As filed via EDGAR with the Securities and Exchange Commission on
December 30, 1998
File No. 811-5151
Registration No. 33-14196
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 57 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
Post-Effective Amendment No. 96 |X|
-------------------------------
MUTUAL FUND GROUP
(Exact Name of Registrant as Specified in Charter)
One Chase Manhattan Plaza
New York, New York 10081
--------------------------------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (212) 492-1600
George Martinez, Esq. Peter Eldridge, Esq. Gary S. Schpero, Esq.
BISYS Fund Services, Inc. Chase Manhattan Bank Simpson Thacher & Bartlett
3435 Stelzer Road 270 Park Avenue 425 Lexington Avenue
Columbus, Ohio 43219 New York, New York 10017 New York, New York 10017
- --------------------------------------------------------------------------------
(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 for the fiscal year ended October 31, 1997 was
filed on January 22, 1998.
<PAGE>
MUTUAL FUND GROUP
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933
U.S. TREASURY INCOME FUND
BALANCED FUND
EQUITY INCOME FUND
GROWTH AND INCOME FUND
CAPITAL GROWTH FUND
LARGE CAP EQUITY FUND
BOND FUND
SHORT-TERM BOND FUND
INTERNATIONAL EQUITY FUND
SMALL CAP EQUITY FUND
U.S. GOVERNMENT SECURITIES FUND
SOUTHEAST ASIAN FUND
JAPAN FUND
EUROPEAN FUND
SMALL CAP OPPORTUNITIES FUND
SELECT GROWTH AND INCOME FUND
LATIN AMERICAN EQUITY FUND
FOCUS FUND
STRATEGIC 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>
-v-
<PAGE>
EXPLANATORY NOTE
Prospectuses for the Class A, Class B and Class C Shares of Capital Growth
Fund, Equity Income Fund, Growth and Income Fund and Small Cap Opportunities
Fund, Prospectuses for the Class A and Class B Shares of Balanced Fund, Bond
Fund, European Fund, International Equity Fund, Japan Fund, Large Cap Equity
Fund, Small Cap Equity Fund, Southeast Asian Fund, Prospectuses for the Class A
Shares of Short-Term Bond Fund, U.S. Government Securities Fund and U.S.
Treasury Income Fund, the Prospectus for Shares of American Value Fund and the
Prospectuses for the Institutional Shares of Bond Fund, Capital Growth Fund,
Growth and Income Fund, Large Cap Equity Fund, Small Cap Equity Fund,
Short-Term Bond Fund and U.S. Government Securities Fund are incorporated by
reference to Amendment No. 50 to the Registration Statement on Form N-1A of the
Registrant filed on February 27, 1998.
The Prospectus for Class A and Class B shares of Latin American Equity Fund
is incorporated by reference to the Registrant's filing of a definitive copy
under Rule 497(c) of the Securities Act of 1933, as amended, on March 13, 1998.
The Prospectus for Class A, Class B and Class C Shares and the Prospectus
for Institutional Shares of Focus Fund is incorporated by reference to
Amendment No. 53 to the Registration Statement on Form N-1A of the Registrant
filed on June 29, 1998.
The Statement of Additional Information for the Class A, Class B and Class
C Shares of Capital Growth Fund, Equity Income Fund, Growth and Income Fund,
Small Cap Opportunities Fund and Focus Fund, the Statement of Additional
Information for the Class A and Class B Shares of Balanced Fund, Bond Fund,
European Fund, International Equity Fund, Japan Fund, Large Cap Equity Fund,
Small Cap Equity Fund, Southeast Asian Fund, the Statement of Additional
Information for the Class A Shares of Short-Term Bond Fund, U.S. Government
Securities Fund and U.S. Treasury Income Fund, the Statement of Additional
Information for Shares of American Value Fund and the Statement of Additional
Information for the Institutional Shares of Bond Fund, Capital Growth Fund,
Growth and Income Fund, Large Cap Equity Fund, Small Cap Equity Fund,
Short-Term Bond Fund, U.S. Government Securities Fund and Focus Fund are
incorporated by reference to Amendment No. 53 to the Registration Statement on
Form N-1A of the Registrant filed on June 29, 1998.
The Statement of Additional Information for European Fund, International
Equity Fund, Japan Fund, Latin American Equity Fund and Southeast Asian Fund are
incorporated by reference to Amendment No. 50 to the Registration Statement on
Form N-1A of the Registrant filed on February 27, 1998.
The Prospectus and Statement of Additional Information for Select Growth
and Income Fund is incorporated by reference to Amendment No. 47 to the
Registration Statement on Form N-1A of the Registrant filed on December 15,
1997.
The Prospectus Supplement for the Class A and Class B Shares of Bond Fund
and for the Institutional Shares of Bond Fund are incorporated by inference to
the Registrant's filing of a definitive copy under Rule 497(e) of the Securities
Act of 1933 (the "Securities Act") on May 28, 1998.
The Prospectus Supplement for the Class A and Class B Shares of U.S.
Treasury Income Fund is hereby incorporated by reference to the Registrant's
filing of a definitive copy under Rule 497(e) of the Securities Act on May 28,
1998.
The Prospectus Supplement for the Class A and Class B Shares of Balanced
Fund is hereby incorporated by reference to the Registrant's filing of a
definitive copy under Rule 497(e) of the Securities Act on May 28, 1998.
The Prospectus Supplement for the Class A and Class B Shares of Large Cap
Equity Fund and Institutional Shares of Large Cap Equity Fund are hereby
incorporated by reference to the Registrant's filing of a definitive copy under
Rule 497(e) of the Securities Act on May 28, 1998.
The Prospectus Supplement for the Class A and Class B Shares of Latin
American Equity Fund is hereby incorporated by reference to the Registrant's
filing of a definitive copy under Rule 497(e) of the Securities Act on June 8,
1998.
The Prospectus Supplement for the Class A and Class B Shares of Balanced
Fund, for the Class A and Class B Shares of Bond Fund, for the Class A, Class B
and Class C Shares of Capital Growth Fund, for the Class A, Class B and Class C
Shares of Growth and Income Fund, for the Class A and Class B Shares of
International Equity Fund, for the Class A and Class B Shares of Large Cap
Equity Fund, for the Class A and Class B Shares of Small Cap Equity Fund, and
for the Class A and Class B Shares of U.S. Treasury Income Fund are hereby
incorporated by reference to the Registrant's filing of a definitive copy under
Rule 497(e) of the Securities Act on June 12, 1998.
The Prospectus Supplement for the Class A and Class B Shares of European
Fund, Japan Fund and Southeast Asian Fund is hereby incorporated by reference to
Registrant's filing of a definitive copy under rule 497(e) of the Securities Act
on July 1, 1998.
The Prospectus Supplement for the Class A and Class B Shares of Balanced
Fund is hereby incorporated by reference to Registrant's filing of a definitive
copy under rule 497(e) of the Securities Act on August 10, 1998.
<PAGE>
Chase Vista Funds
Bond Funds Prospectus
[Front cover page]
Chase Vista Funds
Prospectus
February 26, 1999
Short-Term Bond Fund
U.S. Treasury Income Fund
U.S. Government Securities Fund
Bond Fund
Strategic Income Fund
Class A, Class B
and Class C shares
Neither the Securities and Exchange Commission nor any state securities
commission has approved of securities of this Fund or determined if this
prospectus is accurate or complete. It is a crime to state otherwise.
1
<PAGE>
Contents
Information about the Funds x
Short-Term Bond Fund x
U.S. Treasury Income Fund x
U.S. Government Securities Fund x
Bond Fund x
Strategic Income Fund x
How your account works x
About sales charges x
Buying Fund shares x
Selling Fund shares x
Other information concerning the Funds x
Distributions and taxes x
Shareholder services x
What the terms mean x
Financial highlights x
2
<PAGE>
Information about the Funds
Short-Term Bond Fund
The Fund's objective
The Fund seeks a high level of income consistent with preservation of capital.
The Fund's main investment strategy
The Fund normally invests substantially all of its assets in investment-grade
debt securities of all types. Under normal market conditions, the Fund will
invest at least 65% of its total assets in bonds which have an average maturity
of three years or less and the dollar-weighted average maturity of the Fund's
portfolio will not exceed three years.
Substantially all of the Fund's investments will be investment grade, which
means a rating of Baa or higher by Moody's Investors Service, Inc., BBB or
higher by Standard & Poor's Corporation, or the equivalent by another national
rating organization or unrated securities of comparable quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
3
<PAGE>
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the
Short-Term Bond Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
4
<PAGE>
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
5
<PAGE>
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for fixed
income funds.
The performance for the period before Class A shares were launched in May 1996
is based on the performance of Institutional Class shares of the Fund. The
actual returns of Class A shares would have been lower than those shown because
Class A shares have higher expenses than Institutional Class shares.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: , xth quarter, 19
-- --
Worst quarter: , xth quarter, 19
-- --
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Past 1 year Past 5 years Since inception 11/30/90
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares -- -- --
- -------------------------------------------------------------------------------------------------
Index -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load.
Fees and expenses
6
<PAGE>
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
- -------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- -------------------------------------------------------------------
Class A Shares 1.5% None
- -------------------------------------------------------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
-----------------------------------------------------------
Total annual
Fund operating
Management fee Distribution Other expenses
(12b-1) fees expenses
-----------------------------------------------------------
<S> <C> <C> <C>
Class A -- -- -- --
-----------------------------------------------------------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be , other expenses are
expected to be and the total annual Fund operating expenses are expected not
to exceed . That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
7
<PAGE>
" the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares* $230 $390 $560 $1,070
- ---------------------------------------------------------------------------------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased
8
<PAGE>
U.S. Treasury Income Fund
The Fund's objective
The Fund seeks to provide investors with as high a level of total return as
possible while still protecting the value of their investment.
The Fund's main investment strategy
Under normal circumstances, the Fund will invest at least 65% of its total
assets in:
o debt securities issued by the U.S. Treasury,
o debt securities issued or guaranteed by U.S. government agencies or
authorities, provided those securities are backed by the full faith and
credit of the U.S. Treasury, and
o repurchase agreements in which the Fund receives these securities as
collateral.
The Fund may buy mortgage-related U.S. Government securities. These may include
investments in collateralized mortgage obligations.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
9
<PAGE>
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
thus lowering performance and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in U.S.
Treasury Income Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.
Repurchase agreements involve some risk to the Fund if the other party does not
live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
10
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past one, five and 10 years. It compares that
performance to [Index], a widely recognized benchmark for fixed income funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: , xth quarter, 19
-- --
Worst quarter: , xth quarter, 19
-- --
Average annual total returns For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Past 1 year Past 5 years Past 10 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares -- -- --
- ---------------------------------------------------------------------------------------
Class B shares -- -- --
- ---------------------------------------------------------------------------------------
Index -- -- --
- ---------------------------------------------------------------------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects the
deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 4, 1993. The performance for the
period before Class B shares were launched
11
<PAGE>
in 1993 is based on the performance for Class A shares of the Fund. The actual
returns of Class B shares would have been lower than shown because Class B
shares have higher expenses than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- -------------------------------------------------------------------
<S> <C> <C>
Class A Shares 4.5% None
- -------------------------------------------------------------------
Class B Shares None 5.00%
- -------------------------------------------------------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Total
annual
Class of shares Management Distribution Other Fund
fee (12b-1) fees expenses operating
expenses
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------------------------------------------------------------
Class B -- -- -- --
- --------------------------------------------------------------------------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be , other expenses are
expected to be and the total annual Fund operating expenses are expected not to
exceed for
12
<PAGE>
Class A shares and for Class B shares. That's because The Chase Manhattan
Bank (Chase) and some of the Fund's other service providers have volunteered not
to collect a portion of their fees and to reimburse others. Chase and these
other service providers may end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
The table does not reflect charges or credits you might incur if
you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares* $520 $680 $850 $1,340
- ---------------------------------------------------------------------------------------
Class B Shares** $680 $850 $1,130 $1,710***
- ---------------------------------------------------------------------------------------
If you don't sell your shares...
- ---------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------
Class B Shares $170 $520 $890 $1,710***
- ---------------------------------------------------------------------------------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have
been owned for eight years.
13
<PAGE>
U.S. Government Securities Fund
The Fund's objective
The Fund seeks to provide investors with as high a level of total return as
possible while still protecting the value of its investment.
The Fund's main investment strategy
Under normal market conditions, the Fund will invest at least 65% of its total
assets in debt securities issued or guaranteed by the U.S. Government and its
agencies or authorities, and in repurchase agreements involving these
securities.
The Fund may invest extensively in mortgage-related securities issued or
guaranteed by certain agencies of the U.S. Government. These may include
investments in collateralized mortgage obligations and principal-only and
interest-only stripped mortgage-backed securities.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The adviser will change the actual
maturities according to changes in the market.
Any assets not invested in U.S. Government securities and related repurchase
agreements may be invested in debt securities of U.S. and foreign corporations.
These securities must have an "A" rating or the equivalent from Moody's
Investors Service, Inc., Standard & Poor's Corporation, Fitch Investor's Service
Inc., or another national rating organization or unrated securities of
comparable quality.
The Fund may also invest in non-corporate foreign debt securities. These
investments may include debt securities issued or guaranteed by foreign
governments and international organizations such as The World Bank.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
14
<PAGE>
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund . Here are some specific risks of investing in U.S.
Government Securities Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
15
<PAGE>
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.
The Fund's performance will depend on the credit quality of its investments.
While U.S. Government securities are generally of high quality, a government
security that is not backed by the full faith and credit of the U.S. Treasury
may be affected by the creditworthiness of the agency or authority that issued
it.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
16
<PAGE>
If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for fixed
income funds.
On May 3, 1996, the Hanover U.S. Government Securities Fund merged into the U.S.
Government Securities Fund. The Fund's performance figures for the period before
that date are based on the Hanover Fund. The performance for the period before
Class A shares were launched in May 1996 is based on the performance of
Institutional Class shares of the Fund. The actual returns of Class A shares
would have been lower than shown because Class A shares have higher expenses
than Institutional Class shares.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: , xth quarter, 19
-- --
Worst quarter: , xth quarter, 19
-- --
Average annual total returns
For the periods ending December 31, 1998:
17
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Past 1 year Past 5 years Since inception 2/19/93
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares -- -- --
- ------------------------------------------------------------------------------------------------
Index -- -- --
- ------------------------------------------------------------------------------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------- ------------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (1) original purchase
price or redemption
proceeds
- ------------------- ------------------------- -----------------------
<S> <C> <C>
Class A Shares 4.5% None
- ------------------- ------------------------- -----------------------
</TABLE>
(1) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- ------------------ ----------------- ------------------ ---------- -----------------
Total annual
Fund operating
Management fee Distribution Other expenses
(12b-1) fees expenses
- ------------------ ----------------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
Class A Shares -- -- -- --
- ------------------ ----------------- ------------------ ---------- -----------------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table
18
<PAGE>
does not reflect charges or credits you might incur if you invest through a
financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
*Assumes sales charge is deducted when shares are purchased
19
<PAGE>
Bond Fund
The Fund's objective
The Fund seeks to provide as high a level of income as is consistent with
reasonable risk.
The Fund's main investment strategy
The Fund invests mainly in investment grade corporate bonds as well as other
debt securities. Under normal market conditions, the Fund will invest at least
65% of its total assets in debt securities with at least an "A" rating or the
equivalent from Moody's Investors Service, Inc., Standard & Poor's Corporation,
or Fitch Investor's Service Inc. These include unrated securities of comparable
quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
20
<PAGE>
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may put any amount of its assets in
high quality money market instruments and repurchase agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Bond
Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date
21
<PAGE>
may have certain preferences in receiving principal payments or earning
interest. As a result, the value of some classes in which the Fund invests are
more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
22
<PAGE>
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year since
inception in 1990. This provides some indication of the risk of investing in the
Fund. The table shows the average annual return over the past year, five years
and since inception. It compares that performance to [Index], a widely
recognized benchmark for fixed income funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
The performance for the period before Class A and Class B shares were launched
in May 1996 is based on the performance of Institutional Class shares of the
Fund. The actual returns of Class A and Class B shares would have been lower
than shown because Class A and Class B shares have higher expenses than
Institutional Class shares.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------ --------------------- ------------------------- -------------------------
Past 1 year Past 5 years Since inception 11/30/90
- ------------------------ --------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Class A shares -- -- --
- ------------------------ --------------------- ------------------------- -------------------------
Class B shares -- -- --
- ------------------------ --------------------- ------------------------- -------------------------
Index -- -- --
- ------------------------ --------------------- ------------------------- -------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects the
deduction of the applicable contingent deferred sales load.
23
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------- ------------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ------------------- ------------------------- -----------------------
<S> <C> <C>
Class A Shares 4.5% None
- ------------------- ------------------------- -----------------------
Class B Shares None 5.00%
- ------------------- ------------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that deducted from Fund assets)
<TABLE>
<CAPTION>
- ----------------------- --------------- ------------- ----------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- ----------------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
Class B -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares and -- for Class B shares. That's because The
Chase Manhattan Bank (Chase) and some of the Fund's other service providers have
volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
24
<PAGE>
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Shares* $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- ------------
Class B Shares** $680 $850 $1,130 $1,710***
- --------------------------------------------- --------- ----------- ---------- ------------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class B Shares** $170 $520 $890 $1,710***
- --------------------------------------------- --------- ----------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have
been owned for eight years.
25
<PAGE>
Strategic Income Fund
The Fund's objective
The Fund seeks a high level of income.
The Fund's main investment strategy
The Fund invests principally in a diversified portfolio of securities
denominated in U.S. dollars. The investments are principally in the following
market sectors:
o Investment grade debt securities issued by U.S. issuers, including the U.S.
Government, its agencies and authorities and U.S. companies.
o Debt securities of foreign issuers, including foreign governments and
companies. The Fund may invest up to 30% of its total assets in issuers
located in emerging market countries.
o Lower-rated high yield securities of U.S. issuers. These include lower-rated
convertible securities, which generally pay interest or dividends and which
can be converted into common or preferred stock, and preferred stock.
Under normal market conditions, the Fund will invest between 25% and 40% of its
total assets in each of the three sectors. However, there is no limit on
securities issued by the U.S. Government or its agencies or authorities.
Investment grade securities are those rated Baa or higher by Moody's Investors
Service, Inc. (Moody's), BBB or higher by Standard & Poor's Corporation (S&P),
or the equivalent rating by another national rating organization. These include
unrated securities of comparable quality. The Fund may invest in a variety of
U.S. Government debt securities, including securities which are not supported by
the full faith and credit of the U.S. Treasury. All or a substantial portion of
the Fund's investments in U.S. Government debt securities may be in
mortgage-related securities.
The Fund's investments in foreign debt securities may include obligations issued
by international organizations like the World Bank. They may also include Brady
Bonds, which are bonds issued under a program which enables debtor nations to
restructure the debt that they owe foreign commercial banks, and other debt
issued by emerging market governments as part of restructuring plans. The Fund's
advisers expect that the majority of emerging market obligations that the Fund
buys will primarily be traded in international over-the-counter markets instead
of local markets. Although the Fund intends to buy principally U.S.
dollar-denominated securities, some of the Fund's foreign securities may be
denominated and traded in other currencies. The Fund will not invest more than
25% of its total assets in debt securities of issuers in any one country other
than the U.S.
26
<PAGE>
The Fund may purchase lower-rated high yield securities issued by U.S. companies
as well as foreign companies and governments. Lower-rated securities are those
which are rated Ba or lower by Moody's, BB or lower by S&P or the equivalent by
another national rating organization. They also include unrated securities which
are found to be of comparable quality. High yield securities in the Fund's
portfolio may be rated as low as C by Moody's, or D by S&P, or the equivalent.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly active duration management. In seeking relative value, the
advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change. In deciding how to allocate the Fund's
investments among various securities, industry sectors, countries or currencies,
the advisers will consider fundamental economic strength, earnings growth,
quality of management, industry growth, credit quality and interest rates. When
selecting high yield securities, the advisers will look at the creditworthiness
of the issuer, the rating and performance of the security, the security's
collateral protection and the Fund's diversity.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund may borrow up to 10% of its total assets (including the amount
borrowed) to buy additional securities. This is called "leveraging." The Fund
can borrow money from banks and through reverse repurchase agreements or dollar
rolls. Reverse repurchase agreements and dollar rolls will not be considered
borrowings if the Fund earmarks liquid assets to cover its obligations on the
reverse repurchase agreement or dollar rolls. The Fund will use leveraging only
when the advisers believe that the returns available through leveraging will
provide a potentially higher return.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
27
<PAGE>
The Fund may purchase participations in loans arranged through private
negotiations between a borrower and one or more banks or other financial
institutions. These loans can have fixed, floating or variable interest rates.
The Fund may also invest in collateralized bond obligations.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rate are changed periodically.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may invest any amount of its assets
in high-quality, U.S. dollar-denominated money market instruments and repurchase
agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the
Strategic Income Fund.
The value of debt securities tends to fall when prevailing interest rates rise.
Such a drop in value could be worse if the Fund invests a larger portion of its
assets in debt securities with longer maturities. That's because long-term debt
securities are more sensitive to interest rate changes than other fixed-income
securities.
High yield debt securities may carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of
lower-rated securities will move up and down over time. The credit rating of a
high yield security evaluates the ability of the issuer to make principal and
interest or dividend payments; it does not necessarily address its market value
risk. Ratings and market value may change, positively or negatively, from time
to time to reflect new developments regarding the issuer. However, since ratings
may not always change quickly and frequently enough to reflect these new
developments, the advisers perform their own analysis of high yield issuers.
Because of
28
<PAGE>
this, the Fund's performance may depend more on subjective credit analysis than
other funds which invest in investment-grade securities.
Companies which issue high yield securities are often young and growing and have
a lot of debt. High yield securities are considered speculative, meaning there
is a significant risk that the issuer may not be able to repay principal or pay
interest or dividends on time. In addition, the issuer's other creditors may
have the right to be paid before holders of the high yield security.
During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities that have a lot of debt may experience
financial problems. They may not have enough cash to make their payments. An
economic downturn could also hurt the market for lower-rated securities and the
Fund.
The market for high yield securities is not as liquid as the markets for higher
rated securities. This means that it may be harder to sell high yield
securities, especially on short notice. The market could also be hurt by legal
or tax changes.
Securities which are rated "C" or "D" may not pay interest, may be in default or
may be considered to have an extremely poor chance of ever achieving any real
investment standing.
The costs of investing in the high yield market are usually higher than
investing in investment grade securities. That's because the Fund has to spend
more money for investment research and commissions.
Since the Fund invests a significant portion of its assets in securities issued
outside the U.S., it is riskier than a fund that invests only in the U.S. Since
foreign securities are normally denominated and traded in foreign currencies,
the value of the Fund's foreign holdings can be affected by currency exchange
rates and exchange control regulations. Investments in foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Brady Bonds do not have as long a payment history as other types of government
debt securities. Because of that, they, and many emerging market debt
instruments, may trade at a substantial discount which might lead to greater
volatility.
Leveraging is a speculative technique which may expose the Fund to greater risk
and increase its costs. Increases and decreases in the value of the Fund's
portfolio will be more dramatic when the Fund is leveraging. The Fund will also
have to pay interest on its borrowings, reducing the Fund's return. In addition,
the Fund might be forced to sell portfolio securities when it would normally
keep them in order to make interest payments.
29
<PAGE>
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
The market for loan participation may not be highly liquid and the Fund may have
difficulty selling them. When it buys them, the Fund typically is entitled to
receive payment from the lender only, and not the underlying borrower. Because
of that, these investments expose the Fund to the risk of investing in both the
financial institution and the underlying borrower.
Collateralized bond obligations typically are separated into different classes.
Each class represents a different degree of credit quality, with lower classes
having greater risk but higher interest rates. The bottom class usually does not
have a stated interest rate. Instead, it receives whatever is left after all the
higher classes have been paid. As a result, the value of some classes in which
the Fund invests may be more volatile.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
30
<PAGE>
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments, repurchase agreements and reverse repurchase
agreements involve some risk to the Fund if the other party does not live up to
its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. This provides some indication
of the risk of investing in the Fund. The table shows the average annual return
since inception. It compares that performance to [Index], a widely recognized
benchmark for fixed income funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------ -------------------------
Since inception 11/30/98
- ------------------------ -------------------------
<S> <C>
Class A shares --
- ------------------------ -------------------------
Class B shares --
- ------------------------ -------------------------
Class C shares --
- ------------------------ -------------------------
Index --
- ------------------------ -------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
31
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------- ------------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (1) original purchase
price or redemption
proceeds
- ------------------- ------------------------- -----------------------
<S> <C> <C>
Class A Shares 4.5% None
- ------------------- ------------------------- -----------------------
Class B Shares None 5%
- ------------------- ------------------------- -----------------------
Class C Shares None 1%
- ------------------- ------------------------- -----------------------
</TABLE>
(1) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on estimated expenses for the current fiscal year.
32
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- ----------------------- --------------- ------------- ----------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- ----------------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
Class B -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
Class C -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other
expenses are expected to be -- and the total annual Fund operating expenses are
expected not to exceed --. That's because The Chase Manhattan Bank (Chase) and
some of the Fund's other service providers have volunteered not to collect a
portion of their fees and to reimburse others. Chase and these other service
providers may end this arrangement at any time. The table does not reflect
charges or credits you might incur if you invest through a financial
institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Shares* $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- ------------
Class B Shares** $680 $850 $1,130 $1,710***
- --------------------------------------------- --------- ----------- ---------- ------------
Class C Shares** $
- --------------------------------------------- --------- ----------- ---------- ------------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class B Shares $170 $520 $890 $1,710***
- --------------------------------------------- --------- ----------- ---------- ------------
Class C Shares $
- --------------------------------------------- --------- ----------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted shares are sold.
