
be issued and all Class B shares will be held in book entry form.
CLASS A SHARES
The public offering price of Class A shares is the net asset value plus a sales
charge that varies depending on the size of your purchase. The Fund receives the
net asset value. The sales charge is allocated between your broker-dealer and
the Fund's distributor as shown in the following table, except when the Fund's
distributor, in its discretion, allocates the entire amount to your
broker-dealer.
13
<PAGE>
<TABLE>
<CAPTION>
Sales charge as a percentage of:
---------------------------------------------------------
Net Amount of sales charge
Amount of transaction at Offering amount reallowed to dealers as a
offering price($) price invested percentage of offering price
- ------------------------------- -------- --------- -----------------------------
<S> <C> <C> <C>
Under 100,000 4.75 4.99 4.00
100,000 but under 250,000 3.75 3.90 3.25
250,000 but under 500,000 2.50 2.56 2.25
500,000 but under 1,000,000 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1 million
or more.
The Fund's distributor pays broker- dealers commissions on net sales of Class A
shares of $1 million or more based on an investor's cumulative purchases. Such
commissions are paid at the rate of 1.00% of the amount under $2.5 million,
0.75% of the next $7.5 million, 0.50% of the next $40 million and 0.20%
thereafter. The Fund's distributor may withhold such payments with respect to
short-term investments.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although a CDSC will be
imposed if you redeem shares within a specified period after purchase, as shown
in the table below. The following types of shares may be redeemed without charge
at any time: (i) shares acquired by reinvestment of distributions and (ii)
shares otherwise exempt from the CDSC, as described below. For other shares, the
amount of the charge is determined as a percentage of the lesser of the current
market value or the purchase price of shares being redeemed.
Year 1 2 3 4 5 6 7 8+
- ----------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held longest during the
CDSC period. When a share that has appreciated in value is redeemed during the
CDSC period, a CDSC is assessed only on its initial purchase price. For
information on how sales charges are calculated if you exchange your shares, see
"How to Exchange Your Shares." The Fund's distributor pays broker- dealers a
commission of 4.00% of the offering price on sales of Class B shares, and the
distributor receives the entire amount of any CDSC you pay.
GENERAL
You may be eligible to buy Class A shares at reduced sales charges. Consult your
investment representative or the Vista Service Center for details about Vista's
combined purchase privilege, cumulative quantity discount, statement of
intention, group sales plan, employee benefit plans, and other plans.
Descriptions are also included in the enclosed application and in the SAI. In
addition, sales charges are waived if you are using redemption proceeds received
within the prior ninety days from non-Vista mutual funds to buy your shares, and
on which you paid a
14
<PAGE>
front-end or contingent deferred sales charge.
Some participant-directed employee benefit plans participate in a "multi-fund"
program which offers both Vista and non-Vista mutual funds. With Board of
Trustee approval, the money that is invested in Vista Funds may be combined with
the other mutual funds in the same program when determing the plan's eligibility
to buy Class A shares without a sales charge. These investments will also be
included for purposes of the discount privileges and programs described above.
The Fund may sell Class A shares at net asset value without an initial sales
charge to the Fund's current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Fund's distributor and transfer agent or any affiliates or
subsidiaries thereof, registered representatives and other employees (and their
immediate families) of broker- dealers having selected dealer agreements with
the Fund's distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor (or
otherwise having an arrangement with a broker-dealer or financial institution
with respect to sales of Vista fund shares), financial institution trust
departments investing an aggregate of $1 million or more in the Vista Family of
Funds, and clients of certain administrators of tax-qualified plans when
proceeds from repayments of loans to participants are invested (or reinvested)
in the Vista Family of Funds.
No initial sales charge will apply to the purchase of the Fund's Class A shares
if you are investing the proceeds of a qualified retirement plan where a portion
of the plan was invested in the Vista Family of Funds, any qualified retirement
plan with 50 or more participants, or an individual participant in a
tax-qualified plan making a tax-free rollover or transfer of assets from the
plan in which Chase or an affiliate serves as trustee or custodian of the plan
or manages some portion of the plan's assets.
Purchases of the Fund's Class A shares may be made with no initial sales charge
through an investment adviser or financial planner that charges a fee for its
services. Purchases of the Fund's Class A shares may be made with no initial
sales charge (i) by an investment adviser, broker or financial planner, provided
arrangements are preapproved and purchases are placed through an omnibus account
with the Fund or (ii) by clients of such investment adviser or financial planner
who place trades for their own accounts, if such accounts are linked to a master
account of such investment adviser or financial planner on the books and records
of the broker or agent. Such purchases may also be made for retirement and
deferred compensation plans and trusts used to fund those plans.
Purchases of the Fund's Class A shares may be made with no initial sales charge
in accounts opened by a bank, trust company or thrift institution which is
acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at
15
<PAGE>
the time of the investment to the Fund, the Fund's distributor or the Vista
Service Center.
Shareholders of record of any Vista Fund as of November 30, 1990 and certain
immediate family members may purchase the Fund's Class A shares with no initial
sales charge for as long as they continue to own Class A shares of any Vista
fund, provided there is no change in account registration. Shareholders of
record of any portfolio of The Hanover Funds, Inc. or The Hanover Investment
Funds, Inc. as of May 3, 1996 and certain related investors may purchase the
Fund's Class A shares with no initial sales charge for as long as they continue
to own shares of any Vista fund following this date, provided there is no change
in account registration.
The Fund may sell Class A shares at net asset value without an initial sales
charge in connection with the acquisition by the Fund of assets of an investment
company or personal holding company. The CDSC will be waived on redemption of
Class B shares arising out of death or disability or in connection with certain
withdrawals from IRA or other retirement plans. Up to 12% of the value of Class
B shares subject to a systematic withdrawal plan may also be redeemed each year
without a CDSC, provided that the Class B account had a minimum balance of
$20,000 at the time the systematic withdrawal plan was established. The SAI
contains additional information about purchasing the Fund's shares at reduced
sales charges.
The Fund reserves the right to change any of these policies on purchases without
an initial sales charge at any time and may reject any such purchase request.
For shareholders that bank with Chase, Chase may aggregate investments in the
Vista Funds with balances held in Chase bank accounts for purposes of
determining eligibility for certain bank privileges that are based on specified
minimum balance requirements, such as reduced or no fees for certain banking
services or preferred rates on loans and deposits. Chase and certain broker-
dealers and other shareholder servicing agents may, at their own expense,
provide gifts, such as computer software packages, guides and books related to
investment or additional Fund shares valued up to $250 to their customers that
invest in the Vista Funds.
Shareholders of other Vista funds may be entitled to exchange their shares for,
or reinvest distributions from their funds in, shares of the Fund at net asset
value.
HOW TO SELL SHARES
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The Fund
will only forward redemption payments on shares for which it has collected
payment of the purchase price.
SELLING SHARES DIRECTLY TO THE FUND. Send a signed letter of instruction to the
Vista Service Center, along with any certificates that represent shares you want
to sell. The price you will receive is the next net asset value calculated after
the Fund receives your request in proper form, less any applicable CDSC. In
order to receive that day's
16
<PAGE>
net asset value, the Vista Service Center must receive your request before the
close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the signatures
of registered owners or their legal representatives must be guaranteed by a
bank, broker-dealer or certain other financial institutions. See the SAI for
more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your address
as it appears on Vista's records, a signature guarantee is required. The Fund
may require additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner. Contact the Vista
Service Center for details.
DELIVERY OF PROCEEDS. The Fund generally sends you payment for your shares the
business day after your request is received in proper form, assuming the Fund
has collected payment of the purchase price of your shares. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
TELEPHONE REDEMPTIONS. You may use Vista's Telephone Redemption Privilege to
redeem shares from your account unless you have notified the Vista Service
Center of an address change within the preceding 30 days. Telephone redemption
requests in excess of $25,000 will only be made by wire to a bank account on
record with the Fund. Unless an investor indicates otherwise on the account
application, the Fund will be authorized to act upon redemption and transfer
instructions received by telephone from a shareholder, or any person claiming to
act as his or her representative, who can provide the Fund with his or her
account registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Fund nor its agents will be
liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In this
event, you may wish to submit a written redemption request, as described above,
or contact your investment representative. The Telephone Redemption Privilege is
not available if you were issued certificates for shares that remain
outstanding. The Telephone Redemption Privilege may be modified or terminated
without notice.
SYSTEMATIC WITHDRAWAL. You can make regular withdrawals of $50 or more ($100 or
more for
17
<PAGE>
Class B accounts) monthly, quarterly or semiannually. A minimum account balance
of $5,000 is required to establish a systematic withdrawal plan for Class A
accounts. Call the Vista Service Center at 1-800-34-VISTA for complete
instructions.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE. Your investment
representative must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
INVOLUNTARY REDEMPTION OF ACCOUNTS. The Fund may involuntarily redeem your
shares if at such time the aggregate net asset value of the shares in your
account is less than $500 or if you purchase through the Systematic Investment
Plan and fail to meet the Fund's investment minimum within a twelve month
period. In the event of any such redemption, you will receive at least 60 days
notice prior to the redemption. In the event the Fund redeems Class B shares
pursuant to this provision, no CDSC will be imposed.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares for shares of the same class of certain other Vista
Funds at net asset value beginning 15 days after purchase. Not all Vista Funds
offer all classes of shares. The prospectus of the other Vista Fund into which
shares are being exchanged should be read carefully and retained for future
reference. If you exchange shares subject to a CDSC, the transaction will not be
subject to the CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using the schedule of
any fund into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares. In computing
the CDSC, the length of time you have owned your shares will be measured from
the date of original purchase and will not be affected by any exchange.
EXCHANGING TO MONEY MARKET FUNDS. An exchange of Class B shares into any of the
Vista money market funds other than the Class B shares of the Vista Prime Money
Market Fund will be treated as a redemption-and therefore subject to the
conditions of the CDSC-and a subsequent purchase. Class B shares of any Vista
non- money market fund may be exchanged into the Class B shares of the Vista
Prime Money Market Fund in order to continue the aging of the initial purchase
of such shares.
For federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss.
EXCHANGING BY PHONE. A Telephone Exchange Privilege is currently available. Call
the Vista Service Center for procedures for telephone transactions. The
Telephone Exchange Privilege is not
18
<PAGE>
available if you were issued certificates for shares that remain outstanding.
Ask your investment representative or the Vista Service Center for prospectuses
of other Vista funds. Shares of certain Vista funds are not available to
residents of all states.
EXCHANGE PARAMETERS. The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In order to limit
excessive exchange activity and in other circumstances where Vista management or
the Trustees believe doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving the Fund in a
year or three in a calendar quarter will be charged a $5.00 administration fee
for each such exchange. Shareholders would be notified of any such action to the
extent required by law. Consult the Vista Service Center before requesting an
exchange. See the SAI to find out more about the exchange privilege.
REINSTATEMENT PRIVILEGE. Upon written request, Class A shareholders have a one
time privilege of reinstating their investment in the Fund at net asset value
within 90 calendar days of the redemption. The redemption request must be
accompanied by payment for the shares (not in excess of the redemption), and
shares will be purchased at the next determined net asset value. Class B
shareholders who have redeemed their shares and paid a CDSC with such redemption
may purchase Class A shares with no initial sales charge (in an amount not in
excess of their redemption proceeds) if the purchase occurs within 90 days of
the redemption of the Class B shares.
HOW THE FUND VALUES
ITS SHARES
- ----------
The net asset value of each class of the Fund's shares is determined once daily
based upon prices determined as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m., Eastern time, however, options are priced at
4:15 p.m., Eastern time), on each business day of the Fund, by dividing the net
assets of the Fund attributable to that class by the total number of outstanding
shares of that class. Values of assets held by the Fund (i.e., the value of its
investment in the Portfolio and its other assets) are determined on the basis of
their market or other fair value, as described in the SAI.
HOW DISTRIBUTIONS ARE
MADE; TAX INFORMATION
- ---------------------
The Fund distributes any net investment income at least semi- annually and any
net realized capital gains at least annually. Capital gains are distributed
after deducting any available capital loss carryovers. Distributions paid by the
Fund with respect to Class A shares will generally be greater than those paid
with respect to Class B shares because expenses attributable to Class B shares
will generally be higher.
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<PAGE>
DISTRIBUTION PAYMENT OPTION. You can choose from three distribution options: (1)
reinvest all distributions in additional Fund shares without a sales charge; (2)
receive distributions from net investment income in cash or by ACH to a
pre-established bank account while reinvesting capital gains distributions in
additional shares without a sales charge; or (3) receive all distributions in
cash or by ACH. You can change your distribution option by notifying the Vista
Service Center in writing. If you do not select an option when you open your
account, all distributions will be reinvested. All distributions not paid in
cash or by ACH will be reinvested in shares of the same share class. You will
receive a statement confirming reinvestment of distributions in additional Fund
shares promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Vista Service Center will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund or in
another Vista fund without a sales charge. If the Vista Service Center does not
receive your election, the distribution will be reinvested in the Fund.
Similarly, if the Fund or the Vista Service Center sends you correspondence
returned as "undeliverable," distributions will automatically be reinvested in
the Fund.
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gains it distributes to
shareholders. The Fund intends to distribute substantially all of its ordinary
income and capital gain net income on a current basis. If the Fund does not
qualify as a regulated investment company for any taxable year or does not make
such distributions, the Fund will be subject to tax on all of its income and
gains.
TAXATION OF DISTRIBUTIONS. Fund distributions other than net long-term capital
gains will be taxable to you as ordinary income. Distributions of net long-term
capital gains will be taxable as such, 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.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The 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
20
<PAGE>
for state and local taxes and, for foreign shareholders, U.S. withholding
taxes).
OTHER INFORMATION
CONCERNING THE FUND
- -------------------
DISTRIBUTION PLANS
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Trust
has adopted Rule 12b-1 distribution plans for Class A and Class B shares, which
provide for the payment of distribution fees at annual rates of up to 0.25% and
0.75% of the average daily net assets attributable to Class A and Class B shares
of the Fund, respectively. Payments under the distribution plans shall be used
to compensate or reimburse the Fund's distributor and broker-dealers for
services provided and expenses incurred in connection with the sale of Class A
and Class B shares, and are not tied to the amount of actual expenses incurred.
Payments may be used to compensate broker-dealers with trail or maintenance
commissions at an annual rate of up to 0.25% of the average daily net asset
value of Class A or Class B shares invested in the Fund by customers of these
broker- dealers. Trail or maintenance commissions are paid to broker- dealers
beginning the 13th month following the purchase of shares by their customers.
Promotional activities for the sale of Class A and Class B shares will be
conducted generally by the Vista Family of Funds, and activities intended to
promote the Fund's Class A or Class B shares may also benefit the Fund's other
shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet specified
sales targets for one or more Vista Funds. These incentives may include gifts of
up to $100 per person annually; an occasional meal, ticket to a sporting event
or theater or entertainment for broker-dealers and their guests; and payment or
reimbursement for travel expenses, including lodging and meals, in connection
with attendance at training and educational meetings within and outside the U.S.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own Class A or Class B shares of the Fund. These
services include assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of Class A or Class B shares of the Fund held by investors for
whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services.
21
<PAGE>
Shareholder servicing agents may offer additional services to their customers,
such as pre-authorized or systematic purchase and redemption plans. Each
shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain shareholder servicing agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding such other
fees or the fees for their services as shareholder servicing agents.
Chase and/or VFD may from time to time, at their own expense out of compensation
retained by them from the Fund or other sources available to them, make
additional payments to certain selected dealers or other shareholder servicing
agents for performing administrative services for their customers. These
services include maintaining account records, processing orders to purchase,
redeem and exchange Fund shares and responding to certain customer inquiries.
The amount of such compensation may be up to an additional 0.10% annually of the
average net assets of the Fund attributable to shares of the Fund held by
customers of such shareholder servicing agents. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase and/or VFD.
ADMINISTRATOR AND
SUB-ADMINISTRATOR
Chase acts as the administrator of the Fund and the Portfolio and is entitled to
receive from each of the Fund and the Portfolio a fee computed daily and paid
monthly at an annual rate equal to 0.05% of their average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub-administration agreement and is entitled to receive a fee
for these services from the Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets. VFD has agreed to use a portion of this fee to pay for
certain expenses incurred in connection with organizing new series of the Trust
and certain other ongoing expenses of the Trust. VFD is located at 101 Park
Avenue, New York, New York 10178.
CUSTODIAN
Chase acts as the Fund's custodian and fund accountant and receives compensation
under an agreement with the Trust. Fund securities and cash may be held by
sub-custodian banks if such arrangements are reviewed and approved by the
Trustees.
EXPENSES
The Fund pays the expenses incurred in its operations, including its pro rata
share of expenses of the Trust. These expenses include investment advisory and
administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and
22
<PAGE>
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to government offices
and commissions; expenses of meetings of investors; fees and expenses of
independent accountants, of legal counsel and of any transfer agent, registrar
or dividend disbursing agent of the Trust; insurance premiums; and expenses of
calculating the net asset value of, and the net income on, shares of the Fund.
Shareholder servicing and distribution fees are allocated to specific classes of
the Fund. In addition, the Fund may allocate transfer agency and certain other
expenses by class. Service providers to the Fund may, from time to time,
voluntarily waive all or a portion of any fees to which they are entitled.
ORGANIZATION AND
DESCRIPTION OF SHARES
The Fund is a portfolio of Mutual Fund Group, an open-end management investment
company organized as a Massachusetts business trust in 1987 (the "Trust"). The
Trust has reserved the right to create and issue additional series and classes.
Each share of a series or class represents an equal proportionate interest in
that series or class with each other share of that series or class. The shares
of each series or class participate equally in the earnings, dividends and
assets of the particular series or class. Shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each whole share
held, and each fractional share shall be entitled to a proportionate fractional
vote, except that Trust shares held in the treasury of the Trust shall not be
voted. Shares of each class of the Fund generally vote together except when
required under federal securities laws to vote separately on matters that only
affect a particular class, such as the approval of distribution plans for a
particular class.
The Fund issues multiple classes of shares. This Prospectus relates only to
Class A and Class B shares of the Fund. The Fund offers other classes of shares
in addition to these classes. The categories of investors that are eligible to
purchase shares and minimum investment requirements may differ for each class of
Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service fee
levels, and levels of certain other expenses, which will affect the relative
performance of the different classes. Investors may call 1-800-34-VISTA to
obtain additional information about other classes of shares of the Fund that are
offered. Any person entitled to receive compensation for selling or servicing
shares of the Fund may receive different levels of compensation with respect to
one class of shares over another.
The business and affairs of the Trust are managed under the general direction
and supervision of its Board of Trustees. The Trust is not required to hold
annual meetings of shareholders but will hold special meetings of shareholders
of all series or classes when in the judgment of
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the Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less than
10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
UNIQUE CHARACTERISTICS OF
MASTER/FEEDER FUND STRUCTURE
Unlike other mutual funds, which directly acquire and manage their own portfolio
securities, the Fund invests all of its investable assets in the Portfolio, a
separate registered investment company. Therefore, a shareholder's interest in
the Portfolio's securities is indirect. In addition to selling beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, other investors investing in the Portfolio
are not required to sell their shares at the same public offering prices as the
Fund, and may bear different levels of ongoing expenses than the Fund.
Shareholders of the Fund should be aware that these differences may result in
differences in returns experienced in the different funds that invest in the
Portfolio. Such differences in returns are also present in other mutual fund
structures.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. However, this
possibility also exists for traditionally structured funds which have large or
institutional investors. Funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Shares of the Fund for which no voting instructions have been received will be
voted in the same proportion as those shares for which voting instructions are
received. Certain changes in the Portfolio's objective, policies or restrictions
may require the Trust to withdraw the Fund's interest in the Portfolio. Any
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution from the Portfolio). The Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
In addition, a distribution in
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<PAGE>
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 resulting potential conflicts 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 Vista Service
Center at 1-800-34-VISTA.
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 since inception, if
shorter) through the most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the Fund invested at the
maximum public offering price (in the case of Class A shares) or reflecting the
deduction of any applicable contingent deferred sales charge (in the case of
Class B shares). Total return may also be presented for other periods or without
reflecting sales charges. Any quotation of investment performance not reflecting
the maximum initial sales charge or contingent deferred sales charge would be
reduced if such sales charges were used.
All performance data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, the Fund's operating expenses and which class of shares you purchase.
Investment performance also often reflects the risks associated with the Fund's
investment objectives and policies. These factors should be considered when
comparing the Fund's investment results to those of other mutual funds and other
investment vehicles. Quotation of investment performance for any period when a
fee waiver or expense limitation was in effect will be greater than if the
waiver or limitation had not been in effect. The Fund's performance may be
compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
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MAKE THE MOST OF YOUR VISTA PRIVILEGES
- --------------------------------------
The following services are available to you as a Vista mutual fund shareholder.
SYSTEMATIC INVESTMENT PLAN Invest as much as you wish ($100 or more) in the
first or third week of any month. The amount will be automatically transferred
from your checking or savings account.
SYSTEMATIC WITHDRAWAL PLAN Make regular withdrawals of $50 or more ($100 or
more for Class B accounts) monthly, quarterly or semiannually. A minimum account
balance of $5,000 is required to establish a systematic withdrawal plan for
Class A accounts.
SYSTEMATIC EXCHANGE Transfer assets automatically from one Vista account to
another on a regular, prearranged basis. There is no additional charge for this
service.
FREE EXCHANGE PRIVILEGE Exchange money between Vista funds in the same class of
shares without charge. The exchange privilege allows you to adjust your
investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
REINSTATEMENT PRIVILEGE Class A shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with such
redemption may purchase Class A shares with no initial sales charge (in an
amount not in excess of their redemption proceeds) if the purchase occurs within
90 days of the redemption of the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or
termination.