33
<PAGE>
*** Reflects conversion of Class B Shares to Class A shares after they have
been owned for eight years.
34
<PAGE>
Financial highlights
[To be provided by Chase]
35
<PAGE>
Fund management
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue New York, NY 10076.
For its advisory service, Chase may receive a management fee paid monthly at the
annual rate of:
o 0.25 % of the average daily net assets of the Short-Term Bond Fund
o 0.30% of the average daily net assets of the U.S. Treasury Income Fund, U.S.
Government Securities Fund and Bond Fund
o 0.50% of the average daily net assets of the Strategic Income Fund.
Chase Asset Management, Inc. (CAM) is the sole sub-adviser to each Fund except
the Strategic Income Fund. CAM is a wholly-owned subsidiary of Chase. CAM and
State Street Research & Management Company (SSR) are the two sub-advisers to the
Strategic Income Fund. SSR is a wholly-owned subsidiary of the Metropolitan Life
Insurance Company. CAM makes the day-to-day investment decisions for each Fund,
except that SSR makes the day-to-day investment decisions for the portion of the
Strategic Income Fund that is allocated to lower-rated high yield securities of
U.S. issuers (including convertible securities and preferred stock). CAM
provides discretionary investment advisory services to institutional clients.
CAM is located at 1211 Avenue of the Americas New York, NY 10036. SSR also
provides discretionary investment services to institutional and other clients.
SSR is located at One Financial Center Boston, Massachusetts 02111.
Portfolio managers
Short-Term Bond Fund
The portfolio managers are Andrew Russell, a Vice President and Portfolio
Manager at Chase, and Susan Huang, a Managing Director and Head of U.S. Fixed
Income Management at Chase. They've been responsible for the Fund since June
1996. Mr. Russell joined Chase in 1990 and has held several positions within the
U.S. fixed income area, including portfolio analyst, taxable fixed-income trader
and assistant trader. Mr Russell is a member of the U.S. fixed income area's
quantitative research team.
Ms. Huang joined Chase in 1995. Before joining Chase, she was Director of the
Insurance Asset Management Group at Hyperion Capital Management Inc. Previously,
she was a Senior Portfolio Manager with CS First Boston. Before joining CS First
Boston in 1992,
36
<PAGE>
she spent 14 years at the Equitable, where she was head of the U.S. fixed income
management group at Equitable Capital Management.
U.S. Treasury Income Fund
A team of investment managers with Chase, led by Ms. Huang, is responsible for
the management of the U.S. Treasury Income Fund.
U.S. Government Securities Fund
The portfolio managers are Michael Bennis, a Vice President and Senior Portfolio
Manager at Chase, and Ms. Huang. They've been responsible for the Fund since
December and June 1996, respectively. Before joining Chase in 1996, Mr. Bennis
was a senior analyst and trader at Union Bank of Switzerland Asset Management.
Prior to joining Union Bank of Switzerland, he was a fixed income analyst at
Donaldson, Lufkin & Jenrette.
Bond Fund
The portfolio managers are Ms. Huang and Mr. Russell. They have been responsible
for the Fund since May 1996 and May 1998, respectively.
Strategic Income Fund
Ms. Huang and Craig Blessing have been responsible for managing the Fund since
its inception. Mr. Blessing joined Chase in 1996. Between 1992 and 1996, he was
Director of the Fund Management Group and Portfolio Manager for emerging market
funds at Serfin Securities, Inc. From 1985 to 1992, Mr. Blessing was a Vice
President at Bank of America, where he was a founding member and co-head of the
Emerging Market Debt Sales & Trading Group.
Bartlett R. Greer, a Senior Vice President of SSR, has been responsible for
management of the Fund's lower rated, high yield securities of U.S. issuers
since the Fund's inception. Mr. Greer joined SSR in 1981 and manages other
institutional accounts, including mutual funds, that invest in high yield and
other securities.
[Sidenote]
The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
37
<PAGE>
How your account works
About sales charges
There's a sales charge to buy shares in the Funds. There are also ongoing
charges that all investors pay as long as they own their shares, as explained
later.
There are three classes of shares, each with its own charges: Class A shares,
Class B shares and Class C shares. Class A shares have a charge you pay when you
invest. Class B shares have a deferred sales charge. You don't pay any charge
when you buy Class B shares, but you may have to pay a charge when you sell
them, depending on how long you hold them. Class C shares also have a deferred
sales charge you may have to pay if you sell your shares within one year of
buying them.
U.S. Government Securities and Short-Term Bond Fund offer Class A shares only.
U.S. Treasury and Bond Fund offer Class A and Class B shares. Strategic Income
Fund offers classes A, B and C.
There are a number of plans and special discounts which can decrease or even
eliminate these charges.
This section explains how the three sales charges work.
Class A Shares
The initial sales charge is deducted directly from the money you invest. As the
table shows, the charge is lower the more you invest. The public offering price
of Class A shares is the net asset value plus the initial sales charge. Net
asset value is the value of everything the Fund owns, minus everything it owes,
divided by the number of shares held by investors. The Fund receives the net
asset value.
The following chart shows the sales charge for all the Funds except Short-Term
Bond Fund
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------------------
Total sales charge
- ---------------------------------- --------------------------------------
<S> <C> <C>
Amount of investment As % of the As % of net
offering price amount invested
per share
- ---------------------------------- ------------------- ------------------
Less than $100,000 4.50% 4.71%
- ---------------------------------- ------------------- ------------------
$100,000 but under $250,000 3.75% 3.90%
- ---------------------------------- ------------------- ------------------
$250,000 but under $500,000 2.50% 2.56%
- ---------------------------------- ------------------- ------------------
$500,000 but under 2.00% 2.04%
$1 million
- ---------------------------------- ------------------- ------------------
</TABLE>
38
<PAGE>
There is no sales charge for investments of $1 million or more
The following chart shows the sales charge for the Short-Term Bond Fund
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------------------
Total sales charge
- ---------------------------------- --------------------------------------
Amount of investment As % of the As % of net
offering price amount invested
per share
- ---------------------------------- ------------------- ------------------
<S> <C> <C>
Less than $100,000 1.50% 1.52%
- ---------------------------------- ------------------- ------------------
$100,000 but under $250,000 1.00% 1.00%
- ---------------------------------- ------------------- ------------------
$250,000 but under $500,000 0.50% 0.50%
- ---------------------------------- ------------------- ------------------
$500,000 but under 0.25% 0.25%
$1 million
- ---------------------------------- ------------------- ------------------
</TABLE>
Class B Shares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's a percentage of the original purchase price or the current
value of the shares, whichever is lower. As the table shows, the deferred sales
charge gets lower the longer you hold the shares and disappears altogether after
six years. Class B shares automatically convert into Class A shares at the
beginning of the ninth year after you bought them.
<TABLE>
<CAPTION>
- ---------------------------- -------------------------
Year Deferred sales charge
- ---------------------------- -------------------------
<S> <C>
1 5%
- ---------------------------- -------------------------
2 4%
- ---------------------------- -------------------------
3 3%
- ---------------------------- -------------------------
4 3%
- ---------------------------- -------------------------
5 2 %
- ---------------------------- -------------------------
6 1%
- ---------------------------- -------------------------
7 None
- ---------------------------- -------------------------
</TABLE>
We calculate the deferred sales charge from the month you buy your shares. We
always sell the shares with the lowest deferred sales charge first.
Class C Shares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's equal to 1% of the original purchase price or the current
value of the shares, whichever is lower. The deferred sales charge on Class C
shares disappears altogether after one year. We calculate the deferred sales
charge from the month you buy your shares. We always sell the shares with the
lowest deferred sales charge first.
Like Class B shares, Class C shares have higher combined distribution and
service fees. Unlike Class B shares, Class C shares are never converted to Class
A shares. That means you keep paying the higher service and distribution fees as
long as you hold them. Over the long term, this can add up to higher total fees
than either Class A or Class B shares.
39
<PAGE>
Vista Fund Distributors Inc.(VFD) is the distributor for the Fund. It's a
subsidiary of The BISYS Group, Inc. and is not affiliated with Chase.
The Strategic Income Fund has adopted Rule 12b-1 distributions plans under which
it pays annual distribution fees at the following rates:
o up to 0.25% of the average daily net assets attributed to class A shares
o up to 0.75% of the average daily net assets attributed to Class B shares
o up to 0.75% of the average daily net assets attributed to Class C shares.
The U.S. Treasury Income Fund and Bond Fund have each adopted Rule 12b-1
distribution plans under which they pay annual distribution fees at the
following rates:
o up to 0.25% of the average daily net assets attributed to Class A shares
o up to 0.75% of the average daily net assets attributed to Class B shares.
The Short-Term Bond Fund and U.S. Government Securities Fund have each adopted a
Rule 12b-1 distribution plan under which they pay annual distribution fees of up
to 0.25% of the average daily net assets attributed to Class A shares.
These payments cover such things as compensation for services provided by
broker-dealers and expenses connected to the sale of shares. Payments are not
tied to actual expenses incurred.
Because 12b-1 expenses are paid out of a Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
Which class of shares is best?
Your decision about which class of shares to buy depends on a number of factors,
including the amount you're buying and how long you intend to hold your shares.
If you have no plans to sell your shares for at least six years and you don't
want to pay an up-front sales charge, you may consider buying Class B shares.
Class A shares may be a good choice if you qualify to have the sales charge
reduced or eliminated. In almost all cases, if you plan to buy $250,000 of
shares or more, Class A is the most economical choice.
Class C shares may be best if you prefer not to pay an initial sales charge and
you're not sure how long you intend to hold your investment.
You should also consider the distribution and service fees, which are lower for
Class A shares. These fees appear in the table called Annual operating expenses
deducted from the Fund's assets for each fund.
40
<PAGE>
Your investment representative may be able to advise you about the best class of
shares for you.
41
<PAGE>
Buying Fund shares
You can buy shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to buy
representative and he or she will contact us. Your representative may
charge you a fee and may offer additional services,
such as special purchase and redemption programs. Some
representatives charge a single fee that covers all
services. Your representative may impose different
minimum investments and earlier deadlines to buy and
sell shares.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA
Service Center
or
Complete the enclosed application form and
mail it along with a check for the amount you
want to invest to:
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Investment You can make regular automatic purchases of at least
Plan $100. See There's more on the Systematic Investment
Plan later.
- --------------------------------- --------------------------------------------------------
</TABLE>
Whether you choose Class A, Class B or Class C shares, the price of the shares
is based on the net asset value per share (NAV). NAV is the value of everything
the Fund owns, minus everything it owes, divided by the number of shares held by
investors. You'll pay the public offering price which is based on the next NAV
calculated after the Chase Vista Funds Service Center accepts your instructions.
Each Fund calculates its NAV once each day at the close of regular trading on
the New York Stock Exchange. Each Fund generally values its assets at their
market value but may use fair value if market prices are unavailable. The Chase
Vista Funds Service Center will not accept your order until it is in proper
form. An order is in proper form only after payment is converted into federal
funds.
The Chase Vista Funds Service Center accepts purchase orders on any business day
that the New York Stock Exchange is open. Normally, if the Chase Vista Funds
Service Center receives your order in proper form by the close of regular
trading on the New York Stock Exchange, we'll process your order at that day's
price.
You must provide a Social Security Number or Taxpayer Identification Number when
you open an account. The Fund has the right to refuse any purchase order or to
stop offering shares for sale at any time.
42
<PAGE>
Box:
To open an account, buy or sell shares or get Fund information, call:
The Chase Vista Funds Service Center
1-800-34-VISTA
End box
<TABLE>
<CAPTION>
Minimum investments
- -------------------------------- ---------------------------- ----------------------------
Type of account Initial investment Additional investments
- -------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Regular account $2,500 $100
- -------------------------------- ---------------------------- ----------------------------
Systematic Investment Plan $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
SEP-IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
Education IRAs $500 $100
- -------------------------------- ---------------------------- ----------------------------
</TABLE>
Make your check out to Chase Vista Funds in U.S. dollars. We won't accept credit
cards, cash, or checks from a third party. You cannot sell your shares until
your check has cleared, which could take more than 15 calendar days. If you buy
through an Automated Clearing House, you can't sell your shares until the
payment clears. That could take more than seven business days.
Your purchase will be canceled if your check doesn't clear and you'll be
responsible for any expenses and losses to the Funds. Orders by wire will be
canceled if the Chase Vista Funds Service Center doesn't receive payment by 4:00
p.m. Eastern time on the day you buy.
If you're planning to exchange, sell or transfer shares to another person
shortly after buying the shares, you should pay by certified check to avoid
delays. The Funds will not issue certificates for Class A or Class C shares
unless you request them and they will not issue certificates for Class B shares.
43
<PAGE>
Selling Fund shares
You can sell your shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to sell.
representative He or she will send the necessary documents to the
Chase Vista Funds Service Center. Your representative
might charge you for this service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA. We will mail you a check or send
Service Center the proceeds via electronic transfer or wire. You
cannot sell by phone if you have changed your
address of record within the previous 30 days.
If you sell $25,000 or more worth of Funds by
phone, we'll send it by wire only to a bank
account on our records. We charge $10 for each
transaction by wire.
or
Send a signed letter with your instructions to:
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Withdrawal You can automatically sell as little as $50
worth of Plan shares. See Shareholder Services, page x for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
You can sell your shares on any day the Chase Vista Funds Service Center is
accepting purchase orders. You'll receive the next NAV calculated after the
Chase Vista Funds Service Center accepts your order, less any applicable sales
charges.
Under normal circumstances, if the Chase Vista Funds Service Center receives
your order before the close of regular trading on the New York Stock Exchange, a
Fund will send you the proceeds the next business day. We won't accept an order
to sell shares if the Fund hasn't collected your payment for the shares. Each
Fund may stop accepting orders to sell and may postpone payments for more than
seven days, as federal securities laws permit.
You'll need to have signatures guaranteed for all registered owners or their
legal representative if:
" you want to sell shares with a net asset value of $100,000 or more
" you want your payment sent to an address other than the one we have in our
records.
We may also need additional documents or a letter from a surviving joint owner
before selling the shares. Contact the Chase Vista Funds Service Center for more
details.
44
<PAGE>
Exchanging Fund shares
You can exchange your shares for shares of the same class of certain other Chase
Vista Funds at net asset value, beginning 15 days after you buy your shares. For
tax purposes, an exchange is treated as a sale of Fund shares. This will
generally result in a capital gain or loss to you.
You can exchange your shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to
representative exchange from and to. He or she will send the
necessary documents to the Chase Vista Funds Service
Center. Your representative might charge you for this
service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA to ask for details.
Service Center
- --------------------------------- --------------------------------------------------------
Through a Systematic Exchange You can automatically exchange money from one Chase
Plan Vista account to another of the same class. Call the
Chase Vista Funds Service Center for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
If you exchange Class B or Class C shares of a Fund for Class B or Class C
shares of another Chase Vista Fund you will not pay a deferred sales charge
until you sell the shares of the other Fund. The amount of deferred sales charge
will be based on when you bought the original shares, not when you made the
exchange. Carefully read the prospectus of the Fund you want to buy before
making an exchange. You'll need to meet any minimum investment requirements.
You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information to find out more about the exchange privilege.
Other information concerning the Funds
We may close your account if the balance falls below $500 because you've sold
shares. We may also close the account if you are in the Systematic Investment
Plan and fail to meet investment minimums over a 12-month period. We'll give you
60 days notice before closing your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address to make sure they match those you provided us. If they
give us the correct information, we are generally authorized to follow that
person's instructions. We'll take all reasonable
45
<PAGE>
precautions to confirm that the instructions are genuine. Investors agree that
they will not hold a Fund liable for any loss or expenses from any sales
request, if the Fund takes reasonable precautions. Each Fund will be liable for
any losses to you from an unauthorized sale or fraud against you if we do not
follow reasonable procedures.
You may not always reach the Chase Vista Funds Service Center by telephone. This
may be true at times of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.
The Funds have agreements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of the Class A, Class B and Class C shares of a Fund held by
investors by the shareholder servicing agent.
Chase and/or VFD may, at their own expense, make additional payments to certain
selected dealers or other shareholder servicing agents for performing
administrative services for their customers. The amount may be up to an
additional 0.10% annually of the average net assets of each Fund attributable to
shares of a Fund held by customers of those shareholder servicing agents.
Each Fund may issue multiple classes of shares. This prospectus relates only to
Class A shares of the Short-Term Bond Fund and U.S. Government Securities Fund.
Class A and Class B shares of the U.S. Treasury Income Fund and Bond Fund and
Class A , Class B and Class C shares of the Strategic Income Fund . Each class
may have different requirements for who may invest, and may have different sales
charges and expense levels. A person who gets compensated for selling Fund
shares may receive a different amount for each class.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
46
<PAGE>
Distributions and taxes
The Funds can earn income and they can realize capital gain. The Funds deduct
any expenses then pay out these earnings to shareholders as distributions.
The Funds declare dividends daily and distribute the net investment income
monthly. Net capital gain is distributed annually. You have three options for
your distributions. You may:
" reinvest all of them in additional Fund shares without a sales charge;
" take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain in
additional shares; or
" take all distributions in cash or as a deposit in a pre-assigned
bank account.
If you don't select an option when you open your account, we'll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by the
form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax-exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
Each Fund expects that its distributions will consist primarily of ordinary
income. Early in each calendar year, each Fund will send you a notice showing
the amount of distributions you received in the preceding year and the tax
status of those distributions.
The above is only a general summary of tax implications of investing in the
Funds. Please consult your tax adviser to see how investing in a Fund will
affect your own tax situation.
47
<PAGE>
Shareholder services
Systematic Investment Plan
Regularly invest $100 or more in the first or third week of any month. The money
is automatically deducted from your checking or savings account.
You can set up a plan when you open an account by completing the appropriate
section of the application. Current shareholders can join by sending a signed
letter and a deposit slip or void check to the Chase Vista Funds Service Center.
Call 1-800-34-VISTA for complete instructions.
Systematic Withdrawal Plan
Make regular withdrawals of $50 or more ($100 or more for Class B accounts). You
can have automatic withdrawals made monthly, quarterly or semiannually. Your
account must contain at least $5,000 to start the plan. Call 1-800-34-VISTA for
complete instructions.
Systematic Exchange
Transfer assets automatically from one Chase Vista account to another on a
regular basis. It's a free service.
Free Exchange privilege
Exchange money between Chase Vista Funds in the same class without charge. This
allows you to adjust your investments as your objectives change.
Reinstatement Privilege
You can buy back Class A shares you sell, without paying a sales charge, as long
as you make a request in writing within 90 days of the sale. If you sell Class B
or Class C shares on which you've paid a deferred sales charge, you can use the
proceeds to buy Class A shares without a sales charge. You must buy the class A
shares within 90 days of selling the Class B or Class C shares.
48
<PAGE>
What the terms mean
Collateral bond obligations: products that are collateralized by a pool of
higher yield, public or private fixed income securities.
Collateralized mortgage obligations: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Distribution fee: covers the cost of the distribution system used to sell shares
to the public.
Dollar-weighted average maturity: The average maturity of the Fund is the
average amount of time until the issuers of the debt securities in the Fund's
portfolio must pay off the principal amount of the debt. "Dollar weighted" means
the larger the dollar value of the debt security in the Fund's portfolio, the
more weight it gets in calculating this average.
Duration: A mathematical calculation of the average life of a bond that serves
as a useful measure of its price risk. Each year of duration represents an
expected 1% change in interest rates. For example, if a bond has an average
duration of 4 years, its price will move 4% when interest rates move 1%.
Fundamental analysis: method which concentrates on "fundamental" information
about an issuer such as its financial statements, history, management,. etc.
Liquidity: Liquidity is the ability to easily convert investments into cash
without losing a significant amount of money in the process.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Maturity: Maturity is the length of time until the issuer who sold a debt
security must pay back the principal amount of the debt.
Mortgage-related securities: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
49
<PAGE>
Repurchase agreements: A type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later for a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
Reverse repurchase agreements: A type of short-term transaction where the Fund
sells securities to a dealer and agrees to buy them back later at a set price.
In effect, the Fund is borrowing the dealer's money for a short time, using the
securities as collateral.
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
Stripped obligations: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
Technical analysis: method which focuses on historical pricing trends in an
attempt to predict future price movements
Value approach: approach focuses on identifying securities that the advisors
believe are undervalued by the market as measured by certain financial formulas.
Yield curve: measure showing relationship among yields of similar bonds with
different maturities.
50
<PAGE>
More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It's incorporated by reference into this prospectus. That means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasevista.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
<PAGE>
Chase Vista Funds
Equity Funds Prospectus
[Front cover page]
Chase Vista Funds
Prospectus
February 26, 1999
Balanced Fund
Equity Income Fund
Large Cap Equity Fund
Growth and Income Fund
Focus Fund
Capital Growth Fund
Small Cap Equity Fund
Small Cap Opportunities Fund
Class A, Class B
and Class C shares
Neither the Securities and Exchange Commission nor any state securities
commission has approved securities of this Fund or determined if this prospectus
is accurate or complete. It is a crime to state otherwise.
1
<PAGE>
Contents
Information about the Funds x
Balanced Fund x
Equity Income Fund x
Large Cap Equity Fund x
Growth and Income Fund x
Focus Fund x
Capital Growth Fund x
Small Cap Equity Fund x
Small Cap Opportunities Fund x
How your account works x
About sales charges x
Buying Fund shares x
Selling Fund shares x
Exchanging Fund shares x
Other information concerning the Funds x
Distributions and taxes x
Shareholder services x
What the Terms Mean
Financial highlights of the Funds x
2
<PAGE>
Information about the Funds
Balanced Fund
The Fund's objective
The Fund seeks to maximize total return through long-term capital growth and
earning current income.
The Fund's main investment strategy
The Fund invests in both equity and debt securities. Under normal market
conditions, the Fund invests 35% to 70% of its total assets in equity
securities. Most of these are in well known, established companies with market
capitalizations of at least $200 million at the time of purchase and which are
traded on established securities markets or over-the-counter. Market
capitalization is the total market value of a company's shares. Equity
securities include common stocks, preferred stocks and securities that are
convertible into common stocks, and warrants to buy common stocks.
Under normal conditions, the Fund will invest at least 25% of its total assets
in investment grade debt securities. These include non-convertible corporate
debt, and U.S. Government debt securities. The Fund invests in corporate debt
securities that are rated Baa or higher by Moody's Investors Service, Inc., BBB
or higher by Standard & Poor's Corporation, or the equivalent rating by another
national rating organization. It may also invest in unrated securities of
comparable quality. There is no restriction on the maturity of the Fund's debt
portfolio or on any individual security in the portfolio. The average maturity,
or time until debt investments come due, will vary as market conditions change.
The Fund's advisers may change the balance between equity and fixed income
investments to suit market conditions.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest in
convertible securities, which generally pay interest or dividends and which can
be converted into common or preferred stock.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
3
<PAGE>
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into Odollar rolls,O in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may invest any portion of its assets that aren't in stocks or fixed
income securities in high quality money market instruments and repurchase
agreements. To temporarily defend its assets, the Fund may put any amount of its
assets in these types of investments.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Balanced Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The securities of smaller companies may trade less frequently and in smaller
volumes than securities of larger, more established companies. As a result,
share price changes may be more sudden or more erratic. Smaller companies may
have limited product lines, markets or financial resources, and they may depend
on a small management group.
4
<PAGE>
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The value of the Fund's fixed income securities tends to fall when prevailing
interest rates rise. Such a drop could be worse if the Fund invests a larger
portion of its assets in debt securities with longer maturities. That's because
long-term debt securities are more sensitive to interest rate changes than other
fixed income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-related securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be higher
or lower than on the original mortgage security. When interest rates are rising,
the value of fixed-income securities with prepayment features are likely to
decrease as much or more than securities without prepayment features. In
addition, while the value of fixed-income securities will generally increase
when interest rates decline, the value of mortgage-related securities with
prepayment features may not increase as much as securities without prepayment
features.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or
5
<PAGE>
unexpected increase in prepayments can significantly depress the price of
interest-only securities, while a rapid or unexpected decrease could have the
same effect on principal-only securities. In addition, these instruments may be
illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
The Fund's performance will also depend on the credit quality of its
investments. Securities which are rated Baa by Moody's or BBB by S&P may have
fewer protective provisions and are generally more risky than higher rated
securities. The issuer may have trouble making principal and interest payments
when difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government obligations, it could
reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for balanced
funds.
6
<PAGE>
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
Past 1 year Past 5 years Since inception
(11/4/92)
- ---------------------- ------------------- ------------------------- ---------------
<S> <C> <C> <C>
Class A shares -- -- --
- ---------------------- ------------------- ------------------------- ---------------
Class B shares -- -- --
- ---------------------- ------------------- ------------------------- ---------------
Class C shares -- -- --
- ---------------------- ------------------- ------------------------- ---------------
Index -- -- --
- ---------------------- ------------------- ------------------------- ---------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 4, 1993. Class C shares were first
offered on November 2, 1998. The performance for the period before Class B
shares were launched is based on the performance of Class A shares of the Fund
and the performance for the period before Class C shares were launched is based
on the performance of Class A and Class B shares. The actual returns of Class B
and Class C shares would have been lower than shown because Class B and Class C
shares have higher expenses than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
7
<PAGE>
Shareholders fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be ___, other expenses
are expected to be ___ and the total annual Fund operating expenses are expected
not to exceed ____ for Class A shares, ____ for Class B shares and ___ for Class
C shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes: o you invest $10,000 o you sell all your shares at the end of the
period (Y) your investment has a 5% return each year, and o the Fund's operating
expenses remain the same as shown above.
If you sell your shares...
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have
been owned for eight years.
9
<PAGE>
Equity Income Fund
The Fund's objective
The Fund seeks to obtain income primarily by investing in income-producing
equity securities. Capital growth is a secondary consideration.
The Fund's main investment strategy
Under normal market conditions, the Fund invests at least 65% of its total
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks and securities that are convertible into common stocks.
The major portion of the Fund's assets will be invested in common stocks which
are traded on a national securities exchange or on NASDAQ. A significant portion
of the Fund's assets may be invested in convertible bonds or convertible
preferred stock, which generally pay interest or dividends and which can be
converted into common or preferred stock.
The Fund attempts to achieve a yield higher than the composite yield on the
securities in the Standard & Poor's 500 Stock Price Index.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts.
The Fund may invest any portion of its assets that aren't in stocks in
investment grade debt securities, high quality money market instruments and
repurchase agreements. To temporarily defend its assets, the Fund may put any
amount of its assets in these types of investments.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
10
<PAGE>
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Equity Income Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of the Fund's convertible securities and fixed income
securities tends to fall when prevailing interest rates rise. The value of
convertible securities also tends to change whenever the market value of the
underlying common or preferred stock fluctuates.
The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
11
<PAGE>
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for equity
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Since inception
(7/15/93)
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Class A shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Class B shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Class C shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Index -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on May 7, 1996. Class C shares were first
offered on January 2, 1998. The performance for the period before Class B shares
were launched is based on the performance of Class A shares of the Fund and the
performance for the period before Class C shares were launched is based on the
performance of Class A and Class B shares. The actual returns
12
<PAGE>
of Class B and Class C shares would have been lower than shown because Class B
and Class C shares have higher expenses than Class A shares.
13
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets )
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be -- , other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares, -- for Class B shares and -- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
14
<PAGE>
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- ------------------------------------------- ------- --------- -------- -----------
1 year 3 years 5 years 10 years
- ------------------------------------------- ------- --------- -------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- ------------------------------------------- ------- --------- -------- -----------
Class B shares** $-- $-- $-- $--***
- ------------------------------------------- ------- --------- -------- -----------
Class C shares** $-- $-- $-- $--
- ------------------------------------------- ------- --------- -------- -----------
If you don't sell your shares...
<CAPTION>
- ------------------------------------------- ------- --------- -------- -----------
1 year 3 years 5 years 10 years
- ------------------------------------------- ------- --------- -------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- ------------------------------------------- ------- --------- -------- -----------
Class C shares $-- $-- $-- $--
- ------------------------------------------- ------- --------- -------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have
been owned for eight years.
15
<PAGE>
Large Cap Equity Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization over $1 billion at the time of purchase.
Market capitalization is the total market value of a company's shares. The
companies the Fund chooses typically have a large number of publicly held shares
and high trading volumes.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value. The advisers first seek to identify the strongest sectors of the market,
attempt to find the companies in those sectors with the best earnings prospects,
then select the companies which appear to have the most attractive values.
The advisers try to diversify their investments across a number of sectors.
However, they may change sector weightings in response to market developments.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
16
<PAGE>
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Large Cap Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
17
<PAGE>
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for large
capitalization equity funds.
The performance for the period before Class A and Class B shares were launched
in May 1996 is based on performance for Institutional Class shares of the Fund.
The actual returns of Class A and Class B would have been lower than shown
because Class A and Class B shares have higher expenses than Institutional Class
shares.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ---------------------------
Past 1 year Since inception (11/30/90)
- ---------------------- ------------------- ---------------------------
<S> <C> <C>
Class A shares -- --
- ---------------------- ------------------- ---------------------------
Class B shares -- --
- ---------------------- ------------------- ---------------------------
Class C shares -- --
- ---------------------- ------------------- ---------------------------
Index -- --
- ---------------------- ------------------- ---------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class C shares were first offered on November 2, 1998. The performance for the
period before Class C shares were launched is based on the performance of
Institutional Class and Class B shares of the Fund. The actual returns of
Class C shares
18
<PAGE>
would have been lower than shown because Class C shares have higher expenses
than Institutional Class shares.
19
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares and -- for Class B shares and --- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
20
<PAGE>
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
21
<PAGE>
Growth and Income Fund
The Fund's objective
The Fund seeks to provide capital growth over the long term and earn income from
dividends.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investable
assets in Growth and Income Portfolio, an open-end investment company which has
identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to Growth and Income Portfolio as well
as to the Fund.
Under normal market conditions, the Fund invests at least 80% of its total
assets in common stocks of a broad range of market capitalizations. Market
capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value. The advisers believe that the market risk that the Fund incurs while
seeking capital growth can be at least partly offset by the expected dividend
returns on the stocks in the Fund's portfolio.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these
investments as well as in U.S. Government debt securities and investment grade
debt securities. During unusual market conditions, the Fund may invest up to 20%
of its assets in U.S. Government debt securities.
22
<PAGE>
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose on your investment
in the Fund. Here are some of the specific risks of investing in Growth and
Income Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depository receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depository receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
23
<PAGE>
The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and 10 years. It
compares that performance to [Index], a widely recognized benchmark for equity
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Class A shares -- -- --
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
- ---------------------- ------------------- ------------------------- ----------------------
Class B shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Class C shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Index -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 4, 1993. Class C shares were first
offered on January 2, 1998. The performance for the period before Class B shares
were launched is based on the performance of Class A shares of the Fund and the
performance for the period before Class C shares were launched is based on the
performance of Class A and Class B shares. The actual returns of Class B and
Class C shares would have been lower than shown because Class B and Class C
shares have higher expenses than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
25
<PAGE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares, -- for Class B shares and -- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5%
return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares*** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
26
<PAGE>
Focus Fund
The Fund's objective
The Fund seeks capital growth
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
common stocks of established companies which have market capitalizations of more
than $1 billion at the time of purchase. Market capitalization is the total
market value of a company's shares. The Fund invests primarily in U.S.
companies, but may also invest in multinational companies that issue American
depositary receipts.
The Fund will seek to invest in the 25 companies identified by the advisors as
having the most favorable characteristics through a disciplined investment
approach. The Fund's advisers use a proprietary computer model developed in 1987
to select from among more than 900 companies with market capitalizations of more
than $1 billion. The computer model seeks to identify undervalued stocks which
have favorable characteristics to increase in value. The model uses both value
and growth/momentum factors. After the model identifies the stocks which appear
to have the most favorable characteristics, the advisers use a
research-intensive fundamental analysis to select the 25 stocks which they think
have the most potential for capital growth.
Fundamental research typically includes analysis of products and market niches,
evaluation of competitors, detailed financial analysis, meetings with company
management, and interviews with industry analysts. In doing their analysis, the
advisers will meet industry concentration limits by investing across a number of
sectors. However, they may change sector weightings in response to market
developments.
The advisers go through this process at least monthly to identify what they
believe are the best 25 companies and adjust their holdings as needed. The Fund
usually invests approximately equal amounts in each of the 25 companies.
However, it may change these weightings and hold assets of more or less than 25
companies. The advisers also use the process to frequently monitor the Fund's
investments. The process will identify which investments have lost value or
growth potential, and the advisers will re-evaluate such investments based on a
number of factors, including how a company's valuations and earnings compare to
its competitors.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund
27
<PAGE>
may put any amount of its assets in these types of investments. During unusual
market conditions, the Fund may invest up to 20% of its assets in U.S.
Government obligations.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidebar]Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in Fund. Here are some of the specific risks of investing in Focus
Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. These risks increase when investing in issuers located in
developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
28
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities. Since the Fund invests in a relatively small number of
companies, a decrease in the value of any one of its investments can have a
large impact on the value of the entire portfolio.
Fund's past performance
This section shows the Fund's performance record. The table shows the average
annual return since inception. It compares that performance to [Index], a widely
recognized benchmark for U.S. equity funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
........................ .....................
Since inception
........................ .....................
<S> <C>
Class A shares --
........................ .....................
Class B shares --
........................ .....................
Class C shares --
........................ .....................
Index --
........................ .....................
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
29
<PAGE>
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (1) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(1) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on estimated expenses for the current fiscal year.
30
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- -------------- ------------ --------- ----------
Class B -- -- -- --
- --------------------- -------------- ------------ --------- ----------
Class C -- -- -- --
- --------------------- -------------- ------------ --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares, -- for Class B shares and -- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
31
<PAGE>
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have
been owned for eight years.
32
<PAGE>
Capital Growth Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investable
assets in Capital Growth Portfolio, an open-end investment company which has
identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to Capital Growth Portfolio as well as
to the Fund.
Under normal market conditions, the Fund invests at least 80% of its total
assets in a broad portfolio of common stocks of companies with market
capitalizations of $750 million to $4 billion at the time of purchase. Market
capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value.
The Fund may invest up to 20% of it total assets in foreign securities. It may
also invest up to 20% of its total assets in convertible securities, which
generally pay interest or dividends and which can be converted into common or
preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these types of
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
33
<PAGE>
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Capital Growth Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The securities of smaller or mid-sized companies may trade less frequently and
in smaller volumes than securities of larger, more established companies. As a
result, share price changes may be more sudden or more erratic. Small and
mid-sized companies may have limited product lines, markets or financial
resources, and they may depend on a small management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt securities, it could
reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
34
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and 10 years. It
compares that performance to [Index], a widely recognized benchmark for equity
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Class A shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Class B shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Class C shares -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
Index -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 4, 1993. Class C shares were first
offered on January 2, 1998. The performance for the period before Class B shares
were launched is based on the performance of Class A shares of the Fund and the
performance for the period before Class C shares were launched is based on the
35
<PAGE>
performance of Class A and Class B shares. The actual returns of Class B and
Class C shares would have been lower than shown because Class B and Class C
shares have higher expenses than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares, -- for Class B shares and -- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these
36
<PAGE>
other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
37
<PAGE>
Small Cap Equity Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization of $750 million or less at the time of
purchase. Market capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value.
You may only buy shares in this Fund through an account established before --,
1998. The Fund may modify or eliminate this policy at any time.
The Fund may invest up to 20% of it total assets in foreign securities. It may
also invest up to 20% of its total assets in convertible securities, which
generally pay interest or dividends and which can be converted into common or
preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these types of
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government obligations.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
38
<PAGE>
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Small Cap Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The Fund is aggressively managed and prices could fluctuate more than those of
more conservative funds.
Because the assets in this Fund are invested mostly in smaller companies, the
value of your investment is likely to fluctuate more dramatically than an
investment in a fund which invests mostly in larger companies. That's because
smaller companies trade less frequently and in smaller volumes, which may lead
to more volatility in the prices of the securities. They may have limited
product lines, markets or financial resources, and they may depend on a small
management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
39
<PAGE>
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year and since inception. It compares
that performance to [Index], a widely recognized benchmark for small
capitalization equity funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
<TABLE>
<CAPTION>
Average annual total returns
For the periods ending December 31, 1998:
- ---------------------- ------------------- ---------------------------
Past 1 year Since inception (12/20/94)
- ---------------------- ------------------- ---------------------------
<S> <C> <C>
Class A shares -- --
- ---------------------- ------------------- ---------------------------
Class B shares -- --
- ---------------------- ------------------- ---------------------------
Index -- --
- ---------------------- ------------------- ---------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects the
deduction of the applicable contingent deferred sales load.
Class B shares were first offered March 28, 1995. The performance for the period
before Class B shares were launched is based on
40
<PAGE>
performance for Class A shares of the Fund. The actual returns of Class B shares
would have been lower than shown because Class B shares have higher expenses
than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses
are expected to be -- and the total annual Fund operating expenses are expected
not to exceed -- for Class A shares and -- for Class B shares. That's because
The Chase Manhattan Bank (Chase) and some of the Fund's other service providers
have volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
41
<PAGE>
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
42
<PAGE>
Small Cap Opportunities Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization of $1 billion or less at the time of
purchase. Market capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research in an
attempt to identify equities with the best combination of value and growth among
small capitalization stocks.
To maintain investment flexibility, the Fund may stop accepting new investors
once the Fund's net assets reach approximately $1 billion. If that happens,
existing shareholders would still be able to buy additional Fund shares.
The Fund may invest up to 20% of its total assets in foreign securities. It may
also invest up to 20% of its total assets in convertible securities, which
generally pay interest or dividends and which can be converted into common or
preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these types of
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
43
<PAGE>
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Small Cap Opportunities Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The Fund is aggressively managed and prices could fluctuate more than those of
more conservative funds.
Because the assets in this Fund are invested mostly in smaller companies, the
value of your investment is likely to fluctuate more dramatically than an
investment in a fund which invests mostly in larger companies. That's because
smaller companies trade less frequently and in smaller volumes, which may lead
to more volatility in the prices of the securities. They may have limited
product lines, markets or financial resources, and they may depend on a small
management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
44
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year and since inception. It compares
that performance to [Index], a widely recognized benchmark for equity funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------
Past 1 year Since inception (5/19/97)
- ---------------------- ------------------- ------------------------
<S> <C> <C>
Class A shares -- --
- ---------------------- ------------------- ------------------------
Class B shares -- --
- ---------------------- ------------------- ------------------------
Class C shares -- --
- ---------------------- ------------------- ------------------------
Index -- --
- ---------------------- ------------------- ------------------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class C shares were first offered on January
45
<PAGE>
2, 1998. The performance for the period before Class C shares were launched is
based on the performance for Class B shares of the Fund.
46
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class B -- -- -- --
- --------------------- ------------- ----------- --------- ----------
Class C -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed -- for Class A shares, -- for Class B shares and -- for Class C
shares. That's because The Chase Manhattan Bank (Chase) and some of the Fund's
other service providers have volunteered not to collect a portion of their fees
and to reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
47
<PAGE>
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class C shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class B shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
48
<PAGE>
Fund management
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue, New York, NY 10017
Chase is entitled to receive an annual management fee at the rate of:
o 0.40% of the average daily net assets of the Equity Income Fund, Large Cap
Equity Fund, Growth and Income Fund, Focus Fund and Capital Growth fund,
o 0.50% of the average daily net assets of the Balanced Fund and
o 0.65% of the average daily net assets of the Small Cap Equity Fund and Small
Cap Opportunities Fund.
Chase Asset Management Inc. (CAM) is the sub-adviser to the Funds. CAM is a
wholly-owned subsidiary of Chase. It makes the day-to-day investment decisions
for the Funds. CAM provides discretionary investment services to institutional
clients and is located at 1211 Avenue of the Americas New York, NY 10036
The portfolio managers
David Klassen, Director, U.S. Funds Management and Equity Research at Chase, is
responsible for asset allocation and investment strategy for Chase's domestic
equity portfolios. Before joining Chase in 1992, Mr. Klassen was a Vice
President and Portfolio Manager at Dean Witter Reynolds, responsible for
managing several mutual funds and other accounts.
Balanced Fund
Greg Adams and Leonard Lovito, Vice Presidents and Senior Portfolio Managers at
Chase, are responsible for the management of the Fund's portfolio. Mr. Adams has
managed the equity portion of the Fund since its inception in 1993. He joined
Chase in 1987 and has been responsible for overseeing the proprietary computer
model program used in the U.S. equity selection process.
Mr. Lovito has been responsible for the debt portion of the Fund since July
1998. From 1984 to June 1998, Mr. Lovito was a Vice President and Portfolio
Manager at J.W. Seligman & Co., Inc, where he was responsible for managing a
number of institutional portfolios and mutual funds. Before that, Mr. Lovito was
in the Investment Department at Dime Savings Bank of New York.
49
<PAGE>
Equity Income Fund
Tony Gleason, a Vice President of Chase, has been responsible for the day-to-day
management of the Fund's portfolio since September 1995. Mr. Gleason joined
Chase in 1995. Prior to joining Chase, Mr. Gleason spent nine years as a Vice
President and Portfolio Manager with Prudential Equity Management.
Bill Ellsworth, Senior Research Analyst and Associate Portfolio Manager at
Chase, participates in the management of the Fund. Mr. Ellsworth has been
employed by Chase since 1992.
Large Cap Equity Fund
Mr. Adams has been primarily responsible for the management of the Fund since
February 1994.
Growth and Income Fund
Mr. Adams and Diane Sobin, a Senior Portfolio Manager at Chase, are responsible
for the day-to-day management of the Growth and Income Portfolio. Mr. Adams has
been a manager of the Portfolio since March 1995.
Ms. Sobin joined Chase in 1997 and has been a manager of the portfolio since
July 1997. Prior to joining Chase, Ms. Sobin was a senior portfolio manager at
Oppenheimer Funds Inc., where she managed mutual funds. Prior to 1995, Ms. Sobin
was a senior portfolio manager at Dean Witter Discover, where she managed
several mutual funds and other accounts.
Focus Fund
Mr. Klassen and Mr. Adams have been responsible for management of the Fund since
inception.
Mr. Klassen and Mr. Adams work under the direction of Pamela Carlton, Director
of Equity research at Chase. Ms. Carlton joined Chase in 1996. For the 14 years
prior to joining Chase, she held various positions at Morgan Stanley & Co. Inc.,
including, most recently, Director of global equity research operations,
responsible for global coordination of research. From 1994-95, Ms. Carlton was
the Co-director of U.S. equity research, where she co-managed sellside research.
From 1992-94, she was a principal in the fixed income private placement group
responsible for structuring, pricing and selling debt private placements.
Capital Growth Fund
Mr. Klassen and Mr. Gleason, have been responsible for the management of the
Capital Growth Portfolio since September 1995.
50
<PAGE>
Small Cap Equity Fund
Jill Greenwald, a Vice President of Chase, and Mr. Klassen have managed the Fund
since its inception.
Ms. Greenwald joined Chase in 1993, specializing in small capitalization issues.
Before that, she was a Director for Prudential Equity Investors and a Senior
Analyst for Fred Alger Management, Inc.
Small Cap Opportunities Fund
Ms. Greenwald and Ronald Zibelli, a Vice President and Senior Portfolio Manager
at Chase, are responsible for the management of the Fund.
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 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.
[Sidenote]
The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
How your account works
About sales charges
There's a sales charge to buy shares in the Funds. There are also ongoing
charges that all investors pay as long as they own their shares, as explained
later.
You have a choice of three different kinds of charges. Class A shares have a
charge you pay when you invest. Class B shares have a deferred sales charge. You
don't pay any charge when you buy the Class B shares, but you may have to pay a
charge when you sell them, depending on how long you hold them. Class C shares
also have a deferred sales charge you may have to pay if you sell your shares
within one year of buying them.
Small Cap Equity Fund, is available in either Class A or Class B shares in this
prospectus. The other Funds are available in Class A, Class B or Class C shares
in this prospectus.
51
<PAGE>
There are a number of plans and special discounts which can decrease or even
eliminate these charges.
This section explains how the three sales charges work.
Class A shares
The initial sales charge is deducted directly from the money you invest. As the
table shows, the charge is lower the more you invest. The public offering price
of Class A shares is the net asset value plus the initial sales charge. Net
asset value is the value of everything the Fund owns, minus everything it owes,
divided by the number of shares held by investors. The Fund receives the net
asset value.
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------------------
Total sales charge
- ---------------------------------- --------------------------------------
Amount of investment As % of the As % of net
offering price amount invested
per share
- ---------------------------------- ------------------- ------------------
<S> <C> <C>
Less than $100,000 5.75% 6.10%
- ---------------------------------- ------------------- ------------------
$100,000 but under $250,000 3.75% 3.90%
- ---------------------------------- ------------------- ------------------
$250,000 but under $500,000 2.50% 2.56%
- ---------------------------------- ------------------- ------------------
$500,000 but under 2.00% 2.04%
$1 million
- ---------------------------------- ------------------- ------------------
</TABLE>
There is no sales charge for investments of $1 million or more
Class B shares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's a percentage of the original purchase price or the current
value of the shares, whichever is lower. As the table shows, the deferred sales
charge gets lower the longer you hold the shares and disappears altogether after
six years. Class B shares automatically convert into Class A shares at the
beginning of the ninth year after you bought them.
<TABLE>
<CAPTION>
Year Deferred sales charge
- ---------------------------- -------------------------
<S> <C>
1 5%
2 4%
3 3%
4 3%
5 2%
6 1%
7 None
</TABLE>
We calculate the deferred sales charge from the month you buy your shares. We
always sell the shares with the lowest deferred sales charge first.
52
<PAGE>
Class C shares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's equal to 1% of the original purchase price or the current
value of the shares, whichever is lower. The deferred sales charge on Class C
shares disappears altogether after one year. We calculate the deferred sales
charge from the month you buy your charges. We always sell the shares with the
lowest deferred sales charge first.
Like Class B shares, Class C shares have higher combined distribution and
service fees. Unlike Class B shares, Class C shares are never converted to Class
A shares. That means you keep paying the higher service and distribution fees as
long as you hold them. Over the long term, this can add up to higher total fees
than either Class A or Class B shares.
General
Vista Fund Distributors Inc. (VFD) is the distributor for the Fund. It's a
subsidiary of BISYS Group, Inc. and is not affiliated with Chase. Each Fund has
adopted Rule 12b-1 distribution plans under which it pays annual distribution
fees of up to 0.25% of the average daily net assets attributed to Class A shares
and up to 0.75% of the average daily net assets attributed to Class B shares. In
addition, each Fund except the Small Cap Equity Fund has adopted a Rule 12b-1
distribution plan under which it pays annual distribution fees of up to 0.75% of
the average daily net assets attributed to Class C shares.
This payment covers such things as compensation for services provided by
broker-dealers and expenses connected to the sale of shares. Payments are not
tied to actual expenses incurred.
Because 12b-1 expenses are paid out of a Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
Which class of shares is best?
Your decision about which class of shares to buy depends on a number of factors,
including the amount you're buying and how long you intend to hold your shares.
If you have no plans to sell your shares for at least six years and you don't
want to pay an up-front sales charge, you may consider buying Class B shares.
Class A shares may be a good choice if you qualify to have the sales charge
reduced or eliminated. In almost all cases, if you plan to buy $250,000 of
shares or more, Class A is the most economical choice.
Class C shares may be best if you prefer not to pay an initial sales charge and
you're not sure how long you intend to hold your investment.
You should also consider the distribution and service fees, which are lower for
Class A shares. These fees appear in the table called Annual Fund operating
expenses (expenses that are deducted from Fund assets) for each Fund.
53
<PAGE>
Your investment representative may be able to advise you about the best class of
shares for you.
54
<PAGE>
Buying Fund shares
You can buy shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to buy
representative and he or she will contact us. Your representative may
charge you a fee and may offer additional services,
such as special purchase and redemption programs. Some
representatives charge a single fee that covers all
services. Your representative may impose different
minimum investments and earlier deadlines to buy and
sell shares.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA
Service Center
or
Complete the enclosed application form and
mail it along with a check for the amount you
want to invest to:
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Investment You can make regular automatic purchases of at least
Plan $100. See There's more on the Systematic Investment
Plan later in this document.
- --------------------------------- --------------------------------------------------------
</TABLE>
Whether you choose Class A, Class B or Class C shares, the price of the shares
is based on the net asset value per share (NAV). NAV is the value of everything
a Fund owns, minus everything it owes, divided by the number of shares held by
investors. You'll pay the public offering price, which is based on the next NAV
calculated after the Chase Vista Funds Service Center accepts your instructions.
Each Fund calculates its NAV once each day at the close of regular trading on
the New York Stock Exchange. Each Fund generally values its assets at their
market value but may use fair value if market prices are unavailable. The Chase
Vista Funds Service Center will not accept your order until it is in proper
form. An order is in proper form only after payment is converted into federal
funds.
The Chase Vista Funds Service Center accepts purchase orders on any business day
that the New York Stock Exchange is open. Normally, if the Chase Vista Funds
Service Center receives your order in proper form by the close of regular
trading on the New York Stock Exchange, we'll process your order at that day's
price.
55
<PAGE>
You must provide a Social Security Number or Taxpayer Identification Number when
you open an account. The Fund has the right to refuse any purchase order or to
stop offering shares for sale at any time.
Box:
To open an account, buy or sell shares or get Fund information, call:
The Chase Vista Funds Service Center
1-800-34-VISTA
End box
Minimum investments
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------- ----------------------------
Type of account Initial investment Additional investments
- -------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Regular account $2,500 $100
- -------------------------------- ---------------------------- ----------------------------
Systematic Investment Plan $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
SEP-IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
Education IRAs $500 $100
- -------------------------------- ---------------------------- ----------------------------
</TABLE>
Make your check out to Chase Vista Funds in U.S. dollars. We won't accept credit
cards, cash, or checks from a third party. You cannot sell your shares until
your check has cleared, which could take more than 15 calendar days. If you buy
through an Automated Clearing House, you can't sell your shares until the
payment clears. That could take more than seven business days.
Your purchase will be canceled if your check doesn't clear and youOll be
responsible for any expenses and losses to the Funds. Orders by wire will be
cancelled if the Chase Vista Funds Service Center doesn't receive payment by
4:00 p.m. Eastern time on the day you buy.
If you're planning to exchange, sell or transfer shares to another person
shortly after buying the shares, you should pay by certified check to avoid
delays. The Funds will not issue certificates for Class A or Class C shares
unless you request them and they will not issue certificates for Class B shares.
56
<PAGE>
Selling Fund shares
You can sell your shares three ways:
<TABLE>
<CAPTION>
- --------------------------------- --------------------------------------------------------
<S> <C>
Through your investment Tell your representative which Funds you want to sell.
representative He or she will send the necessary documents to the
Chase Vista Funds Service Center. Your representative
might charge you for this service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA. We will mail you a check or send
Service Center the proceeds via electronic transfer or wire. You
cannot sell by phone if you have changed your
address of record within the previous 30 days.