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Vista Family of Mutual Funds & Retirement Products
VISTA INTERNATIONAL EQUITY FUNDS
Southeast Asian Fund
Japan Fund
European Fund
International Equity Fund
VISTA U.S. EQUITY FUNDS
Small Cap Opportunities Fund
Small Cap Equity Fund (closed to new investors)
The Growth Fund of Washington
Capital Growth Fund
Growth and Income Fund
Large Cap Equity Fund
Balanced Fund
Equity Income Fund
VISTA FIXED INCOME FUNDS
Bond Fund
U.S. Government Securities Fund
U.S. Treasury Income Fund
Short-Term Bond Fund
VISTA TAX-FREE FUNDS(1)
New York Tax Free Income Fund
California Intermediate Tax Free Fund
Tax Free Income Fund
VISTA TAX-FREE MONEY MARKET FUNDS(1,2)
New York Tax Free Money Market Fund
Connecticut Daily Tax Free Income Fund Select Shares(3)
New Jersey Daily Municipal Income Fund Select Shares(3)
Tax Free Money Market Fund
California Tax Free Money Market Fund
VISTA TAXABLE MONEY MARKET FUNDS(2)
Cash Management Money Market Fund
Federal Money Market Fund
100% U.S. Treasury Securities Money Market Fund
U.S. Government Money Market Fund
Treasury Plus Money Market Fund
VISTA RETIREMENT PRODUCTS
Vista Capital Advantage Variable Annuity(4)
Vista 401(k) Advantage
For complete information on the Vista Mutual Funds or Retirement Products,
including information about fees and expenses, call your investment professional
or 1-800-34-VISTA for a prospectus. Please read it carefully before you invest
or send money.
1 Some income may be subject to certain state and local taxes. A portion of the
income may be subject to the federal alternative minimum tax for some
investors.
2 An investment in a Money Market Fund is neither insured nor guaranteed by the
U.S. Government. Yields will fluctuate, and there can be no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per
share.
3 Vista Select Shares of these funds are not a part of, or affiliated with, the
Vista Family of Mutual Funds. Reich & Tang Distributors L.P. and New England
Investment Companies L.P., which are unaffiliated with Chase, are the funds'
distributor and investment adviser, respectively.
4 The variable annuity contract is issued by First SunAmerica Life Insurance
Company in New York; in other states, but not necessarily all states, it is
issued by Anchor National Life Insurance Company.
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<PAGE>
VISTA SERVICE CENTER
P.O. Box 419392
Kansas City, MO 64141-6392
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
[VISTA LOGO]
P.O. Box 419392
Kansas City, MO 64141-6392
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 28, 1997
As Revised, __________________, 1997
VISTA(SM) AMERICAN VALUE FUND
VISTA(SM) BALANCED FUND
VISTA(SM) BOND FUND
VISTA(SM) CAPITAL GROWTH FUND
VISTA(SM) EQUITY INCOME FUND
VISTA(SM) GROWTH AND INCOME FUND
VISTA(SM) LARGE CAP EQUITY FUND
VISTA(SM) SHORT-TERM BOND FUND
VISTA(SM) SMALL CAP EQUITY FUND
VISTA(SM) SMALL CAP OPPORTUNITIES FUND
VISTA(SM) U.S. GOVERNMENT SECURITIES FUND
VISTA(SM) U.S. TREASURY INCOME FUND
101 Park Avenue, New York, New York 10178
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Prospectuses
offering shares of the Funds. This Statement of Additional Information should be
read in conjunction with the Prospectuses offering shares of Vista U.S.
Government Securities Fund, Vista U.S. Treasury Income Fund, Vista Bond Fund and
Vista Short-Term Bond Fund (collectively the "Income Funds"), and Vista American
Value Fund, Vista Balanced Fund, Vista Equity Income Fund, Vista Growth and
Income Fund, Vista Capital Growth Fund, Vista Large Cap Equity Fund, Vista Small
Cap Equity Fund and Vista Small Cap Opportunities Fund (collectively the "Equity
Funds"). Any references to a "Prospectus" in this Statement of Additional
Information is a reference to one or more of the foregoing Prospectuses, as the
context requires. Copies of each Prospectus may be obtained by an investor
without charge by contacting Vista Fund Distributors, Inc.("VFD"), the Funds'
distributor (the "Distributor"), at the above-listed address.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
For more information about your account, simply call or write the Vista
Service Center at:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
MFG-SAI
<PAGE>
Table of Contents Page
- --------------------------------------------------------------------------------
The Funds ................................................................ 3
Investment Policies and Restrictions ..................................... 3
Performance Information .................................................. 21
Determination of Net Asset Value ......................................... 28
Purchases, Redemptions and Exchanges ..................................... 29
Tax Matters .............................................................. 32
Management of the Trust and the Funds or Portfolios ...................... 37
Independent Accountants .................................................. 51
Certain Regulatory Matters ............................................... 51
General Information ...................................................... 52
Appendix A--Description of Certain Obligations Issued or Guaranteed by
U.S. Government Agencies or Instrumentalities .......................... A-1
Appendix B--Description of Ratings ....................................... B-1
2
<PAGE>
THE FUNDS
Mutual Fund Group (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 11, 1987. The Trust presently consists
of 17 separate series (the "Funds"). Certain of the Funds are diversified and
other Funds are non- diversified, as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The shares of the Funds are
collectively referred to in this Statement of Additional Information as the
"Shares."
The Growth and Income Fund and Capital Growth Fund converted to a master
fund/feeder fund structure in December 1993. The Vista Small Cap Opportunities
Fund has been organized with a master fund/ feeder fund structure. Under this
structure, each of these Funds seeks to achieve its investment objective by
investing all of its investable assets in an open-end management investment
company which has the same investment objective as that Fund. The Growth and
Income Fund invests in the Growth and Income Portfolio and the Capital Growth
Fund invests in the Capital Growth Portfolio and the Small Cap Opportunities
Fund invests in the Small Cap Opportunities Portfolio (collectively the
"Portfolios"). Each of the Portfolios is a New York trust with its principal
office in New York. Certain qualified investors, in addition to a Fund, may
invest in a Portfolio. For purposes of this Statement of Additional Information,
any information or references to either or both of the Portfolios refer to the
operations and activities after implementation of the master fund/ feeder fund
structure.
On May 3, 1996, The Hanover American Value Fund merged into Vista American
Value Fund, The Hanover Large Cap Equity Fund merged into the Institutional
Shares of Vista Large Cap Equity Fund, The Hanover Short-Term Bond Fund
merged into the Class A shares of Vista Short-Term Bond Fund, Investor Shares
of The Hanover Small Cap Equity Fund merged into the Class A shares of Vista
Small Cap Equity Fund, CBC Benefit Shares of The Hanover Small Cap Equity
Fund merged into the Institutional Shares of Vista Small Cap Equity Fund and
The Hanover U.S. Government Securities Fund merged into the Institutional
Shares of Vista U.S. Government Securities Fund. The foregoing mergers are
referred to herein as the "Hanover Reorganization."
Effective as of May 6, 1996, Vista U.S. Government Income Fund changed its
name to Vista U.S. Treasury Income Fund and Vista Equity Fund changed its
name to Vista Large Cap Equity Fund.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. In the case of the Portfolios,
separate Boards of Trustees, the same members as the Board of Trustees of the
Trust, provide broad supervision. The Chase Manhattan Bank ("Chase") is the
investment adviser for the Funds (other than the Growth and Income Fund, Small
Cap Opportunities Fund, and Capital Growth Fund, which do not have their own
advisers) and the three Portfolios. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration of
the Trust, including the Funds, and is the administrator of the Portfolios. A
majority of the Trustees of the Trust are not affiliated with the investment
adviser or sub-advisers. Similarly, a majority of the Trustees of the Portfolios
are not affiliated with the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies of each Fund
and Portfolio. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. For descriptions of
the securities ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P") and Fitch Investors Service, Inc.
("Fitch"), see Appendix B.
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including: U.S. Treasury bills (maturities
of one year or less), U.S. Treasury notes (maturities of one to ten years)
and U.S. Treasury bonds
3
<PAGE>
(generally maturities of greater than ten years); and (2) obligations issued
or guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Treasury, (b) the right of the issuer to borrow any amount listed to a
specific line of credit from the U.S. Treasury, (c) discretionary authority
of the U.S. Government to purchase certain obligations of the U.S. Government
agency or instrumentality or (d) the credit of the agency or instrumentality.
Agencies and instrumentalities of the U.S. Government include but are not
limited to: Federal Land Banks, Federal Financing Banks, Banks for
Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association, Student Loan Marketing Association, United States
Postal Service, Chrysler Corporate Loan Guarantee Board, Small Business
Administration, Tennessee Valley Authority and any other enterprise
established or sponsored by the U.S. Government. Certain U.S. Government
Securities, including U.S. Treasury bills, notes and bonds, Government
National Mortgage Association certificates and Federal Housing Administration
debentures, are supported by the full faith and credit of the United States.
Other U.S. Government Securities are issued or guaranteed by federal agencies
or government sponsored enterprises and are not supported by the full faith
and credit of the United States. These securities include obligations that
are supported by the right of the issuer to borrow from the U.S. Treasury,
such as obligations of the Federal Home Loan Banks, and obligations that are
supported by the creditworthiness of the particular instrumentality, such as
obligations of the Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation. For a description of certain obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small
Business Administration, Federal Aviation Administration, Department of
Defense, Bureau of Indian Affairs and Private Export Funding Corporation,
which often provide higher yields than are available from the more common
types of government-backed instruments. However, such specialized instruments
may only be available from a few sources, in limited amounts, or only in very
large denominations; they may also require specialized capability in
portfolio servicing and in legal matters related to government guarantees.
While they may frequently offer attractive yields, the limited-activity
markets of many of these securities means that, if a Fund or Portfolio were
required to liquidate any of them, it might not be able to do so
advantageously; accordingly, each Fund and Portfolio investing in such
securities normally to hold such securities to maturity or pursuant to
repurchase agreements, and would treat such securities (including repurchase
agreements maturing in more than seven days) as illiquid for purposes of its
limitation on investment in illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are
insured by either the Bank Insurance Fund or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation, and foreign
banks (including their U.S. branches) having total assets in excess of $10
billion (or the equivalent in other currencies), and such other U.S. and
foreign commercial banks which are judged by the advisers to meet comparable
credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit
is a short-term negotiable certificate issued by a commercial bank against
funds deposited in the bank and is either interest-bearing or purchased on a
discount basis. A bankers' acceptance is a short-term draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction. The borrower is liable for payment as is the bank,
which unconditionally guarantees to pay the draft at its face amount on the
maturity date. Fixed time deposits are obligations of branches of United
States banks or foreign banks which are payable at a stated maturity date and
bear a fixed rate of interest. Although fixed time deposits do not have a
market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party. Fixed time deposits
subject to withdrawal penalties and with respect to which a Fund or Portfolio
cannot realize the proceeds thereon within seven days are deemed "illiquid"
for the purposes of its restriction on investments in illiquid securities.
Deposit notes are notes issued by commercial banks which generally bear fixed
rates of interest and typically have original maturities ranging from
eighteen months to five years.
4
<PAGE>
Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may
be made and the interest rates and fees that may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect
a bank's ability to meet its obligations. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Investors
should also be aware that securities of foreign banks and foreign branches of
United States banks may involve foreign investment risks in addition to those
relating to domestic bank obligations.
Depositary Receipts. A Fund or Portfolio will limit its investment in
Depositary Receipts not sponsored by the issuer of the underlying security to
no more than 5% of the value of its net assets (at the time of investment). A
purchaser of an unsponsored Depositary Receipt may not have unlimited voting
rights and may not receive as much information about the issuer of the
underlying securities as with a sponsored Depositary Receipt.
ECU Obligations. The specific amounts of currencies comprising the ECU may
be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Trustees do not
believe that such adjustments will adversely affect holders of
ECU-denominated securities or the marketability of such securities.
Supranational Obligations. Supranational organizations, include
organizations such as The World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union
of various European nations steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations of the Asian and Pacific regions.
Corporate Reorganizations. In general, securities that are the subject of
a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal.
The increased market price of these securities may also discount what the
stated or appraised value of the security would be if the contemplated action
were approved or consummated. These investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or
proposal of greater value. The evaluation of these contingencies requires
unusually broad knowledge and experience on the part of the advisers that
must appraise not only the value of the issuer and its component businesses
as well as the assets or securities to be received as a result of the
contemplated transaction, but also the financial resources and business
motivation of the offeror as well as the dynamics of the business climate
when the offer or proposal is in progress. Investments in reorganization
securities may tend to increase the turnover ratio of a Fund and increase its
brokerage and other transaction expenses.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants but normally have a shorter duration and are
distributed directly by the issuer to shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involv-
5
<PAGE>
ing periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.
Repurchase Agreements. A Fund or Portfolio will enter into repurchase
agreements only with member banks of the Federal Reserve System and
securities dealers believed creditworthy, and only if fully collateralized by
securities in which such Fund or Portfolio is permitted to invest. Under the
terms of a typical repurchase agreement, a Fund or Portfolio would acquire an
underlying instrument for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase the instrument
and the Fund or Portfolio to resell the instrument at a fixed price and time,
thereby determining the yield during the Fund's or Portfolio's holding
period. This procedure results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to
the risk that the seller may fail to repurchase the security. Repurchase
agreements are considered under the 1940 Act to be loans collateralized by
the underlying securities. All repurchase agreements entered into by a Fund
or Portfolio will be fully collateralized at all times during the period of
the agreement in that the value of the underlying security will be at least
equal to 102% of the amount of the loan, including the accrued interest
thereon, and the Fund or Portfolio or its custodian or sub-custodian will
have possession of the collateral, which the Board of Trustees believes will
give it a valid, perfected security interest in the collateral. Whether a
repurchase agreement is the purchase and sale of a security or a
collateralized loan has not been conclusively established. This might become
an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities
would not be owned by the Fund or Portfolio, but would only constitute
collateral for the seller's obligation to pay the repurchase price.
Therefore, a Fund or Portfolio may suffer time delays and incur costs in
connection with the disposition of the collateral. The Board of Trustees
believes that the collateral underlying repurchase agreements may be more
susceptible to claims of the seller's creditors than would be the case with
securities owned by a Fund or Portfolio. Repurchase agreements maturing in
more than seven days are treated as illiquid for purposes of the Funds' and
Portfolios' restrictions on purchases of illiquid securities. Repurchase
agreements are also subject to the risks described below with respect to
stand-by commitments.
Forward Commitments. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will
normally be purchased. When a commitment to purchase a security on a forward
commitment basis is made, procedures are established consistent with the
General Statement of Policy of the Securities and Exchange Commission
concerning such purchases. Since that policy currently recommends that an
amount of the respective Fund's or Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the
commitment, a separate account of such Fund or Portfolio consisting of cash
or liquid securities equal to the amount of such Fund's or Portfolio's
commitments securities will be established at such Fund's or Portfolio's
custodian bank. For the purpose of determining the adequacy of the securities
in the account, the deposited securities will be valued at market value. If
the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily
so that the value of the account will equal the amount of such commitments by
the respective Fund or Portfolio.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis
may involve more risk than other types of purchases. Securities purchased on
a forward commitment basis and the securities held in the respective Fund's
or Portfolio's portfolio are subject to changes in value based upon the
public's perception of the issuer and changes, real or anticipated, in the
level of interest rates. Purchasing securities on a forward commitment basis
can involve the risk that the yields available in the market when the
delivery takes place may actually be higher or lower than those obtained in
the transaction itself. On the settlement date of the forward commitment
transaction, the respective Fund or Portfolio will meet its obligations from
then available cash flow, sale of securities held in the separate account,
sale of other securities or, although it would not normally expect to do so,
from sale of the forward commitment securities themselves (which may have a
value greater or lesser than such Fund's
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or Portfolio's payment obligations). The sale of securities to meet such
obligations may result in the realization of capital gains or losses.
To the extent a Fund or Portfolio engages in forward commitment
transactions, it will do so for the purpose of acquiring securities
consistent with its investment objective and policies and not for the purpose
of investment leverage, and settlement of such transactions will be within 90
days from the trade date.
Floating and Variable Rate Securities; Participation Certificates. The
securities in which certain Funds and Portfolios may be invested include
participation certificates issued by a bank, insurance company or other
financial institution in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate
gives a Fund or Portfolio an undivided interest in the security in the
proportion that the Fund's or Portfolio's participation interest bears to the
total principal amount of the security and generally provides the demand
feature described below. Each Participation Certificate is backed by an
irrevocable letter of credit or guaranty of a bank (which may be the bank
issuing the Participation Certificate, a bank issuing a confirming letter of
credit to that of the issuing bank, or a bank serving as agent of the issuing
bank with respect to the possible repurchase of the Participation
Certificate) or insurance policy of an insurance company that the Board of
Trustees of the Trust has determined meets the prescribed quality standards
for a particular Fund or Portfolio.
A Fund or Portfolio may have the right to sell the Participation
Certificate back to the institution and draw on the letter of credit or
insurance on demand after the prescribed notice period, for all or any part
of the full principal amount of the Fund's or Portfolio's participation
interest in the security, plus accrued interest. The institutions issuing the
Participation Certificates would retain a service and letter of credit fee
and a fee for providing the demand feature, in an amount equal to the excess
of the interest paid on the instruments over the negotiated yield at which
the Participation Certificates were purchased by a Fund or Portfolio. The
total fees would generally range from 5% to 15% of the applicable prime rate
or other short-term rate index. With respect to insurance, a Fund or
Portfolio will attempt to have the issuer of the participation certificate
bear the cost of any such insurance, although the Funds and Portfolios retain
the option to purchase insurance if deemed appropriate. Obligations that have
a demand feature permitting a Fund or Portfolio to tender the obligation to a
foreign bank may involve certain risks associated with foreign investment. A
Fund's or Portfolio's ability to receive payment in such circumstances under
the demand feature from such foreign banks may involve certain risks such as
future political and economic developments, the possible establishments of
laws or restrictions that might adversely affect the payment of the bank's
obligations under the demand feature and the difficulty of obtaining or
enforcing a judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and
variable rate securities held by the Funds and Portfolios, including
Participation Certificates, on the basis of published financial information
and reports of the rating agencies and other bank analytical services to
which the Funds and Portfolios may subscribe. Although these instruments may
be sold by a Fund or Portfolio, it is intended that they be held until
maturity.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the
underlying floating or variable rate securities may change with changes in
interest rates generally, the floating or variable rate nature of the
underlying floating or variable rate securities should minimize changes in
value of the instruments. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
rate securities. A Fund's or Portfolio's portfolio may contain floating or
variable rate securities on which stated minimum or maximum rates, or maximum
rates set by state law, limit the degree to which interest on such floating
or variable rate securities may fluctuate; to the extent it does, increases
or decreases in value may be somewhat greater than would be the case without
such limits. Because the adjustment of interest rates on the floating or
variable rate securities is made in relation to movements of the applicable
banks' "prime rates" or other short-term rate adjustment indices, the
floating or variable rate securities are not comparable to long-
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term fixed rate securities. Accordingly, interest rates on the floating or
variable rate securities may be higher or lower than current market rates for
fixed rate obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund or Portfolio is entitled to receive
payment of the principal amount of the security upon demand or (ii) the
period remaining until the security's next interest rate adjustment.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund or Portfolio with an agreement to
repurchase the securities at an agreed upon price and date. The repurchase
price is generally equal to the original sales price plus interest. Reverse
repurchase agreements are usually for seven days or less and cannot be repaid
prior to their expiration dates. Reverse repurchase agreements involve the
risk that the market value of the portfolio securities transferred may
decline below the price at which the Fund or Portfolio is obliged to purchase
the securities.
Zero Coupon, Payment-in-Kind and Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. Under the STRIPS program, the principal and interest
components are separately issued by the United States Treasury at the request
of depository financial institutions, which then trade the component parts
separately. The interest component of STRIPS may be more volatile than that
of United States Treasury bills with comparable maturities.
Zero coupon obligations are sold at a substantial discount from their
value at maturity and, when held to maturity, their entire return, which
consists of the amortization of discount, comes from the difference between
their purchase price and maturity value. Because interest on a zero coupon
obligation is not distributed on a current basis, the obligation tends to be
subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying securities with similar maturities.
The value of zero coupon obligations appreciates more than such ordinary
interest-paying securities during periods of declining interest rates and
depreciates more than such ordinary interest-paying securities during periods
of rising interest rates. Under the stripped bond rules of the Internal
Revenue Code of 1986, as amended, investments by a Fund or Portfolio in zero
coupon obligations will result in the accrual of interest income on such
investments in advance of the receipt of the cash corresponding to such
income.
Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the
coupon payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury
Receipts, are examples of stripped U.S. Treasury securities separated into
their component parts through such custodial arrangements.
Payment-in-kind ("PIK") bonds are debt obligations which provide that the
issuer thereof may, at its option, pay interest on such bonds in cash or in
the form of additional debt obligations. Such investments benefit the issuer
by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer receipt
of such cash. Such investments experience greater volatility in market value
due to changes in interest rates than debt obligations which provide for
regular payments of interest. A Fund or Portfolio will accrue income on such
investments for tax and accounting purposes, as required, which is
distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's or Portfolio's distribution obligations.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund and Portfolio may elect to treat as liquid, in
accordance with procedures established by the Board of Trustees, certain
investments in restricted securities for which there may be a secondary
market of qualified institutional buyers as contemplated by Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act") and commercial
obligations issued in reliance on the so-called "private placement" exemption
from regis-
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tration afforded by Section 4(2) of the Securities Act ("Section 4(2)
paper"). Rule 144A provides an exemption from the registration requirements
of the Securities Act for the resale of certain restricted securities to
qualified institutional buyers. Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is sold to
institutional investors such as a Fund or Portfolio who agree that they are
purchasing the paper for investment and not with a view to public
distribution. Any resale of Section 4(2) paper by the purchaser must be in an
exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid
market for Rule 144A securities or Section 4(2) paper will develop or be
maintained. The Trustees have adopted policies and procedures for the purpose
of determining whether securities that are eligible for resale under Rule
144A and Section 4(2) paper are liquid or illiquid for purposes of the
limitation on investment in illiquid securities. Pursuant to those policies
and procedures, the Trustees have delegated to the advisers the determination
as to whether a particular instrument is liquid or illiquid, requiring that
consideration be given to, among other things, the frequency of trades and
quotes for the security, the number of dealers willing to sell the security
and the number of potential purchasers, dealer undertakings to make a market
in the security, the nature of the security and the time needed to dispose of
the security. The Trustees will periodically review the Funds' and
Portfolios' purchases and sales of Rule 144A securities and Section 4(2)
paper.
Stand-By Commitments. In a put transaction, a Fund or Portfolio acquires
the right to sell a security at an agreed upon price within a specified
period prior to its maturity date, and a stand-by commitment entitles a Fund
or Portfolio to same-day settlement and to receive an exercise price equal to
the amortized cost of the underlying security plus accrued interest, if any,
at the time of exercise. Stand-by commitments are subject to certain risks,
which include the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the
commitment is not marketable by a Fund or Portfolio, and that the maturity of
the underlying security will generally be different from that of the
commitment.