If you sell $25,000 or more worth of Funds by
phone, we'll send it by wire only to a bank
account on our records. We charge $10 for each
transaction by wire.
or
Send a signed letter with your instructions to:
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Withdrawal You can automatically sell as little as $50 worth of
Plan shares. See Shareholder Services for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
You can sell your shares on any day the Chase Vista Funds Service Center is
accepting purchase orders. You'll receive the next NAV calculated after the
Chase Vista Funds Service Center accepts your order, less any applicable sales
charges.
Under normal circumstances, if the Chase Vista Funds Service Center receives
your order before the close of regular trading on the New York Stock Exchange,
each Fund will send you the proceeds the next business day. We won't accept an
order to sell shares if the Fund hasn't collected your payment for the shares.
Each Fund may stop accepting orders to sell and may postpone payments for more
than seven days, as federal securities laws permit.
You'll need to have signatures guaranteed for all registered owners or their
legal representative if:
o you want to sell shares with a net asset value of $100,000 or more
o you want your payment sent to an address other than the one we have in our
records.
We may also need additional documents or a letter from a surviving joint owner
before selling the shares. Contact the Chase Vista Funds Service Center for more
details.
57
<PAGE>
Exchanging Fund shares
You can exchange your shares for shares of the same class of certain other Chase
Vista Funds at net asset value, beginning 15 days after you buy your shares. For
tax purposes, an exchange is treated a sale of Fund shares. This will generally
result in a capital gain or loss to you.
You can exchange your shares three ways:
<TABLE>
<CAPTION>
- --------------------------------- --------------------------------------------------------
<S> <C>
Through your investment Tell your representative which Funds you want to
representative exchange from and to. He or she will send the
necessary documents to the Chase Vista Funds Service
Center. Your representative might charge you for this
service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA to ask for details.
Service Center
- --------------------------------- --------------------------------------------------------
Through a Systematic Exchange You can automatically exchange money from one Chase
Plan Vista account to another of the same class. Call the
Chase Vista Funds Service Center for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
If you exchange Class B shares of the Fund for Class B shares of another Chase
Vista Fund, or Class C for Class C, you will not pay a deferred sales charge
until you sell the shares of the other Fund. The amount of deferred sales charge
will be based on when you bought the original shares, not when you made the
exchange. Carefully read the prospectus of the Fund you want to buy before
making an exchange. You'll need to meet any minimum investment requirements.
You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information to find out more about the exchange privilege.
Other information concerning the Funds
We may close your account if the balance falls below $500 because you've sold
shares. We may also close the account if you are in the Systematic Investment
Plan and fail to meet investment minimums over a 12-month period. We'll give you
60 days notice before closing your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address
58
<PAGE>
to make sure they match those you provided us. If they give us the correct
information, we are generally authorized to follow that person's instructions.
We'll take all reasonable precautions to confirm that the instructions are
genuine. Investors agree that they will not hold a Fund liable for any loss or
expenses from any sales request, if the Fund takes reasonable precautions. The
Fund will be liable for any losses to you from an unauthorized sale or fraud
against you if we do not follow reasonable procedures.
You may not always reach the Chase Vista Funds Service Center by telephone. This
may be true at times of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.
The Funds have agreements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of the Class A, Class B and Class C shares of the Fund held by
investors by the shareholder servicing agent.
Chase and/or VFD may, at their own expense, make additional payments to certain
selected dealers or other shareholder servicing agents for performing
administrative services for their customers. The amount may be up to an
additional 0.10% annually of the average net assets of the Fund attributable to
shares of a Fund held by customers of those shareholder servicing agents.
Each Fund may issue multiple classes of shares. This prospectus relates only to
Class A and Class B shares of the Funds and Class C shares of all Funds except
the Small Cap Equity Fund. Each class may have different requirements for who
may invest, and may have different sales charges and expense levels. A person
who gets compensated for selling Fund shares may receive a different amount for
each class.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. The
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
59
<PAGE>
Distributions and taxes
The Funds can earn income and they can realize capital gain. The Funds deduct
any expenses then pay out these earnings to shareholders as distributions.
The Balanced Fund, Equity Income Fund, Large Cap Equity Fund and Growth and
Income Fund distribute any net investment income at least quarterly. The Focus
Fund, Capital Growth Fund, Small Cap Equity Fund and Small Cap Opportunities
Fund distribute any net investment income at least semi-annually. Net capital
gain is distributed annually. You have three options for your distributions. You
may:
o reinvest all of them in additional Fund shares without a sales charge;
o take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain
in additional shares; or
o take all distributions in cash or as a deposit in a pre-assigned
bank account.
If you don't select an option when you open your account, we'll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by the
form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax-exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
The Balanced Fund and Equity Income Fund expect that their distributions will
consist primarily of ordinary income. The Growth and Income Fund, Focus Fund,
Capital Growth Fund, Small Cap Equity Fund and Small Cap Opportunities Fund
expect that their distributions will consist primarily of capital gains.
Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.
The above is a general summary of tax implications of investing in the Funds.
Please consult your tax adviser to see how investing in a Fund will affect your
own tax situation.
60
<PAGE>
Shareholder services
Systematic Investment Plan
You can regularly invest $100 or more in the first or third week of any month.
The money is automatically deducted from your checking or savings account.
You can set up a plan when you open an account by completing the appropriate
section of the application. Current shareholders can join by sending a signed
letter and a deposit slip or void check to the Chase Vista Funds Service Center.
Call 1-800-34-VISTA for complete instructions.
Systematic Withdrawal Plan
You can make regular withdrawals of $50 or more ($100 or more for Class B
accounts). You can have automatic withdrawals made monthly, quarterly or
semiannually. Your account must contain at least $5,000 to start the plan. Call
1-800-34-VISTA for complete instructions.
Systematic Exchange
You can transfer assets automatically from one Vista account to another on a
regular basis. It's a free service.
Free Exchange privilege
You can exchange money between Chase Vista Funds in the same class without
charge. This allows you to adjust your investments as your objectives change.
Reinstatement Privilege
You can buy back Class A shares you sell, without paying a sales charge, as long
as you make a request in writing within 90 days of the sale. If you sell Class B
shares or Class C on which youOve paid a deferred sales charge, you can use the
proceeds to buy Class A shares without a sales charge. You must buy the class A
shares within 90 days of selling the Class B or Class C shares.
61
<PAGE>
Financial highlights of the Funds
[To be supplied by Chase]
62
<PAGE>
What the terms mean
Collateralized mortgage obligations: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Depositary receipts: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
Distribution fee: covers the cost of the distribution system used to sell shares
to the public.
Fundamental research: method which concentrates on "fundamental" information
about an issuer such as its financial statements, history, management, etc.
Growth approach: approach which focuses on identifying securities of companies
whose earnings growth potential appears to the manager to be greater than the
market in general and whose growth in revenue is expected to continue for an
extended period.
Liquidity: the ability to easily convert investments into cash without losing a
significant amount of money in the process.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Maturity: the length of time until the issuer who sold a debt security must pay
back the principal amount of the debt.
Mortgage-related securities: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
Repurchase agreements: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
63
<PAGE>
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
Stripped obligations: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
Value approach: approach which focuses on identifying securities that the
advisers believe are undervalued by the market as measured by certain financial
formulas.
64
<PAGE>
More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It's incorporated by reference into this prospectus. That means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasevista.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
<PAGE>
Chase Vista Funds
International Funds Prospectus
Draft #2
December 18, 1998
[Front cover page]
Chase Vista Funds
Prospectus
February 26, 1999
International Equity Fund
European Fund
Japan Fund
Southeast Asian Fund
Latin American Equity Fund
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of securities of this Fund or determined
if this prospectus is accurate or complete. It is a crime to state otherwise.
<PAGE>
Contents
Information about the Funds x
International Equity Fund x
European Fund x
Japan Fund x
Southeast Asian Fund x
Latin American Equity Fund x
How your account works x
About sales charges x
Buying Fund shares x
Selling Fund shares x
Other information concerning the Funds x
Distributions and taxes x
Shareholder services x
What the Terms Mean
Financial highlights of the Funds x
<PAGE>
Information about the Funds
International Equity Fund
The Fund's objective
The Fund seeks total return from long-term capital growth and income.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investable
assets in International Equity Portfolio, an open-end investment company which
has identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to International Equity Portfolio as
well as to the Fund.
Under normal conditions, the Fund will invest at least 65% of the its total
assets in a broad portfolio of equity securities of established foreign
companies of various sizes, including foreign subsidiaries of U.S. companies.
Equity securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to purchase common stocks. These
investments may take the form of depositary receipts.
The Fund's advisers seek to identify those countries and industries where
political and economic factors, including currency changes, are likely to
produce above-average growth rates. Then the advisers try to identify companies
within those countries and industries that are poised to take advantage of those
political and economic conditions.
The Fund's advisers will seek to select issuers in several countries -- at least
three other than the U.S. However, the Fund may invest a substantial part of its
assets in just one country.
The Fund intends to invest in companies or governments in the following
countries or regions: the Far East (including Japan, Hong Kong, Singapore and
Malaysia), Western Europe (including the United Kingdom, Germany, Netherlands,
France, Switzerland, Italy and Spain), Scandinavia, Australia, Canada and other
countries or areas that the advisers may select from time to time. A substantial
part of the Fund's assets may be invested in companies based in Japan, the
United Kingdom, and other countries who are heavily represented in an index
called the Morgan Stanley Capital International, Europe, Australia and Far East
Index. However, the Fund may also invest in companies or governments in
developing countries.
<PAGE>
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular currency or country by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in another.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. No more than 25% of the Fund's net assets will
be invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's net assets will be invested in debt
securities will be issued by a single foreign government or international
organization, such as the World Bank. The Fund's debt investments may include
convertible securities, which generally pay interest or dividends and which can
be converted into common or preferred stock.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money-market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments. During unusual market conditions, the Fund may invest up to
20% of its assets in U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
<PAGE>
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
International Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
Investments in foreign securities may be riskier than investments in the United
States. Because foreign securities are usually denominated in foreign
currencies, the value of the Fund's portfolio may be influenced by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries are heightened when investing in developing
countries. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility.
Also, developing countries may not provide adequate legal protection for private
or foreign investment or private property.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets worldwide, which could have a negative effect on the strength and value
of the U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may have limited product lines, markets or financial resources,
and they may depend on a small management group.
<PAGE>
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. The value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return in the past 1 and 5 years and since inception. It
compares that performance to the Morgan Stanley Capital International Europe,
Australia and Far East Index, a widely recognized benchmark for international
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
Since inception
Past 1 year Past 5 years (12/31/92)
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Class A shares --% --% --%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since inception
Past 1 year Past 5 years (12/31/92)
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Class B shares --% --% --%
- ---------------------- ------------------- --------------- -----------------
Index --% --% --%
- ---------------------- ------------------- --------------- -----------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 4, 1993. The performance for the
period before Class B shares were launched is based on the performance of Class
A shares of the Fund. The actual returns of Class B shares would have been lower
than shown because Class B shares have higher expenses than Class A shares.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
<PAGE>
Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
Class A Shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B Shares None 5.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A --% --% --% --%
- --------------------- ------------- ----------- --------- ----------
Class B --% --% -- --%
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote] The actual management fee is currently expected to be --% and the
total annual Fund operating expenses are expected not to exceed --% for Class A
shares and --% for Class B shares. That's because The Chase Manhattan Bank
(Chase) and some of the Fund's other service providers have volunteered not to
collect a portion of their fees and to reimburse others. Chase and these other
service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<PAGE>
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B Shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
<PAGE>
European Fund
The Fund's objective
The Fund seeks total return from long-term capital growth.
The Fund's main investment strategy
The Fund will invest primarily in equity securities issued by companies with
principal business activities in Western Europe. Under normal market conditions,
the Fund invests at least 65% of its total assets in equity securities of
European issuers. Equity securities include common stocks, preferred stocks,
securities that are convertible into common stocks and warrants to buy common
stocks. These investments may take the form of depositary receipts.
The Fund's advisers seek to identify those Western European countries and
industries where political and economic factors, including currency changes, are
likely to produce above-average growth rates. Then the advisers try to identify
companies within those countries and industries that are poised to take
advantage of those political and economic conditions. The Fund will continually
review economic and political events in the countries in which it invests.
The Fund may invest in Austria, Belgium, Denmark, Germany, Finland, France,
Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom, as well as other Western European
countries which the advisers think are appropriate. In addition, the Fund may
invest up to 8% of its total assets in equity securities of emerging market
European issuers. These countries may include Poland, the Czech Republic,
Hungary and other similar countries which the advisers think are appropriate.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular currency or country by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in another.
While the Fund's assets will usually be invested in a number of different
Western European countries, the Fund's advisers may at times invest most or all
of the assets in a
<PAGE>
limited number of these countries. The Fund will, however, try to choose a wide
range of industries and companies of varying sizes.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. No more than 25% of the Fund's net assets will
be invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's net assets will be invested in debt
securities issued by a single foreign government or international organization,
such as the World Bank. The Fund's debt investments may include convertible
securities, which generally pay interest or dividends and which can be converted
into common or preferred stock.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments and in debt securities issued by supranational organizations
and companies and governments of countries in which the Fund can invest and
short-term debt instruments issued or guaranteed by the government of any member
of the Organization for Economic Cooperation and Development. These debt
securities may be in various currencies. During unusual market conditions, the
Fund may invest up to 20% of its assets in U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
European Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
<PAGE>
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
Investments in foreign securities may be riskier than investments in the United
States. Because foreign securities are usually denominated in foreign
currencies, the value of the Fund's portfolio may be influenced by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries are heightened when investing in developing
countries. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility.
Also, developing countries may not provide adequate legal protection for private
or foreign investment or private property.
The Fund's performance will be affected by political, social and economic
conditions in Europe, such as growth of the economic output (the Gross National
Product), the rate of inflation, the rate at which capital is reinvested into
European economies, the resource self-sufficiency of European countries and
interest and monetary exchange rates between European countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may have limited product lines, markets or financial resources,
and they may depend on a small management group.
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. The value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates.
<PAGE>
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return in the past year and since the launch of the Fund. It
compares that performance to [Index], a widely recognized benchmark for European
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- -----------------
Past 1 year Since Inception
(11/02/95)
- ---------------------- ------------------- -----------------
<S> <C> <C>
Class A shares --% --%
- ---------------------- ------------------ -----------------
Class B shares --% --%
- ---------------------- ------------------- -----------------
Class C shares --% --%
- ---------------------- ------------------- -----------------
Index --% --%
- ---------------------- ------------------- -----------------
</TABLE>
<PAGE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B and Class C shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 3, 1995. Class C shares were first
offered on November 2, 1998. The performance for the period before Class C
shares were launched is based on the performance of Class B shares of the Fund.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A Shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B Shares None 5.00%
- ----------------- ----------------------- -----------------------
Class C Shares None 1.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A --% --% --% --%
- --------------------- ------------- ----------- --------- ----------
Class B --% --% --% --%
- --------------------- ------------- ----------- --------- ----------
Class C
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% for Class A and Class B shares and the total annual Fund
operating expenses are expected not to exceed --% for Class A shares and --% for
Class B and Class C shares. That's because The Chase Manhattan Bank (Chase)
and some of the Fund's other service providers have volunteered not to collect a
portion of their fees and to reimburse others. Chase and these other service
providers may end this arrangement at any time.
The table does not reflect charges or credits
which you might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C Shares** $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
Class C Shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
<PAGE>
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
<PAGE>
Japan Fund
The Fund's objective
The Fund seeks total return from long-term capital growth.
The Fund's main investment strategy
The Fund will invest principally in equity securities of foreign companies
located throughout the Pacific and Far East. Under normal conditions, the Fund
will invest at least 65% of its total assets in equity securities of issuers in
Japan. The Fund may, from time to time, also invest in securities traded in
other markets of the Pacific and the Far East. Under current market conditions,
the Fund's advisers anticipate that most of the Fund's assets will be invested
in securities traded on Japanese markets. These investments may take the form of
depositary receipts.
Equity securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to buy common stocks.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular currency or country by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in another. While the Fund is not limited in the amount
it invests in any one country, it will try to choose a wide range of industries
and companies of varying sizes.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. The Fund's debt investments may include
convertible securities, which generally pay interest or dividends and which can
be converted into common or preferred stock.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money-market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments and in debt securities issued by supranational organizations
and companies and governments of countries in which the Fund can invest and
short-term debt instruments issued or guaranteed by the government of any member
of the Organization for Economic
<PAGE>
Cooperation and Development. These debt securities may be in various currencies.
During unusual market conditions, the Fund may invest up to 20% of its assets in
U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Japan Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
Investing in this Fund has added risk because of political and economic factors
in Japan.
Investments in foreign securities may be riskier than investments in the United
States. Because foreign securities are usually denominated in foreign
currencies, the value of the Fund's portfolio may be influenced by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts
<PAGE>
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries are heightened when investing in developing
countries. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility.
Also, developing countries may not provide adequate legal protection for private
or foreign investment or private property.
The Fund's performance will be affected by political, social and economic
conditions in Japan. In addition, while the Fund invests primarily in Japanese
securities, the Japanese economy may be affected by Southeast Asian consumer
demands and the state of Southeast Asian economies.
The Japanese economy and financial markets have experienced considerable
difficulty since 1990. The Japanese stock market, as measured by the Tokyo Stock
Price Index, has been volatile. After increasing by over 500% in the 1980s, it
has fallen more than half since then. This decline in the Tokyo stock market has
made the country's banks and financial institutions vulnerable because of their
large share portfolios. Japanese banks have been left with large numbers of
non-performing loans. In addition, the Japanese economy labors under a heavy
government budget deficit and historically low interest rates. As a result of
these factors, several high-profile bankruptcies of Japanese banks, brokerage
firms and insurance companies have occurred.
Although the Japanese yen has generally gone up against the U.S. dollar, in
recent years it has fluctuated, and has even declined. The Japanese yen might
also be hurt by the currency difficulties of other countries in Southeast Asia.
Devaluation of the yen, and any other currencies in which the Fund's securities
are denominated, will hurt the Fund's value.
Japan's relationship with its main trading partners, particularly the U.S., is
in a difficult phase. This is because Japan sells far more highly visible
products such as automobiles than it buys. The trade imbalance is the largest
with the U.S. Japan's economy is also affected by economic trouble in Southeast
Asian countries since the demand for Japanese exports fluctuates and since many
Japanese banks and companies have invested there.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may
<PAGE>
have limited product lines, markets or financial resources, and they may depend
on a small management group.
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. The value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return in the past year and since the launch of the Fund. It
compares that performance to [Index], a widely recognized benchmark for Japanese
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------- ------------------- -----------------
Since Inception
Past 1 year (11/02/95)
- ---------------------- ------------------- -----------------
<S> <C> <C>
Class A shares --% --%
- ---------------------- ------------------- -----------------
Class B shares --% --%
- ---------------------- ------------------- -----------------
Index --% --%
- ---------------------- ------------------- -----------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 3, 1995
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A Shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B Shares None 5.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A --% -- --% --%
- --------------------- ------------- ----------- --------- ----------
Class B --% --% -- --%
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --% for Class A shares and --% for Class B shares.
<PAGE>
That's because The Chase Manhattan Bank (Chase) and some of the Fund's other
service providers have volunteered not to collect a portion of their fees and to
reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B Shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
<PAGE>
Southeast Asian Fund
The Fund's objective
The Fund seeks total return from long-term capital growth.
The Fund's main investment strategy
The Fund invests principally in equity securities of foreign companies located
throughout the Pacific and Far East, with the exception of Japan. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities of Southeast Asian issuers. Equity securities include common stocks,
preferred stocks, securities that are convertible into common stocks and
warrants to buy common stocks. These investments may take the form of depositary
receipts.
The Fund's advisers seek to identify those Pacific and Far East countries (other
than Japan) and industries where political and economic factors, including
currency changes, are likely to produce above-average growth rates. Then the
advisers try to identify companies within those countries and industries that
are poised to take advantage of those political and economic conditions. The
Fund will continually review economic and political events in the countries in
which it invests.
In choosing countries, the advisers will emphasize Hong Kong, Australia,
Singapore, Malaysia, Thailand, the Philippines and Indonesia. A substantial part
of the Fund's assets may be invested in Hong Kong, Australia or both. The Fund
will also invest in other countries in the region, including New Zealand,
Taiwan, Korea and India, butwill not invest in Japan. Investments in India will
be made through a Republic of Mauritius Company in order to take advantage of a
favorable tax treaty between India and Mauritius.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular currency or country by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in another. While the Fund is not limited in the amount
it invests in any one country, it will try to choose a wide range of industries
and companies of varying sizes.
<PAGE>
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. No more than 25% of the Fund's net assets will
be invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's net assets will be invested in debt
securities issued by a single foreign government or international organization,
such as the World Bank. The Fund's debt investments may include convertible
securities, which generally pay interest or dividends and which can be converted
into common or preferred stock.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money-market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments and in debt securities issued by supranational organizations
and companies and governments of countries in which the Fund can invest and
short-term debt instruments issued or guaranteed by the government of any member
of the Organization for Economic Cooperation and Development. These debt
securities may be in various currencies. During unusual market conditions, the
Fund may invest up to 20% of its assets in U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Southeast Asian Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
Investing in this Fund has added risk because of political and economic factors
in Southeast Asian countries.
<PAGE>
Investments in foreign securities may be riskier than investments in the United
States. Because foreign securities are usually denominated in foreign
currencies, the value of the Fund's portfolio may be influenced by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries are heightened when investing in developing
countries. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility.
Also, developing countries may not provide adequate legal protection for private
or foreign investment or private property.
The Fund's performance will be affected by political, social and economic
conditions in Southeast Asia. In addition, while the Fund does not invest in
Japanese companies, some Southeast Asian economies are directly affected by
Japanese investment in the region, Japanese consumer demands and the state of
the Japanese economy. Southeast Asian economies and financial markets have been
extremely volatile in recent years. Many of the countries in the region are
developing, both politically and economically. They may have relatively unstable
governments and economies based on only a few commodities or industries. The
share price of companies in the region tends to be volatile and there is a
significant possibility of loss. Also, some companies in the region may have
less established product markets or a limited management group and they may be
more vulnerable to political or economic conditions, like nationalization. In
addition, some countries have restricted the flow of money in and out of the
country
Many of the region's currencies have recently experienced extreme volatility
relative to the U.S. dollar. Thailand, Indonesia, the Philippines and South
Korea have had currency crises and have needed help from the International
Monetary Fund. If the Fund holds securities in currencies that are devaluated,
that will hurt the value of the Fund.
The trading volumes on Southeast Asian stock exchanges are much lower than in
the U.S., and stock markets in the region have been extremely volatile at times.
As a result, Southeast Asian securities of some companies are less liquid and
more volatile than similar U.S. securities. In addition, brokerage commissions
on regional stock exchanges are fixed and are generally higher than the
negotiated commissions in the U.S.
<PAGE>
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may have limited product lines, markets or financial resources,
and they may depend on a small management group.
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. The value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
<PAGE>
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return in the past year and since the launch of the Fund. It
compares that performance to [Index], a widely recognized benchmark for
Southeast Asian funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- -----------------
Since Inception
Past 1 year (11/02/95)
- ---------------------- ------------------- -----------------
<S> <C> <C>
Class A shares --% --%
- ---------------------- ------------------- -----------------
Class B shares --% --%
- ---------------------- ------------------- -----------------
Index --% --%
- ---------------------- ------------------- -----------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects
the deduction of the applicable contingent deferred sales load.
Class B shares were first offered on November 3, 1995.
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
<PAGE>
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A Shares 5.75% None
- ----------------- ----------------------- -----------------------
Class B Shares None 5.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
. The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A --% --% --% --%
- --------------------- ------------- ----------- --------- ----------
Class B --% --% -- --%
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Footnote]
The actual management fee is currently expected to be --%, other
expenses are expected to be --% and the total annual Fund operating expenses are
expected not to exceed --% for Class A shares and --% for Class B shares. That's
because The Chase Manhattan Bank (Chase) and some of the Fund's other service
providers have volunteered not to collect a portion of their fees and to
reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<PAGE>
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B Shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
<PAGE>
Latin American Equity Fund
The Fund's objective
The Fund seeks total return from long-term capital growth.
The Fund's main investment strategy
Under normal conditions, the Fund will invest at least 65% of its total assets
in equity securities issued by companies in Latin American countries. Equity
securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to purchase common stocks. These
investments may take the form of depositary receipts.
The Fund's advisers seek to identify those Latin American and industries where
political and economic factors, including currency changes, are likely to
produce above-average growth rates. Then the advisers try to identify companies
within those countries and industries that are poised to take advantage of those
political and economic conditions. The Fund will continually review economic and
political events in the countries in which it invests.
The Fund will put the most emphasis on companies in Argentina, Brazil, Chile,
Columbia, Mexico, Peru and Venezuela. The Fund may also invest in other
countries in this region, which includes Mexico and the Spanish- and
Portuguese-speaking countries in Central America, South America and the
Caribbean. The Fund may invest heavily in countries which comprise a substantial
portion of the total Latin American market capitalization. While the Fund is not
limited in the amount it invests in any one country, it will try to choose a
wide range of industries and companies of varying sizes.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular currency or country by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in another.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. No more than 25% of the Fund's net assets will
be invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's
<PAGE>
net assets will be invested in debt securities issued by a single foreign
government or international organization, such as the World Bank. The Fund's
debt investments may include convertible securities, which generally pay
interest or dividends and which can be converted into common or preferred stock.
The Fund's investments in foreign debt securities may include Brady Bonds, which
are bonds issued under a program which enables debtor nations to restructure the
debt that they owe foreign commercial banks, and other debt issued by emerging
market governments as part of restructuring plans. In addition, the Fund is
permitted to invest up to 5% of its assets in lower-rated high yield securities
issued by U.S. companies as well as foreign companies and governments.
Lower-rated securities are those which are rated Ba or lower by Moody's
Investors Service, Inc., BB or lower by Standard & Poor's Corporation or the
equivalent by another national rating organization. They also include unrated
securities which are found to be of comparable quality.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money-market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments and in debt securities issued by supranational organizations
and companies and governments of countries in which the Fund can invest and
short-term debt instruments issued or guaranteed by the government of any member
of the Organization for Economic Cooperation and Development. These debt
securities may be in various currencies. During unusual market conditions, the
Fund may invest up to 20% of its assets in U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
<PAGE>
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Latin American Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
Investing in this Fund has added risk because of the considerable difficulties
Latin American countries have experienced in the past decade.
Investments in foreign securities may be riskier than investments in the United
States. Because foreign securities are usually denominated in foreign
currencies, the value of the Fund's portfolio may be influenced by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries are heightened when investing in developing
countries. In addition, the small size of securities markets and the low trading
volume may lead to a lack of liquidity, which leads to increased volatility.
Also, developing countries may not provide adequate legal protection for private
or foreign investment or private property.
Although there have been significant improvements in recent years, the Latin
American economies continue to face challenging problems, such as high inflation
and interest rates. Further development will require stable political and social
conditions, as well as economic and fiscal discipline, which has been lacking at
times in the past. Recovery may also be influenced by economic conditions
worldwide, particularly those in the U.S., as well as the price of oil and other
commodities. There is no guarantee that recent economic initiatives will be
successful.
Some Latin American currencies have been declining against the U.S. dollar, and
major adjustments have been made periodically in some of these currencies. Some
Latin American countries may manage their currencies, or restrict the conversion
into other currencies. In addition, it is generally not possible to reduce the
Fund's Latin American
<PAGE>
currency risk by hedging. If the Fund holds securities in currencies that are
devaluated, that will hurt the value of the Fund.
Most Latin American countries have experienced substantial, and in some periods,
extremely high inflation rates for many years. High inflation, or rapid
fluctuation of prices, has harmed the economies and securities markets of
certain Latin American countries in the past, and may continue to do so.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their debt. If this happens again, holders of the debt (which may
include the Fund) may be asked to reschedule the repayment of the debt and
extend further loans. There is no bankruptcy proceeding that could allow the
Fund to collect part or all of the money it has loaned.
Although government involvement in commerce is declining in some Latin American
countries, many Latin American governments still exercise substantial influence
over the private sector. In particular, some Latin American governments may own
or control many companies, including some of the largest in the country. For
this reason, governmental actions could significantly affect Latin American
economies, which would affect private sector companies and the value of the
securities that the Fund holds.
Brady Bonds do not have as long a payment history as other types of government
debt securities. Because of that, they (and many emerging market debt
securities) may trade at a substantial discount which might lead to greater
volatility. High yield debt securities may carry greater risks than securities
which have higher credit ratings, including a high risk of default. The yields
of lower-rated securities will move up and down over time. High yield securities
are considered speculative, meaning there is a significant risk that the issuer
may not be able to repay principal and pay interest or dividends on time.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may have limited product lines, markets or financial resources,
and they may depend on a small management group.
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. Their value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates.
<PAGE>
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's Class A shares has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return in the past year and since the launch of the Fund. It
compares that performance to [Index], a widely recognized benchmark for Latin
American funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
The performance figures in the bar chart do not reflect any deduction for the
front end sales load which is assessed on Class A shares. If the load were
reflected, the performance figures would have been lower.
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- -----------------
Since Inception
Past 1 year (11/30/97)
- ---------------------- ------------------- -----------------
<S> <C> <C>
Class A shares --% --%
- ---------------------- ------------------- -----------------
Class B shares --% --%
- ---------------------- ------------------- -----------------
Index --% --%
- ---------------------- ------------------- -----------------
</TABLE>
The performance for the Class A shares reflects the deduction of the maximum
front end sales load and the performance for Class B shares reflects
the deduction of the applicable contingent deferred sales load.
<PAGE>
Fees and expenses
The following tables show the fees and expenses charged when you own shares of
the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ----------------- ----------------------- -----------------------
Maximum sales charge Maximum deferred
(load) when you buy sales charge (load)
shares, shown as % of shown as lower of
the offering price (2) original purchase
price or redemption
proceeds
- ----------------- ----------------------- -----------------------
<S> <C> <C>
Class A Shares 4.75% None
- ----------------- ----------------------- -----------------------
Class B Shares None 5.00%
- ----------------- ----------------------- -----------------------
</TABLE>
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Class A --% --% --% --%
- --------------------- ------------- ----------- --------- ----------
Class B --% --% -- --%
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are
expected not to exceed --% for Class A shares and --% for Class B shares. That's
because The Chase Manhattan Bank (Chase) and some of the Fund's other service
providers have volunteered not to collect a portion of their fees and to
reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
<PAGE>
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
If you sell your shares...
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class A Shares* $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
Class B Shares** $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
If you don't sell your shares...
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Class B Shares $-- $-- $-- $--***
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
*** Reflects conversion of Class B shares to Class A shares after they have been
owned for eight years.
<PAGE>
Financial highlights
[To be provided by Chase]
[Note: beginning of back half]
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue, New York, NY 10017.
Chase is entitled to receive a management fee at the annual rate of 1.00% of
each Fund's average daily net assets.
Chase Asset Management, Inc. (CAM) is the sub-adviser to the Japan Fund,
Southeast Asian Fund and Latin American Fund. Chase Asset Management (London)
Limited (CAM London) is the sub-adviser to the International Equity Fund and
European Fund. Both sub-advisers are wholly-owned subsidiaries of Chase and each
makes the day-to-day investment decisions for its respective Funds. CAM and CAM
London both provide discretionary investment advisory services to institutional
clients. CAM is located at 1211 Avenue of the Americas, New York, NY 10036. CAM
London is located at Colvile House, 32 Curzon Street, London W1Y8AL
[Sidenote]
The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
Portfolio Managers
International Equity Fund
Michael Browne and David Webb, both Vice Presidents of Chase, have been
responsible for International Equity Portfolio's management since August 1996.
Mr. Browne is responsible for investment management and equity research for
European equities. He joined Chase in 1994. Before that, he was assistant
director of European equity fund management at BZW Investment Management in
London. Mr. Webb is responsible for investment management and equity research in
the Asia region. He joined Chase in 1992.
<PAGE>
Before that he was with Hambros Bank Ltd. where he was responsible for the
Hambros Equus Pacific Trust and Hambros Japan Trust.
European Fund
Mr. Browne has been responsible for the management of the European Fund since
its inception.
Japan Fund
Mr. Webb has been responsible for the management of the Japanese Fund since its
inception.
Southeast Asian Fund
Mr. Webb has been responsible for the management of the Southeast Asian Fund
since its inception.
Latin American Equity Fund
Wayne Perkins, a Vice President of Chase, has been responsible for the
management of the Latin American Equity Fund since its inception. Mr. Perkins
has been involved in investment management in the Latin American region since
1987 and is currently responsible for investment management and equity research
in the Latin American region. Perkins joined Chase in 1976.
How your account works
About sales charges
There's a sales charge to buy shares in the Funds. There are also ongoing
charges that all investors pay as long as they own their shares, as explained
later.
You have a choice of three different kinds of charges. Class A shares have a
charge you pay when you invest. Class B shares have a deferred sales charge. You
don't pay any charge when you buy the Class B shares, but you may have to pay a
charge when you sell them, depending on how long you hold them. Class C shares
have a deferred sales charge you may have to pay if you sell your shares within
one year of purchase.
The European Fund is available in Class A, Class B or Class C shares. The other
Funds are available in Class A or Class B shares.
There are a number of plans and special discounts which can decrease or even
eliminate these charges
<PAGE>
This section explains how the three sales charges work.
Class A Shares
The initial sales charge is deducted directly from the money you invest. As the
table shows, the charge is lower the more you invest. The public offering price
of Class A shares is the net asset value plus the initial sales charge. Net
asset value is the value of everything the Fund owns, minus everything it owes,
divided by the number of shares held by investors. The Fund receives the net
asset value. The following chart shows the sales charge for all the Funds except
Latin America Equity Fund.
<TABLE>
<CAPTION>
Total sales charge
- ---------------------------------- --------------------------------------
Amount of investment As % of the As % of net
offering price amount invested
per share
- ---------------------------------- ------------------- ------------------
<S> <C> <C>
Less than $100,000 5.75% 6.10%
- ---------------------------------- ------------------- ------------------
$100,000 but under $250,000 3.75% 3.90%
- ---------------------------------- ------------------- ------------------
$250,000 but under $500,000 2.50% 2.56%
- ---------------------------------- ------------------- ------------------
$500,000 but under 2.00% 2.04%
$1 million
- ---------------------------------- ------------------- ------------------
</TABLE>
There is no sales charge for investments of $1 million or more
The following chart shows the sales charge for Latin American Equity Fund.
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------------------
Total sales charge
- ---------------------------------- --------------------------------------
Amount of investment As % of the As % of net
offering price amount invested
per share
- ---------------------------------- ------------------- ------------------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
- ---------------------------------- ------------------- ------------------
$100,000 but under $250,000 3.75% 3.90%
- ---------------------------------- ------------------- ------------------
$250,000 but under $500,000 2.50% 2.56%
- ---------------------------------- ------------------- ------------------
$500,000 but under 2.00% 2.04%
$1 million
- ---------------------------------- ------------------- ------------------
</TABLE>
There is no sales charge for investments of $1 million or more
Class B Shares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's a percentage of the original purchase price or the current
value of the shares, whichever is lower. As the table shows, the deferred sales
charge gets lower the longer you hold the shares and disappears altogether after
six years. Class B shares automatically convert into Class A shares at the
beginning of the ninth year after you bought them.
<TABLE>
<CAPTION>
Year Deferred sales charge
- ---------------------------- -------------------------
<S> <C>
1 5%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Deferred sales charge
- ---------------------------- -------------------------
<S> <C>
2 4%
3 3%
4 3%
5 2%
6 1%
7 None
</TABLE>
We calculate the deferred sales charge from the month you buy your shares. We
always sell the shares with the lowest deferred sales charge first.
Class C Chares
The deferred sales charge is deducted directly from your assets when you sell
your shares. It's equal to 1% of the original purchase price or the current
value of the shares, whichever is lower. The deferred sales charge on Class C
shares disappears altogether after one year. We calculate the deferred sales
charge from the month you buy your charges. We always sell the shares with the
lowest deferred sales charge first.
Like Class B shares, Class C shares have higher combined distribution and
service fees. Unlike Class B shares, Class C shares are never converted to Class
A shares. That means you keep paying the higher service and distribution fees as
long as you hold them. Over the long term, this can add up to higher total fees
than either Class A or Class B shares.
General
Vista Fund Distributors Inc.(VFD) is the distributor for the Fund. It's a
subsidiary of The BISYS Group, Inc. and is not affiliated with Chase. Each Fund
has adopted Rule 12b-1 distribution plans under which it pays annual
distribution fees of up to 0.25% of the average daily net assets attributed to
Class A shares and up to 0.75% of the average daily net assets attributed to
Class B shares. In addition, the European Fund has adopted a Rule 12b-1
distribution plan under which it pays annual distribution fees of up to 0.75% of
the average daily net assets attributed to Class C shares.
This payment covers such things as compensation for services provided by
broker-dealers and expenses connected to the sale of shares. Payments are not
tied to actual expenses incurred.
Because 12b-1 expenses are paid out of a Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
Which class of shares is best?
Your decision about which class of shares to buy depends on a number of factors,
including the amount youOre buying and how long you intend to hold your shares.
If you have no plans to sell your shares for at least six years and you don't
want to pay an up-front sales charge, you may consider buying Class B shares.
<PAGE>
Class A shares may be a good choice if you qualify to have the sales charge
reduced or eliminated. In almost all cases, if you plan to buy $250,000 of
shares or more, Class A is the most economical choice.
Class C shares may be best if you prefer not to pay an up-front sales charge and
you rre not sure how long you intend to hold your investment.
You should also consider the distribution and service fees, which are lower for
Class A shares. These fees appear in the table called Annual Fund operating
expenses (expenses that are deducted from Fund assets).
Your investment representative should be able to advise you about the best class
of shares for you.
Buying Fund shares
You can buy shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to buy
representative and he or she will contact us. Your representative may
charge you a fee and may offer additional services,
such as special purchase and redemption programs. Some
representatives charge a single fee that covers all
services. Your representative may impose different
minimum investments and earlier deadlines to buy and
sell shares.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA
Service Center
or
Complete the enclosed application form and mail it
along with a check for the amount you want to invest
to:
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Investment You can make regular automatic purchases of at least
Plan $100. There's more on the Systematic Investment Plan
later.
- --------------------------------- --------------------------------------------------------
</TABLE>
Whether you choose Class A, Class B or Class C shares, the price of the shares
is based on the net asset value per share (NAV). NAV is the value of everything
the Fund owns, minus everything it owes, divided by the number of shares held by
investors. You'll pay
<PAGE>
the public offering price which is based on the next NAV calculated after the
Chase Vista Funds Service Center accepts your instructions. Each Fund calculates
its NAV once each day at the close of regular trading on the New York Stock
Exchange. Each Fund generally values its assets at their market value but may
use fair value if market prices are unavailable. The Chase Vista Funds Service
Center will not accept your order until it is in proper form. An order is in
proper form only after payment is converted into federal funds.
Each Fund invests in securities which are primarily listed on foreign exchanges
and these exchanges may trade on Saturdays or other United States holidays on
which the Fund does not price. As a result, each Fund's portfolio will trade and
its NAV may fluctuate significantly on days when the investor has no access to
the Fund.
The Chase Vista Funds Service Center accepts purchase orders on any business day
that the Federal Reserve Bank of New York and the New York Stock Exchange are
open. Normally, if the Chase Vista Funds Service Center receives your order in
proper form by the close of regular trading on the New York Stock Exchange,
we'll process your order at that day's price.
You must provide a Social Security Number or a Taxpayer Identification Number
when you open an account. The Fund has the right to refuse any purchase order or
to stop offering shares for sale at any time.
Box:
To open an account, buy or sell shares or get Fund information, call:
The Chase Vista Funds Service Center
1-800-34-VISTA
End box
<TABLE>
<CAPTION>
Minimum investments
- -------------------------------- ---------------------------- ----------------------------
Type of account Initial investment Additional investments
- -------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Regular account $2,500 $100
- -------------------------------- ---------------------------- ----------------------------
Systematic Investment Plan $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
SEP-IRAs $1,000 $100
- -------------------------------- ---------------------------- ----------------------------
Education IRAs $500 $100
- -------------------------------- ---------------------------- ----------------------------
</TABLE>
Make your check out to Chase Vista Funds in U.S. dollars. We won't accept credit
cards, cash, or checks from a third party. You cannot sell your shares until
your check has cleared, which could take more than 15 calendar days. If you buy
through an Automated Clearing House, you can't sell your shares until the
payment clears. That could take more than seven business days.
<PAGE>
Your purchase will be canceled if your check doesn't clear and youOll be
responsible for any expenses and losses to the Funds. Orders by wire will be
canceled if the Chase Vista Funds Service Center doesn't receive payment by 4:00
p.m. Eastern time on the day you buy.
If youOre planning to exchange, sell or transfer shares to another person
shortly after buying the shares, you should pay by certified check to avoid
delays. The Funds will not issue certificates for Class A or Class C shares
unless you request them and they will not issue certificates for Class B shares.
<PAGE>
Selling Fund shares
You can sell your shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to sell.
representative He or she will send the necessary documents to the
Chase Vista Funds Service Center. Your representative
might charge you for this service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA. We will mail you a check or send
Service Center the proceeds via electronic transfer or wire. You
cannot sell by phone if you have changed your
address of record within the previous 30 days.
If you sell $25,000 or more worth of Funds by
phone, we'll send it by wire only to a bank
account on our records. We charge $10 for each
transaction by wire.
or
Send a signed letter with your instructions to :
Chase Vista Funds Service Center,
P.O. Box 419392
Kansas City, MO 64141-6392
- --------------------------------- --------------------------------------------------------
Through a Systematic Withdrawal You can automatically sell as little as $50 worth of
Plan shares. See Shareholder Services for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
You can sell your shares on any day the Chase Vista Funds Service Center is
accepting purchase orders. You'll receive the next NAV calculated after the
Chase Vista Funds Service Center accepts your order, less any applicable sales
charges.
Under normal circumstances, if the Chase Vista Funds Service Center receives
your order before the close of regular trading on the New York Stock Exchange,
each Fund will send you the proceeds the next business day. We won't accept an
order to sell shares if the Fund hasn't collected your payment for the shares.
Each Fund may stop accepting orders to sell and may postpone payments for more
than seven days, as federal securities laws permit.
You'll need to have signatures guaranteed for all registered owners or their
legal representative if:
o you want to sell shares with a net asset value of $100,000 or more
o you want your payment sent to an address other than the one we have in our
records.
We may also need additional documents or a letter from a surviving joint owner
before selling the shares. Contact the Chase Vista Funds Service Center for more
details.
<PAGE>
Exchanging Fund shares
You can exchange your shares for shares of the same class of certain other Chase
Vista Funds at net asset value, beginning 15 days after you buy your shares. For
tax purposes, an exchange is treated as a sale of Fund shares. This will
generally result in a capital gain or loss to you.
You can exchange your shares three ways:
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your investment Tell your representative which Funds you want to
representative exchange from and to. He or she will send the
necessary documents to the Chase Vista Funds Service
Center. Your representative might charge you for this
service.
- --------------------------------- --------------------------------------------------------
Through the Chase Vista Funds Call 1-800-34-VISTA to ask for details.
Service Center
- --------------------------------- --------------------------------------------------------
Through a Systematic Exchange You can automatically exchange money from one Chase
Plan Vista account to another of the same class. Call the
Chase Vista Funds Service Center for details.
- --------------------------------- --------------------------------------------------------
</TABLE>
If you exchange Class B shares of the Fund for class B shares of another Chase
Vista Fund or Class C for Class C shares, you will not pay a deferred sales
charge until you sell the shares of the other Fund. The amount of deferred sales
charge will be based on when you bought the original shares, not when you made
the exchange. Carefully read the prospectus of the Fund you want to buy before
making an exchange. You'll need to meet any minimum investment requirements.
You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information (SAI) to find out more about the exchange privilege.
Other information concerning the Funds
We may close your account if the balance falls below $500 because you've sold
shares. We may also close the account if you are in the Systematic Investment
Plan and fail to meet investment minimums over a 12-month period. We'll give you
60 days notice before closing your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address
<PAGE>
to make sure they match those you provided us. If they give us the correct
information, we are generally authorized to follow that person's instructions.
We'll take all reasonable precautions to confirm that the instructions are
genuine. Investors agree that they will not hold the Fund liable for any loss or
expenses from any sales request, if the Fund takes reasonable precautions. The
Fund will be liable for any losses to you from an unauthorized sale or fraud
against you if we do not follow reasonable procedures.
You may not always reach the Chase Vista Funds Service Center by telephone. This
may be true at times of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.
The Funds have agreements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of the Class A, Class B and Class C shares of the Fund held by
investors by the shareholder servicing agent.
Chase and/or VFD may, at their own expense, make additional payments to certain
selected dealers or other shareholder servicing agents for performing
administrative services for their customers. The amount 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 those shareholder servicing agents.
The Funds may issue multiple classes of shares. This prospectus relates only to
Class A and Class B shares of the Funds and Class C shares of the European Fund.
Each class may have different requirements for who may invest, and may have
different sales charges and expense levels. A person who gets compensated for
selling Fund shares may receive a different amount for each class.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
<PAGE>
Distributions and taxes
The Funds can earn income and they can realize capital gain. They deduct any
expenses then pay out these earnings to shareholders as distributions.
The Funds distribute any net investment income at least semi-annually. Net
capital gain is distributed annually. You have three options for your
distributions. You may:
o reinvest all of them in additional Fund shares without a sales charge;
o take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain in
additional shares; or
o take all distributions in cash or as a deposit in a pre-assigned bank account.
If you don't select an option when you open your account, weOll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by the
form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
Each Fund expects that its distributions will consist primarily of capital
gains.
Investment income received by the Funds from sources in foreign countries may be
subject to foreign taxes withheld at the source. Since it is anticipated that
more than 50% of each Fund's assets at the close of its taxable year will be in
securities of foreign corporations, each Fund may elect to Opass throughO to its
shareholder the foreign taxes that it paid.
Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.
The above is only a general summary of tax implications of investing in the
Funds. Please consult your tax adviser to see how investing in a Fund will
affect your own tax situation.
<PAGE>
Shareholder services
Systematic Investment Plan
You can regularly invest $100 or more in the first or third week of any month.
The money is automatically deducted from your checking or savings account.
You can set up a plan when you open an account by completing the appropriate
section of the application. Current shareholders can join by sending a signed
letter and a deposit slip or void check to the Chase Vista Funds Service Center.
Call 1-800-34-VISTA for complete instructions.
Systematic Withdrawal Plan
You can make regular withdrawals of $50 or more ($100 or more for Class B or
Class C accounts). You can have automatic withdrawals made monthly, quarterly or
semiannually. Your account must contain at least $5,000 to start the plan. Call
1-800-34-VISTA for complete instructions.
Systematic Exchange
You can transfer assets automatically from one Chase Vista account to another on
a regular basis. It's a free service.
Free Exchange privilege
You can exchange money between Chase Vista Funds in the same class without
charge. This allows you to adjust your investments as your objectives change.
Reinstatement Privilege
You can buy back Class A shares you sell, without paying a sales charge, as long
as you make a request in writing within 90 days of the sale. If you sell Class B
or Class C shares on which youOve paid a deferred sales charge, you can use the
proceeds to buy Class A shares without a sales charge. You must buy the class A
shares within 90 days of selling the Class B or Class C shares.
<PAGE>
What the terms mean
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Depositary receipts: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
Distribution fee: covers the cost of the distribution system used to sell shares
to the public.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
Repurchase agreements: A type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later for a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
<PAGE>
More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It is incorporated by reference into this prospectus. That means by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Bank Manhattan Bank or another
institution, you should contact that institution directly for more information.
You can also find information on-line at www.chasevista.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
<PAGE>
Chase Vista Funds
Bond Funds Prospectus
[Front cover page]
Chase Vista Funds
Prospectus
February 26, 1999
Short-Term Bond Fund
U.S. Government Securities Fund
Bond Fund
Strategic Income Fund
Institutional Class shares
Neither the Securities and Exchange Commission nor any state securities
commission has approved of securities of this Fund or determined if this
prospectus is accurate or complete. It is a crime to state otherwise.
1
<PAGE>
Contents
Information about the Funds x
Short-Term Bond Fund x
U.S. Government Securities Fund x
Bond Fund x
Strategic Income Fund x
How your account works x
Buying Fund shares x
Selling Fund shares x
Other information concerning the Funds x
Distributions and taxes x
What the Terms Mean
Financial highlights x
2
<PAGE>
Information about the Funds
Short-Term Bond Fund
The Fund's objective
The Fund seeks a high level of income consistent with preservation of capital.
The Fund's main investment strategy
The Fund normally invests substantially all of its assets in investment-grade
debt securities of all types. Under normal market conditions, the Fund will
invest at least 65% of its total assets in bonds which have an average maturity
of three years or less and the dollar-weighted average maturity of the Fund's
portfolio will not exceed three years.
Substantially all of the Fund's investments will be investment grade, which
means a rating of Baa or higher by Moody's Investors Service, Inc., BBB or
higher by Standard & Poor's Corporation, or the equivalent by another national
rating organization or unrated securities of comparable quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
3
<PAGE>
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the
Short-Term Bond Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
4
<PAGE>
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
5
<PAGE>
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and since inception. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: , xth quarter, 19
-- --
Worst quarter: , xth quarter, 19
-- --
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Past 1 year Past 5 years Since inception 11/30/90
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class shares -- -- --
- -------------------------------------------------------------------------------------------------
Index -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>
Fees and expenses
6
<PAGE>
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
-----------------------------------------------------------
Total annual
Fund operating
Management fee Distribution Other expenses
(12b-1) fees expenses
-----------------------------------------------------------
<S> <C> <C> <C>
Institutional -- -- -- --
Class -----------------------------------------------------------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
7
<PAGE>
" the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class Shares $230 $390 $560 $1,070
- ---------------------------------------------------------------------------------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
8
<PAGE>
U.S. Government Securities Fund
The Fund's objective
The Fund seeks to provide investors with as high a level of total return as
possible while still protecting the value of its investment.
The Fund's main investment strategy
Under normal market conditions, the Fund will invest at least 65% of its total
assets in debt securities issued or guaranteed by the U.S. Government and its
agencies or authorities, and in repurchase agreements involving these
securities.
The Fund may invest extensively in mortgage-related securities issued or
guaranteed by certain agencies of the U.S. Government. These may include
investments in collateralized mortgage obligations and principal-only and
interest-only stripped mortgage-backed securities.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The adviser will change the actual
maturities according to changes in the market.
Any assets not invested in U.S. Government securities and related repurchase
agreements may be invested in debt securities of U.S. and foreign corporations.
These securities must have an "A" rating or the equivalent from Moody's
Investors Service, Inc., Standard & Poor's Corporation, Fitch Investor's Service
Inc., or another national rating organization or unrated securities of
comparable quality.