Securities Loans. To the extent specified in its Prospectus, each Fund and
Portfolio is permitted to lend its securities to broker-dealers and other
institutional investors in order to generate additional income. Such loans of
portfolio securities may not exceed 30% of the value of a Fund's or
Portfolio's total assets. In connection with such loans, a Fund or Portfolio
will receive collateral consisting of cash, cash equivalents, U.S. Government
securities or irrevocable letters of credit issued by financial institutions.
Such collateral will be maintained at all times in an amount equal to at
least 102% of the current market value plus accrued interest of the
securities loaned. A Fund or Portfolio can increase its income through the
investment of such collateral. A Fund or Portfolio continues to be entitled
to the interest payable or any dividend-equivalent payments received on a
loaned security and, in addition, to receive interest on the amount of the
loan. However, the receipt of any dividend-equivalent payments by a Fund or
Portfolio on a loaned security from the borrower will not qualify for the
dividends-received deduction. Such loans will be terminable at any time upon
specified notice. A Fund or Portfolio might experience risk of loss if the
institutions with which it has engaged in portfolio loan transactions breach
their agreements with such Fund or Portfolio. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
experience financial difficulty. Loans will be made only to firms deemed by
the advisers to be of good standing and will not be made unless, in the
judgment of the advisers, the consideration to be earned from such loans
justifies the risk.
Real Estate Investment Trusts. Certain Funds may invest in shares of real
estate investment trusts ("REITs"), which are pooled investment vehicles
which invest primarily in income-producing real estate or real estate related
loans or interests. REITs are generally classified as equity REITs or
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. The value of equity trusts will depend upon the value of the
underlying properties, and the value of mortgage trusts will be sensitive to
the value of the underlying loans or interests.
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Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Funds and Portfolios may
employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of other instruments or assets, interest or currency exchange
rates, or indexes. For instance, derivatives include futures, options,
forward contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways:
first, to reduce risk by hedging (offsetting) an investment position; second,
to substitute for another security particularly where it is quicker, easier
and less expensive to invest in derivatives; and lastly, to speculate or
enhance portfolio performance. When used prudently, derivatives can offer
several benefits, including easier and more effective hedging, lower
transaction costs, quicker investment and more profitable use of portfolio
assets. However, derivatives also have the potential to significantly magnify
risks, thereby leading to potentially greater losses for a Fund or Portfolio.
Each Fund and Portfolio may invest its assets in derivative and related
instruments subject only to the Fund's or Portfolio's investment objective
and policies and the requirement that the Fund or Portfolio maintain
segregated accounts consisting of cash or other liquid assets (or, as
permitted by applicable regulation, enter into certain offsetting positions)
to cover its obligations under such instruments with respect to positions
where there is no underlying portfolio asset so as to avoid leveraging the
Fund or Portfolio.
The value of some derivative or similar instruments in which the Funds or
Portfolios may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Funds and Portfolios--the ability of a Fund or Portfolio to successfully
utilize these instruments may depend in part upon the ability of the advisers
to forecast interest rates and other economic factors correctly. If the
advisers inaccurately forecast such factors and has taken positions in
derivative or similar instruments contrary to prevailing market trends, a
Fund or Portfolio could be exposed to the risk of a loss. The Funds and
Portfolios might not employ any or all of the strategies described herein,
and no assurance can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Funds or Portfolios may employ along with risks
or special attributes associated with them. This discussion is intended to
supplement the Funds' current prospectuses as well as provide useful
information to prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no
guarantee that there will be a correlation between price movements in a
hedging vehicle and in the portfolio assets being hedged. An incorrect
correlation could result in a loss on both the hedged assets in a Fund or
Portfolio and the hedging vehicle so that the portfolio return might have
been greater had hedging not been attempted. This risk is particularly acute
in the case of "cross-hedges" between currencies. The advisers may
inaccurately forecast interest rates, market values or other economic factors
in utilizing a derivatives strategy. In such a case, a Fund or Portfolio may
have been in a better position had it not entered into such strategy. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. In other words, hedging usually limits both potential losses as well as
potential gains. Strategies not involving hedging may increase the risk to a
Fund or Portfolio. Certain strategies, such as yield enhancement, can have
speculative characteristics and may result in more risk to a Fund or
Portfolio than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when a Fund or Portfolio
seeks to close out an option, futures contract or other derivative or related
position. Many exchanges and boards of trade limit the amount of fluctuation
permitted in option or futures contract prices during a single day; once the
daily limit has been reached on particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain instruments are
relatively new and without a significant
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trading history. As a result, there is no assurance that an active secondary
market will develop or continue to exist. Finally, over-the-counter
instruments typically do not have a liquid market. Lack of a liquid market
for any reason may prevent a Fund from liquidating an unfavorable position.
Activities of large traders in the futures and securities markets involving
arbitrage, "program trading," and other investment strategies may cause price
distortions in these markets. In certain instances, particularly those
involving over-the-counter transactions, forward contracts there is a greater
potential that a counterparty or broker may default or be unable to perform
on its commitments. In the event of such a default, a Fund or Portfolio may
experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors,
including economic conditions, interest rates, governmental policies and
market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by
a Fund or Portfolio.
Options on Securities, Securities Indexes and Debt Instruments. A Fund or
Portfolio may PURCHASE, SELL or EXERCISE call and put options on (i)
securities, (ii) securities indexes, and (iii) debt instruments.
Although in most cases these options will be exchange-traded, the Funds
and Portfolios may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund or
Portfolio may also use combinations of options to minimize costs, gain
exposure to markets or take advantage of price disparities or market
movements. For example, a Fund or Portfolio may sell put or call options it
has previously purchased or purchase put or call options it has previously
sold. These transactions may result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the premium and
other transaction costs paid on the put or call option which is sold. A Fund
or Portfolio may write a call or put option in order to earn the related
premium from such transactions. Prior to exercise or expiration, an option
may be closed out by an offsetting purchase or sale of a similar option. The
Funds will not write uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
Fund or Portfolio writing a covered call (i.e., where the underlying
securities are held by the Fund or Portfolio) has, in return for the premium
on the option, given up the opportunity to profit from a price increase in
the underlying securities above the exercise price, but has retained the risk
of loss should the price of the underlying securities decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price.
If a put or call option purchased by a Fund or Portfolio is not sold when
it has remaining value, and if the market price of the underlying security,
in the case of a put, remains equal to or greater than the exercise price or,
in the case of a call, remains less than or equal to the exercise price, such
Fund or Portfolio will lose its entire investment in the option. Also, where
a put or call option on a particular security is purchased to hedge against
price movements in a related security, the price of the put or call option
may move more or less than the price of the related security. There can be no
assurance that a liquid market will exist when a Fund or Portfolio seeks to
close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund or Portfolio may be
unable to close out a position.
Futures Contracts and Options on Futures Contracts. A Fund or Portfolio
may purchase or sell (i) interest-rate futures contracts, (ii) futures
contracts on specified instruments or indices, and (iii) options on these
futures contracts ("futures options").
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The futures contracts and futures options may be based on various
instruments or indices in which the Funds and Portfolios may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For
example, a Fund or Portfolio may sell a futures contract--or buy a futures
option--to protect against a decline in value, or reduce the duration, of
portfolio holdings. Likewise, these instruments may be used where a Fund or
Portfolio intends to acquire an instrument or enter into a position. For
example, a Fund or Portfolio may purchase a futures contract--or buy a
futures option--to gain immediate exposure in a market or otherwise offset
increases in the purchase price of securities or currencies to be acquired in
the future. Futures options may also be written to earn the related premiums.
When writing or purchasing options, the Funds and Portfolios may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may
entail additional risks in certain instances. The Funds and Portfolios may
engage in cross-hedging by purchasing or selling futures or options on a
security or currency different from the security or currency position being
hedged to take advantage of relationships between the two securities or
currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds and
Portfolios will only enter into futures contracts or options on futures
contracts which are traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system.
Forward Contracts. A Fund and Portfolio may use foreign currency and
interest-rate forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. A Fund or
Portfolio that may invest in securities denominated in foreign currencies
may, in addition to buying and selling foreign currency futures contracts and
options on foreign currencies and foreign currency futures, enter into
forward foreign currency exchange contracts to reduce the risks or otherwise
take a position in anticipation of changes in foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be a fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. By entering into a forward foreign currency
contract, a Fund or Portfolio "locks in" the exchange rate between the
currency it will deliver and the currency it will receive for the duration of
the contract. As a result, a Fund or Portfolio reduces its exposure to
changes in the value of the currency it will deliver and increases its
exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Fund or Portfolio is similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Transactions that use two foreign currencies are sometimes referred to as
"cross-hedges."
A Fund or Portfolio may enter into these contracts for the purpose of
hedging against foreign exchange risk arising from the Fund's or Portfolio'
investments or anticipated investments in securities denominated in foreign
currencies. A Fund or Portfolio may also enter into these contracts for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another.
A Fund or Portfolio may also use forward contracts to hedge against
changes in interest rates, increase exposure to a market or otherwise take
advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at
a future date.
Interest Rate and Currency Transactions. A Fund or Portfolio may employ
currency and interest rate management techniques, including transactions in
options (including yield curve options), futures,
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options on futures, forward foreign currency exchange contracts, currency
options and futures and currency and interest rate swaps. The aggregate
amount of a Fund's or Portfolio's net currency exposure will not exceed the
total net asset value of its portfolio. However, to the extent that a Fund or
Portfolio is fully invested while also maintaining currency positions, it may
be exposed to greater combined risk.
The Funds and Portfolios will only enter into interest rate and currency
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund or Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. Interest rate and currency swaps do not involve
the delivery of securities, the underlying currency, other underlying assets
or principal. Accordingly, the risk of loss with respect to interest rate and
currency swaps is limited to the net amount of interest or currency payments
that a Fund or Portfolio is contractually obligated to make. If the other
party to an interest rate or currency swap defaults, a Fund's or Portfolio's
risk of loss consists of the net amount of interest or currency payments that
the Fund or Portfolio is contractually entitled to receive. Since interest
rate and currency swaps are individually negotiated, the Funds and Portfolios
expect to achieve an acceptable degree of correlation between their portfolio
investments and their interest rate or currency swap positions.
A Fund or Portfolio may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
A Fund or Portfolio may purchase or sell without limitation as to a
percentage of its assets forward foreign currency exchange contracts when the
advisers anticipate that the foreign currency will appreciate or depreciate
in value, but securities denominated in that currency do not present
attractive investment opportunities and are not held by such Fund or
Portfolio. In addition, a Fund or Portfolio may enter into forward foreign
currency exchange contracts in order to protect against adverse changes in
future foreign currency exchange rates. A Fund or Portfolio may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency
if its advisers believe that there is a pattern of correlation between the
two currencies. Forward contracts may reduce the potential gain from a
positive change in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund or Portfolio than if it had not entered into
such contracts. The use of foreign currency forward contracts will not
eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on a Fund's or Portfolio's foreign currency
denominated portfolio securities and the use of such techniques will subject
the Fund or Portfolio to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Fund or Portfolio may not always be able to enter
into foreign currency forward contracts at attractive prices, and this will
limit a Fund's or Portfolio's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to a Fund's or Portfolio's use of
cross-hedges, there can be no assurance that historical correlations between
the movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in
the exchange rates of the foreign currencies underlying a Fund's or
Portfolio's cross-hedges and the movements in the exchange rates of the
foreign currencies in which the Fund's or Portfolio's assets that are the
subject of such cross-hedges are denominated.
A Fund or Portfolio may enter into interest rate and currency swaps to the
maximum allowed limits under applicable law. A Fund or Portfolio will
typically use interest rate swaps to shorten the effective duration of its
portfolio. Interest rate swaps involve the exchange by a Fund or Portfolio
with another party of their respective commitments to pay or receive
interest, such as an exchange of fixed rate payments for floating rate
payments. Currency swaps involve the exchange of their respective rights to
make or receive payments in specified currencies.
Mortgage-Related Securities. A Fund or Portfolio may purchase
mortgage-backed securities-- i.e., securities representing an ownership
interest in a pool of mortgage loans issued by lenders such as mort-
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gage bankers, commercial banks and savings and loan associations. Mortgage
loans included in the pool--but not the security itself--may be insured by
the Government National Mortgage Association or the Federal Housing
Administration or guaranteed by the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation or the Veterans Administration.
Mortgage-backed securities provide investors with payments consisting of both
interest and principal as the mortgages in the underlying mortgage pools are
paid off. Although providing the potential for enhanced returns,
mortgage-backed securities can also be volatile and result in unanticipated
losses.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and
mortgage foreclosures will usually result in the return of the greater part
of the principal invested far in advance of the maturity of the mortgages in
the pool. The actual rate of return of a mortgage-backed security may be
adversely affected by the prepayment of mortgages included in the mortgage
pool underlying the security.
A Fund or Portfolio may also invest in securities representing interests
in collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs") and in pools of certain other asset- backed
bonds and mortgage pass-through securities. Like a bond, interest and prepaid
principal are paid, in most cases, monthly. CMOs may be collateralized by
whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, are allocated to
different classes in accordance with the terms of the instruments, and
changes in prepayment rates or assumptions may significantly affect the
expected average life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar
to CMOs in that they issue multiple classes of securities. REMICs issued by
private entities are not U.S. Government securities and are not directly
guaranteed by any government agency. They are secured by the underlying
collateral of the private issuer.
The advisers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage- collateralized investments in
addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. A Fund or Portfolio may
also invest in debentures and other securities of real estate investment
trusts. As new types of mortgage-related securities are developed and offered
to investors, the Funds and Portfolios may consider making investments in
such new types of mortgage-related securities.
Dollar Rolls. Under a mortgage "dollar roll," a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. During the roll period, a Fund forgoes principal
and interest paid on the mortgage-backed securities. A Fund is compensated by
the difference between the current sales price and the lower forward price
for the future purchase (often referred to as the "drop") as well as by the
interest earned on the cash proceeds of the initial sale. A Fund may only
enter into covered rolls. A "covered roll" is a specific type of dollar roll
for which there is an offsetting cash position which matures on or before the
forward settlement date of the dollar roll transaction. At the time a Fund
enters into a mortgage "dollar roll", it will establish a segregated account
with its custodian bank in which it will maintain cash or liquid securities
equal in value to its obligations in respect of dollar rolls, and
accordingly, such dollar rolls will not be considered borrowings. Mortgage
dollar rolls involve the risk that the market value of the securities the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a mortgage
dollar roll files for bankruptcy or becomes insolvent, the Fund's use
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of proceeds of the dollar roll may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
Asset-Backed Securities. A Fund or Portfolio may invest in asset-backed
securities, including conditional sales contracts, equipment lease
certificates and equipment trust certificates. The advisers expect that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities already
exist, including, for example, "Certificates for Automobile ReceivablesSM" or
"CARSSM" ("CARS"). CARS represent undivided fractional interests in a trust
whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the CARS trust. An investor's
return on CARS may be affected by early prepayment of principal on the
underlying vehicle sales contracts. If the letter of credit is exhausted, the
CARS trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the
failure of servicers to take appropriate steps to perfect the CARS trust's
rights in the underlying loans and the servicer's sale of such loans to bona
fide purchasers, giving rise to interests in such loans superior to those of
the CARS trust, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
A Fund or Portfolio also may invest in other types of asset-backed
securities. In the selection of other asset-backed securities, the advisers
will attempt to assess the liquidity of the security giving consideration to
the nature of the security, the frequency of trading in the security, the
number of dealers making a market in the security and the overall nature of
the marketplace for the security.
Structured Products. A Fund or Portfolio may invest in interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of certain other investments. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, or specified instruments (such as commercial bank
loans) and the issuance by that entity of one or more classes of securities
("structured products") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured products to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured products is dependent on the extent of the cash
flow on the underlying instruments. A Fund or Portfolio may invest in
structured products which represent derived investment positions based on
relationships among different markets or asset classes.
A Fund or Portfolio may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by
a formula to the price of an underlying instrument. Inverse floaters have
coupon rates that vary inversely at a multiple of a designated floating rate
(which typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost
of Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon
rate while any drop in the reference rate of an inverse floater causes an
increase in the coupon rate. A spread trade is an investment position
relating to a difference in the prices or interest rates of two securities
where the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities. When a Fund or Portfolio invests in notes linked to
the price of an underlying instrument, the price of the underlying security
is determined by a multiple (based on a formula) of the price of such
underlying security. A structured product may be considered to be leveraged
to the extent its interest rate varies by a magnitude that exceeds the
magnitude of the change in the index rate
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of interest. Because they are linked to their underlying markets or
securities, investments in structured products generally are subject to
greater volatility than an investment directly in the underlying market or
security. Total return on the structured product is derived by linking return
to one or more characteristics of the underlying instrument. Because certain
structured products of the type in which a Fund or Portfolio may invest may
involve no credit enhancement, the credit risk of those structured products
generally would be equivalent to that of the underlying instruments. A Fund
or Portfolio may invest in a class of structured products that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured products typically have higher yields and present
greater risks than unsubordinated structured products. Although a Fund's or
Portfolio's purchase of subordinated structured products would have similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of a Fund's or
Portfolio' fundamental investment limitation related to borrowing and
leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which a Fund or
Portfolio invests may be deemed illiquid and subject to its limitation on
illiquid investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
In addition, because structured products are typically sold in private
placement transactions, there currently is no active trading market for
structured products.
Additional Restrictions on the Use of Futures and Option Contracts. None
of the Funds is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that a Fund may enter into such transactions for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5%
of the liquidation value of the Fund's portfolio, provided, further, that, in
the case of an option that is in-the-money, the in-the-money amount may be
excluded in calculating the 5% limitation.
When a Fund or Portfolio purchases a futures contract, an amount of cash
or cash equivalents or high quality debt securities will be deposited in a
segregated account with such Fund's or Portfolio's custodian or sub-custodian
so that the amount so segregated, plus the initial deposit and variation
margin held in the account of its broker, will at all times equal the value
of the futures contract, thereby insuring that the use of such futures is
unleveraged.
A Fund's or Portfolio's ability to engage in the transactions described
herein may be limited by the current federal income tax requirement that a
Fund or Portfolio derive less than 30% of its gross income from the sale or
other disposition of stock or securities held for less than three months.
Investment Restrictions
The Funds and Portfolios have adopted the following investment
restrictions which may not be changed without approval by a "majority of the
outstanding shares" of a Fund or Portfolio which, as used in this Statement
of Additional Information, means the vote of the lesser of (i) 67% or more of
the shares of a Fund or total beneficial interests of a Portfolio present at
a meeting, if the holders of more than 50% of the outstanding shares of a
Fund or total beneficial interests of a Portfolio are present or represented
by proxy, or (ii) more than 50% of the outstanding shares of a Fund or total
beneficial interests of a Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of shareholders of the Fund that
invests in such Portfolio and will cast its votes as instructed by the
shareholders of such Fund.
With respect to the Growth and Income Fund, New Growth Opportunities Fund
and the Capital Growth Fund, it is a fundamental policy of each Fund that
when the Fund holds no portfolio securities except interests
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<PAGE>
in the Portfolio in which it invests, the Fund's investment objective and
policies shall be identical to the Portfolio's investment objective and
policies, except for the following: a Fund (1) may invest more than 10% of
its net assets in the securities of a registered investment company, (2) may
hold more than 10% of the voting securities of a registered investment
company, and (3) will concentrate its investments in the investment company.
It is a fundamental investment policy of each such Fund that when the Fund
holds only portfolio securities other than interests in the Portfolio, the
Fund's investment objective and policies shall be identical to the investment
objective and policies of the Portfolio at the time the assets of the Fund
were withdrawn from the Portfolio.
Each Fund and Portfolio may not:
(1) borrow money, except that each Fund and Portfolio may borrow money
for temporary or emergency purposes, or by engaging in reverse repurchase
transactions, in an amount not exceeding 33-1/3% of the value of its total
assets at the time when the loan is made and may pledge, mortgage or
hypothecate no more than 1/3 of its net assets to secure such borrowings.
Any borrowings representing more than 5% of a Fund's or Portfolio's total
assets must be repaid before the Fund or Portfolio may make additional
investments;
(2) make loans, except that each Fund and Portfolio may: (i) purchase
and hold debt instruments (including without limitation, bonds, notes,
debentures or other obligations and certificates of deposit, bankers'
acceptances and fixed time deposits) in accordance with its investment
objectives and policies; (ii) enter into repurchase agreements with
respect to portfolio securities; and (iii) lend portfolio securities with
a value not in excess of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's or Portfolio's total assets would be
invested in the securities of companies whose principal business
activities are in the same industry. Notwithstanding the foregoing, with
respect to a Fund's or Portfolio's permissible futures and options
transactions in U.S. Government securities, positions in such options and
futures shall not be subject to this restriction;
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
a Fund or Portfolio from (i) purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities or (ii) engaging in forward purchases or sales of
foreign currencies or securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Fund or Portfolio from investing insecurities or other instruments backed
by real estate or securities of companies engaged in the real estate
business). Investments by a Fund or Portfolio in securities backed by
mortgages on real estate or in marketable securities of companies engaged
in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except that
(a) a Fund or Portfolio may engage in transactions that may result in the
issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order; (b)
a Fund or Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund or Portfolio may
borrow money as authorized by the 1940 Act. For purposes of this
restriction, collateral arrangements with respect to permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as a
Fund or Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
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In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (5) above, real estate includes
Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." Investment restriction (3) above, however, is not applicable
to investments by a Fund or Portfolio in municipal obligations where the
issuer is regarded as a state, city, municipality or other public authority
since such entities are not members of an "industry." Supranational
organizations are collectively considered to be members of a single
"industry" for purposes of restriction (3) above.
In addition, each Fund and Portfolio is subject to the following
nonfundamental restrictions which may be changed without shareholder
approval:
(1) Each Fund other than the Capital Growth Fund, Growth and Income Fund,
Small Cap Opportunities Fund, Small Cap Equity Fund and U.S. Treasury Income
Fund may not, with respect to 75% of its assets, hold more than 10% of the
outstanding voting securities of any issuer or invest more than 5% of its
assets in the securities of any one issuer (other than obligations of the
U.S. Government, its agencies and instrumentalities); Each Portfolio and each
of the Capital Growth Fund, Growth and Income Fund, Small Cap Opportunities
Fund, Small Cap Equity Fund and U.S. Treasury Income Fund may not, with
respect to 50% of its assets, hold more than 10% of the outstanding voting
securities of any issuer.