The Fund may also invest in non-corporate foreign debt securities. These
investments may include debt securities issued or guaranteed by foreign
governments and international organizations such as The World Bank.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
9
<PAGE>
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets during unusual market conditions, the Fund may
invest any portion of its assets in high quality money market instruments and
repurchase agreements.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund . Here are some specific risks of investing in U.S.
Government Securities Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
10
<PAGE>
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
While the principal and payments on certain of the Fund's portfolio securities
may be guaranteed, this does not mean that the market value of the security, or
the value of Fund shares, is guaranteed.
The Fund's performance will depend on the credit quality of its investments.
While U.S. Government securities are generally of high quality, a government
security that is not backed by the full faith and credit of the U.S. Treasury
may be affected by the creditworthiness of the agency or authority that issued
it.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
11
<PAGE>
If the Fund temporarily departs from its investment policies to defend its
assets, it may not achieve its investment objectives.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and since inception. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
On May 3, 1996, the Hanover U.S. Government Securities Fund merged into the U.S.
Government Securities Fund. The Fund's performance figures for the period before
that date are based on the Hanover Fund.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: , xth quarter, 19
-- --
Worst quarter: , xth quarter, 19
-- --
Average annual total returns
For the periods ending December 31, 1998:
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Past 1 year Past 5 years Since inception 2/19/93
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class shares -- -- --
- ------------------------------------------------------------------------------------------------
Index -- -- --
- ------------------------------------------------------------------------------------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- ------------------ ----------------- ------------------ ---------- -----------------
Total annual
Fund operating
Management fee Distribution Other expenses
(12b-1) fees expenses
- ------------------ ----------------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
Class A Shares -- -- -- --
- ------------------ ----------------- ------------------ ---------- -----------------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table
13
<PAGE>
does not reflect charges or credits you might incur if you invest through a
financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class Shares $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
14
<PAGE>
Bond Fund
The Fund's objective
The Fund seeks to provide as high a level of income as is consistent with
reasonable risk.
The Fund's main investment strategy
The Fund invests mainly in investment grade corporate bonds as well as other
debt securities. Under normal market conditions, the Fund will invest at least
65% of its total assets in debt securities with at least an "A" rating or the
equivalent from Moody's Investors Service, Inc., Standard & Poor's Corporation,
or Fitch Investor's Service Inc. These include unrated securities of comparable
quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
15
<PAGE>
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may put any amount of its assets in
high quality money market instruments and repurchase agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Bond
Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date
16
<PAGE>
may have certain preferences in receiving principal payments or earning
interest. As a result, the value of some classes in which the Fund invests are
more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
17
<PAGE>
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and since inception. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------ --------------------- ------------------------- -------------------------
Past 1 year Past 5 years Since inception 11/30/90
- ------------------------ --------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Institutional Class shares -- -- --
- ------------------------ --------------------- ------------------------- -------------------------
Index -- -- --
- ------------------------ --------------------- ------------------------- -------------------------
</TABLE>
18
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that deducted from Fund assets)
<TABLE>
<CAPTION>
- ----------------------- --------------- ------------- ----------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- ----------------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
19
<PAGE>
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Institutional Class Shares $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
20
<PAGE>
Strategic Income Fund
The Fund's objective
The Fund seeks a high level of income.
The Fund's main investment strategy
The Fund invests principally in a diversified portfolio of securities
denominated in U.S. dollars. The investments are principally in the following
market sectors:
o Investment grade debt securities issued by U.S. issuers, including the U.S.
Government, its agencies and authorities and U.S. companies.
o Debt securities of foreign issuers, including foreign governments and
companies. The Fund may invest up to 30% of its total assets in issuers
located in emerging market countries.
o Lower-rated high yield securities of U.S. issuers. These include lower-rated
convertible securities, which generally pay interest or dividends and which
can be converted into common or preferred stock, and preferred stock.
Under normal market conditions, the Fund will invest between 25% and 40% of its
total assets in each of the three sectors. However, there is no limit on
securities issued by the U.S. Government or its agencies or authorities.
Investment grade securities are those rated Baa or higher by Moody's Investors
Service, Inc. (Moody's), BBB or higher by Standard & Poor's Corporation (S&P),
or the equivalent rating by another national rating organization. These include
unrated securities of comparable quality. The Fund may invest in a variety of
U.S. Government debt securities, including securities which are not supported by
the full faith and credit of the U.S. Treasury. All or a substantial portion of
the Fund's investments in U.S. Government debt securities may be in
mortgage-related securities.
The Fund's investments in foreign debt securities may include obligations issued
by international organizations like the World Bank. They may also include Brady
Bonds, which are bonds issued under a program which enables debtor nations to
restructure the debt that they owe foreign commercial banks, and other debt
issued by emerging market governments as part of restructuring plans. The Fund's
advisers expect that the majority of emerging market obligations that the Fund
buys will primarily be traded in international over-the-counter markets instead
of local markets. Although the Fund intends to buy principally U.S.
dollar-denominated securities, some of the Fund's foreign securities may be
denominated and traded in other currencies. The Fund will not invest more than
25% of its total assets in debt securities of issuers in any one country other
than the U.S.
21
<PAGE>
The Fund may purchase lower-rated high yield securities issued by U.S. companies
as well as foreign companies and governments. Lower-rated securities are those
which are rated Ba or lower by Moody's, BB or lower by S&P or the equivalent by
another national rating organization. They also include unrated securities which
are found to be of comparable quality. High yield securities in the Fund's
portfolio may be rated as low as C by Moody's, or D by S&P, or the equivalent.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach and secondly active duration management. In seeking relative value, the
advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any time. The advisers also use yield curve strategies in
certain interest rate environments, which forms an important dimension of their
overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change. In deciding how to allocate the Fund's
investments among various securities, industry sectors, countries or currencies,
the advisers will consider fundamental economic strength, earnings growth,
quality of management, industry growth, credit quality and interest rates. When
selecting high yield securities, the advisers will look at the creditworthiness
of the issuer, the rating and performance of the security, the security's
collateral protection and the Fund's diversity.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund may borrow up to 10% of its total assets (including the amount
borrowed) to buy additional securities. This is called "leveraging." The Fund
can borrow money from banks and through reverse repurchase agreements or dollar
rolls. Reverse repurchase agreements and dollar rolls will not be considered
borrowings if the Fund earmarks liquid assets to cover its obligations on the
reverse repurchase agreement or dollar rolls. The Fund will use leveraging only
when the advisers believe that the returns available through leveraging will
provide a potentially higher return.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
22
<PAGE>
The Fund may purchase participations in loans arranged through private
negotiations between a borrower and one or more banks or other financial
institutions. These loans can have fixed, floating or variable interest rates.
The Fund may also invest in collateralized bond obligations.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rate are changed periodically.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may invest any amount of its assets
in high-quality, U.S. dollar-denominated money market instruments and repurchase
agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the
Strategic Income Fund.
The value of debt securities tends to fall when prevailing interest rates rise.
Such a drop in value could be worse if the Fund invests a larger portion of its
assets in debt securities with longer maturities. That's because long-term debt
securities are more sensitive to interest rate changes than other fixed-income
securities.
High yield debt securities may carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of
lower-rated securities will move up and down over time. The credit rating of a
high yield security evaluates the ability of the issuer to make principal and
interest or dividend payments; it does not necessarily address its market value
risk. Ratings and market value may change, positively or negatively, from time
to time to reflect new developments regarding the issuer. However, since ratings
may not always change quickly and frequently enough to reflect these new
developments, the advisers perform their own analysis of high yield issuers.
Because of
23
<PAGE>
this, the Fund's performance may depend more on subjective credit analysis than
other funds which invest in investment-grade securities.
Companies which issue high yield securities are often young and growing and have
a lot of debt. High yield securities are considered speculative, meaning there
is a significant risk that the issuer may not be able to repay principal or pay
interest or dividends on time. In addition, the issuer's other creditors may
have the right to be paid before holders of the high yield security.
During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities that have a lot of debt may experience
financial problems. They may not have enough cash to make their payments. An
economic downturn could also hurt the market for lower-rated securities and the
Fund.
The market for high yield securities is not as liquid as the markets for higher
rated securities. This means that it may be harder to sell high yield
securities, especially on short notice. The market could also be hurt by legal
or tax changes.
Securities which are rated "C" or "D" may not pay interest, may be in default or
may be considered to have an extremely poor chance of ever achieving any real
investment standing.
The costs of investing in the high yield market are usually higher than
investing in investment grade securities. That's because the Fund has to spend
more money for investment research and commissions.
Since the Fund invests a significant portion of its assets in securities issued
outside the U.S., it is riskier than a fund that invests only in the U.S. Since
foreign securities are normally denominated and traded in foreign currencies,
the value of the Fund's foreign holdings can be affected by currency exchange
rates and exchange control regulations. Investments in foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Brady Bonds do not have as long a payment history as other types of government
debt securities. Because of that, they, and many emerging market debt
instruments, may trade at a substantial discount which might lead to greater
volatility.
Leveraging is a speculative technique which may expose the Fund to greater risk
and increase its costs. Increases and decreases in the value of the Fund's
portfolio will be more dramatic when the Fund is leveraging. The Fund will also
have to pay interest on its borrowings, reducing the Fund's return. In addition,
the Fund might be forced to sell portfolio securities when it would normally
keep them in order to make interest payments.
24
<PAGE>
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. That's because they
are very sensitive not only to changes in interest rates, but also to the rate
of prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
The market for loan participation may not be highly liquid and the Fund may have
difficulty selling them. When it buys them, the Fund typically is entitled to
receive payment from the lender only, and not the underlying borrower. Because
of that, these investments expose the Fund to the risk of investing in both the
financial institution and the underlying borrower.
Collateralized bond obligations typically are separated into different classes.
Each class represents a different degree of credit quality, with lower classes
having greater risk but higher interest rates. The bottom class usually does not
have a stated interest rate. Instead, it receives whatever is left after all the
higher classes have been paid. As a result, the value of some classes in which
the Fund invests may be more volatile.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
25
<PAGE>
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating and variable rate securities falls, the Fund's
yield may decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments, repurchase agreements and reverse repurchase
agreements involve some risk to the Fund if the other party does not live up to
its part of the agreement.
Derivatives may be more risky than other types of investments and could cause
losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. This provides some indication
of the risk of investing in the Fund. The table shows the average annual return
since inception. It compares that performance to [Index], a widely recognized
benchmark for fixed income funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------ -------------------------
Since inception 11/30/98
- ------------------------ -------------------------
<S> <C>
Institutional Class shares --
- ------------------------ -------------------------
Index --
- ------------------------ -------------------------
</TABLE>
26
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on estimated expenses for the current fiscal year.
27
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- ----------------------- --------------- ------------- ----------- ----------
Total
annual
Class of shares Management fee Distribution Other Fund
(12b-1) fees expenses operating
expenses
- ----------------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- ----------------------- --------------- ------------- ----------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are
expected not to exceed --. That's because The Chase Manhattan Bank (Chase) and
some of the Fund's other service providers have volunteered not to collect a
portion of their fees and to reimburse others. Chase and these other service
providers may end this arrangement at any time.
The table does not reflect charges or credits you might incur if you invest
through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
" you invest $10,000
" you sell all your shares at the end of the period
" your investment has a 5% return each year, and
" the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- ------------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Institutional Class Shares $520 $680 $850 $1,340
- --------------------------------------------- --------- ----------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
28
<PAGE>
Financial highlights
[To be provided by Chase]
29
<PAGE>
Fund management
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue New York, NY 10076.
For its advisory service, Chase may receive a management fee paid monthly at the
annual rate of:
o 0.25 % of the average daily net assets of the Short-Term Bond Fund
o 0.30% of the average daily net assets of the U.S. Government Securities
Fund and Bond Fund
o 0.50% of the average daily net assets of the Strategic Income Fund.
Chase Asset Management, Inc. (CAM) is the sole sub-adviser to each Fund except
the Strategic Income Fund. CAM is a wholly-owned subsidiary of Chase. CAM and
State Street Research & Management Company (SSR) are the two sub-advisers to the
Strategic Income Fund. SSR is a wholly-owned subsidiary of the Metropolitan Life
Insurance Company. CAM makes the day-to-day investment decisions for each Fund,
except that SSR makes the day-to-day investment decisions for the portion of the
Strategic Income Fund that is allocated to lower-rated high yield securities of
U.S. issuers (including convertible securities and preferred stock). CAM
provides discretionary investment advisory services to institutional clients.
CAM is located at 1211 Avenue of the Americas New York, NY 10036. SSR also
provides discretionary investment services to institutional and other clients.
SSR is located at One Financial Center Boston, Massachusetts 02111.
Portfolio managers
Short-Term Bond Fund
The portfolio managers are Andrew Russell, a Vice President and Portfolio
Manager at Chase, and Susan Huang, a Managing Director and Head of U.S. Fixed
Income Management at Chase. They've been responsible for the Fund since June
1996. Mr. Russell joined Chase in 1990 and has held several positions within the
U.S. fixed income area, including portfolio analyst, taxable fixed-income trader
and assistant trader. Mr Russell is a member of the U.S. fixed income area's
quantitative research team.
Ms. Huang joined Chase in 1995. Before joining Chase, she was Director of the
Insurance Asset Management Group at Hyperion Capital Management Inc. Previously,
she was a Senior Portfolio Manager with CS First Boston. Before joining CS First
Boston in 1992,
30
<PAGE>
she spent 14 years at the Equitable, where she was head of the U.S. fixed income
management group at Equitable Capital Management.
U.S. Government Securities Fund
The portfolio managers are Michael Bennis, a Vice President and Senior Portfolio
Manager at Chase, and Ms. Huang. They've been responsible for the Fund since
December and June 1996, respectively. Before joining Chase in 1996, Mr. Bennis
was a senior analyst and trader at Union Bank of Switzerland Asset Management.
Prior to joining Union Bank of Switzerland, he was a fixed income analyst at
Donaldson, Lufkin & Jenrette.
Bond Fund
The portfolio managers are Ms. Huang and Mr. Russell. They have been responsible
for the Fund since May 1996 and May 1998, respectively.
Strategic Income Fund
Ms. Huang and Craig Blessing have been responsible for managing the Fund since
its inception. Mr. Blessing joined Chase in 1996. Between 1992 and 1996, he was
Director of the Fund Management Group and Portfolio Manager for emerging market
funds at Serfin Securities, Inc. From 1985 to 1992, Mr. Blessing was a Vice
President at Bank of America, where he was a founding member and co-head of the
Emerging Market Debt Sales & Trading Group.
Bartlett R. Greer, a Senior Vice President of SSR, has been responsible for
management of the Fund's lower rated, high yield securities of U.S. issuers
since the Fund's inception. Mr. Greer joined SSR in 1981 and manages other
institutional accounts, including mutual funds, that invest in high yield and
other securities.
[Sidenote]
The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
31
<PAGE>
How your account works
Buying Fund shares
You don't pay any sales charge (sometimes called a load) when you buy shares in
these funds. The price you pay for your shares is the net asset value per share
(NAV). NAV is the value of everything the Fund owns, minus everything it owes,
divided by the number of shares held by investors. Each Fund generally values
its assets at their market value but may use fair value if market prices are
unavailable.
The NAV of each class of shares is calculated once each day at the close of
regular trading on the New York Stock Exchange, each day the Funds are accepting
purchase orders. You'll pay the next NAV calculated after the Chase Vista Fund
Service Center receives your order in proper form. An order is in proper form
only after funds are converted into federal funds.
Only qualified investors can buy these shares. The list of qualified investors
includes institutions, trusts, partnerships, corporations, retirement plans and
fiduciary accounts opened by banks, trust companies or thrift institutions which
exercise investment authority over such accounts.
You can buy shares only through financial service firms, such as broker-dealers
and banks that have an agreement with the Funds. Shares are available on any
business day the New York Stock Exchange is open. If we receive your order by
the close of regular trading on the New York Stock Exchange, we'll process your
order at that day's price. If you buy through an agent and not directly from the
Chase Vista Funds Service Center, the agent could set an earlier deadline.
All purchases of Institutional shares must be paid for by federal funds wire. If
the Chase Vista Funds Service Center does not receive federal funds by 4:00 p.m.
Eastern time on the day of the order, the order will be canceled. Any funds
received in connection with late orders will be invested on the following
business day. You must provide a Taxpayer Identification Number when you open an
account. The Funds have the right to reject any purchase order or to cease
offering shares at any time.
To open an account, buy or sell shares or get fund information, call:
The Chase Vista Funds Service Center
1-800-62-CHASE
Minimum Investments
Investors must buy a minimum $1,000,000 worth of Institutional Shares in a Fund
to open an account. There are no minimum levels for subsequent purchases. An
investor can combine purchases of Institutional Shares of other Chase Vista
Funds (except for money market funds) in order to meet the minimum. Each Fund
may waive this minimum at its discretion.
Selling Fund shares
When you sell your shares you'll receive the next NAV calculated after the Chase
Vista Funds Service Center accepts your order in proper form. In order for you
to receive that day's NAV, the Chase Vista Funds Service Center must receive
your request before the close of regular trading on the New York Stock Exchange.
We will need the names of the registered shareholders and the your account
number before we can sell your shares. We generally will wire the proceeds from
the sale to your bank account on the day after we receive your request in proper
form. Federal law allows the Funds to suspend a sale or postpone payment for
more than seven business days under unusual circumstances.
Selling Shares
Through your financial service firms
Tell your firm which Funds you want to sell. They'll send all necessary
documents to the Chase Vista Funds Service Center.
Through the Vista Service Center
Call 1-800-62-CHASE. We'll send the proceeds by wire only to the bank account on
our records. We charge $10 for each transaction by wire.
Exchanging Shares
You can exchange your Institutional shares for shares in certain other Chase
Vista Funds. For tax purposes, an exchange is treated as a sale of Fund shares.
Carefully read the prospectus of the fund you want to buy before making an
exchange. Call 1-800-62-CHASE for details.
You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information to find out more about the exchange privilege.
Exchanging by Phone
You may also use our Telephone Exchange Privilege. You can get information by
contacting the Chase Vista Funds Service Center or your investment
representative.
Other information concerning the funds
We may close your account if the balance in all Chase Vista Funds (except money
market funds) falls below $1,000,000. We'll give you 60 days notice before
closing your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address to make sure they match those you provided us. If they
give us the correct information, we are generally authorized to follow that
person's instructions. We'll take all reasonable precautions to confirm that the
instructions are genuine. Investors agree that they will not hld the Fund liable
for any loss or expenses from any sales request, if the Fund takes reasonable
precautions. The Fund will be liable for any losses to you from an unauthorized
sale or fraud against you if we do not follow reasonable procedures.
You may not always reach the Chase Vista Funds Service Center by telephone. This
may be true at time of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.
Vista Fund Distributors Inc. (VFD) is the distributor for the Funds. It is a
subsidiary of The BISYS Group, Inc. and is not affiliated with Chase.
The Trust has agrements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.10% of the average
daily net assets of the Institutional Shares of each Fund held by investors
serviced by the shareholder servicing agent.
Chase and/or VFD may, at their own expense, make additional payments to certain
selected dealers or other shareholder servicing agents for performing
administrative services for their customers. The amount may be up to an
addtional 0.10% annually of the average net assets of the fund attributable to
shares of the Fund held by customers of those shareholder servicing agents.
Each Fund may issue multiple classes of shares. This prospectus relates only to
Institutional shares of the Funds. Each class may have different requirements
for who may invest, and may have different sales charges and expense levels. A
person who gets compensated for selling Fund shares may receive different amount
for each class.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
informaiton can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
32
<PAGE>
Distributions and taxes
The Funds can earn income and they can realize capital gain. The Funds deduct
any expenses then pay out these earnings to shareholders as distributions.
The Funds declare dividends daily and distribute the net investment income
monthly. Net capital gain is distributed annually. You have three options for
your distributions. You may:
" reinvest all of them in additional Fund shares without a sales charge;
" take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain in
additional shares; or
" take all distributions in cash or as a deposit in a pre-assigned
bank account.
If you don't select an option when you open your account, we'll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by the
form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax-exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
Each Fund expects that its distributions will consist primarily of ordinary
income. Early in each calendar year, each Fund will send you a notice showing
the amount of distributions you received in the preceding year and the tax
status of those distributions.
The above is only a general summary of tax implications of investing in the
Funds. Please consult your tax adviser to see how investing in a Fund will
affect your own tax situation.
33
<PAGE>
What the terms mean
Collateral bond obligations: products that are collateralized by a pool of
higher yield, public or private fixed income securities.
Collateralized mortgage obligations: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Distribution fee: covers the cost of the distribution system used to sell shares
to the public.
Dollar-weighted average maturity: The average maturity of the Fund is the
average amount of time until the issuers of the debt securities in the Fund's
portfolio must pay off the principal amount of the debt. "Dollar weighted" means
the larger the dollar value of the debt security in the Fund's portfolio, the
more weight it gets in calculating this average.
Duration: A mathematical calculation of the average life of a bond that serves
as a useful measure of its price risk. Each year of duration represents an
expected 1% change in interest rates. For example, if a bond has an average
duration of 4 years, its price will move 4% when interest rates move 1%.
Fundamental analysis: method which concentrates on "fundamental" information
about an issuer such as its financial statements, history, management,. etc.
Liquidity: Liquidity is the ability to easily convert investments into cash
without losing a significant amount of money in the process.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Maturity: Maturity is the length of time until the issuer who sold a debt
security must pay back the principal amount of the debt.
Mortgage-related securities: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
34
<PAGE>
Repurchase agreements: A type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later for a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
Reverse repurchase agreements: A type of short-term transaction where the Fund
sells securities to a dealer and agrees to buy them back later at a set price.
In effect, the Fund is borrowing the dealer's money for a short time, using the
securities as collateral.
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
Stripped obligations: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
Technical analysis: method which focuses on historical pricing trends in an
attempt to predict future price movements
Value approach: approach focuses on identifying securities that the advisors
believe are undervalued by the market as measured by certain financial formulas.
Yield curve: measure showing relationship among yields of similar bonds with
different maturities.
35
<PAGE>
More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It's incorporated by reference into this prospectus. That means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasevista.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
<PAGE>
Chase Vista Funds
Equity Funds Prospectus
[Front cover page]
Chase Vista Funds
Prospectus
February 26, 1999
Large Cap Equity Fund
Growth and Income Fund
Focus Fund
Capital Growth Fund
Small Cap Equity Fund
Institutional Class shares
Neither the Securities and Exchange Commission nor any state securities
commission has approved securities of this Fund or determined if this prospectus
is accurate or complete. It is a crime to state otherwise.
1
<PAGE>
Contents
Information about the Funds x
Large Cap Equity Fund x
Growth and Income Fund x
Focus Fund x
Capital Growth Fund x
Small Cap Equity Fund x
How your account works x
Buying Fund shares x
Selling Fund shares x
Exchanging Fund shares x
Other information concerning the Funds x
Distributions and taxes x
What the Terms Mean
Financial highlights of the Funds x
2
<PAGE>
Information about the Funds
3
<PAGE>
Large Cap Equity Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization over $1 billion at the time of purchase.
Market capitalization is the total market value of a company's shares. The
companies the Fund chooses typically have a large number of publicly held shares
and high trading volumes.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value. The advisers first seek to identify the strongest sectors of the market,
attempt to find the companies in those sectors with the best earnings prospects,
then select the companies which appear to have the most attractive values.
The advisers try to diversify their investments across a number of sectors.
However, they may change sector weightings in response to market developments.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
4
<PAGE>
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Large Cap Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
5
<PAGE>
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This
provides some indication of the risk of investing in the Fund. The table shows
the average annual return over the past year, five years and since inception. It
compares that performance to [Index], a widely recognized benchmark for large
capitalization equity funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ---------------------------
Past 1 year Since inception (11/30/90)
- ---------------------- ------------------- ---------------------------
<S> <C> <C>
Institutional Class shares -- --
- ---------------------- ------------------- ---------------------------
Index -- --
- ---------------------- ------------------- ---------------------------
</TABLE>
6
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management the fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
7
<PAGE>
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
8
<PAGE>
Growth and Income Fund
The Fund's objective
The Fund seeks to provide capital growth over the long term and earn income from
dividends.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investable
assets in Growth and Income Portfolio, an open-end investment company which has
identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to Growth and Income Portfolio as well
as to the Fund.
Under normal market conditions, the Fund invests at least 80% of its total
assets in common stocks of a broad range of market capitalizations. Market
capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value. The advisers believe that the market risk that the Fund incurs while
seeking capital growth can be at least partly offset by the expected dividend
returns on the stocks in the Fund's portfolio.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these
investments as well as in U.S. Government debt securities and investment grade
debt securities. During unusual market conditions, the Fund may invest up to 20%
of its assets in U.S. Government debt securities.
9
<PAGE>
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose on your investment
in the Fund. Here are some of the specific risks of investing in Growth and
Income Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depository receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depository receipts.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
10
<PAGE>
The value of REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest rates
rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and 10 years. It compares that
performance to [Index], a widely recognized benchmark for equity funds.
The performance for the period before Institutional Class shares were launched
in January 1996 is based on the performance of Class A shares of the Fund.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Institutional Class shares -- -- --
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------- ------------------- ------------------------- ----------------------
Index -- -- --
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
12
<PAGE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
13
<PAGE>
Focus Fund
The Fund's objective
The Fund seeks capital growth
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
common stocks of established companies which have market capitalizations of more
than $1 billion at the time of purchase. Market capitalization is the total
market value of a company's shares. The Fund invests primarily in U.S.
companies, but may also invest in multinational companies that issue American
depositary receipts.
The Fund will seek to invest in the 25 companies identified by the advisors as
having the most favorable characteristics through a disciplined investment
approach. The Fund's advisers use a proprietary computer model developed in 1987
to select from among more than 900 companies with market capitalizations of more
than $1 billion. The computer model seeks to identify undervalued stocks which
have favorable characteristics to increase in value. The model uses both value
and growth/momentum factors. After the model identifies the stocks which appear
to have the most favorable characteristics, the advisers use a
research-intensive fundamental analysis to select the 25 stocks which they think
have the most potential for capital growth.
Fundamental research typically includes analysis of products and market niches,
evaluation of competitors, detailed financial analysis, meetings with company
management, and interviews with industry analysts. In doing their analysis, the
advisers will meet industry concentration limits by investing across a number of
sectors. However, they may change sector weightings in response to market
developments.
The advisers go through this process at least monthly to identify what they
believe are the best 25 companies and adjust their holdings as needed. The Fund
usually invests approximately equal amounts in each of the 25 companies.
However, it may change these weightings and hold assets of more or less than 25
companies. The advisers also use the process to frequently monitor the Fund's
investments. The process will identify which investments have lost value or
growth potential, and the advisers will re-evaluate such investments based on a
number of factors, including how a company's valuations and earnings compare to
its competitors.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund
14
<PAGE>
may put any amount of its assets in these types of investments. During unusual
market conditions, the Fund may invest up to 20% of its assets in U.S.
Government obligations.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidebar]Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in Fund. Here are some of the specific risks of investing in Focus
Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign securities may be riskier than investments in the U.S.
They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. These risks increase when investing in issuers located in
developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
15
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities. Since the Fund invests in a relatively small number of
companies, a decrease in the value of any one of its investments can have a
large impact on the value of the entire portfolio.
Fund's past performance
This section shows the Fund's performance record. The table shows the average
annual return since inception. It compares that performance to [Index], a widely
recognized benchmark for U.S. equity funds.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------- ---------------------
Since inception
- ------------------------- ---------------------
<S> <C>
Institutional Class shares --
- ------------------------- ---------------------
Index --
- ------------------------- ---------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
16
<PAGE>
The table below is based on estimated expenses for the current fiscal year.
17
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- --------------------- -------------- ------------ --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
18
<PAGE>
Capital Growth Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investable
assets in Capital Growth Portfolio, an open-end investment company which has
identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to Capital Growth Portfolio as well as
to the Fund.
Under normal market conditions, the Fund invests at least 80% of its total
assets in a broad portfolio of common stocks of companies with market
capitalizations of $750 million to $4 billion at the time of purchase. Market
capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value.
The Fund may invest up to 20% of it total assets in foreign securities. It may
also invest up to 20% of its total assets in convertible securities, which
generally pay interest or dividends and which can be converted into common or
preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these types of
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
20
<PAGE>
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Capital Growth Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The securities of smaller or mid-sized companies may trade less frequently and
in smaller volumes than securities of larger, more established companies. As a
result, share price changes may be more sudden or more erratic. Small and
mid-sized companies may have limited product lines, markets or financial
resources, and they may depend on a small management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt securities, it could
reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
21
<PAGE>
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and 10 years. It compares that
performance to [Index], a widely recognized benchmark for equity funds.
The performance for the period before Institutional Class shares were launched
in January 1996 is based on the performance of Class A shares of the Fund.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- --------------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- --------------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Institutional Class shares -- -- --
- --------------------------- ------------------- ------------------------- ----------------------
Index -- -- --
- --------------------------- ------------------- ------------------------- ----------------------
</TABLE>
22
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these
23
<PAGE>
other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
24
<PAGE>
Small Cap Equity Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization of $750 million or less at the time of
purchase. Market capitalization is the total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which have favorable characteristics to increase in
value.
You may only buy shares in this Fund through an account established before --,
1998. The Fund may modify or eliminate this policy at any time.
The Fund may invest up to 20% of it total assets in foreign securities. It may
also invest up to 20% of its total assets in convertible securities, which
generally pay interest or dividends and which can be converted into common or
preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these types of
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government obligations.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
25
<PAGE>
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Small Cap Equity Fund.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The Fund is aggressively managed and prices could fluctuate more than those of
more conservative funds.
Because the assets in this Fund are invested mostly in smaller companies, the
value of your investment is likely to fluctuate more dramatically than an
investment in a fund which invests mostly in larger companies. That's because
smaller companies trade less frequently and in smaller volumes, which may lead
to more volatility in the prices of the securities. They may have limited
product lines, markets or financial resources, and they may depend on a small
management group.
Investments in foreign securities may be riskier than investments in the U.S.
Because foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio may be influenced by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
Oeuro.O It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
26
<PAGE>
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund has varied from year to year. This provides some
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year and since inception. It compares that
performance to [Index], a widely recognized benchmark for small capitalization
equity funds.
The performance for the period before Institutional Class shares were launched
in May 1996 is based on the performance of Class A shares of the Fund.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --, xth quarter, 19--
Worst quarter: --, xth quarter, 19--
<TABLE>
<CAPTION>
Average annual total returns
For the periods ending December 31, 1998:
- -------------------------- ------------------- ---------------------------
Past 1 year Since inception (12/20/94)
- -------------------------- ------------------- ---------------------------
<S> <C> <C>
Institutional Class shares -- --
- -------------------------- ------------------- ---------------------------
Index -- --
- -------------------------- ------------------- ---------------------------
</TABLE>
27
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of
the Fund.
You don't have to pay any sales charge when you buy or sell Institutional Class
shares of the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------------- ------------- ----------- --------- ----------
Total
annual
Fund
Distribution Other operating
Class of shares Management fee (12b-1) fees expenses expenses
- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Institutional Class -- -- -- --
- --------------------- ------------- ----------- --------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --, other expenses are
expected to be -- and the total annual Fund operating expenses are expected not
to exceed --. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
28
<PAGE>
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- --------------------------------------------- --------- ----------- ---------- -----------
1 year 3 years 5 years 10 years
- --------------------------------------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Institutional Class shares $-- $-- $-- $--
- --------------------------------------------- --------- ----------- ---------- -----------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
29
<PAGE>
Fund management
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to the Fund. Chase is
a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue, New York, NY 10017
Chase is entitled to receive an annual management fee at the rate of:
o 0.40% of the average daily net assets of the Large Cap Equity Fund, Growth
and Income Fund, Focus Fund and Capital Growth fund, and
o 0.65% of the average daily net assets of the Small Cap Equity Fund.
Chase Asset Management Inc. (CAM) is the sub-adviser to the Funds. CAM is a
wholly-owned subsidiary of Chase. It makes the day-to-day investment decisions
for the Funds. CAM provides discretionary investment services to institutional
clients and is located at 1211 Avenue of the Americas New York, NY 10036
The portfolio managers
David Klassen, Director, U.S. Funds Management and Equity Research at Chase, is
responsible for asset allocation and investment strategy for Chase's domestic
equity portfolios. Before joining Chase in 1992, Mr. Klassen was a Vice
President and Portfolio Manager at Dean Witter Reynolds, responsible for
managing several mutual funds and other accounts.
30
<PAGE>
Large Cap Equity Fund
Greg Adams, Vice President and Senior Portfolio Manager at
Chase, has been primarily responsible for the management of the Fund since
February 1994. He joined Chase in 1987 and has been responsible for overseeing
the proprietary computer model program used in the U.S. equity selection
process.
Growth and Income Fund
Mr. Adams and Diane Sobin, a Senior Portfolio Manager at Chase, are responsible
for the day-to-day management of the Growth and Income Portfolio. Mr. Adams has
been a manager of the Portfolio since March 1995.
Ms. Sobin joined Chase in 1997 and has been a manager of the portfolio since
July 1997. Prior to joining Chase, Ms. Sobin was a senior portfolio manager at
Oppenheimer Funds Inc., where she managed mutual funds. Prior to 1995, Ms. Sobin
was a senior portfolio manager at Dean Witter Discover, where she managed
several mutual funds and other accounts.
Focus Fund
Mr. Klassen and Mr. Adams have been responsible for management of the Fund since
inception.
Mr. Klassen and Mr. Adams work under the direction of Pamela Carlton, Director
of Equity research at Chase. Ms. Carlton joined Chase in 1996. For the 14 years
prior to joining Chase, she held various positions at Morgan Stanley & Co. Inc.,
including, most recently, Director of global equity research operations,
responsible for global coordination of research. From 1994-95, Ms. Carlton was
the Co-director of U.S. equity research, where she co-managed sellside research.
From 1992-94, she was a principal in the fixed income private placement group
responsible for structuring, pricing and selling debt private placements.
Capital Growth Fund
Mr. Klassen and Tony Gleason, a Vice President of Chase, have been responsible
for the management of the Capital Growth Portfolio since September 1995. Mr.
Gleason joined Chase in 1995. Prior to joining Chase, Mr. Gleason spent nine
years as a Vice President and Portfolio Manager with Prudential Equity
Management.
31
<PAGE>
Small Cap Equity Fund
Jill Greenwald, a Vice President of Chase, and Mr. Klassen have managed the Fund
since its inception.
Ms. Greenwald joined Chase in 1993, specializing in small capitalization issues.
Before that, she was a Director for Prudential Equity Investors and a Senior
Analyst for Fred Alger Management, Inc.
[Sidenote]
The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
How your account works
Buying Fund shares
You don't pay any sales charge (sometimes called a load) when you buy shares in
these funds. The price you pay for your shares is the net asset value per share
(NAV). NAV is the value of everything the Fund owns, minus everything it owes,
divided by the number of shares held by investors. Each Fund generally values
its assets at their market value but may use fair value if market prices are
unavailable.
The NAV of each class of shares is calculated once each day at the close of
regular trading on the New York Stock Exchange, each day the Funds are accepting
purchase orders. You'll pay the next NAV calculated after the Chase Vista Fund
Service Center receives your order in proper form. An order is in proper form
only after funds are converted into federal funds.
Only qualified investors can buy these shares. The list of qualified investors
includes institutions, trusts, partnerships, corporations, retirement plans and
fiduciary accounts opened by banks, trust companies or thrift institutions which
exercise investment authority over such accounts.
You can buy shares only through financial service firms, such as broker-dealers
and banks that have an agreement with the Funds. Shares are available on any
business day the New York Stock Exchange is open. If we receive your order by
the close of regular trading on the New York Stock Exchange, we'll process your
order at that day's price. If you buy through an agent and not directly from the
Chase Vista Funds Service Center, the agent could set an earlier deadline.
All purchases of Institutional shares must be paid for by federal funds wire. If
the Chase Vista Funds Service Center does not receive federal funds by 4:00 p.m.
Eastern time on the day of the order, the order will be canceled. Any funds
received in connection with late orders will be invested on the following
business day. You must provide a Taxpayer Identification Number when you open an
account. The Funds have the right to reject any purchase order or to cease
offering shares at any time.
To open an account, buy or sell shares or get fund information, call:
The Chase Vista Funds Service Center
1-800-62-CHASE
Minimum Investments
Investors must buy a minimum $1,000,000 worth of Institutional Shares in a Fund
to open an account. There are no minimum levels for subsequent purchases. An
investor can combine purchases of Institutional Shares of other Chase Vista
Funds (except for money market funds) in order to meet the minimum. Each Fund
may waive this minimum at its discretion.
Selling Fund shares
When you sell your shares you'll receive the next NAV calculated after the Chase
Vista Funds Service Center accepts your order in proper form. In order for you
to receive that day's NAV, the Chase Vista Funds Service Center must receive
your request before the close of regular trading on the New York Stock Exchange.
We will need the names of the registered shareholders and the your account
number before we can sell your shares. We generally will wire the proceeds from
the sale to your bank account on the day after we receive your request in proper
form. Federal law allows the Funds to suspend a sale or postpone payment for
more than seven business days under unusual circumstances.
Selling Shares
Through your financial service firms
Tell your firm which Funds you want to sell. They'll send all necessary
documents to the Chase Vista Funds Service Center.
Through the Vista Service Center
Call 1-800-62-CHASE. We'll send the proceeds by wire only to the bank account on
our records. We charge $10 for each transaction by wire.
Exchanging Shares
You can exchange your Institutional shares for shares in certain other Chase
Vista Funds. For tax purposes, an exchange is treated as a sale of Fund shares.
Carefully read the prospectus of the fund you want to buy before making an
exchange. Call 1-800-62-CHASE for details.
You should not exchange shares as means of short-term trading as this could
increase management cost and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information to find out more about the exchange privilege.
Exchanging by Phone
You may also use our Telephone Exchange Privilege. You can get information by
contacting the Chase Vista Funds Service Center or your investment
representative.
Other information concerning the funds
We may close your account if the balance in all Chase Vista Funds (except money
market funds) falls below $1,000,000. We'll give you 60 days notice before
closing your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address to make sure they match those you provided us. If they
give us the correct information, we are generally authorized to follow that
person's instructions. We'll take all reasonable precautions to confirm that the
instructions are genuine. Investors agree that they will not hld the Fund liable
for any loss or expenses from any sales request, if the Fund takes reasonable
precautions. The Fund will be liable for any losses to you from an unauthorized
sale or fraud against you if we do not follow reasonable procedures.
You may not always reach the Chase Vista Funds Service Center by telephone. This
may be true at time of unusual market changes and shareholder activity. You can
mail us your instructions or contact your investment representative or agent. We
may modify or cancel the sale of shares by phone without notice.
Vista Fund Distributors Inc. (VFD) is the distributor for the Funds. It is a
subsidiary of The BISYS Group, Inc. and is not affiliated with Chase.
The Trust has agrements with certain shareholder servicing agents (including
Chase) under which the shareholder servicing agents have agreed to provide
certain support services to their customers. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.10% of the average
daily net assets of the Institutional Shares of each Fund held by investors
serviced by the shareholder servicing agent.
Chase and/or VFD may, at their own expense, make additional payments to certain
selected dealers or other shareholder servicing agents for performing
administrative services for their customers. The amount may be up to an
addtional 0.10% annually of the average net assets of the fund attributable to
shares of the Fund held by customers of those shareholder servicing agents.
Each Fund may issue multiple classes of shares. This prospectus relates only to
Institutional shares of the Funds. Each class may have different requirements
for who may invest, and may have different sales charges and expense levels. A
person who gets compensated for selling Fund shares may receive different amount
for each class.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
informaiton can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
32
<PAGE>
Distributions and taxes
The Funds can earn income and they can realize capital gain. The Funds deduct
any expenses then pay out these earnings to shareholders as distributions.
The Balanced Fund, Equity Income Fund, Large Cap Equity Fund and Growth and
Income Fund distribute any net investment income at least quarterly. The Focus
Fund, Capital Growth Fund, Small Cap Equity Fund and Small Cap Opportunities
Fund distribute any net investment income at least semi-annually. Net capital
gain is distributed annually. You have three options for your distributions. You
may:
o reinvest all of them in additional Fund shares without a sales charge;
o take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain
in additional shares; or
o take all distributions in cash or as a deposit in a pre-assigned
bank account.
If you don't select an option when you open your account, we'll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by the
form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax-exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
The Balanced Fund and Equity Income Fund expect that their distributions will
consist primarily of ordinary income. The Growth and Income Fund, Focus Fund,
Capital Growth Fund, Small Cap Equity Fund and Small Cap Opportunities Fund
expect that their distributions will consist primarily of capital gains.
Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.
The above is a general summary of tax implications of investing in the Funds.
Please consult your tax adviser to see how investing in a Fund will affect your
own tax situation.
33
<PAGE>
Financial highlights of the Funds
[To be supplied by Chase]
34
<PAGE>
What the terms mean
Collateralized mortgage obligations: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Depositary receipts: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
Distribution fee: covers the cost of the distribution system used to sell shares
to the public.
Fundamental research: method which concentrates on "fundamental" information
about an issuer such as its financial statements, history, management, etc.
Growth approach: approach which focuses on identifying securities of companies
whose earnings growth potential appears to the manager to be greater than the
market in general and whose growth in revenue is expected to continue for an
extended period.
Liquidity: the ability to easily convert investments into cash without losing a
significant amount of money in the process.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Maturity: the length of time until the issuer who sold a debt security must pay
back the principal amount of the debt.
Mortgage-related securities: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
Repurchase agreements: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
35
<PAGE>
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
Stripped obligations: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
Value approach: approach which focuses on identifying securities that the
advisers believe are undervalued by the market as measured by certain financial
formulas.
36
<PAGE>
More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It's incorporated by reference into this prospectus. That means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasevista.com on the internet.
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009.
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
<PAGE>
Chase Vista Funds
Select Funds Prospectus
[Front cover page]
Chase Vista Select Funds
Prospectus
February 26, 1999
Select Short-Term Bond Fund
Select Intermediate Bond Fund
Select Bond Fund
Select Balanced Fund
Select Equity Income Fund
Select Large Cap Equity Fund
Select Large Cap Growth Fund
Select Growth and Income Fund
Select New Growth Opportunities Fund
Select Small Cap Value Fund
Select International Equity Fund
Neither the Securities and Exchange Commission nor any state securities
commission has approved of securities of this Fund or determined if this
prospectus is accurate or complete. It is a crime to state otherwise.
1
<PAGE>
Contents
Information about the Funds x
Select Short-Term Bond Fund x
Select Intermediate Bond Fund x
Select Bond Fund x
Select Balanced Fund x
Select Equity Income Fund x
Select Large Cap Equity Fund x
Select Large Cap Growth Fund x
Select Growth and Income Fund x
Select New Growth Opportunities Fund x
Select Small Cap Value Fund x
Select International Equity Fund x
How your account works x
Buying Fund shares x
Selling Fund shares x
Other information concerning the Funds x
Distributions and taxes x
What the Terms Mean
Financial highlights of the Funds x
2
<PAGE>
Information about the Fund
Select Short-Term Bond Fund
The Fund's objective
The Fund seeks a high level of income consistent with preservation of capital.
The Fund's main investment strategy
Under normal market conditions, the Fund will invest at least 65% of its total
assets in bonds which have a maturity of three years or less. The Fund's
dollar-weighted average maturity will not exceed three years.
Substantially all of the Fund's investments will be investment grade, which
means a rating of Baa or higher by Moody's Investors Service, Inc. BBB or
higher, by Standard & Poor's Corporation, or the equivalent by another national
rating organization. They may also include unrated securities of comparable
quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach, and secondly, on active duration management. In seeking relative
value, the advisers analyze whether the values and risks of the different
sectors and securities are appropriately priced given the fundamental and
technical factors in the market at any time. The advisers also use yield curve
strategies in certain interest rate environments, which forms an important
dimension of their overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
The Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
3
<PAGE>
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are financial instruments whose
value is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
Short-Term Bond Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, while
the value of fixed-income securities will generally increase when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as securities without prepayment features.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date
4
<PAGE>
may have certain preferences in receiving principal payments or earning
interest. As a result, the value of some classes in which the Fund invests may
be more volatile.
The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only securities, while a rapid or
unexpected decrease could have the same effect on principal-only securities. In
addition, these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign issuers may be riskier than investments in the United
States. They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
5
<PAGE>
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
Past 1 year Past 5 years
- ---------------------- ------------------- ---------------------------------------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
Index --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that deducted from Fund assets)
6
<PAGE>
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits
which you might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$230 $390 $560 $1,070
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
7
<PAGE>
Select Intermediate Bond Fund
The Fund's objective
The Fund seeks as high a high level of income as possible as is consistent with
reasonable risk.
The Fund's main investment strategy
Under normal market conditions, the Fund will invest at least 65% of its total
assets in a broad range of investment-grade debt securities. These include debt
securities issued by the U.S. Government and its agencies and authorities,
investment-grade corporate bonds and other fixed income securities.
The Fund's dollar weighted average maturity is between three and 10 years.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach, and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any point in time. The advisers also use yield curve strategies
in certain interest rate environments, which forms an important dimension of
their overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
The Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future
8
<PAGE>
date. It may also buy asset-backed securities. These receive a stream of income
from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are financial instruments whose
value is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may put any amount of its assets in
high quality money market instruments and repurchase agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
Intermediate Bond Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, while
the value of fixed-income securities will generally increase when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as securities without prepayment features.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date
9
<PAGE>
may have certain preferences in receiving principal payments or earning
interest. As a result, the value of some classes in which the Fund invests may
be more volatile.
The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only securities, while a rapid or
unexpected decrease could have the same effect on principal-only securities. In
addition, these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign issuers may be riskier than investments in the United
States. They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. If the Fund were to invest in a security which is not
denominated in U.S. dollars, it also would be subject to currency exchange risk.
These risks increase when investing in issuers located in developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
10
<PAGE>
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ----------------------- -------------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ----------------------- -------------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
Index --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
</TABLE>
Fees and expenses
11
<PAGE>
The following shows the fees and expenses charged when you own shares of the
Fund.
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits
which you might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$520 $680 $850 $1,340
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
12
<PAGE>
Select Bond Fund
The Fund's objective
The Fund seeks to provide as high a level of income as is consistent with
reasonable risk.
The Fund's main investment strategy
The Fund invests mainly in investment grade corporate bonds as well as other
debt securities. Under normal market conditions, the Fund will invest at least
65% of its total assets in debt securities with at least an "A" rating or the
equivalent from Moody's Investors Service, Inc., Standard & Poor's Corporation,
or Fitch Investor's Service Inc. or in securities that are unrated but of
comparable quality.
The Fund may make substantial investments in foreign debt securities, including
securities of issuers in developing countries, as long as they meet the Fund's
credit quality standards.
The Fund develops an appropriate portfolio strategy by focusing on active sector
and security selection. This selection is based on a relative value investment
approach, and secondly, active duration management. In seeking relative value,
the advisers analyze whether the values and risks of the different sectors and
securities are appropriately priced given the fundamental and technical factors
in the market at any point in time. The advisers also use yield curve strategies
in certain interest rate environments, which forms an important dimension of
their overall investment strategy.
The advisers consider several factors when choosing investments, including
current yield, preservation of original investment, maturity, credit quality,
ease of buying and selling and yield to maturity. The advisers will adjust the
portfolio as market conditions change.
There is no restriction on the maturity of the Fund's portfolio or on any
individual security in the portfolio. The advisers will change the actual
maturities according to changes in the market.
The Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future
13
<PAGE>
date. It may also buy asset-backed securities. These receive a stream of income
from a particular asset, such as credit card receivables.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are financial instruments whose
value is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
To temporarily defend its assets, the Fund may put any amount of its assets in
high-quality money market instruments and repurchase agreements.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Select
Bond Fund.
The value of fixed income investments such as bonds tends to fall when
prevailing interest rates rise. Such a drop in value could be worse if the Fund
invests a larger portion of its assets in debt securities with longer
maturities. That's because long-term debt securities are more sensitive to
interest rate changes than other fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, while
the value of fixed-income securities will generally increase when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as securities without prepayment features.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
14
<PAGE>
The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only securities, while a rapid or
unexpected decrease could have the same effect on principal-only securities. In
addition, these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
Investments in foreign issuers may be riskier than investments in the United
States. They may be affected by political, social and economic instability. Some
securities may be harder to trade without incurring a loss and may be difficult
to convert into cash. There may be less public information available, differing
settlement procedures, or regulations and standards that don't match U.S.
standards. Some countries may nationalize or expropriate assets or impose
exchange controls. These risks increase when investing in issuers located in
developing countries.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
[Sidenote:] An investment in the Fund isn't a bank deposit and it isn't insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
15
<PAGE>
The Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for fixed income
funds.
On January 1, 1997, the Fund received the assets of three common trust funds
which had been maintained by Chase. The performance of the Fund before that date
is based on the historical performance of one of the common trust funds whose
assets were transferred to the Fund. The historical performance of shares of the
predecessor common trust fund has been adjusted to reflect the Fund's expense
levels (absent reimbursements) that were in place at the time the Fund received
the common trust fund assets. For more information, see the Fund's Statement of
Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ----------------------- -------------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ----------------------- -------------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
Index --% --% --%
- ---------------------- ------------------- ----------------------- -------------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
16
<PAGE>
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits
which you might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$520 $680 $850 $1,340
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
17
<PAGE>
Select Balanced Fund
The Fund's objective
The Fund seeks to maximize total return through long-term capital growth and
earning current income.
The Fund's main investment strategy
The Fund invests in both equity and debt securities. Under normal market
conditions, the Fund invests 35% to 70% of its total assets in equity
securities. Most of these are in well known, established companies with market
capitalizations of at least $200 million at the time of purchase and which are
traded on established securities markets or over-the-counter. Market
capitalization is the total market value of a company's shares. Equity
securities include common stocks, preferred stocks and securities that are
convertible into common stocks, and warrants to buy common stocks.
Under normal conditions, the Fund will invest at least 25% of its total assets
in investment grade debt securities. These include non-convertible corporate
debt and U.S. Government debt securities. The Fund invests in corporate debt
securities that are rated Baa or higher by Moody's Investors Service, Inc., BBB
or higher by Standard & Poor's Corporation, or the equivalent rating by another
national rating organization. It may also invest in unrated securities of
comparable quality. There is no restriction on the maturity of the Fund's fixed
income portfolio or of any individual security in the portfolio. The average
maturity, or time until debt investments come due, will vary as market
conditions change.
The Fund's advisers may change the balance between equity and fixed income
investments to suit market conditions.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. The Fund may also invest
in convertible securities, which generally pay interest or dividends and which
can be converted into common or preferred stock.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income producing real
estate or loans related to real estate.
18
<PAGE>
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes, and in variable rate
securities, whose interest rates are changed periodically.
The Fund may enter into "dollar rolls", in which the Fund sells mortgage-backed
securities and at the same time contracts to buy back very similar securities on
a future date. It may also buy asset-backed securities. These receive a stream
of income from a particular asset, such as credit card receivables.