(2) Each Fund and Portfolio may not make short sales of securities,
other than short sales "against the box," or purchase securities on margin
except for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to limit
the use of options, futures contracts and related options, in the manner
otherwise permitted by the investment restrictions, policies and
investment program of a Fund or Portfolio.
(3) Each Fund and Portfolio may not purchase or sell interests in oil,
gas or mineral leases.
(4) Each Fund and Portfolio may not invest more than 15% of its net
assets in illiquid securities.
(5) Each Fund and Portfolio may not write, purchase or sell any put or
call option or any combination thereof, provided that this shall not
prevent (i) the writing, purchasing or selling of puts, calls or
combinations thereof with respect to portfolio securities or (ii) with
respect to a Fund's or Portfolio's permissible futures and options
transactions, the writing, purchasing, ownership, holding or selling of
futures and options positions or of puts, calls or combinations thereof
with respect to futures.
(6) Except as specified above, each Fund and Portfolio may invest up to
5% of its total assets in the securities of any one investment company,
but may not own more than 3% of the securities of any one investment
company or invest more than 10% of its total assets in the securities of
other investment companies.
It is the Trust's position that proprietary strips, such as CATS and
TIGRS, are United States Government securities. However, the Trust has been
advised that the staff of the Securities and Exchange Commission's Division
of Investment Management does not consider these to be United States
Government securities, as defined under the Investment Company Act of 1940,
as amended.
For purposes of the Funds' and Portfolios' investment restrictions, the
issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of the principal of and
interest on the security.
In order to permit the sale of its shares in certain states, a Fund or
Portfolio may make commitments more restrictive than the investment policies
and limitations described above and in its Prospectus. Should
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<PAGE>
a Fund or Portfolio determine that any such commitment is no longer in its
best interests, it will revoke the commitment by terminating sales of its
shares in the state involved. In order to comply with certain regulatory
policies, as a matter of operating policy, each Fund and Portfolio will not:
(i) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation,
except for the Small Cap Equity Fund which may invest up to 15% of its assets
in such companies, (ii) invest in warrants, valued at the lower of cost or
market, in excess of 5% of the value of its net assets, and no more than 2%
of such value may be warrants which are not listed on the New York or
American Stock Exchanges, or (iii) purchase or retain in its portfolio any
securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or Portfolio, or is an
officer or director of the adviser, if after the purchase of the securities
of such issuer by the Fund or Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than 1/2
of 1% of such shares or securities together own beneficially more than 5% of
such shares or securities, or both, all taken at market value.
If a percentage or rating restriction on investment or use of assets set
forth herein or in a Prospectus is adhered to at the time a transaction is
effected, later changes in percentage resulting from any cause other than
actions by a Fund or Portfolio will not be considered a violation. If the
value of a Fund's or Portfolio's holdings of illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due
to subsequent fluctuations in value or other reasons, the Board of Trustees
will consider what actions, if any, are appropriate to maintain adequate
liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund or Portfolio
are made by a portfolio manager who is an employee of the adviser or
sub-adviser to such Fund or Portfolio and who is appointed and supervised by
senior officers of such adviser or sub-adviser. Changes in a Fund's or
Portfolio's investments are reviewed by the Board of Trustees of the Trust or
Portfolio. The portfolio managers may serve other clients of the advisers in
a similar capacity.
The frequency of a Fund's or Portfolio's portfolio transactions--the
portfolio turnover rate--will vary from year to year depending upon market
conditions. Because a high turnover rate may increase transaction costs and
the possibility of taxable short-term gains, the advisers will weigh the
added costs of short-term investment against anticipated gains. Each Fund or
Portfolio will engage in portfolio trading if its advisers believe a
transaction, net of costs (including custodian charges), will help it achieve
its investment objective. Funds investing in both equity and debt securities
apply this policy with respect to both the equity and debt portions of their
portfolios.
For the fiscal years ended October 31, 1994, 1995 and 1996, the annual
rates of portfolio turnover for the following Funds were as follows:
1994 1995 1996
----- ----- -------
Balanced Fund 77% 68% 149%
U.S. Treasury Income Fund 163% 164% 103%
Growth and Income Fund * * *
Capital Growth Fund * * *
Equity Income Fund 75% 91% 114%
Bond Fund 17% 30% 122%
Short-Term Bond Fund 44% 62% 158%
Large Cap Equity Fund 53% 45% 89%
Small Cap Equity Fund -- -- 78%
- ------------
* The Growth and Income Fund and the Capital Growth Fund invest all of their
investable assets in their respective Portfolio and do not invest directly
in a portfolio of assets, and therefore do not have reportable portfolio
turnover rates. The portfolio turnover rates for the Growth and Income
Portfolio and the Capital
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Growth Portfolio for the fiscal year ended October 31, 1994 were 57% and
60%, respectively, for the fiscal year ended October 31, 1995, the
portfolio turnover rates were 71% and 86%, respectively, and for the fiscal
year ended October 31, 1996, the Portfolio turnover rates were 62% and 90%,
respectively.
For the period December 20, 1994 through October 31, 1995, the Small Cap
Equity Fund had a portfolio turnover rate of 75%.
For the fiscal period December 1, 1996 through October 31, 1996, the
annual portfolio turnover rates for the American Value Fund and U.S.
Government Securities Fund were 25% and 101%, respectively.
For the fiscal year ending October 31, 1997, the annual rate of portfolio
turnover for the Small Cap Opportunities Portfolio is expected not to exceed
100%.
Under the advisory agreement and the sub-advisory agreements, the adviser
and sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs
or proceeds being the most favorable to the Funds and Portfolios. In
assessing the best overall terms available for any transaction, the adviser
and sub-advisers consider all factors they deem relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer,
research services provided to the adviser or sub-advisers, and the
reasonableness of the commissions, if any, both for the specific transaction
and on a continuing basis. The adviser and sub-advisers are not required to
obtain the lowest commission or the best net price for any Fund or Portfolio
on any particular transaction, and are not required to execute any order in a
fashion either preferential to any or Portfolio Fund relative to other
accounts they manage or otherwise materially adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case
of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown),
the adviser or sub-adviser to a Fund or Portfolio normally seeks to deal
directly with the primary market makers unless, in its opinion, best
execution is available elsewhere. In the case of securities purchased from
underwriters, the cost of such securities generally includes a fixed
underwriting commission or concession. From time to time, soliciting dealer
fees are available to the adviser or sub-adviser on the tender of a Fund's or
Portfolio's portfolio securities in so-called tender or exchange offers. Such
soliciting dealer fees are in effect recaptured for a Funds and Portfolios by
the adviser and sub-advisers. At present, no other recapture arrangements are
in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds and Portfolios to pay a broker-dealer which provides
brokerage and research services to the adviser or sub-advisers, the Funds or
Portfolios and/or other accounts for which they exercise investment
discretion an amount of commission for effecting a securities transaction for
a Fund or Portfolio in excess of the amount other broker-dealers would have
charged for the transaction if they determine in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or their overall responsibilities to accounts
over which they exercise investment discretion. Not all of such services are
useful or of value in advising the Funds and Portfolios. The adviser and
sub-advisers report to the Board of Trustees regarding overall commissions
paid by the Funds and Portfolios and their reasonableness in relation to the
benefits to the Funds and Portfolios. The term "brokerage and research
services" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or of purchasers or sellers of securities, furnishing analyses and
reports concerning issues, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts, and effecting
securities transactions and performing functions incidental thereto such as
clearance and settlement.
The management fees that the Funds and Portfolios pay to the adviser will
not be reduced as a consequence of the adviser's or sub-advisers' receipt of
brokerage and research services. To the extent the
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Funds' or Portfolios' portfolio transactions are used to obtain such
services, the brokerage commissions paid by the Funds or Portfolios will
exceed those that might otherwise be paid by an amount which cannot be
presently determined. Such services generally would be useful and of value to
the adviser or sub-advisers in serving one or more of their other clients
and, conversely, such services obtained by the placement of brokerage
business of other clients generally would be useful to the adviser and
sub-advisers in carrying out their obligations to the Funds and Portfolios.
While such services are not expected to reduce the expenses of the adviser or
sub-advisers, the advisers would, through use of the services, avoid the
additional expenses which would be incurred if they should attempt to develop
comparable information through their own staffs.
In certain instances, there may be securities that are suitable for one or
more of the Funds and Portfolios as well as one or more of the adviser's or
sub-advisers' other clients. Investment decisions for the Funds and
Portfolios and for other clients are made with a view to achieving their
respective investment objectives. It may develop that the same investment
decision is made for more than one client or that a particular security is
bought or sold for only one client even though it might be held by, or bought
or sold for, other clients. Likewise, a particular security may be bought for
one or more clients when one or more clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the
same security is suitable for the investment objectives of more than one
client. When two or more Funds or Portfolios or other clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Funds
or Portfolios are concerned. However, it is believed that the ability of the
Funds and Portfolios to participate in volume transactions will generally
produce better executions for the Funds and Portfolios.
For the fiscal years ended October 31, 1994, 1995 and 1996, the Capital
Growth Portfolio paid aggregate brokerage commissions of $1,242,652,
$2,311,291 and $1,618,640, respectively. For the fiscal years ended October
31, 1994, 1995 and 1996, the Growth and Income Portfolio paid aggregate
brokerage commissions of $1,515,504, $2,352,596 and $1,304,272, respectively.
For the fiscal years ended October 31, 1993, 1994, 1995 and 1996, the
Large Cap Equity Fund paid aggregate brokerage commissions of $129,600,
$202,556, $23,824 and $201,001, respectively.
For the fiscal years ended October 31, 1994, 1995 and 1996, the Balanced
Fund paid aggregate brokerage commissions of $26,724, $27,315 and $62,036,
respectively.
For the fiscal years ended October 31, 1994, 1995 and 1996, the Equity
Income Fund paid aggregate brokerage commissions of $23,520, $23,824 and
$44,136, respectively.
For the period December 20, 1994 through October 31, 1995 and the fiscal
year ended October 31, 1996, the Small Cap Equity Fund paid aggregate
brokerage commissions of $56,980 and $327,762, respectively.
For the period from December 1, 1995 through October 31, 1996, the Vista
American Value Fund paid aggregate brokerage commissions of $9,937.
No portfolio transactions are executed with the advisers or a Shareholder
Servicing Agent, or with any affiliate of the advisers or a Shareholder
Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based
on past investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future.
From time to time, the performance and yield of classes of
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a Fund may be quoted and compared to those of other mutual funds with similar
investment objectives, unmanaged investment accounts, including savings
accounts, or other similar products and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund or its classes may be compared to data prepared by
Lipper Analytical Services, Inc. or Morningstar Mutual Funds on Disc, widely
recognized independent services which monitor the performance of mutual
funds. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in local or regional
publications, may also be used in comparing the performance and yield of a
Fund or its classes. A Fund's performance may be compared with indices such
as the Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers
Government Bond Index, the Lehman Government Bond 1-3 Year Index and the
Lehman Aggregate Bond Index; the S&P 500 Index, the Dow Jones Industrial
Average or any other commonly quoted index of common stock prices; and the
Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund may,
with proper authorization, reprint articles written about such Fund and
provide them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in
a Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class
B shares, the average annual total rate of return figures will assume
deduction of the applicable contingent deferred sales charge imposed on a
total redemption of shares held for the period. One-, five-, and ten-year
periods will be shown, unless the class has been in existence for a
shorter-period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values of the classes
of shares of a Fund will vary based on market conditions, the current market
value of the securities held by the Fund and changes in the Fund's expenses.
The advisers, Shareholder Servicing Agents, the Administrator, the
Distributor and other service providers may voluntarily waive a portion of
their fees on a month-to-month basis. In addition, the Distributor may assume
a portion of a Fund's operating expenses on a month-to-month basis. These
actions would have the effect of increasing the net income (and therefore the
yield and total rate of return) of the classes of shares of the Fund during
the period such waivers are in effect. These factors and possible differences
in the methods used to calculate the yields and total rates of return should
be considered when comparing the yields or total rates of return of the
classes of shares of a Fund to yields and total rates of return published for
other investment companies and other investment vehicles (including different
classes of shares). The Trust is advised that certain Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding the Shareholder Servicing
Agent fees received, which will have the effect of increasing the net return
on the investment of customers of those Shareholder Servicing Agents. Such
customers may be able to obtain through their Shareholder Servicing Agents
quotations reflecting such increased return.
Each Fund presents performance information for each class thereof since
the commencement of operations of that Fund (or the related predecessor fund,
as described below), rather than the date such class was introduced.
Performance information for each class introduced after the commencement of
operations of the related Fund (or predecessor fund) is therefore based on
the performance history of a predecessor class. Performance information is
restated to reflect the current maximum front-end sales charge (in the case
of Class A Shares) or the maximum contingent deferred sales charge (in the
case of Class B Shares) when presented inclusive of sales charges. Additional
performance information may be presented which does not reflect the deduction
of sales charges. Historical expenses reflected in performance information
are based upon the distribution, shareholder servicing fees and other
expenses actually incurred during the periods presented and have not been
restated, for periods during which the performance information for a
particular
22
<PAGE>
class is based upon the performance history of a predecessor class, to
reflect the ongoing expenses currently borne by the particular class.
In connection with the Hanover Reorganization, the Vista U.S. Government
Securities and Vista American Value Fund were established to receive the
assets of The Hanover U.S. Government Securities Fund and The Hanover
American Value Fund, respectively. Performance results presented for each
class of the Vista U.S. Government Securities Fund and Vista American Value
Fund include the performance of The Hanover U.S. Government Securities Fund
and The Hanover American Value Fund, respectively, for periods prior to the
consummation of the Hanover Reorganization.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to a
Fund.
Advertisements for the Vista funds may include references to the asset
size of other financial products made available by Chase, such as the
offshore assets of other funds.
Total Rate of Return
A Fund's or class' total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day
of the period and the net asset value per share on the last day of the period
of shares purchasable with dividends and capital gains declared during such
period with respect to a share held at the beginning of such period and with
respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day
of such period, and (b) subtracting 1 from the result. The average annual
rate of return quotation will be calculated by (x) adding 1 to the period
total rate of return quotation as calculated above, (y) raising such sum to a
power which is equal to 365 divided by the number of days in such period, and
(z) subtracting 1 from the result.
Average Annual Total Returns*
(excluding sales charges)
The average annual total rate of return figures for the following Funds,
reflecting the initial investment and assuming the reinvestment of all
distributions (but excluding the effects of any applicable sales charges) for
the one and five year periods ended October 31, 1996 and for the period from
commencement of business operations of each such Fund to October 31, 1996
were as follows:
<TABLE>
<CAPTION>
Since Date of Date of
One Five Fund Fund Class
Fund Year Years Inception Inception Introduction
- ------------------------- ----- ------ --------- --------- ------------
<S> <C> <C> <C> <C> <C>
American Value Fund** 21.70% -- 21.86% 2/3/95 2/3/95
U.S. Treasury Income Fund 9/8/87
A Shares 3.56% 6.62% 8.98% 9/8/87
B Shares+ 2.82% 6.20% 8.75% 11/4/93
Balanced Fund 11/4/92
A Shares 16.89% -- 13.30% 11/4/92
B Shares 16.10% -- 12.67% 11/4/93
Equity Income Fund 7/15/93
A Shares 29.79% -- 15.35% 7/15/93
B Shares 29.24% -- 15.20% 5/7/96
Growth and Income Fund 9/23/87
A Shares 19.60% 13.83% 22.67% 9/23/87
B Shares+ 19.02% 13.48% 22.46% 11/5/93
Institutional Shares++ 20.01% 13.91% 22.72% 1/24/96
23
<PAGE>
Since Date of Date of
One Five Fund Fund Class
Fund Year Years Inception Inception Introduction
- ------------------------- ----- ------ --------- --------- ------------
Capital Growth Fund 9/23/87
A Shares 21.48% 15.93% 20.50% 9/23/87
B Shares+ 20.88% 15.60% 20.31% 11/5/93
Institutional Shares+++ 21.83% 16.00% 20.54% 1/24/96
Bond Fund 11/30/90
Class A Shares*** 4.50% 7.57% 8.36% 5/6/96
Class B Shares*** 4.67% 7.61% 8.39% 5/6/96
Institutional Shares 4.90% 7.66% 8.43% 11/30/90
Short-Term Bond Fund 11/30/90
Class A Shares*** 5.79% 5.32% 5.82% 5/6/96
Institutional Shares 6.10% 5.38% 5.87% 11/30/90
Large Cap Equity Fund 11/30/90
Class A Shares*** 25.10% 13.93% 15.95% 5/6/96
Class B Shares*** 24.89% 13.89% 15.91% 5/6/96
Institutional Shares 25.65% 14.03% 16.03% 11/30/90
Small Cap Equity Fund 12/20/94
A Shares 29.06% -- 43.19% 12/20/94
B Shares+ 28.04% -- 42.23% 3/28/95
Institutional Shares+++ 29.27% -- 43.31% 1/8/96
U.S. Government Securities Fund** 2/19/93
A Shares*** 3.71% -- 5.24% 5/6/96
Institutional Shares 3.97% 4.15%# 5.31% 2/19/93
</TABLE>
- ------------
*The ongoing fees and expenses borne by Class B Shares are greater than
those borne by Class A Shares; the ongoing fees and expenses borne by a
Fund's Class A and Class B Shares are greater than those borne by the
Fund's Institutional Shares. As indicated above, the performance
information for each class introduced after the commencement of operations
of the related Fund (or predecessor fund) is based on the performance
history of a predecessor class and historical expenses have not been
restated, for periods during which the performance information for a
particular class is based upon the performance history of a predecessor
class, to reflect the ongoing expenses currently borne by the particular
class. Accordingly, the performance information presented in the table
above and in each table that follows may be used in assessing each Fund's
performance history but does not reflect how the distinct classes would
have performed on a relative basis prior to the introduction of those
classes, which would require an adjustment to the ongoing expenses.
The performance quoted reflects fee waivers that subsidize and reduce the
total operating expenses of certain Funds (or classes thereof). Returns on
these Funds (or classes) would have been lower if there were not such
waivers. With respect to certain Funds, Chase and/or other service
providers are obligated to waive certain fees and/or reimburse certain
expenses for a stated period of time. In other instances, there is no
obligation to waive fees or to reimburse expenses. Each Fund's Prospectus
discloses the extent of any agreements to waive fees and/or reimburse
expenses.
24
<PAGE>
**Performance presented in the table above and in each table that follows
for each class of these Funds includes the performance of their respective
predecessor funds for periods prior to the consummation of the Hanover
Reorganization. Performance presented for each class of each of these
Funds is based on the historical expenses and performance of a single
class of shares of its predecessor fund and does not reflect the current
distribution, service and/or other expenses that an investor would incur
as a holder of such class of such Fund. Date of Fund inception shown for
these Funds is the date of inception of their respective predecessor
funds. These Funds commenced operations as part of the Trust on May 6,
1996.
***Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced does not reflect shareholder servicing and distribution fees
and certain other expenses borne by this class which, if reflected, would
reduce the performance quoted.
+Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced does not reflect distribution fees and certain other expenses
borne by this class which, if reflected, would reduce the performance
quoted.
++Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced is based upon historical expenses of a predecessor class which
are higher than the actual expenses that an investor would incur as a
holder of shares of this class.
#Represents average annual total return for the three years end 10/31/96.
25
<PAGE>
Average Annual Total Returns*
(including sales charges)
With the current maximum sales charge for Class A shares (1.50% for the
Short-Term Bond Fund, 4.50% for the U.S. Treasury Income Fund, Balanced Fund,
Equity Income Fund, Bond Fund and U.S. Government Securities Fund and 4.75%
for the Small Cap Equity Fund, Growth and Income Fund, Capital Growth Fund
and Large Cap Equity Fund) reflected and the currently applicable CDSC for
Class B shares for each period length, the average annual total rate of
return figures for the same periods would be as follows:
Since
One Five Fund
Fund Year Years Inception
- ---- ------ ------- ---------
U.S. Treasury Income Fund
A Shares (1.10%) 5.64% 8.44%
B Shares (2.06%) 4.27% 8.75%
Balanced Fund
A Shares 11.63% -- 12.00%
B Shares 11.10% -- 12.32%
Equity Income Fund
A Shares 23.95% -- 13.75%
B Shares 24.24% -- 14.54%
Growth and Income Fund
A Shares 13.92% 12.73% 22.02%
B Shares 14.02% 11.48% 22.46%
Capital Growth Fund
A Shares 15.71% 14.81% 19.86%
B Shares 15.88% 13.60% 20.31%
Bond Fund
A Shares (0.20%) 6.59% 7.52%
B Shares (0.26%) 5.61% 8.39%
Short-Term Bond Fund
A Shares 4.21% 5.01% 5.55%
Large Cap Equity Fund
A Shares 19.15% 12.83% 15.00%
B Shares 19.89% 11.89% 15.91%
Small Cap Equity Fund
A Shares 22.93% -- 39.37%
B Shares 23.04% -- 41.04%
U.S. Government Securities Fund
A Shares (0.96%) -- 1.57%
- ------------
*See the notes to the preceding table.
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance
of a Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for a class of shares shall consist of an
annualized hypothetical yield, carried at least to the nearest hundredth of
one percent, based on a thirty calendar day period and shall be calculated by
(a) raising to the sixth power the sum of 1 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 out-
26
<PAGE>
standing during the period that were entitled to receive dividends and the
maximum offering price per share on the last day of the period, (b)
subtracting 1 from the result, and (c) multiplying the result by 2.
The yields of the shares of the Funds for the thirty-day period ended
October 31, 1996 were as follows:
Class A Class B Institutional
---------- ---------- ---------------
U.S. Treasury Income Fund 5.27% 4.80% --
Capital Growth Fund 0.04% 0.00% 0.45%
Balanced Fund 2.68% 2.06% --
Large Cap Equity Fund 0.71% 0.24% 1.61%
Equity Income Fund 1.98% 1.31% --
Bond Fund 5.26% 4.79% 5.94%
Growth and Income Fund 0.97% 0.53% 1.40%
Short-Term Bond Fund 5.32% -- 5.73%
Small Cap Equity Fund 0.05% 0.00% 0.45%
U.S. Government Securities Fund 5.09% -- 5.55%
American Value Fund 1.15% -- --
Advertisements for the Funds may include references to the asset size of
other financial products made available by Chase, such as the offshore assets
of other funds advised by Chase.
Non-Standardized Performance Results*
(excluding sales charges)
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in each class of Fund shares in the following Funds
(excluding the effects of any applicable sale charges) for the period from
the commencement date of business for each such Fund through October 31,
1996. The values reflect an assumption that capital gain distributions and
income dividends, if any, have been invested in additional shares of the same
class. From time to time, the Funds may provide these performance results in
addition to the total rate of return quotations required by the Securities
and Exchange Commission. As discussed more fully in the Prospectuses, neither
these performance results, nor total rate of return quotations, should be
considered as representative of the performance of the Funds in the future.
These factors and the possible differences in the methods used to calculate
performance results and total rates of return should be considered when
comparing such performance results and total rate of return quotations of the
Funds with those published for other investment companies and other
investment vehicles.
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of Fund
$10,000 Gains Reinvested Inception
Investment Distributions Dividends Total Value Date
----------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
Income Fund 9/8/87
Class A $11,130 $ 1,103 $9,703 $21,936
Class B $11,110 $ 1,081 $9,313 $21,505
Balanced Fund 11/4/92
Class A $13,830 $ 733 $1,889 $16,452
Class B $13,450 $ 708 $1,637 $15,794
Equity Income Fund 7/15/92
Class A $12,161 $ 2,831 $1,006 $15,998
Class B $12,116 $ 2,819 $ 995 $15,930
Growth and Income Fund 9/23/87
Class A $39,210 $17,095 $7,774 $64,079
Class B $39,020 $16,845 $7,233 $63,098
Institutional Shares $39,260 $17,154 $7,886 $64,300
27
<PAGE>
Value of Value of
Initial Capital Value of Fund
$10,000 Gains Reinvested Inception
Investment Distributions Dividends Total Value Date
----------- -------------- --------------- ------------ -----------
Capital Growth Fund 9/23/87
Class A $41,600 $9,064 $3,806 $54,470
Class B $41,210 $8,953 $3,526 $53,689
Institutional Shares $41,650 $9,090 $3,887 $54,627
Large Cap Equity Fund 11/30/90
Class A $13,250 $8,880 $1,834 $23,965
Class B $13,220 $8,866 $1,839 $23,925
Institutional Shares $13,270 $8,919 $1,881 $24,070
Small Cap Equity Fund 12/20/94
Class A $19,190 $ 220 $ 111 $19,521
Class B $19,000 $ 219 $ 60 $19,278
Institutional Shares $19,220 $ 221 $ 111 $19,552
Bond Fund 11/1/90
Class A $10,710 $ 363 $4,997 $16,070
Class B $10,760 $ 364 $4,972 $16,095
Institutional Shares $10,710 $ 365 $5,056 $16,131
Short Term Bond Fund 11/30/90
Class A $10,080 $ 17 $4,039 $14,137
Institutional Shares $10,120 $ 17 $3,872 $14,009
U.S. Government Securities Fund 2/19/93
Class A $ 9,900 $ 120 $2,051 $12,071
Institutional Shares $ 9,890 $ 120 $2,091 $12,101
American Value Fund $13,490 $ 305 $ 304 $14,099 2/3/95
</TABLE>
- ------------
*See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of
$10,000 in a particular class of a Fund for the period from the Fund's
commencement of operations, although the particular class may have been
introduced at a subsequent date. As indicated above, performance information
for each class introduced after the commencement of operations of the
related Fund (or predecessor fund) is based on the performance history of a
predecessor class, and historical expenses have not been restated, for
periods during which the performance information for a particular class is
based upon the performance history of a predecessor class, to reflect the
ongoing expenses currently borne by the particualar class.
Non-Standardized Performance Results*
(includes sales charges)
With the current maximum sales charge for Class A shares (1.50% for
Short-Term Bond Fund; 4.50% for U.S. Treasury Income Fund, Balanced Fund,
Equity Income Fund, Bond Fund and U.S. Government Securities Fund; 4.75% for
Growth and Income Fund, Capital Growth Fund, Large Cap Equity Fund and Small
Cap Equity Fund) reflected , and the currently applicable CDSC for Class B
shares for each period length, the performance figures for the same periods
would be as follows:
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of
Period Ended $10,000 Gains Reinvested
October 31, 1996 Investment Distributions Dividends Total Value
- ---------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury
Income Fund
Class A $10,629 $1,053 $9,267 $20,949
Class B $11,110 $1,081 $9,313 $21,505
28
<PAGE>
Value of Value of
Initial Capital Value of
Period Ended $10,000 Gains Reinvested
October 31, 1996 Investment Distributions Dividends Total Value
- ---------------- ---------- ------------- ----------- -----------
Balanced Fund
Class A $13,208 $ 700 $1,804 $15,712
Class B $13,250 $ 708 $1,637 $15,594
Equity Income Fund
Class A $12,161 $ 2,831 $1,006 $15,998
Class B $11,816 $ 2,819 $ 995 $15,630
Growth and Income Fund
Class A $37,348 $16,283 $7,404 $61,035
Class B $39,020 $16,845 $7,233 $63,098
Capital Growth Fund
Class A $39,624 $ 8,633 $3,626 $51,883
Class B $41,210 $ 8,953 $3,526 $53,689
Large Cap Equity Fund
Class A $12,621 $ 8,459 $1,747 $22,826
Class B $13,220 $ 8,866 $1,839 $23,925
Small Cap Equity Fund
Class A $18,278 $ 210 $ 106 $18,594
Class B $18,700 $ 219 $ 60 $18,978
Bond Fund
Class A $10,228 $ 347 $4,772 $15,347
Class B $10,760 $ 364 $4,972 $16,095
Short-Term Bond Fund
Class A $ 9,929 $ 17 $3,979 $13,925
U.S. Government Securities Fund
Class A $ 9,455 $ 115 $1,959 $11,528
</TABLE>
- ------------
*See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of
$10,000 in a particular class of a Fund for the period from the Fund's
commencement of operations, although the particular class may have been
introduced at a subsequent date. As indicated above, performance information
for each class introduced after the commencement of operations of the
related Fund (or predecessor fund) is based on the performance history of a
predecessor class, and historical expenses have not been restated, for
periods during which the performance information for a particular class is
based upon the performance history of a predecessor class, to reflect the
ongoing expenses currently borne by the particualar class.
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Equity securities in a Fund's or Portfolio's portfolio are valued at the
last sale price on the exchange on which they are primarily traded or on the
NASDAQ National Market System, or at the last quoted bid price for securities
in which there were no sales during the day or for other unlisted
(over-the-counter) securities not reported on the NASDAQ National Market
System. Bonds and other fixed income securities (other than short-term
obligations, but including listed issues) in a Fund's or Portfolio's
portfolio are valued on the basis of valuations furnished by a pricing
service, the use of which has been approved by the Board of Trustees. In
making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data
29
<PAGE>
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other
market data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations which
mature in 60 days or less are valued at amortized cost, which constitutes
fair value as determined by the Board of Trustees. Futures and option
contracts that are traded on commodities or securities exchanges are normally
valued at the settlement price on the exchange on which they are traded.
Portfolio securities (other than short-term obligations) for which there are
no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in a Fund's or Portfolio's
portfolio is determined on the basis of coupon interest accrued plus
amortization of discount (the difference between acquisition price and stated
redemption price at maturity) and premiums (the excess of purchase price over
stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest and discount accrued less
amortization of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received
by the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their
latest account application or other written request for services, including
purchasing, exchanging, or redeeming shares of such Fund and depositing and
withdrawing monies from the bank account specified in the Bank Account
Registration section of the shareholder's latest account application or as
otherwise properly specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio
securities (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the net asset
value for the shares being sold. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting
the securities to cash. The Trust has filed an election under Rule 18f-1
committing to pay in cash all redemptions by a shareholder of record up to
amounts specified by the rule (approximately $250,000).
With respect to the Growth and Income Fund and Capital Growth Fund, the
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of such
Portfolio and in no case will they receive a security issued by the
Portfolio. Each Portfolio has advised the Trust that the Portfolio will not
redeem in kind except in circumstances in which the corresponding Fund is
permitted to redeem in kind or unless requested by the corresponding Fund.
Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each day that the New York Stock
Exchange is open for business. Once each such day, based upon prices
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time, however, options are priced at 4:15 p.m.,
Eastern time) the value of each investor's
30
<PAGE>
interest in a Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in a Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which
is the value of such investor's investment in the Portfolio as of such time
on such day plus or minus, as the case may be, the amount of net additions to
or reductions in the investor's investment in the Portfolio effected on such
day and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of such time on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio as of such time on the following day the New York Stock Exchange is
open for trading.
Investors in Class A shares may qualify for reduced initial sales charges
by signing a statement of intention (the "Statement"). This enables the
investor to aggregate purchases of Class A shares in the Fund with purchases
of Class A shares of any other Fund in the Trust (or if a Fund has only one
class, shares of such Fund), excluding shares of any Vista money market fund,
during a 13-month period. The sales charge is based on the total amount to be
invested in Class A shares during the 13-month period. All Class A or other
qualifying shares of these Funds currently owned by the investor will be
credited as purchases (at their current offering prices on the date the
Statement is signed) toward completion of the Statement. A 90-day back-dating
period can be used to include earlier purchases at the investor's cost. The
13-month period would then begin on the date of the first purchase during the
90-day period. No retroactive adjustment will be made if purchases exceed the
amount indicated in the Statement. A shareholder must notify the Transfer
Agent or Distributor whenever a purchase is being made pursuant to a
Statement.
The Statement is not a binding obligation on the investor to purchase the
full amount indicated; however, on the initial purchase, if required (or
subsequent purchases if necessary), 5% of the dollar amount specified in the
Statement will be held in escrow by the Transfer Agent in Class A shares (or
if a Fund has only one class and is subject to an initial sales charge,
shares of such Fund) registered in the shareholder's name in order to assure
payment of the proper sales charge. If total purchases pursuant to the
Statement (less any dispositions and exclusive of any distributions on such
shares automatically reinvested) are less than the amount specified, the
investor will be requested to remit to the Transfer Agent an amount equal to
the difference between the sales charge paid and the sales charge applicable
to the aggregate purchases actually made. If not remitted within 20 days
after written request, an appropriate number of escrowed shares will be
redeemed in order to realize the difference. This privilege is subject to
modification or discontinuance at any time with respect to all shares
purchased thereunder. Reinvested dividend and capital gain distributions are
not counted toward satisfying the Statement.
Class A shares of a Fund may also be purchased by any person at a reduced
initial sales charge which is determined by (a) aggregating the dollar amount
of the new purchase and the greater of the purchaser's total (i) net asset
value or (ii) cost of any shares acquired and still held in the Fund, or any
other Vista fund excluding any Vista money market fund, and (b) applying the
initial sales charge applicable to such aggregate dollar value (the
"Cumulative Quantity Discount"). The privilege of the Cumulative Quality
Discount is subject to modification or discontinuance at any time with
respect to all Class A shares (or if a Fund has only one class and is subject
to an initial sales charge, shares of such Fund) purchased thereafter.
An individual who is a member of a qualified group (as hereinafter
defined) may also purchase Class A shares of a Fund (or if a Fund has only
one class and is subject to an initial sales charge, shares of such Fund) at
the reduced sales charge applicable to the group taken as a whole. The
reduced initial sales charge is based upon the aggregate dollar value of
Class A shares (or if a Fund has only one class and is subject to an initial
sales charge, shares of such Fund) previously purchased and still owned by
the group plus the securities currently being purchased and is determined as
stated in the preceding paragraph. In order to obtain such discount, the
purchaser or investment dealer must provide the Transfer Agent with
sufficient information, including the purchaser's total cost, at the time of
purchase to permit verification that the purchaser
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qualifies for a cumulative quantity discount, and confirmation of the order
is subject to such verification. Information concerning the current initial
sales charge applicable to a group may be obtained by contacting the Transfer
Agent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Class A shares (or if a
Fund has only one class and is subject to an initial sales charge, shares of
such Fund) at a discount and (iii) satisfies uniform criteria which enables
the Distributor to realize economies of scale in its costs of distributing
Class A shares (or if a Fund has only one class and is subject to an initial
sales charge, shares of such Fund). A qualified group must have more than 10
members, must be available to arrange for group meetings between
representatives of the Fund and the members must agree to include sales and
other materials related to the Fund in its publications and mailings to
members at reduced or no cost to the Distributor, and must seek to arrange
for payroll deduction or other bulk transmission of investments in the Fund.
This privilege is subject to modification or discontinuance at any time with
respect to all Class A shares (or if a Fund has only one class and is subject
to an initial sales charge, shares of such Fund) purchased thereafter.
Under the Exchange Privilege, shares may be exchanged for shares of
another fund only if shares of the fund exchanged into are registered in the
state where the exchange is to be made. Shares of a Fund may only be
exchanged into another fund if the account registrations are identical. With
respect to exchanges from any Vista money market fund, shareholders must have
acquired their shares in such money market fund by exchange from one of the
Vista non-money market funds or the exchange will be done at relative net
asset value plus the appropriate sales charge. Any such exchange may create a
gain or loss to be recognized for federal income tax purposes. Normally,
shares of the fund to be acquired are purchased on the redemption rate, but
such purchase may be delayed by either fund for up to five business days if a
fund determines that it would be disadvantaged by an immediate transfer of
the proceeds.
The contingent deferred sales charge for Class B shares will be waived for
certain exchanges and for redemptions in connection with a Fund's systematic
withdrawal plan, subject to the conditions described in the Prospectuses. In
addition, subject to confirmation of a shareholder's status, the contingent
deferred sales charge will be waived for: (i) a total or partial redemption
made within one year of the shareholder's death or initial qualification for
Social Security disability payments; (ii) a redemption in connection with a
Minimum Required Distribution from an IRA, Keogh or custodial account under
section 403(b) of the Internal Revenue Code or a mandatory distribution from
a qualified plan; (iii) redemptions made from an IRA, Keogh or custodial
account under section 403(b) of the Internal Revenue Code through an
established Systematic Redemption Plan; (iv) a redemption resulting from an
over-contribution to an IRA; (v) distributions from a qualified plan upon
retirement; and (vi) an involuntary redemption of an account balance under
$500.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares
attributable to the Class B shares then converting. The conversion of Class B
shares purchased on or after May 1, 1996, will be effected at the relative
net asset values per share of the two classes on the first business day of
the month following the eighth anniversary of the original purchase. The
conversion of Class B shares purchased prior to May 1, 1996, will be effected
at the relative net asset values per share of the two classes on the first
business day of the month following the seventh anniversary of the original
purchase. If any exchanges of Class B shares during the CDSC Period occurred,
the holding period for the shares exchanged will be counted toward the CDSC
Period. At the time of the conversion the net asset value per share of the
Class A shares may be higher or lower than the net asset value per share of
the Class B shares; as a result, depending on the relative net asset values
per share, a shareholder may receive fewer or more Class A shares than the
number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written
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requests for additional account services made after a shareholder has
submitted an initial account application to the Fund, and in certain other
circumstances described in the Prospectuses. A Fund may also refuse to accept
or carry out any transaction that does not satisfy any restrictions then in
effect. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of a national securities exchange. Please note
that a notary public cannot provide a signature guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described
in the respective Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in each Fund's Prospectus are not intended as
substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
As a regulated investment company, each Fund is not subject to federal income
tax on the portion of its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, without a deduction for
dividends paid ) and net capital gain (i.e., the excess of net long-term
capital gains over net short-term capital losses) 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.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will
be considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement. Because certain Funds invest
all of their assets in Portfolios which will be classified as partnerships
for federal income tax purposes, such Funds will be deemed to own a
proportionate share of the income of the Portfolio into which each
contributes all of its assets for purposes of determining whether such Funds
satisfy the Distribution Requirement and the other requirements necessary to
qualify as a regulated investment company (e.g., Income Requirement
(hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement for each taxable year,
a regulated investment company must: (1) derive at least 90% of its gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies (the "Income Requirement"); and (2)
derive less than 30% of its gross income from the sale or other disposition of
any of the following held for less than three months: (i) stock or securities,
(ii) options, futures or forward contracts (other than options, futures or
forward contracts on foreign currencies, or (iii) foreign currencies (or
foreign currency options, futures or forward contracts) that are not directly
related to its principal business of investing in stock or securities (or
options and futures with respect to stocks or securities (the "Short-Short Gain
Test"). Because of the Short-Short Gain Test, a Fund may have to limit the sale
of appreciated securities that it has held for less than three months. However,
the Short-Short Gain Test will not prevent a Fund from disposing of investments
at a loss, since the recognition of a loss before the expiration of the
three-month holding period is disregarded for this purpose. Interest (including
original issue discount) received by a Fund at maturity or upon the disposition
of a security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within the
meaning of the Short-Short Gain Test. However, income that is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. However, gain recognized on the disposition of a
debt obligation purchased by a Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
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of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation and has not already been included in income.
Further, the Code also treats as ordinary income, a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property
by such Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning
of Section 1092 of the Code; (3) the transaction is one that was marketed or
sold to such Fund on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as
capital gain; or (4) the transaction is described as a conversion transaction
in the Treasury Regulations. The amount of the gain recharacterized generally
will not exceed the amount of the interest that would have accrued on the net
investment for the relevant period at a yield equal to 120% of the federal
long-term, mid-term, or short-term rate, depending upon the type of
instrument at issue, reduced by an amount equal to: (1) prior inclusions of
ordinary income items from the conversion transaction; and (2) the
capitalized interest on acquisition indebtedness under Code Section 263(g).
Built-in losses will be preserved where a Fund has a built-in loss with
respect to property that becomes a part of a conversion transaction. No
authority exists that indicates that the converted character of the income
will not be passed to a Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if: (1) the asset
is used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset
so used, (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the
Fund grants a qualified covered call option (which, among other things, must
not be deep-in-the-money) with respect thereto); or (3) the asset is stock
and the Fund grants an in-the- money qualified covered call option with
respect thereto. However, for purposes of the Short- Short Gain Test, the
holding period of the asset disposed of may be reduced only in the case of
clause (1) above. In addition, a Fund may be required to defer the
recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option
written by a Fund will commence on the date it is written and end on the date
it lapses or the date a closing transaction is entered into. Accordingly, a
Fund may be limited in its ability to write options which expire within three
months and to enter into closing transactions at a gain within three months
of the writing of options.
Transactions that may be engaged in by certain of the Funds (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long- term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings that gains arising from Section 1256 contracts will not
be treated for purposes of the Short-Short Gain Test as being derived from
securities held for less than three months if the gains arise as a result of a
constructive sale under Code Section 1256.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain for any taxable year,
to elect (unless it has made a taxable year election
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for excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which
the Fund has not invested more than 5% of the value of the Fund's total
assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer), and no
more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses. Generally, an option (call or put) with respect to a
security is treated as issued by the issuer of the security not the issuer of
the option. However, with regard to forward currency contracts, there does
not appear to be any formal or informal authority which identifies the issuer
of such instrument. For purposes of asset diversification testing,
obligations issued or guaranteed by agencies or instrumentality's of the U.S.
Government such as the Federal Agricultural Mortgage Corporation, the Farm
Credit System Financial Assistance Corporation, a Federal Home Loan Bank, the
Federal Home Loan Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government Securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election"). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar
year (and, instead, include such gains and losses in determining ordinary
taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end
of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70%
dividends-received deduction for corpo-
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rations only to the extent discussed below. Dividends paid on Class A and
Class B shares are calculated at the same time. In general, dividends on
Class B shares are expected to be lower than those on Class A shares due to
the higher distribution expenses borne by the Class B shares. Dividends may
also differ between classes as a result of differences in other class
specific expenses.
A Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a "capital gain
dividend," it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by
a Fund from domestic corporations for the taxable year. A dividend received
by a Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding for
this purpose under the rules of Code Section 246(c) (3) and (4): (i) any day
more than 45 days (or 90 days in the case of certain preferred stock) after
the date on which the stock becomes ex-dividend and (ii) any period during
which a Fund has an option to sell, is under a contractual obligation to
sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such
(or substantially identical) stock; (2) to the extent that a Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments
with respect to positions in substantially similar or related property; or
(3) to the extent the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (1) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a Fund or (2) by application of
Code Section 246(b) which in general limits the dividends-received deduction
to 70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items). In the case where a
Fund invests all of its assets in a Portfolio and the Fund satisfies the
holding period rules pursuant to Code Section 246(c) as to its interest in
the Portfolio, a corporate shareholder which satisfies the foregoing
requirements with respect to its shares of the Fund should receive the
dividends- received deduction.
For purposes of the Corporate AMT, 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. .9However,
corporate shareholders will generally be required to take the full amount of any
dividend received from a Fund into account (without a dividends- received
deduction) in determining its adjusted current earnings.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption
from, taxes on such income. It is impossible to determine the effective rate
of foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
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Distributions by a Fund that do not constitute ordinary income dividends,
or capital gain dividends will be treated as a return of capital to the
extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31
of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the
year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all,
(2) who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated
as arising from) the sale or redemption of shares of a Fund will be
considered capital gain or loss and will be long- term capital gain or loss
if the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less
will be disallowed to the extent of the amount of exempt-interest dividends
received on such shares and (to the extent not disallowed) will be treated as
a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) (discussed above in connection
with the dividends-received deduction for corporations) generally will apply
in determining the holding period of shares. Long-term capital gains of
noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a Fund,
(2) disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales
load on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
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Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Such a foreign shareholder would generally be exempt from U.S. federal income
tax on gains realized on the sale of shares of the Fund, capital gain
dividends and exempt-interest dividends and amounts retained by the Fund that
are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that
are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Fund, including the applicability of foreign taxes.
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 regulated investment company 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 regulated investment company
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 regulated investment company 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 exemptins from state and local income taxes that
would be available if the shareholders had purchased U.S. government securities
directly. Shareholders' dividends attributable to a Fund's income from
repurchase agreements generally are subject to state and local income taxes,
although states and regulations vary in their treatment of such income. The
exemption from state and local income taxes does not preclude states from
asserting other taxes on the ownership of U.S. government securities. To the
extent that a Fund invests to a substantial degree in U.S. government securities
which are subject to favorable state and local tax treatment, shareholders of
such Fund will be notified as to the extent to which distributions from the Fund
azre attributable to interest on such securities. Rules of state and local
taxation of ordinary income dividends and capital gain dividends from regulated
investment companies 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 Informa-
38
<PAGE>
tion. 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 FUNDS OR PORTFOLIOS
Trustees and Officers
The Trustees and officers of the Trust and their principal occupations for
at least the past five years are set forth below. Their titles may have
varied during that period.
Fergus Reid, III--Chairman of the Trust. Chairman and Chief Executive
Officer, Lumelite Corporation, since September 1985; Trustee, Morgan Stanley
Funds. Age: 64. Address: 202 June Road, Stamford, CT 06903.
Richard E. Ten Haken--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers'
Retirement System. Age: 62. Address: 4 Barnfield Road, Pittsford, NY 14534.
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: 67. Address: 322 Main Street,
Lakeville, CT 06039.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He was employed by Chase in numerous capacities and offices from 1954
through 1989. 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.
*H. Richard Vartabedian--Trustee and President of the Trust. Consultant,
Republic Bank of New York; formerly, Senior Investment Officer, Division
Executive of the Investment Management Division of The Chase Manhattan Bank,
N.A., 1980 through 1991. Age: 61. Address: P.O. Box 296, Beach Road,
Hendrick's Head, Southport, ME 04576.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 63. Address: 108 Valley
Road, Cos Cob, CT 06807.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 66. Address: 80 Perkins
Road, Greenwich, CT 06830.
*W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; formerly Director and Chairman of The Hanover Funds, Inc.;
formerly Director, Chairman and President of The Hanover Investment Funds,
Inc. Age: 69. Address: RR 1 Box 102, Weston, VT 05181.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc. (1971-1988);
Director, Janel Hydraulics, Inc.; formerly Director of The Hanover Funds,
Inc. Age: 64. Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer
of The Adams Express Co. and Petroleum &
39
<PAGE>
Resources Corp.; formerly Director of The Hanover Funds, Inc. and The Hanover
Investment Funds, Inc. Age: 69. Address: 624 East 45th Street, Savannah, GA
31405
Martin R. Dean--Treasurer. Associate Director, Accounting Services, BISYS
Fund Services; formerly Senior Manager, KPMG Peat Marwick (1987-1994). Age:
33. Address: 3435 Stelzer Road, Columbus, OH 43219.
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: 36.
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 Chairman 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, 1996.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(President) 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.
The Trustees and officers of the Trust appearing in the table above also
serve in the same capacities with respect to Mutual Fund Trust, Mutual Fund
Variable Annuity Trust, Mutual Fund Select Group, Mutual Fund Select Trust,
Capital Growth Portfolio, Growth and Income Portfolio, International Equity
Portfolio and Small Cap Opportunities Portfolio (these entities, together
with the Trust, are referred to below as the "Vista Funds").
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to
a fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the
Trustee serves, which consists of an annual retainer component and a meeting
fee component. Effective August 21, 1995, each Trustee of the Vista Funds
receives a quarterly retainer of $12,000 and an additional per meeting fee of
$1,500. Members of committees receive a meeting fee only if the committee
meeting is held on a day other than a day on which a regularly scheduled
meeting is held. Prior to August 21, 1995, the quarterly retainer was $9,000
and the per-meeting fee was $1,000. The Chairman of the Trustees and the
Chairman of the Investment Committee each receive a 50% increment over
regular Trustee total compensation for serving in such capacities for all the
investment companies advised by the adviser.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1996 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Growth
Equity and Capital Large Cap American
Balanced Income Income Growth Equity Bond Value
Fund Fund Fund Fund Fund Fund Fund
--------- ------- ---------- ---------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $327.83 $92.74 $9,519.66 $5,139.80 $518.18 $384.51 $16.89
Richard E. Ten Haken, Trustee 214.32 61.81 6,265.51 3,384.56 336.47 253.11 10.50
William J. Armstrong, Trustee 218.59 61.81 6,346.47 3,426.53 345.44 256.35 11.26
John R.H. Blum, Trustee 218.59 61.81 6,346.47 3,426.53 345.44 256.35 11.26
40
<PAGE>
Joseph J. Harkins, Trustee 218.59 61.81 6,346.47 3,426.53 345.44 256.35 11.26
H. Richard Vartabedian, Trustee 327.83 92.74 9,519.66 5,139.80 518.18 384.51 16.89
Stuart W. Cragin, Jr., Trustee 218.59 61.81 6,346.47 3,426.53 345.44 256.35 11.26
Irving L. Thode, Trustee 218.59 61.81 6,346.47 3,426.53 345.44 256.35 11.26
W. Perry Neff, Trustee 109.95 24.22 2,124.56 1,153.62 194.49 100.05 11.26
Ronald R. Eppley, Jr., Trustee 109.95 24.22 2,124.56 1,153.62 194.49 100.05 11.26
W.D. MacCallan, Trustee 106.38 22.98 2,032.86 1,103.53 184.54 94.60 11.26
</TABLE>
<TABLE>
<CAPTION>
Short- U.S. Inter- U.S.
Term Treasury Small Cap national Gov't Southeast
Bond Income Equity Equity Securities Asian Japan European
Fund Fund Fund Fund Fund Fund Fund Fund
-------- --------- -------------- --------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $281.07 $795.97 $936.61 $192.92 $150.43 $29.51 $10.46 $11.53
Richard E. Ten Haken, Trustee 184.24 521.45 605.29 127.57 93.94 19.68 6.96 7.69
William J. Armstrong, Trustee 187.37 530.67 624.44 128.61 100.30 19.68 6.96 7.69
John R.H. Blum, Trustee 187.37 530.67 624.44 128.61 100.30 19.68 6.96 7.69
Joseph J. Harkins, Trustee 187.37 530.67 624.44 128.61 100.30 19.68 6.96 7.69
H. Richard Vartabedian, Trustee 281.07 795.97 936.61 192.92 150.43 29.51 10.46 11.53
Stuart W. Cragin, Jr., Trustee 187.37 530.67 624.44 128.61 100.30 19.68 6.96 7.69
Irving L. Thode, Trustee 187.37 530.67 624.44 128.61 100.30 19.68 6.96 7.69
W. Perry Neff, Trustee 89.61 232.20 416.91 51.34 100.30 13.60 7.43 8.08
Ronald R. Eppley, Jr., Trustee 89.61 232.20 416.91 51.34 100.30 13.60 7.43 8.08
W.D. MacCallan, Trustee 86.24 222.38 398.56 49.06 94.47 13.60 7.43 8.08
</TABLE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from
as Fund Expenses "Fund Complex" (1)
----------------- ------------------
<S> <C> <C>
Fergus Reid, III, Trustee $7,511 $90,000
Richard E. Ten Haken, Trustee 4,222 58,500
William J. Armstrong, Trustee 4,735 58,500
John R.H. Blum, Trustee 5,445 60,000
Joseph J. Harkins, Trustee 6,139 60,000
H. Richard Vartabedian, Trustee 5,525 90,000
Stuart W. Cragin, Jr., Trustee 3,977 60,000
Irving L. Thode, Trustee 4,728 60,000
W. Perry Neff, Trustee -- 43,500
Ronald R. Eppley, Jr., Trustee -- 43,500
W.D. MacCallan, Trustee -- 42,000
</TABLE>
- ------------
(1) Data reflects total compensation earned during the period January 1, 1996
to December 31, 1996 for service as a Trustee to all Funds advised by the
adviser.
41
<PAGE>
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 10% of
the highest annual compensation received from the Covered Funds multiplied by
the number of such Trustee's years of service (not in excess of 10 years)
completed with respect to any of the Covered Funds. Such benefit is payable
to each eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years
of service classifications. As of October 31, 1996, the estimated credited
years of service for Messrs. Reid, Ten Haken, Armstrong, Blum, Harkins,
Vartabedian, Cragin, Thode, Neff, Eppley and MacCallan are 12, 12, 9, 12, 6,
5, 4, 4, 7, 8 and 7, respectively.
Highest Annual Compensation Paid by All Vista Funds
-----------------------------------------------------------
$40,000 $45,000 $50,000 $55,000 $60,000
Years of
Service Estimated Annual Benefits upon Retirement
- ------------ ---------------------------------------------------------
10 $40,000 $45,000 $50,000 $55,000 $60,000
9 36,000 40,500 45,000 49,500 54,000
8 32,000 36,000 40,000 44,000 48,000
7 28,000 31,500 35,000 38,500 42,000
6 24,000 27,000 30,000 33,000 36,000
5 20,000 22,500 25,000 27,500 30,000
Effective August 21, 1995, the Trustees instituted a Deferred Compensation
Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to
which each Trustee (who is not an employee of any of the Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustee's fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination
of service). The deferred amounts are invested in shares of Vista funds
selected by the Trustee. The deferred amounts are paid out in a lump sum or
over a period of several years as elected by the Trustee at the time of
deferral. If a deferring Trustee dies prior to the distribution of amounts
held in the deferral account, the balance of the deferral account will be
distributed to the Trustee's designated beneficiary in a single lump sum
payment as soon as practicable after such deferring Trustee's death.
Messrs. Ten Haken, Thode and Vartabedian have each executed a deferred
compensation agreement for the 1996 calendar year and as of October 31, 1996
they had contributed $17,400, $45,000 and $62,500, 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
42
<PAGE>
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their
duties.
As of January 31, 1997, the Trustees and officers as a group owned less
than 1% of each Fund's outstanding shares, all of which were acquired for
investment purposes. For the fiscal year ended October 31, 1996, the Trust
paid its disinterested Trustees fees and expenses for all of the meetings of
the Board and any committees attended in the aggregate amount of
approximately $12,796 which amount was then apportioned between the Funds
comprising the Trust.
Adviser and Sub-Adviser
Chase acts as investment adviser to the Funds or Portfolios pursuant to an
Investment Advisory Agreement, dated as of May 6, 1996 (the "Advisory
Agreement"). Subject to such policies as the Board of Trustees may determine,
Chase is responsible for investment decisions for the Funds or Portfolios.
Pursuant to the terms of the Advisory Agreement, Chase provides the Funds or
Portfolios with such investment advice and supervision as it deems necessary
for the proper supervision of the Funds' or Portfolios' investments. The
advisers continuously provide investment programs and determine from time to
time what securities shall be purchased, sold or exchanged and what portion
of the Funds' or Portfolios' assets shall be held uninvested. The advisers to
the Funds or Portfolios furnish, at their own expense, all services,
facilities and personnel necessary in connection with managing the
investments and effecting portfolio transactions for the Funds or Portfolios.
The Advisory Agreement for the Funds or Portfolios will continue in effect
from year to year only if such continuance is specifically approved at least
annually by the Board of Trustees or by vote of a majority of a Fund's or
Portfolio's outstanding voting securities and by a majority of the Trustees
who are not parties to the Advisory Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on such Advisory
Agreement.
Under the Advisory Agreement, the adviser may utilize the specialized
portfolio skills of all its various affiliates, thereby providing the Funds
and Portfolios with greater opportunities and flexibility in accessing
investment expertise.
Pursuant to the terms of the Advisory Agreement and the sub-advisers'
agreements with the adviser, the adviser and sub-advisers are permitted to
render services to others. Each advisory agreement is terminable without
penalty by the Trust on behalf of the Funds on not more than 60 days', nor
less than 30 days', written notice when authorized either by a majority vote
of a Fund's shareholders or by a vote of a majority of the Board of Trustees
of the Trust, or by the adviser or sub-adviser on not more than 60 days', nor
less than 30 days', written notice, and will automatically terminate in the
event of its "assignment" (as defined in the 1940 Act). The advisory
agreements provide that the adviser or sub-adviser under such agreement shall
not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
portfolio transactions for the respective Fund, except for wilful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties thereunder.
With respect to the Equity Funds or Equity Portfolios, the equity research
team of the adviser looks for two key variables when analyzing stocks for
potential investment by equity portfolios: value and momentum. To uncover
these qualities, the team uses a combination of quantitative analysis,
fundamental research and computer technology to help identify undervalued
stocks.
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to the Funds imposed by the securities laws or
regulations thereunder of any state in which the shares of the Funds are
qualified for sale, as such limitations may be raised or lowered from time to
time, the adviser shall reduce its advisory fee (which fee is described
below) to the extent of its share of such excess expenses. The amount of any
such reduction to be borne by the adviser shall be deducted from the monthly
advisory
43
<PAGE>
fee otherwise payable with respect to the Funds during such fiscal year; and
if such amounts should exceed the monthly fee, the adviser shall pay to a
Fund its share of such excess expenses no later than the last day of the
first month of the next succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement
provides that Chase may render services through its own employees or the
employees of one or more affiliated companies that are qualified to act as an
investment adviser of the Fund and are under the common control of Chase as
long as all such persons are functioning as part of an organized group of
persons, managed by authorized officers of Chase.
Chase, on behalf of the Funds or Portfolios (except the American Value
Fund), has entered into an investment sub-advisory agreement dated as of May
6, 1996 with Chase Asset Management, Inc. ("CAM"). With respect to the
American Value Fund, Chase has entered into an investment sub-advisory
agreement with Van Deventer & Hoch ("VDH") dated as of May 6, 1996. With
respect to the day-to-day management of the Funds or Portfolios, under the
sub-advisory agreements, the sub-advisers make decisions concerning, and
place all orders for, purchases and sales of securities and helps maintain
the records relating to such purchases and sales. The sub-advisers may, in
their discretion, provide such services through their own employees or the
employees of one or more affiliated companies that are qualified to act as an
investment adviser to the Company under applicable laws and are under the
common control of Chase; provided that (i) all persons, when providing
services under the sub-advisory agreement, are functioning as part of an
organized group of persons, and (ii) such organized group of persons is
managed at all times by authorized officers of the sub-advisers. This
arrangement will not result in the payment of additional fees by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range
of banking and investment services to customers throughout the United States
and around the world. Also included among Chase's accounts are commingled
trust funds and a broad spectrum of individual trust and investment
management portfolios. These accounts have varying investment objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment
adviser and was formed for the purpose of providing discretionary investment
advisory services to institutional clients and to consolidate Chase's
investment management function, and the same individuals who serve as
portfolio managers for CAM also serve as portfolio managers for Chase.
VDH has been in the investment counselling business since 1969 and is
ultimately controlled and equally owned by key professionals of VDH and Chase
Manhattan Corporation. VDH provides a wide range of asset management services
to individuals, corporations, private and charitable trusts, endowments,
foundations and retirement funds.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund or
Portfolio an investment advisory fee computed daily and paid monthly based on
a rate equal to a percentage of such Fund's or Portfolio's average daily net
assets specified in the relevant Prospectuses. However, the adviser may
voluntarily agree to waive a portion of the fees payable to it on a
month-to-month basis. For its services under its sub-advisory agreement, CAM
(or VDH in the case of the American Value Fund) will be entitled to receive,
with respect to each such Fund or Portfolio, such compensation, payable by
the adviser out of its advisory fee, as is described in the relevant
Prospectuses.
For the fiscal years ended October 31, 1994, 1995 and 1996, Chase was paid
or accrued the following investment advisory fees with respect to the
following Funds and Portfolios, and voluntarily waived the amounts in
parentheses following such fees with respect to each such period:
44
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
----------------------------------------------------------------------------------
1994 1995 1996
Fund paid/accrued waived paid/accrued waived paid/accrued waved
- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund $351,680 ($234,236) $319,705 ($220,998) $331,915 ($137,440)
Growth and Income Fund * -- * -- * --
Capital Growth Fund * -- * -- * --
Balanced Fund $103,522 ($103,522) $145,295 ($145,295) $253,986 ($125,808)
Equity Income Fund $52,804 ($31,989) $44,277 ($35,433) $54,769 ($53,342)
Large Cap Equity Fund $378,813 ($378,813) $250,452 ($250,452) $337,772 ($337,772)
Bond Fund $167,780 ($167,780) $162,618 ($162,618) $143,017 ($143,017)
Short-Term Bond Fund $137,634 ($137,634) $85,353 ($85,353) $105,509 ($105,509)
Small Cap Equity Fund -- -- $130,401 ($130,401) $1,069,668 ($31,530)
American Value Fund -- -- -- -- $57,746 ($57,746)#
U.S. Government Securities Fund -- -- -- -- $288,582 ($17,569)#
</TABLE>
- ------------
* On November 23, 1993, these Funds changed their structure to a
Master/Feeder Fund Structure and do not have an investment adviser because
the Trust seeks to achieve the investment objective of the Funds by
investing all of the investable assets of each respective Fund in each
respective Portfolio. The Portfolios' investment adviser is Chase. With
respect to the Growth and Income Portfolio and the Capital Growth
Portfolio, for the period November 23, 1993 to October 31, 1994, Chase was
paid or accrued the following investment advisory fees, and voluntarily
waived the amounts in parentheses following such fees: $4,805,067 ($0.00)
and $1,649,889 ($0.00), respectively. For the fiscal year ended October 31,
1995, Chase was paid or accrued the following investment advisory fees, and
voluntarily waived the amounts in parentheses following such fees:
$6,815,197 ($0.00) and $3,563,194 ($0.00), respectively, with respect to
such Portfolios. For the year ended October 31, 1996, Chase was paid or
accrued investment advisory fees of $8,101,188 and $4,226,466,
respectively, with respect to such Portfolios.
# Fees paid or accrued for the period from December 1, 1995 through October
31, 1996.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Funds and the administrator
of each Portfolio. Chase provides certain administrative services to the
Funds and Portfolios, including, among other responsibilities, coordinating
the negotiation of contracts and fees with, and the monitoring of performance
and billing of, the Funds' and Portfolios' independent contractors and
agents; preparation for signature by an officer of the Trust and Portfolios
of all documents required to be filed for compliance by the Trust and
Portfolios with applicable laws and regulations excluding those of the
securities laws of various states; arranging for the computation of
performance data, including net asset value and yield; responding to
shareholder inquiries; and arranging for the maintenance of books and records
of the Funds and Portfolios and providing, at its own expense, office
facilities, equipment and personnel necessary to carry out its duties. Chase
in its capacity as administrator does not have any responsibility or
authority for the management of the Funds or Portfolios, the determination of
investment policy, or for any matter pertaining to the distribution of Fund
shares.
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will
continue in effect from year to year with respect to each Fund or Portfolio
only if such continuance is specifically approved at least annually by the
Board of Trustees of the Trust or Portfolio or by vote of a majority of such
Fund's or Portfolio's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Administration Agreements
or "interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreements are terminable without penalty by the Trust on
behalf
45
<PAGE>
of each Fund or by a Portfolio on 60 days' written notice when authorized
either by a majority vote of such Fund's or Portfolio shareholders or by vote
of a majority of the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust or
Portfolios, or by Chase on 60 days' written notice, and will automatically
terminate in the event of their "assignment" (as defined in the 1940 Act).
The Administration Agreements also provide that neither Chase or its
personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration of the Funds or Portfolios, except
for willful misfeasance, bad faith or gross negligence in the performance of
its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Administration Agreements.
In addition, the Administration Agreements provide that, in the event the
operating expenses of any Fund or Portfolio, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or
regulations thereunder of any state in which the shares of such Fund are
qualified for sale, as such limitations may be raised or lowered from time to
time, Chase shall reduce its administration fee (which fee is described
below) to the extent of its share of such excess expenses. The amount of any
such reduction to be borne by Chase shall be deducted from the monthly
administration fee otherwise payable to Chase during such fiscal year, and if
such amounts should exceed the monthly fee, Chase shall pay to such Fund or
Portfolio its share of such excess expenses no later than the last day of the
first month of the next succeeding fiscal year.
In consideration of the services provided by Chase pursuant to the
Administration Agreements, Chase receives from each Fund a fee computed daily
and paid monthly at an annual rate equal to 0.10% of each of the Fund's
average daily net assets, on an annualized basis for the Fund's then-current
fiscal year, except that with respect to the Growth and Income Fund, Capital
Growth Fund and Small Cap Opportunities Fund, Chase receives from each of
the Funds and the Portfolios a fee computed daily and paid monthly at an
annual rate equal to 0.05% of their respective average daily net assets.
Chase may voluntarily waive a portion of the fees payable to it with respect
to each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1994, 1995 and 1996, Chase was paid
or accrued the following administration fees and voluntarily waived the
amounts in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
------------------------------------------------------------------------------------
1994 1995 1996
Fund paid/accrued waived paid/accrued waived paid/accrued waived
- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund $117,228 ($78,078) $106,559 ($ 76,094) $110,678 ($23,372)
Growth and Income Fund $637,264 none $830,077 ($ 252,586) $971,251 none
Capital Growth Fund $208,866 none $435,695 ($ 116,282) $526,852 none
Balanced Fund $ 20,704 ($20,704) $ 29,053 ($ 29,053) $ 50,797 ($14,689)
Equity Income Fund $ 13,201 ($ 7,764) $ 11,069 ($ 8,855) $ 13,692 ($13,293)
Large Cap Equity Fund $ 94,703 ($94,703) $ 62,613 ($ 62,613) $ 84,443 ($84,443)
Bond Fund $ 55,927 ($55,927) $ 54,206 ($ 54,206) $ 47,715 ($47,715)
Short-Term Bond Fund $ 55,054 ($55,054) $ 34,141 ($ 34,141) $ 42,171 ($42,171)
Small Cap Equity Fund -- -- $ 20,040 ($ 20,040) $164,564 ($ 6,152)
American Value Fund -- -- -- -- $ 7,293 ($ 7,293)#
U.S. Government Securities Fund -- -- -- -- $ 63,984 ($26,354)#
</TABLE>
- ------------
# Fees paid or accrued for the period from December 1, 1995 through October
31, 1996.
46
<PAGE>
Distribution Plans
The Trust has adopted separate plans of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") on behalf of certain classes
of shares of certain Funds as described in the Prospectuses, which provide
such classes of such Funds shall pay for distribution services a distribution
fee (the "Distribution Fee"), including payments to the Distributor, at
annual rates not to exceed the amounts set forth in their respective
Prospectuses. The Distributor may use all or any portion of such Distribution
Fee to pay for Fund expenses of printing prospectuses and reports used for
sales purposes, expenses of the preparation and printing of sales literature
and other such distribution-related expenses.
Class B shares pay a Distribution Fee of up to 0.75% of average daily net
assets. The Distributor currently expects to pay sales commissions to a
dealer at the time of sale of Class B shares of up to 4.00% of the purchase
price of the shares sold by such dealer. The Distributor will use its own
funds (which may be borrowed or otherwise financed) to pay such amounts.
Because the Distributor will receive a maximum Distribution Fee of 0.75% of
average daily net assets with respect to Class B shares, it will take the
Distributor several years to recoup the sales commissions paid to dealers and
other sales expenses.
Some payments under the Distribution Plans may be used to compensate
broker-dealers with trail or maintenance commissions in an amount not to
exceed 0.25% annualized of the average net asset values of Class A shares, or
0.25% annualized of the average net asset value of the Class B shares, or
0.25% annualized of the average net asset value of the shares of the American
Value Fund maintained in a Fund by such broker-dealers' customers. Trail or
maintenance commissions on Class B shares will be paid to broker- dealers
beginning the 13th month following the purchase of such Class B shares. Since
the distribution fees are not directly tied to expenses, the amount of
distribution fees paid by a Fund during any year may be more or less than
actual expenses incurred pursuant to the Distribution Plans. For this reason,
this type of distribution fee arrangement is characterized by the staff of
the Securities and Exchange Commission as being of the "compensation variety"
(in contrast to "reimbursement" arrangements by which a distributor's
payments are directly linked to its expenses). With respect to Class B
shares, because of the 0.75% annual limitation on the compensation paid to
the Distributor during a fiscal year, compensation relating to a large
portion of the commissions attributable to sales of Class B shares in any one
year will be accrued and paid by a Fund to the Distributor in fiscal years
subsequent thereto. In determining whether to purchase Class B shares,
investors should consider that compensation payments could continue until the
Distributor has been fully reimbursed for the commissions paid on sales of
Class B shares. However, the Shares are not liable for any distribution
expenses incurred in excess of the Distribution Fee paid.
Each class of shares is entitled to exclusive voting rights with respect
to matters concerning its Distribution Plan.
Each Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually
by a vote of both a majority of the Trustees and a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust
and who have no direct or indirect financial interest in the operation of the
Distribution Plans or in any agreement related to such Plan ("Qualified
Trustees"). The continuance of each Distribution Plan was most recently
approved on October 13, 1995. Each Distribution Plan requires that the Trust
shall provide to the Board of Trustees, and the Board of Trustees shall
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. Each Distribution Plan
further provides that the selection and nomination of Qualified Trustees
shall be committed to the discretion of the disinterested Trustees (as
defined in the 1940 Act) then in office. Each Distribution Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or,
with respect to a particular Fund, by vote of a majority of the outstanding
voting Shares of the class of such Fund to which it applies (as defined in
the 1940 Act). Each Distribution Plan may not be amended to increase
materially the amount of permitted expenses thereunder without the approval
of shareholders and may not be materially amended in any case without a vote
of the majority of both the Trustees and the Qualified Trustees. Each of the
Funds will preserve copies of any plan, agreement or report made pursuant to
47
<PAGE>
a Distribution Plan for a period of not less than six years from the date of
the Distribution Plan, and for the first two years such copies will be
preserved in an easily accessible place. For the fiscal year ended October
31, 1996, the Distributor was paid or accrued the following Distribution Fees
and voluntarily waived the amounts of such fees:
Fund Paid/Accrued Waived
- ---- ------------ ----------
U.S. Treasury Income Fund
A Shares $ 249,325 ($25,249)
B Shares $ 81,177 --
Growth and Income Fund
A Shares $3,988,568 --
B Shares $2,461,737 --
Capital Growth Fund
A Shares $1,836,896 --
B Shares $2,239,953 --
Balanced Fund
A Shares $ 107,170 ($ 9,081)
B Shares $ 59,467 --
Equity Income Fund
A Shares $ 33,992 ($11,667)
B Shares $ 721 --
Large Cap Equity Fund
A Shares $ 8,140 --
B Shares $ 288 --
Institutional Shares* $ 71,707 ($21,319)
Bond Fund
A Shares $ 733 --
B Shares $ 1,547 --
Institutional Shares* $ 74,061 ($38,507)
Short-Term Bond Fund
A Shares $ 12,279 ($ 7,928)
Institutional Shares* $ 46,466 ($38,033)
Small Cap Equity Fund
A Shares $ 237,707 --
B Shares $ 351,044 --
American Value Fund# $ 11,065 ($11,065)
U.S. Government Securities Fund#
Class A $ 3,551 ($ 3,551)
- ------------
* Represents distribution fees paid prior to reclassification of shares on
5/6/96. There is currently no distribution plan for the Institutional
classes of the Funds. # Fees paid or accrued for the period from May 6,
1996 through October 31, 1996.
With respect to the Class A shares of the Funds, the Distribution Fee was
allocated as follows:
<TABLE>
<CAPTION>
Printing, Postage Sales Advertising &
Fund and Handling Compensation Administrative Filings
- ---- ----------------- ------------ ----------------------
<S> <C> <C> <C>
U.S. Treasury Income Fund $ 47,930 $ 137,403 $ 38,743
Growth and Income Fund $853,155 $2,445,790 $689,623
Capital Growth Fund $392,912 $1,126,385 $317,599
Balanced Fund $ 20,981 $ 60,148 $ 16,960
48
<PAGE>
Printing, Postage Sales Advertising &
Fund and Handling Compensation Administrative Filings
- ---- ----------------- ------------ ----------------------
Equity Income Fund $ 4,775 $ 13,690 $ 3,860
Large Cap Equity Fund $ 1,741 $ 4,992 $ 1,407
Bond Fund $ 157 $ 449 $ 127
Short-Term Bond Fund $ 931 $ 2,668 $ 752
Small Cap Equity Fund $50,846 $145,761 $41,100
</TABLE>
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement
dated August 24, 1995 (the "Distribution Agreement") with the Distributor,
pursuant to which the Distributor acts as the Funds' exclusive underwriter,
provides certain administration services and promotes and arranges for the
sale of each class of Shares. The Distributor is a wholly-owned subsidiary of
BISYS Fund Services, Inc. The Distribution Agreement provides that the
Distributor will bear the expenses of printing, distributing and filing
prospectuses and statements of additional information and reports used for
sales purposes, and of preparing and printing sales literature and
advertisements not paid for by the Distribution Plan. The Trust pays for all
of the expenses for qualification of the shares of each Fund for sale in
connection with the public offering of such shares, and all legal expenses in
connection therewith. In addition, pursuant to the Distribution Agreement,
the Distributor provides certain sub-administration services to the Trust,
including providing officers, clerical staff and office space.
The Distribution Agreement is currently in effect and will continue in
effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of such Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf
of each Fund on 60 days' written notice when authorized either by a majority
vote of such Fund's shareholders or by vote of a majority of the Board of
Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, or by the
Distributor on 60 days' written notice, and will automatically terminate in
the event of its "assignment" (as defined in the 1940 Act). The Distribution
Agreement also provides that neither the Distributor nor its personnel shall
be liable for any act or omission in the course of, or connected with,
rendering services under the Distribution Agreement, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or
regulations thereunder of any state in which the shares of such Fund are
qualified for sale, as such limitations may be raised or lowered from time to
time, the Distributor shall reduce its sub-administration fee with respect to
such Fund (which fee is described below) to the extent of its share of such
excess expenses. The amount of any such reduction to be borne by the
Distributor shall be deducted from the monthly sub-administration fee
otherwise payable with respect to such Fund during such fiscal year; and if
such amounts should exceed the monthly fee, the Distributor shall pay to such
Fund its share of such excess expenses no later than the last day of the
first month of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives
an annual fee, payable monthly, of 0.05% of the net assets of each Fund.
However, the Distributor has voluntarily agreed to waive a portion of the
fees payable to it under the Distribution Agreement with respect to each Fund
on a month-to-month basis. For the fiscal years ended October 31, 1994, 1995
and 1996 the Distributor was paid or accrued the following sub-administration
fees under the Distribution Agreement, and voluntarily waived the amounts in
parentheses following such fees:
49
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
---------------------------------------------------------------------------
1994 1995 1996
Fund payable waived payable waived payable waived
- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund $ 58,614 none $ 53,284 none $ 55,339 none
Growth and Income Fund $637,264 none $830,077 none $971,201 none
Capital Growth Fund $208,866 none $435,488 none $526,852 none
Balanced Fund $ 10,352 ($10,352) $ 14,527 ($14,527) $ 25,399 ($1,680)
Equity Income Fund $ 6,601 none $ 5,535 none $ 6,846 none
Large Cap Equity Fund $ 47,352 none $ 31,306 none $ 42,221 none
Bond Fund $ 27,963 none $ 27,103 none $ 23,793 none
Short-Term Bond Fund $ 27,527 none $ 17,071 none $ 21,085 none
Small Cap Equity Fund -- -- $ 10,030 $ 3,488 $ 82,282 none
American Value Fund -- -- -- -- $ 2,213 none#
U.S. Government Securities Fund -- -- -- -- $ 18,814 none##
</TABLE>
- ------------
# Fees paid or accrued for the period from December 1, 1995 through October
31, 1996.
## Fees paid or accrued for the period from May 6, 1996 through October 31,
1996.
50
<PAGE>
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent to provide certain services
including but not limited to the following: answer customer inquiries
regarding account status and history, the manner in which purchases and
redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining
to the Fund; assist shareholders in designating and changing dividend
options, account designations and addresses; provide necessary personnel and
facilities to establish and maintain shareholder accounts and records; assist
in processing purchase and redemption transactions; arrange for the wiring of
funds; transmit and receive funds in connection with customer orders to
purchase or redeem shares; verify and guarantee shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder-designated accounts; furnish (either separately or on an
integrated basis with other reports sent to a shareholder by a Shareholder
Servicing Agent) quarterly and year-end statements and confirmations of
purchases and redemptions; transmit, on behalf of the Fund, proxy statements,
annual reports, updated prospectuses and other communications to shareholders
of the Fund; receive, tabulate and transmit to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the Fund; and
provide such other related services as the Fund or a shareholder may request.
Shareholder servicing agents may be required to register pursuant to state
securities law.
Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement
with respect to each Fund on a month-to-month basis. For the fiscal years
ended October 31, 1994, 1995 and 1996, fees payable to the Shareholder
Servicing Agents (all of which currently are related parties) and the amounts
voluntarily waived for each such period (as indicated in parentheses), were
as follows:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
------------------------------------------------------------------------------------------
1994 1995 1996
Fund payable waived payable waived payable waived
- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund
Class A $ 285,388 ($177,004) $ 246,251 ($197,001) $ 249,561 ($222,710)
Class B $ 7,681 -- $ 20,153 -- $ 27,059 --
Growth and Income Fund
Class A $2,999,532 -- $3,610,762 -- $3,989,725 --
Class B $ 186,791 -- $ 539,805 -- $ 820,579 --
Institutional -- -- -- -- $ 46,244 --
Capital Growth Fund
Class A $ 936,977 -- $1,674,668 -- $1,836,642 --
Class B $ 107,015 -- $ 503,805 -- $ 746,722 --
Institutional -- -- -- -- $ 50,897 --
Balanced Fund
Class A $ 47,750 ($ 45,962) $ 60,650 ($ 48,520) $ 107,171 ($ 98,086)
Class B $ 4,011 -- $ 11,983 -- $ 19,822 --
Bond Fund
Class A -- -- -- -- $ 733 $ 733
Class B -- -- -- -- $ 516 --
Institutional -- -- -- -- $ 43,872 ($ 12,631)
Short-Term Bond Fund
Class A -- -- -- -- $ 12,200 ($ 8,772)
Institutional -- -- -- -- $ 46,925 ($ 31,710)
51
<PAGE>
Fiscal Year-Ended October 31,
------------------------------------------------------------------------------------------
1994 1995 1996
Fund payable waived payable waived payable waived
- ----
Large Cap Equity
Class A -- -- -- -- $ 8,140 --
Class B -- -- -- -- $ 96 --
Institutional -- -- -- -- $131,164 ($24,277)
Equity Income Fund
Class A $33,030 ($22,131) $27,673 ($ 26,964) $ 33,998 ($33,998)
Class B -- -- -- -- $ 240 --
Small Cap Equity Fund
Class A n/a -- -- -- $ 37,103 --
Class B n/a $14,689 -- -- $117,011 --
Institutional -- -- -- -- $ 38,235 ($38,235)
American Value Fund -- -- -- -- $ 22,535 ($12,977))#
U.S. Government Securities Fund
Class A -- -- -- -- $ 3,551 ($ 3,551)#
Institutional -- -- -- -- $195,938 ($35,066)#
</TABLE>
- ------------
# Fees paid or accrued for the period from December 1, 1995 through October
31, 1996.
The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund and receives such compensation as is from time to time
agreed upon by the Trust and Chase. As custodian, Chase provides oversight
and record keeping for the assets held in the portfolios of each Fund. Chase
also provides fund accounting services for the income, expenses and shares
outstanding for such Funds. Chase is located at 3 Metrotech Center, Brooklyn,
NY 11245.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the Trust's
Annual Reports to Shareholders for the fiscal year ended October 31, 1996,
and the related financial highlights which appear in the Prospectuses, have
been incorporated herein and included in the Prospectuses in reliance on the
reports of Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants of the Funds, given on the authority of
said firm as experts in accounting and auditing. Price Waterhouse LLP
provides the Funds with audit services, tax return preparation and assistance
and consultation with respect to the preparation of filings with the
Securities and Exchange Commission.
CERTAIN REGULATORY MATTERS
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in the Prospectus and this Statement of
Additional Information without violating such laws. If future changes in
these laws or interpretations required Chase to alter or discontinue any of
these services, it is expected that the Board of Trustees would recommend
alternative arrangements and that investors would not suffer adverse
financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
52
<PAGE>
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
any of the Funds, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities so purchased.
Chase and its affiliates deal, trade and invest for their own accounts in
U.S. Government obligations, municipal obligations and commercial paper and
are among the leading dealers of various types of U.S. Government obligations
and municipal obligations. Chase and its affiliates may sell U.S. Government
obligations and municipal obligations to, and purchase them from, other
investment companies sponsored by the Funds' distributor or affiliates of the
distributor. Chase will not invest any Fund assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction my limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by any Fund. Chase has informed the Funds
that in making its investment decision, it does not obtain or use material
inside information in the possession of any other division or department of
Chase, including the division that performs services for the Trust as
custodian, or in the possession of any affiliate of Chase. Shareholders of
the Funds should be aware that, subject to applicable legal or regulatory
restrictions, Chase and its affiliates may exchange among themselves certain
information about the shareholder and his account. Transactions with
affiliated broker-dealers will only be executed on an agency basis in
accordance with applicable federal regulations.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment
company organized as Massachusetts business trust under the laws of the
Commonwealth of Massachusetts in 1987. The Trust currently consists of 17
series of shares of beneficial interest, par value $.001 per share. With
respect to certain Funds, the Trust may offer more than one class of shares.
The Trust has reserved the right to create and issue additional series or
classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or
class. The shares of each series or class participate equally in the
earnings, dividends and assets of the particular series or class. Expenses of
the Trust which are not attributable to a specific series or class are
allocated amount all the series in a manner believed by management of the
Trust to be fair and equitable. Shares have no pre-emptive or conversion
rights. Shares when issued are fully paid and non-assessable, except as set
forth below. Shareholders are entitled to one vote for each share held.
Shares of each series or class generally vote together, except when required
under federal securities laws to vote separately on matters that only affect
a particular class, such as the approval of distribution plans for a
particular class. With respect to shares purchased through a Shareholder
Servicing Agent and, in the event written proxy instructions are not received
by a Fund or its designated agent prior to a shareholder meeting at which a
proxy is to be voted and the shareholder does not attend the meeting in
person, the Shareholder Servicing Agent for such shareholder will be
authorized pursuant to an applicable agreement with the shareholder to vote
the shareholder's outstanding shares in the same proportion as the votes cast
by other Fund shareholders represented at the meeting in person or by proxy.
Certain Funds offer both Class A and Class B shares. The classes of shares
have several different attributes relating to sales charges and expenses, as
described herein and in the Prospectuses. In addition to such differences,
expenses borne by each class of a Fund may differ slightly because of the
allocation of other class-specific expenses. For example, a higher transfer
agency fee may be imposed on Class B shares than on Class A shares. The
relative impact of initial sales charges, contingent deferred sales charges,
and ongoing annual expenses will depend on the length of time a share is
held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit
53
<PAGE>
matters for a shareholder vote. Shareholders have, under certain
circumstances, the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have, in certain circumstances, the right to
remove one or more Trustees without a meeting. No material amendment may be
made to the Trust's Declaration of Trust without the affirmative vote of the
holders of a majority of the outstanding shares of each portfolio affected by
the amendment. The Trust's Declaration of Trust provides that, at any meeting
of shareholders of the Trust or of any series or class, a Shareholder
Servicing Agent may vote any shares as to which such Shareholder Servicing
Agent is the agent of record and which are not represented in person or by
proxy at the meeting, proportionately in accordance with the votes cast by
holders of all shares of that portfolio otherwise represented at the meeting
in person or by proxy as to which such Shareholder Servicing Agent is the
agent of record. Any shares so voted by a Shareholder Servicing Agent will be
deemed represented at the meeting for purposes of quorum requirements. Shares
have no preemptive or conversion rights. Shares, when issued, are fully paid
and non-assessable, except as set forth below. Any series or class may be
terminated (i) upon the merger or consolidation with, or the sale or
disposition of all or substantially all of its assets to, another entity, if
approved by the vote of the holders of two-thirds of its outstanding shares,
except that if the Board of Trustees recommends such merger, consolidation or
sale or disposition of assets, the approval by vote of the holders of a
majority of the series' or class' outstanding shares will be sufficient, or
(ii) by the vote of the holders of a majority of its outstanding shares, or
(iii) by the Board of Trustees by written notice to the series' or class'
shareholders. Unless each series and class is so terminated, the Trust will
continue indefinitely.
Stock certificates are issued only upon the written request of a
shareholder, subject to the policies of the investor's Shareholder Servicing
Agent, but the Trust will not issue a stock certificate with respect to
shares that may be redeemed through expedited or automated procedures
established by a Shareholder Servicing Agent. No certificates are issued for
Class B shares due to their conversion feature. No certificates are issued
for Institutional Shares.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of
the Trust. The Trust's Declaration of Trust also provides that the Trust
shall maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action
or failure to act, errors of judgment or mistakes of fact or law, but nothing
in the Declaration of Trust protects a Trustee against any liability to which
he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of his office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts
of interest that can arise in connection with personal trading activities of
such persons. Persons subject to the code are generally permitted to engage
in personal securities transactions, subject to certain prohibitions,
pre-clearance requirements and blackout periods.
54
<PAGE>
Principal Holders
As of January 31, 1997, the following persons owned of record 5% or more
of the outstanding shares of the following classes of the following Funds:
<TABLE>
<CAPTION>
<S> <C>
VISTA AMERICAN VALUE FUND
CHEMICAL BANK NY 48.06%
INVESTMENT SERVICES DEPT
270 PARK AVENUE 31ST FLR
NEW YORK, NY 10017-2014
CHEMICAL BANK 6.89%
CUSTODIAN FOR THE IRA OF
DONALD F GRANNIS
100 NO SAN RAFAEL AVENUE
PASADENA CA 91105
VISTA BALANCED FUND--A SHARES
TESTA AND CO 16.65%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FDS/ T-C
PO BOX 1412
ROCHESTER NY 14603-1412
CHASE MANHATTAN BANK N/A 14.95%
GLOBAL SEC SERVICES OMNIBUS
ATTN ALEX KWONG
3 CHASE METRO TECH CENTER
7TH FLOOR
BROOKLYN NY 11245
THE INSTITUTE OF ELECTRICAL AND 11.15%
ELECTRONICS ENGINEERS INC
445 HOES LANE
PO BOX 1331
PISCATAWAY NJ 08855-1331
TRULIN & CO 8.93%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FDS/T-C
PO BOX 1412
ROCHESTER NY 14603-1412
VISTA BOND FUND--A SHARES
PBG EB 40.82%
1211 6TH AVENUE
NEW YORK NY 10036-8701
55
<PAGE>
PBG EB 25.91%
1211 6TH AVENUE
NEW YORK NY 10036-8701
PERLE BURNET & CO 9.55%
KENNETH BURNETT JT TEN
6101 SHERIDAN RD E-35D
CHICAGO IL 60660-2801
IFTC CUST IRA A/C 6.92%
DENNIS A CHENOVICK
905 HIGHLAND ST
HELENA MT 59601-5119
VISTA BOND FUND--B SHARES
MARILYN M WHITE TTEE 22.58%
U/A DTD AUG 30 84
MARILYN M WHITE SURVIVORS TRUST
6211 PROSPECT RD
SAN JOSE CA 95129-4740
NFSC FEBO # AMG-584428 21.15%
NFSC/FMTC IRA
FBO PHYLLIS F FREED
773 VILLA PORTFINO CIRCLE
DEERFIELD BEACH FL 33442-8061
PHYLLIS REUDY TTEE 10.80%
U/A DTD JUN 30 84
MATHILDE R RUEDY TRUST
195 CYPRESS PL
SAUSALITO CA 94965-1566
NFSC FEBO # AMG-583553 10.71%
MYRTLE H. FLETCHER TRUST
STEVEN B GREENFIELD JR TTE
3200 NORTH MILITARY TRAIL
SUITE 201
BOCA RATON FL 33431-6311
IFTC CUST IRA A/C 5.56%
SEYMOUR SPIEGEL
6 WISTERIA PL
SYOSSET NY 11791-2824
56
<PAGE>
VISTA BOND FUND--INSTITUTIONAL SHARES
TRULIN & CO 65.57%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FDS /T-C
PO BOX 1412 ROCHESTER NY
14603-1412
TESTA AND CO 11.30%
C/O CHASE MANHATTAN BANK NA
ATTN MUTUAL FUNDS/ T-C
P0 BOX 1412
ROCHESTER NY 14603-1412
CUDD & COMPANY 6.82%
CUSTODY DIVISION
1211 6TH AVENUE 35TH FL
NEW YORK NY 10036-8701
TEXAS COMMERCE BANK NA 5.29%
AVESTA
MSC 101111F 342
ASSET TRADING UNIT
PO BOX 2558
HOUSTON TX 77252-2558
VISTA CAPITAL GROWTH FUND--A SHARES
CHARLES SCHWAB & CO INC 6.83%
REINVEST ACCOUNT
ATTN MUTUAL FUNDS
DEPT 101 MONTGOMERY STREET
SAN FRANCISCO CA 94104-4122
VISTA CAPITAL GROWTH FUND--INSTITUTIONAL SHARES
BANKERS TRUST OF THE SOUTHWEST 38.46%
AS TTEE FOR THE MAPCO INC & SUBSID
PROFIT SHARING & SAVINGS PLAN
ATTN DEBORAH L TURRI
648 GRASSMERE PARK DRIVE
NASHVILLE TN 37211-3658
TESTA AND CO 30.80%
C/O CHASE MANHATTAN BANK NA
ATTN MUTUAL FUNDS/ T-C
PO BOX 1412
ROCHESTER NY 14603-1412
57
<PAGE>
BANKERS TRUST TRUSTEE 20.68%
ALIANCE COAL CORP PSSP
ATTN ELIJAH
OUTEN 34 EXCHANGE PL
JERSEY CITY NJ 07302-3901
INTERNATIONAL WIRE 5.26%
RETIREMENT SAVINGS PLAN
770 BROADWAY FLR 10
NEW YORK NY 10003-9522
VISTA GROWTH AND INCOME FUND--INSTITUTIONAL SHARES
CHASE MANHATTAN BANK N/A 93.21%
GLOBAL SEC SERVICES OMNIBUS
CMB THRIFT INCENTIVE PLAN
ATTN ALEX KWONG
3 CHASE METRO TECH CENTER FLR 7
BROOKLYN NY 11245-0001
VISTA LARGE CAP EQUITY FUND--A SHARES
HAMILL & COMPANY 30.44%
PO BOX 2558 16HCB09
HOUSTON TX 77252-2558
HAMILL AND COMPANY 8.19%
FBO BURRUS & MATTHEWS
PO BOX 2558 16 HCB09
HOUSTON TX 77252
A MARY GILBERT 6.08%
C/O STARR & CO
350 PARK AVENUE
NEW YORK NY 10022-6022
VISTA LARGE CAP EQUITY FUND--B SHARES
NFSC FEBO 3 CL5-385808 17.19%
ALBERT HORNBLASS
BERNICE M HORNBLASS
156 MAPLE ST
ENGLEWOOD NJ 07631-3630
PETER M GOLD 13.87%
250 E 54TH ST APT 34D
NEW YORK NY 10022-4816
58
<PAGE>
KYLE S KIESAU & HUGH W BARROW 10.39%
& DEAN E DAVIS TTEES
UA 1-1-78 KIESAU BARROW
& DAVIS PA 401K P/S/P
118 DILLON DRIVE
SPARTANBURG SC 29307-1018
WHEAT FIRST CUST A/C 8060-3246 8.55%
FBO GREGORY VOLOK
U/A DTD FEB 23 96
IRA A/C #8060-3246
172 LAURIE LN
PHILADELPHIA PA 19115-2707
NFSC FEBO # OJR-229342 7.27%
SOUTH ORANGE COUNTY SURGICAL M
KENNETH DECK TTEE
32052 COOK LANE
SAN JUAN CAPISTRANO CA 92675-3947
VISTA LARGE CAP EQUITY FUND--INSTITUTIONAL SHARES
TRULIN & CO 26.76%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FDS/T-C
PO BOX 1412
ROCHESTER NY 14603-1412
TESTA AND CO 7.01%
C/O CHASE MANHATTAN BANK NA
ATTN MUTUAL FUNDS/ T-C
PO BOX 1412
ROCHESTER NY 14603-1412
CHEMICAL BANK 5.70%
FBA JERICHO
OCI PENSION PLAN
SLARIED EE'S
200 JERICHO QUAD 2ND NE FLR
PO BOX 2000
JERICHO NY 11753
VISTA SHORT-TERM BOND FUND--A SHARES
MASS MUTUAL AGENTS 46.63%
HEALTH BENEFIT TRUST
C/O RICHARD PECK D113
1295 STATE STREET
SPRINGFIELD MA 01111-0001
59
<PAGE>
VOLUNTARY HOSPITAL OF 16.05%
AMERICA SOUTHWEST INC
14901 QUORUM DR STE 300
DALLAS TX 75240-6731
CHEMICAL BANK 7.90%
PERSONAL CUSTODY
270 PARK AVENUE
NEW YORK NY 10017-2014
VISTA SHORT-TERM BOND FUND--INSTITUTIONAL SHARES
TRULIN & CO 60.34%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FDS/T-C
PO BOX 1412
ROCHESTER NY 14603-1412
TESTA AND CO 12.00%
C/O CHASE MANHATTAN BANK NA
ATTN MUTUAL FUNDS/ T-C
PO BOX 1412
ROCHESTER NY 14603-1412
VISTA SMALL CAP EQUITY FUND--A SHARES
CHARLES SCHWAB & CO INC 12.78%
REINVEST ACCOUNT
ATTN MUTUAL FUNDS DEPT
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104-4122
VISTA SMALL CAP EQUITY FUND--INSTITUTIONAL SHARES
CHASE MANHATTAN BANK N/A 99.56%
GLOBAL SEC SERVICES OMNIBUS
CMB THRIFT INCENTIVE PLAN
ATTN ALEX KWONG
3 CHASE METRO TECH CENTER FLR 7
BROOKLYN NY 11245-0001
VISTA US GOVERNMENT SECURITIES FUND--A SHARES
HAMILL & COMPANY 28.26%
PO BOX 2558 16HCB09
HOUSTON TX 77252-2558
60
<PAGE>
CHEMICAL BANK 10.06%
CUSTODIAN FOR THE IRA OF
ROSE FAGGAN
7 E 14TH ST APT 19-T
NEW YORK NY 10003-3127
CHEMICAL BANK 9.50%
CUSTODIAN FOR IRA OF
EDWARD MCCABE
226 WEST BROADWAY
NEW YORK NY 10013-2408
CHEMICAL BANK 9.28%
CUSTODIAN FOR 401 K FBO
STRUCTURE TONE INC
ATTN MARGARET LONG
4 NY PLAZA 12TH FLR
NEW YORK NY 10004
J JOHN MANN 6.35%
21 CLAREMONT AVENUE
NEW YORK NY 10027-6802
CHEMICAL BANK 6.32%
CUSTODIAN FOR 401 K FBO
R W ZANT CO
ATTN MARGARET LONG
4 NEW YORK PLAZA
NEW YORK NY 10004-2413
VISTA U.S. GOVERNMENT SECURITIES
FUND--INSTITUTIONAL SHARES
CHEMICAL BANK 6.33%
FBA JERICHO RBS PLASTICS
200 JERICHO QUAD 2ND NE FL
PO BOX 2000
JERICHO NY 11753
CHEMICAL BANK 6.30%
FBA JERICHO ROCKAWAY
200 JERICHO QUADE 2ND NE FLR
PO BOX 2000
JERICHO NY 11753
CHEMICAL BANK 5.11%
FBA JERICHO
NORTH GENERAL HOSPITAL
200 JERICHO QUAD 2ND NE FL
PO BOX 2000
JERICHO NY 11753
61
<PAGE>
VISTA U.S. TREASURY INCOME FUND--A SHARES
TRULIN & CO 24.96%
C/O CHASE MANHATTAN BANK
ATTN MUTUAL FUNDS/T-C
PO BOX 1412
ROCHESTER NY 14603-1412
CARRIERS ILA CFS TRUST FUND 14.57%
C/O CCC INC
ONE EVERTRUST PLAZA
JERSEY CITY NJ 07302-3051
CARRIER ILA CONTAINER ROYALTY FUND 9.71%
ONE EVERTRUST PLAZA
JERSEY CITY NJ 07302-3051
TESTA AND CO 7.11%
C/O CHASE MANHATTAN BANK NA
ATTN MUTUAL FUNDS/ T-C
PO BOX 1412
ROCHESTER NY 14603-1412
</TABLE>
Financial Statements
The 1996 Annual Report to Shareholders of each Fund, including the reports
of independent accounts, financial highlights and financial statements for
the fiscal year ended October 31, 1996 contained therein, are incorporated
herein by reference.
62
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Specimen Computations of Offering Prices Per Share
U.S. Treasury Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $11.13
Maximum Offering Price per Share ($11.13 divided by .955) (reduced on purchases
of $100,000 or more) ............................................................................ $11.65
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $11.11
Growth and Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $39.21
Maximum Offering Price per Share ($39.21 divided by .9525) (reduced on purchases
of $100,000 or more) ............................................................................ $41.17
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $39.02
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October
31, 1996 ....................................................................................... $39.26
63
<PAGE>
Capital Growth Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $41.60
Maximum Offering Price per Share ($41.60 divided by .9525) (reduced on purchases
of $100,000 or more ............................................................................ $43.67
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $41.21
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October
31, 1996 ....................................................................................... $41.65
Equity Income Fund (specimen computations)
A Shares
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $15.98
Maximum Offering Price per Share ($15.98 divided by .955) (reduced on purchases
of $100,000 or more ............................................................................ $16.73
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $15.92
Balanced Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.83
Maximum Offering Price per Share ($13.83 divided by .955) (reduced on purchases
of $100,000 or more) ............................................................................ $14.48
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.70
Large Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.25
Maximum Offering Price per Share ($13.25 divided by .955) (reduced on purchases
of $100,000 or more) ............................................................................ $13.91
64
<PAGE>
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.22
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.27
Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $10.71
Maximum Offering Price per Share ($10.71 divided by .955) (reduced on purchases
of $100,000 or more) ............................................................................ $11.21
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $10.76
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $10.71
Short-Term Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $10.10
Maximum Offering Price per Share ($10.10 divided by .9850) (reduced on purchases
of $100,000 or more) ............................................................................ $10.25
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $10.12
Small Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $19.19
Maximum Offering Price per Share ($19.19 divided by .9525) (reduced on purchases
of $100,000 or more) ............................................................................ $20.15
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $19.00
65
<PAGE>
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $19.22
American Value Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $13.49
U.S. Government Securities Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $ 9.90
Maximum Offering Price per Share ($9.90 divided by .955) (reduced on purchases
of $100,000 or more) ............................................................................ $10.37
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ............................................................................... $ 9.89
</TABLE>
66
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government are guaranteed by the
U.S. Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary from their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the
effect of raising the effective yield earned on the Certificates; and (iv)
the actual yield of each Certificate is affected by the prepayment of
mortgages included in the mortgage pool underlying the Certificates.
Principal which is so prepaid will be reinvested although possibly at a lower
rate. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium could result in a loss
to a Fund. Due to the large amount of GNMA Certificates outstanding and
active participation in the secondary market by securities dealers and
investors, GNMA Certificates are highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and depend on,
among other things, the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages backing each
Certificate. If agency securities are purchased at a premium above principal,
the premium is not guaranteed by the issuing agency and a decline in the
market value to par may result in a loss of the premium, which may be
particularly likely in the event of a prepayment. When and if available, U.S.
Government obligations may be purchased at a discount from face value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association, respectively, and are guaranteed by the U.S.
Government.
A-1
<PAGE>
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development
Act of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of
Housing and Urban Development of the U.S. Government, the payment of which is
secured by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import
Bank of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with respect
to bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A--Bonds which are rated "A" possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguared
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
and other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
B-1
<PAGE>
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from "AAA" issues
only in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such
payments will be made during such grace period. The "D" rating is also used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries,
high rates of return on funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal
cash generation, and well- established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
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:
B-2
<PAGE>
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
B--Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Fitch Bond Ratings
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issues is generally rated F-1+ by Fitch.
A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
consequences on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs, however, are not used
in the AAA category.
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.
B-3
<PAGE>
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues
assigned F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term
adverse changes could cause these securities to be rated below investment
grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may
be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by a Fund. However, a Fund's
investment manager will consider such event in its determination of whether
such Fund should continue to hold the security. To the extent the ratings
given by Moody's, S&P or Fitch may change as a result of changes in such
organizations or their rating systems, a Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment
policies contained in this Prospectus and in the Statement of Additional
Information.
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.(12)
1(c) Certificate of Amendment to Declaration of Trust dated October 19,
1995.(12)
1(d) Certificate of Amendment to Declaration of Trust dated July 25,
1993.(12)
2 By-laws, as amended. (1)
3 None.
4 Specimen share certificate. (1)
5(a) Investment Advisory Agreements and Sub-Advisory Agreements(6)
5(b) Form of Investment Advisory Agreement for Vista Small Cap Equity
Fund. (9)
5(c) Administration Agreement.(6)
5(d) Form of Interim Investment Advisory Agreement.(12)
5(e) Form of Proposed Investment Advisory Agreement.(12)
5(f) Form of Proposed Sub-Advisory Agreement between The Chase Manhattan
Bank and Chase Asset Management, Inc.(12)
5(g) Form of Administration Agreement.(12)
5(h) Form of Proposed Investment Subadvisory Agreement between The Chase
Manhattan Bank and [Chase Asset Management, Inc./Van Deventer &
Hoch(12)].
6(a) Distribution and Sub-Administration Agreement.(6)
6(b) Distribution and Sub-Administration Agreement dated August 21,
1995.(12)
7(a) Retirement Plan for Eligible Trustees.(12)
7(b) Deferred Compensation Plan for Eligible Trustees.(12)
8(a) Custodian Agreement. (1)
8(b) Sub-Custodian Agreement. (1)
9(a) Transfer Agency Agreement. (1)
9(b) Administrative Services Plan. (1)
9(c) Shareholder Servicing Agreement of Vista Mutual Funds. (1)
9(d) Form of Shareholder Servicing Agreement of Vista Premier Funds.(1)
9(e) Form of Shareholder Servicing Agreement. (12)
C-1
<PAGE>
9(f) Agreement and Plan of Reorganization and Liquidation.(12)
10 Opinion re: Legality of Securities being Registered.(1)
11 Consent of Price Waterhouse LLP.(13)
12 None.
13 Not Applicable
14 None.
15(a) Rule 12b-1 Distribution Plan of Vista Mutual Funds including
Selected Dealer Agreement and Shareholder Service Agreement. (1)
15(b) Rule 12b-1 Distribution Plan of Vista Premier Funds including
Selected Dealer Agreement and Shareholder Service Agreement. (1)
15(c) Rule 12b-1 Distribution Plan for each of Vista Bond Fund, Vista
Short-Term Bond Fund, Vista Equity Fund and Vista U.S. Government
Money Market Fund including Selected Dealer Agreement and
Shareholder Service Agreement.(3)
15(d) Form of Rule 12b-1 Distribution Plan for Class B shares of the Vista
Prime Money Market Fund.(8)
15(e) Form of Rule 12b-1 Distribution Plan for Vista Asian Oceanic Shares
Fund, Vista Japan Pacific Shares Fund, Vista U.S. Government
Securities Fund and Vista European Shares Fund.(8)
15(f) Form of Rule 12b-1 Distribution Plan for Vista Small Cap Equity
Fund.(9)
15(g) Proposed Rule 12b-1 Distribution Plan - Class A Shares - Vista
American Value Fund (including forms of Selected Dealer Agreement
and Shareholder Servicing Agreement).(12)
15(h) Rule 12b-1 Distribution Plan - Class B Shares (including forms of
Selected Dealer Agreement and Shareholder Servicing Agreement).(12)
16 Schedule for Computation for Each Performance Quotation.(11)
17 Financial Data Schedule.(13)
18 Form of Rule 18f-3 Multi-Class Plan.(12)
- --------------------
(1) Filed as an exhibit to Amendment No. 6 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on March 23, 1990.
(2) Filed as an exhibit to Amendment No. 11 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on June 8, 1992 to register shares of
the Vista Balanced Fund and IEEE Spectrum Fund series of the Trust.
(3) Filed as an exhibit to Amendment No. 15 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on October 30, 1992.
(4) Filed as an exhibit to Amendment No. 16 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 28, 1992.
(5) Filed as an exhibit to Amendment No. 19 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on June 30, 1993.
(6) Filed as an exhibit to Amendment No. 23 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 30, 1993.
(7) Filed as an exhibit to Amendment No. 24 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on February 10, 1994.
(8) Filed as an Exhibit to Amendment No. 26 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on June 30, 1994.
(9) Filed as an Exhibit to Amendment No. 27 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on October 3, 1994.
(10) Filed as an Exhibit to Amendment No. 30 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on July 19, 1995.
(11) Filed as an Exhibit to Amendment No. 31 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on November 13, 1995.
(12) Filed as an Exhibit to Amendment No. 32 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 28, 1995.
(13) Filed as an Exhibit to Amendment No. 42 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on February 28, 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 February 28, 1997
- ----------------- -----------------------------
A B Institutional
Shares Shares Shares
------ ------ -------------
VISTA U.S. Treasury Income Fund 2,243 702 n/a
VISTA U.S. Government Securities Fund 71 n/a 92
VISTA Balanced Fund 1,957 838 n/a
VISTA Short-Term Bond Fund 114 n/a 64
VISTA Bond Fund 65 59 65
VISTA Large Cap Equity Fund 346 73 198
VISTA American Value Fund 196 n/a n/a
VISTA Equity Income Fund 1,110 236 n/a
VISTA Small Cap Equity Fund 9,490 7,742 12
VISTA Growth and Income Fund 71,971 24,190 9
VISTA Capital Growth Fund 36,292 24,146 12
VISTA International Equity Fund 2,251 1,136 n/a
VISTA Global Fixed Income Fund 0 0 n/a
VISTA Southeast Asian Fund 419 223 n/a
VISTA European Fund 153 100 n/a
VISTA Japan Fund 97 37 n/a
VISTA Select Growth and Income Fund n/a n/a none
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
Paul W. MacAvoy Director Dean of Yale School of
Organization and Management
David T. McLaughlin Director President and Chief Executive
Officer of The Aspen Institute,
Chairman of Standard Fuse
Corporation and a Director of each
of ARCO Chemical Company and
Westinghouse Electric Corporation
Edmund T. Pratt, Jr. Director Chairman Emeritus, formerly
Chairman and Chief Executive
Officer, of Pfizer Inc. and a
Director of each of Pfizer, Inc.,
Celgene Corp., General Motors
Corporation and International Paper
Company
Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine
Company, Inc. and a Director of
each of American Telephone and
Telegraph Company and CBS Inc.
Donald H. Trautlein Director Retired Chairman and
Chief Executive Officer
of Bethlehem Steel
Corporation
</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.
David T. Kearns Director Retired Chairman and Chief
Executive Officer of the Xerox
Corporation
Delano E. Lewis Director President and Chief Executive
Officer of National Public Radio
John H. McArthur Director Dean of the Harvard Graduate
School of Business Administration
Frank A. Bennack, Jr. Director President and Chief Executive Officer
The Hearst Corporation
Michael C. Bergerac Director Chairman of the Board and
Chief Executive Officer Bergerac & Co., Inc.
Susan V. Berresford Director President, The Ford Foundation
Randolph W. Bromery Director President, Springfield College; President,
Geoscience Engineering Corporation
Charles W. Duncan, Jr. Director Private Investor
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
E. Michael Kruse Vice Chairman of the Board
J. Bruce Llewellyn Director Chairman of the Board, The Philadelphia
Coca-Cola Bottling Company, The Coca-
Cola Bottling Company of Wilmington,
Inc., Queen City Broadcasting, Inc.
John P. Mascotte Director Chairman, The Missouri Corporation of
Johnson & Higgins
John F. McGillicuddy Director Retired Chairman of the Board and
Chief Executive Officer
Edward D. Miller Senior Vice Chairman
of the Board
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
Michael I. Sovern Director President, Emeritus and Chancellor Kent,
Professor of Law, Columbia University
John R. Stafford Director Chairman, President and Chief Executive
Officer, American Home Products
Corporation
W. Bruce Thomas Director Private Investor
Marina v. N. Whitman Director Professor of Business Administration and
Public Policy, University of Michigan
Richard D. Wood Director Retired Chairman of the Board, Eli Lilly
and Company
</TABLE>
<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.
<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-6
<PAGE>
ITEM 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
---- -------
Vista Fund Distributors, Inc. 101 Park Avenue,
New York, NY 10178
DST Systems, Inc. 210 W. 10th Street,
Kansas City, MO 64105
The Chase Manhattan Bank 270 Park Avenue,
New York, NY 10017
Chase Asset Mangement, Inc. 1211 Avenue of the
Americas,
New York, NY 10036
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 date of commencement of investment operations
for Vista Emerging Growth Fund.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and the
State of New York on the 14th day of March, 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 March 14, 1997
- -------------------------------
Fergus Reid, III
* Trustee March 14, 1997
- -------------------------------
William J. Armstrong
* Trustee March 14, 1997
- -------------------------------
John R.H. Blum
* Trustee March 14, 1997
- -------------------------------
Joseph J. Harkins
* Trustee March 14, 1997
- -------------------------------
Richard E. Ten Haken
* Trustee March 14, 1997
- -------------------------------
Stuart W. Cragin, Jr.
* Trustee March 14, 1997
- -------------------------------
Irv Thode
/s/ H. Richard Vartabedian President March 14, 1997
_______________________________ and Trustee
H. Richard Vartabedian
*
- ------------------------------- Trustee March 14, 1997
W. Perry Neff
*
- ------------------------------- Trustee March 14, 1997
Roland R. Eppley, Jr.
*
- ------------------------------- Trustee March 14, 1997
W.D. MacCallan
C-8
<PAGE>
/s/ Martin R. Dean Treasurer and March 14, 1997
_______________________________ Principal Financial
Martin R. Dean Officer
/s/ H. Richard Vartabedian Attorney in March 14, 1997
_______________________________ Fact
H. Richard Vartabedian
<PAGE>
SIGNATURES
Small Cap Opportunities Portfolio has duly caused this Post-Effective Amendment
to the Registration Statement on Form N-1A of Mutual Fund Group to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York on the 14th day of March, 1997.
SMALL CAP OPPORTUNITIES PORTFOLIO
By /s/ H. Richard Vartabedian
____________________________
H. Richard Vartabedian
Chairman and President
This Amendment to the Registration Statement on Form N-1A of Mutual Fund Group
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ H. Richard Vartabedian
_______________________________ President February 27, 1997
H. Richard Vartabedian and Trustee
*
_______________________________ Trustee February 27, 1997
William J. Armstrong
*
_______________________________ Trustee February 27, 1997
John R.H. Blum
*
_______________________________ Trustee February 27, 1997
Joseph J. Harkins
*
_______________________________ Trustee February 27, 1997
Richard E. Ten Haken
*
_______________________________ Trustee February 27, 1997
Stuart W. Cragin, Jr.
*
_______________________________ Trustee February 27, 1997
Irving L. Thode
*
_______________________________ Chairman and Trustee February 27, 1997
Fergus Reid, III
*
_______________________________ Trustee February 27, 1997
W. Perry Neff
*
_______________________________ Trustee February 27, 1997
Roland R. Eppley, Jr.
*
_______________________________ Trustee February 27, 1997
W.D. MacCallan
/s/ Martin Dean Treasurer and Principal February 27, 1997
_______________________________ Accounting Officer
Martin Dean
/s/ H. Richard Vartabedian Attorney in Fact February 27, 1997
_______________________________
H. Richard Vartabedian