The Fund may invest any portion of its assets that aren't in stocks or fixed
income securities in high quality money market instruments and repurchase
agreements. To temporarily defend its assets, the Fund may put any amount of its
assets in these types of investments.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select Balanced Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The securities of smaller companies may trade less frequently and in smaller
volumes than securities of larger, more established companies. As a result,
share price changes may be more sudden or more erratic. Smaller companies may
have limited product lines, markets or financial resources, and they may depend
on a small management group.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of
19
<PAGE>
the Fund's foreign holdings can be affected by currency exchange rates and
exchange control regulations. Foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. These risks increase when
investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The value of the Fund's fixed income securities tends to fall when prevailing
interest rates rise. Such a drop could be worse if the Fund invests a larger
portion of its assets in debt securities with longer maturities. That's because
long-term debt securities are more sensitive to interest rate changes than other
fixed-income securities.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-related securities. That's because the prepayment features on some
mortgage-related securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, while
the value of fixed-income securities will generally increase when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as securities without prepayment features.
Collateral mortgage obligations are issued in multiple classes, and each class
may have its own interest rate and/or final payment date. A class with an
earlier final payment date may have certain preferences in receiving principal
payments or earning interest. As a result, the value of some classes in which
the Fund invests may be more volatile.
The value of interest-only and principal-only mortgage backed securities are
more volatile than other types of mortgage-related securities. That's because
they are very sensitive not only to changes in interest rates, but also to the
rate of prepayments. A rapid or unexpected increase in prepayments can
significantly depress the price of interest-only
20
<PAGE>
securities, while a rapid or unexpected decrease could have the same effect on
principal-only securities. In addition, these instruments may be illiquid.
Certain securities which the Fund may hold, such as stripped obligations and
zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities.
The Fund's performance will depend on the credit quality of its investments.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
Because the interest rate changes on floating and variable rate securities, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation when interest rates decline.
Dollar rolls, forward commitments and repurchase agreements involve some risk to
the Fund if the other party does not live up to its obligations under the
agreement.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
The value of REITs will depend upon the value of the underlying properties or
the underlying loans or interest. The value of REITs may decline when interest
rates rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. government obligations, it could
reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for balanced funds.
21
<PAGE>
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
Index --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
22
<PAGE>
Annual Fund operating expenses (expenses that are deducted Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
23
<PAGE>
Select Equity Income Fund
The Fund's objective
The Fund seeks to obtain income primarily by investing in income-producing
equity securities.
The Fund's main investment strategy
Under normal market conditions, the Fund invests at least 65% of its total
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks and securities that are convertible into common stocks.
The major portion of the Fund's assets will be invested in common stocks which
are traded on a national securities exchange or on NASDAQ. A significant portion
of the Fund's assets may be invested in convertible bonds or convertible
preferred stock, which generally pay interest or dividends and which can be
converted into common or preferred stock.
The Fund attempts to achieve a yield higher than the composite yield on the
securities in the Standard & Poor's 500 Stock Price Index.
The Fund's equity investments may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
The Fund may invest up to 20% of it total assets in foreign securities.
The Fund may invest any portion of its assets that aren't in stocks or
investment grade debt securities, high quality money market instruments and
repurchase agreements. To temporarily defend its assets, the Fund may put any
amount of its assets in these types of investments.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies ( including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
24
<PAGE>
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select Equity Income Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The value of the Fund's convertible securities and other fixed income securities
tends to fall when prevailing interest rates rise. The price change tends to be
greater the longer the time until such securities come due, or mature.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign holdings can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
In early 1999, the European Monetary Union implemented a new currency called the
OeuroO. It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of the Fund's convertible securities and fixed income
securities tends to fall when prevailing interest rates rise. Such a drop could
be worse if the Fund invests a larger portion of its assets in debt securities
with longer maturities. The value of convertible securities also tends to change
whenever the market value of the underlying common or preferred stock
fluctuates.
The value of REITs will depend upon the value of the underlying properties or
the underlying loans or interest. The value of REITs may decline when interest
rates rise.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
25
<PAGE>
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for equity funds.
On January 1, 1997, the Fund received the assets of two common trust funds which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of one of the common trust funds whose
assets were transferred to the Fund. The historical performance of shares of the
predecessor common trust fund has been adjusted to reflect the Fund's expense
levels (absent reimbursements) that were in place at the time the Fund received
the common trust fund assets. For more information, see the Fund's Statement of
Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
Index --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
26
<PAGE>
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
27
<PAGE>
Select Large Cap Equity Fund
The Fund's objective
The Fund seeks capital growth over the long term.
The Fund's main investment strategy
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities and at least 65% of its total assets in equity securities of
companies with market capitalization over $4 billion at the time of purchase.
Market capitalization is the total market value of a company's shares. The
companies the Fund chooses typically have a large number of publicly held shares
and high trading volumes.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which appear ready to increase in value. The
advisers first seek to identify the strongest sectors of the market, attempt to
find the companies in those sectors with the best earnings prospects, then
select the companies which appear to have the most attractive values.
The advisers try to diversify their investments across a number of sectors.
However, they may change sector weightings in response to market developments.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. The Fund may also invest
up to 20% of its total assets in convertible securities, which generally pay
interest or dividends and which can be converted into common or preferred stock.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments and repurchase agreements. To temporarily
defend its assets, the Fund may put any amount of its assets in these
investments. During unusual market conditions, the Fund may invest up to 20% of
its assets in U.S. Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs,
thus lowering performance, and increase your taxable dividends.
28
<PAGE>
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select Large Cap Equity Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign holdings can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements or U.S. Government debt, it could reduce the
Fund's potential returns.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of Fund's shares has varied from year to year. This provides some
29
<PAGE>
indication of the risk of investing in the Fund. The table shows the average
annual return over the past year, five years and ten years. It compares that
performance to [Index], a widely recognized benchmark for large capitalization
equity funds.
On January 1, 1997, the Fund received the assets of two common trust funds which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of one of the common trust funds whose
assets were transferred to the Fund. The historical performance of shares of the
predecessor common trust fund has been adjusted to reflect the Fund's expense
levels (absent reimbursements) that were in place at the time the Fund received
the common trust fund assets. For more information, see the Fund's Statement of
Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ---------------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ------------------------- ---------------------------
Index --% --% --%
- ---------------------- ------------------- ------------------------- ---------------------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
30
<PAGE>
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others. Chase and these other service providers may
end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
31
<PAGE>
Select Large Cap Growth Fund
The Fund's objective
The Fund's objective is long-term capital growth.
The Fund's main investment strategy
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in equity securities (shares) of companies and at least 65% will be
invested in established companies with a market capitalization over $1 billion
at the time of purchase. Market capitalization is the total market value of a
company's shares. The companies the Fund chooses typically have a large number
of publicly held shares and high trading volumes.
The Fund's advisers will try to identify high-quality large and medium-size
companies with strong balance sheets, above-average historical earnings growth,
favorable earnings prospects and leadership positions in their industries.
Up to 20% of the total assets may be invested in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
Any money not invested in stocks may be invested in high-quality money market
instruments and repurchase agreements. To temporarily defend its assets, the
Fund may invest any amount of its assets in these instruments. During unusual
market conditions, the Fund may invest up to 20% of its assets in U.S.
Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
The main investment risks
32
<PAGE>
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select Large Cap Growth Fund.
The value of the shares will be influenced by conditions in the stock markets as
well as the performance of the companies selected for the Fund's portfolio.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are usually denominated in foreign currencies,
the value of the Fund's foreign holdings can be affected by currency exchange
rates and exchange control regulations. Foreign securities may be affected by
political, social and economic instability. Some securities may be harder to
trade without incurring a loss and may be difficult to convert into cash. There
may be less public information available, differing settlement procedures, or
regulations and standards that don't match U.S. standards. Some countries may
nationalize or expropriate assets or impose exchange controls. These risks
increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return in the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for large cap growth
funds.
33
<PAGE>
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- --------------- -----------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- --------------- -----------------
Index --% --% --%
- ---------------------- ------------------- --------------- -----------------
</TABLE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
34
<PAGE>
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Footnote]
The actual other expenses are currently expected to be --% and the total annual
Fund operating expenses are expected not to exceed --%. That's because The Chase
Manhattan Bank (Chase) and some of the Fund's other service providers have
volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
35
<PAGE>
Select Growth and Income Fund
The Fund's objective
The Fund seeks to provide capital growth over the long term and earn income from
dividends.
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing all of its investible
assets in Growth and Income Portfolio, an open-end investment company which has
identical investment objectives and policies as the Fund. As a result, the
strategies and risks outlined below apply to Growth and Income Portfolio as well
as to the Fund.
Under normal market conditions, the Fund invests at least 80% of its total
assets in a broad range of market capitalizations. Market capitalization is the
total market value of a company's shares.
The Fund's advisers do quantitative analysis and fundamental research to
identify undervalued stocks which appear ready to increase in value. The
advisers believe that the market risk that the Fund incurs while seeking capital
growth can be at least partly offset by the expected dividend returns on the
stocks in the Fund's portfolio.
The Fund may invest up to 20% of it total assets in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
The Fund's equity holdings may also include real estate investment trusts
(REITs), which are pools of investments primarily in income-producing real
estate or loans related to real estate.
The Fund may invest any portion of its assets that aren't in stocks in high
quality money market instruments. To temporarily defend its assets, the Fund may
put any amount of its assets in these investments as well as in U.S. Government
debt securities and investment grade debt securities. During unusual market
conditions, the Fund may invest up to 20% of its assets in U.S. Government debt
securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
36
<PAGE>
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in
Select Growth and Income Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign holdings can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
The value of REITs will depend upon the value of the underlying properties or
the underlying loans or interest. The value of REITs may decline when interest
rates rise.
37
<PAGE>
If the Fund invests a substantial portion of its assets in money market
instruments and debt obligations, it could reduce the Fund's potential return.
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return over the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for equity funds.
The performance data for the Fund before January 2, 1998 is based on the
historical performance of Class A shares of the Growth and Income Fund, an
investment company which invests all its investible assets in Growth and Income
Portfolio, adjust to eliminate the effects of any sales charges charged on such
Class A shares.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- ------------------------- ----------------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
Index --% --% --%
- ---------------------- ------------------- ------------------------- ----------------------
</TABLE>
38
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --%, other expenses are
expected to be --% and the total annual Fund operating expenses are expected not
to exceed --%. That's because The Chase Manhattan Bank (Chase) and some of the
Fund's other service providers have volunteered not to collect a portion of
their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
39
<PAGE>
Select New Growth Opportunities Fund
The Fund's objective
The Fund's objective is long-term capital growth.
The Fund's main investment strategy
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in equity securities (shares) of companies and at least 65% will be
invested in shares of small and medium-size companies. This refers to companies
with a market capitalization of $300 million to $4 billion at the time of
purchase. Market capitalization is the total market value of a company's shares.
The Fund's advisers will seek to invest in companies that have consistent and
growing earnings and attractively priced stocks. The advisers will use a variety
of techniques, including quantitative analysis, fundamental research and their
own company earnings model, to identify which companies have good earnings
potential.
Up to 20% of the total assets may be invested in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
Any money not invested in stocks may be invested in high-quality money market
instruments and repurchase agreements. To temporarily defend its assets, the
Fund may invest any amount of its assets in these instruments. During unusual
market conditions, the Fund may invest up to 20% of its assets in U.S.
Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
The main investment risks
40
<PAGE>
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select New Growth Opportunities Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The Fund is aggressively managed and prices could fluctuate more than those of
more conservative funds.
Because the assets in this Fund are invested mostly in small to mid-size
companies, the value of your investment is likely to fluctuate more dramatically
than an investment in a fund which invests mostly in larger companies. That's
because smaller companies trade less frequently and in smaller volumes, which
may lead to more volatility in the prices of their securities. They may have
limited product lines, markets or financial resources, and they may depend on a
small management group.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign holdings can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential returns.
41
<PAGE>
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return in the past year, five years and since the Fund's
inception. It compares that performance to [Index], a widely recognized
benchmark for new growth opportunities funds.
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- --------------- -----------------
Past 1 year Past 5 years Since Inception
(4/30/89)
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- --------------- -----------------
Index --% --% --%
- ---------------------- ------------------- --------------- -----------------
</TABLE>
42
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Footnote]
The actual other expenses are currently expected to be --% and the total annual
Fund operating expenses are expected not to exceed --%. That's because The Chase
Manhattan Bank (Chase) and some of the Fund's other service providers have
volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
43
<PAGE>
Select Small Cap Value Fund
The Fund's objective
The Fund's objective is long-term capital growth.
The Fund's main investment strategy
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in equity securities (shares) of companies and at least 65% will be
invested in shares of smaller companies. That refers to companies with a market
capitalization of $750 million or less at the time of purchase. Market
capitalization is the total market value of a company's shares.
The Fund's advisers will use fundamental research to seek undervalued stocks of
financially sound companies with seasoned products and/or services, competitive
advantages and market leadership positions. The Fund's advisers will try to
choose companies in a variety of market sectors. However, they may change sector
weightings in response to market developments.
Up to 20% of the total assets may be invested in foreign securities. These
investments may take the form of depositary receipts. It may also invest up to
20% of its total assets in convertible securities, which generally pay interest
or dividends and which can be converted into common or preferred stock.
Any money not invested in stocks may be invested in high-quality money market
instruments and repurchase agreements. To temporarily defend its assets, the
Fund may invest any amount of its assets in these instruments. During unusual
market conditions, the Fund may invest up to 20% of its assets in U.S.
Government debt securities.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
44
<PAGE>
The main investment risks
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select Small Cap Value Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
The Fund is aggressively managed and prices could fluctuate more than those of
more conservative funds.
Because the assets in this Fund are invested mostly in small companies, the
value of your investment is likely to fluctuate more dramatically than an
investment in a fund which invests mostly in larger companies. That's because
small companies trade less frequently and in smaller volumes, which may lead to
more volatility in the prices of their securities. They may have limited product
lines, markets or financial resources, and they may depend on a small management
group.
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign holdings can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
The market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. Their value also tends to
change whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and U.S. Government debt, it could reduce the
Fund's potential returns.
45
<PAGE>
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return in the past year, five years and ten years. It compares
that performance to [Index], a widely recognized benchmark for small cap funds.
On January 1, 1997, the Fund received the assets of a common trust fund which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of that common trust fund. The historical
performance of shares of the predecessor common trust fund has been adjusted to
reflect the Fund's expense levels (absent reimbursements) that were in place at
the time the Fund received the common trust fund assets. For more information,
see the Fund's Statement of Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- --------------- -----------------
Past 1 year Past 5 years Past 10 years
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- --------------- -----------------
Index --% --% --%
- ---------------------- ------------------- --------------- -----------------
</TABLE>
46
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund
You don't pay any charges or commissions to invest in the Fund.
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
- --% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Footnote]
The actual other expenses are currently expected to be --% and the total annual
Fund operating expenses are expected not to exceed --%. That's because The Chase
Manhattan Bank (Chase) and some of the Fund's other service providers have
volunteered not to collect a portion of their fees and to reimburse others.
Chase and these other service providers may end this arrangement at any time.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
47
<PAGE>
Select International Equity Fund
The Fund's objective
The Fund seeks total return from long-term capital growth and income.
The Fund's main investment strategy
Under normal conditions, the Fund will invest at least 65% of the its total
assets in a broad portfolio of equity securities of established foreign
companies of various sizes, including foreign subsidiaries of U.S. companies.
Equity securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to purchase common stocks. These
investments may take the form of depositary receipts.
The Fund's advisers seek to identify those countries and industries where
political and economic factors, including currency changes, are likely to
produce above-average growth rates. Then the advisers try to identify companies
within those countries and industries that are poised to take advantage of those
political and economic conditions.
The Fund's advisers will seek to select issuers in several countries -- at least
three other than the U.S. However, the Fund may invest a substantial part of its
assets in just one country.
The Fund intends to invest in companies (or governments) in the following
countries or regions: the Far East (including Japan, Hong Kong, Singapore and
Malaysia), Western Europe (including the United Kingdom, Germany, Netherlands,
France, Switzerland, Italy and Spain), Scandinavia, Australia, Canada and other
countries or areas that the advisers may select from time to time. A substantial
part of the Fund's assets may be invested in companies based in Japan, the
United Kingdom, and other countries who are heavily represented in an index
called the Morgan Stanley Capital International, Europe, Australia and Far East
Index. However, the Fund may also invest in companies or governments in
developing countries.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The
advisers may adjust the Fund's exposure to each currency based on their view of
the markets and issuers. They will decide how much to invest in the securities
of a particular country or currency by evaluating the yield and potential growth
of an investment, as well as the relationship between the currency and the U.S.
dollar. They may increase or decrease the emphasis on a type of security,
industry, country or currency, based on their analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
48
<PAGE>
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in the currency of another.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. No more than 25% of the Fund's net assets will
be invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's net assets will be invested in debt
securities issued by a single foreign government or international organization,
such as the World Bank. The Fund's debt investments may include convertible
securities, which generally pay interest or dividends and which can be converted
into common or preferred stock.
Any money not invested in stocks or investment-grade debt securities may be
invested in high-quality money-market instruments and repurchase agreements. To
temporarily defend its assets, the Fund may invest any amount of its assets in
these instruments. During unusual market conditions, the Fund may invest up to
20% of its assets in U.S. Government debt securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies which are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments whose value
is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
[Sidenote] Frequency of trading
The Fund may trade securities actively, which could increase transaction costs
(and lower performance) and increase your taxable dividends.
Main risks of investing in the Fund
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Select International Equity Fund.
The value of shares of the Fund will be influenced by conditions in the stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
Because the Fund invests mostly in securities of issuers outside the U.S., an
investment in the Fund is riskier than an investment in a U.S. equity fund.
49
<PAGE>
Investments in foreign issuers may be riskier than investments in the United
States. Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's portfolio can be affected by currency
exchange rates and exchange control regulations. Foreign securities may be
affected by political, social and economic instability. Some securities may be
harder to trade without incurring a loss and may be difficult to convert into
cash. There may be less public information available, differing settlement
procedures, or regulations and standards that don't match U.S. standards. Some
countries may nationalize or expropriate assets or impose exchange controls.
These risks increase when investing in issuers located in developing countries.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
The Fund's investments in developing countries could lead to more volatility in
the value of the Fund's shares. As mentioned above, the normal risks of
investing in foreign countries increase when investing in developing countries.
In addition, the small size of securities markets and the low trading volume may
lead to a lack of liquidity, which leads to increased volatility. Also,
developing countries may not provide adequate legal protection for private or
foreign investment or private property.
In early 1999, the European Monetary Union implemented a new currency called the
"euro". It is possible that the euro could increase volatility in financial
markets, which could have a negative effect on the strength and value of the
U.S. dollar and, as a result, the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the prices of their
securities. They may have limited product lines, markets or financial resources,
and they may depend on a small management group.
The market value of the Fund's convertible securities and fixed income
securities tends to fall when prevailing interest rates rise. Such a drop could
be worse if the Fund invests a larger portion of its assets in debt securities
with longer maturities. The value of convertible securities also tends to change
whenever the market value of the underlying common or preferred stock
fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and debt securities, it could reduce the
Fund's potential returns.
50
<PAGE>
Derivatives may be more risky than other types of investments and they could
cause losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
Fund's past performance
This section shows the Fund's performance record. The bar chart shows how the
performance of the Fund's shares has varied from year to year. This provides
some indication of the risk of investing in the Fund. The table shows the
average annual return in the past one and five years and since inception. It
compares that performance to the Morgan Stanley Capital International Europe,
Australia and Far East Index, a widely recognized benchmark for international
funds.
On January 1, 1997, the Fund received the assets of two common trust funds which
had been maintained by Chase. The performance of the Fund before that date is
based on the historical performance of one of the common trust funds whose
assets were transferred to the Fund. The historical performance of shares of the
predecessor common trust fund has been adjusted to reflect the Fund's expense
levels (absent reimbursements) that were in place at the time the Fund received
the common trust fund assets. For more information, see the Fund's Statement of
Additional Information.
The calculations assume that all dividends and distributions are reinvested in
the Fund.
Past performance does not predict how this Fund will perform in the future.
Year-by-year returns
[bar chart goes here]
Best quarter: --%, xth quarter, 1900
Worst quarter: --%, xth quarter, 1900
Average annual total returns
For the periods ending December 31, 1998:
<TABLE>
<CAPTION>
- ---------------------- ------------------- --------------- -----------------
Past 1 year Past 5 years Since inception
(5/31/93)
- ---------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Shares --% --% --%
- ---------------------- ------------------- --------------- -----------------
Index --% --% --%
- ---------------------- ------------------- --------------- -----------------
</TABLE>
51
<PAGE>
Fees and expenses
The following shows the fees and expenses charged when you own shares of the
Fund.
You don't pay any charges or commissions to invest in the Fund..
The table below is based on expenses incurred in the most recent fiscal year.
Annual Fund operating expenses(expenses deducted from Fund assets)
<TABLE>
<CAPTION>
- --------------- ------------ -------- ----------
Total
annual
Fund
Distribution Other operating
Management fee (12b-1) fees expenses expenses
- --------------- ------------ -------- ----------
<S> <C> <C> <C>
--% --% --% --%
- --------------- ------------ -------- ----------
</TABLE>
[Sidenote]
The actual management fee is currently expected to be --% and the
total annual Fund operating expenses are expected not to exceed --%. That's
because The Chase Manhattan Bank (Chase) and some of the Fund's other service
providers have volunteered not to collect a portion of their fees and to
reimburse others. Chase and these other service providers may end this
arrangement at any time.
The table does not reflect charges or credits which you
might incur if you invest through a financial institution.
Example
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. As with all other prospectuses, the example
assumes:
o you invest $10,000
o you sell all your shares at the end of the period
o your investment has a 5% return each year, and
o the Fund's operating expenses remain the same as shown above.
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ------------
1 year 3 years 5 years 10 years
- ------------ ---------- ---------- ------------
<S> <C> <C> <C>
$000 $000 $000 $000
- ------------ ---------- ---------- ------------
</TABLE>
This example is for comparison only. Your actual costs may be higher or lower,
depending on the amount you invest and the Fund's actual rate of return.
52
<PAGE>
Financial highlights
[To be provided by Chase]
Fund Management
The investment adviser
The Chase Manhattan Bank (Chase) is the investment adviser to each Fund. Chase
is a wholly owned subsidiary of The Chase Manhattan Corporation (CMC), a bank
holding company. Chase provides the Funds with investment advice and
supervision. Chase and its predecessors have more than a century of money
management experience. Chase is located at 270 Park Avenue, New York, NY 10017
Chase is entitled to receive a management at the annual rate of 0.25% of the
average daily net assets of the Select Short-Term Bond Fund, 0.30% of the
average daily net assets of the Select Intermediate Bond Fund and Select Bond
Fund, 0.40% of the average daily net assets of the Select Equity Income Fund,
Select Large Cap Equity Fund and Select Large Cap Growth Fund, 0.50% of the
average daily net assets of the Select Balanced Fund, 0.65% of the average daily
net assets of the Select New Growth Opportunities Fund and Select Small Cap
Value Fund and 1.00% of the average daily net assets of the Select International
Equity Fund.
Chase Asset Management, Inc.(CAM) is the sub-adviser to each Fund except the
Select International Equity Fund. Chase Asset Management (London) Limited (CAM
London) is the sub-adviser to the Select International Equity Fund. Both
sub-advisers are wholly-owned subsidiaries of Chase and each makes the
day-to-day investment decisions for its respective Funds. CAM and CAM London
both provide discretionary investment services to institutional clients. CAM is
located at 1211 Avenue of the Americas, New York, NY 10036. CAM London is
located at Colvile House, 32 Curzon Street, London W1Y8AL.
Portfolio Managers
Select Short-Term Bond Fund
The portfolio managers are Andrew Russell, a Vice President and Portfolio
Manager at Chase, and Susan Huang, a Managing Director and Head of U.S. Fixed
Income Management at Chase. TheyOve been responsible for the Fund since 1997.
Mr. Russell joined Chase in 1990 and has held several positions within the U.S.
fixed income area, including portfolio analyst, taxable fixed-income trader and
assistant trader. Mr. Russell is a member of the U.S. fixed income area's
quantitative research team.
54
<PAGE>
Before joining Chase in 1995, Ms. Huang was Director of the Insurance Asset
Management Group at Hyperion Capital Management Inc. Previously, she was a
Senior Portfolio Manager with CS First Boston. Before joining CS First Boston in
1992, she spent 14 years at the Equitable, where she was head of the U.S. fixed
income management group at Equitable Capital Management.
Select Intermediate Bond Fund
Leonard Lovito, Vice President and Senior Portfolio Manager at Chase, has been
resposible for the management of the Select Intermediate Bond Fund since July
1998. From 1984 to June 1998, Mr. Lovito was a Vice President and Portfolio
Manager at J.W. Seligman & Co., Inc, where he was responsible for managing a
number of institutional portfolios and mutual funds. Before that, Mr. Lovito was
in the Investment Department at Dime Savings Bank of New York.
Select Bond Fund
A team of investment managers with Chase, led by Ms. Huang, is responsible for
the management of the Select Bond Fund.
David Klassen, Director, U.S. Funds Management and Equity Research at Chase, is
responsible for asset allocation and investment strategy for Chase's domestic
equity portfolios. Before joining Chase in 1992, Mr. Klassen was a Vice
President and Portfolio Manager at Dean Witter Reynolds, responsible for
managing several mutual funds and other accounts.
Select Balanced Fund
Greg Adams, Vice President and Senior Portfolio Manager at Chase, and Mr. Lovito
are responsible for the management of the Fund's portfolio. Mr. Adams has
managed the equity portion of the Fund since 1997. He joined Chase in 1987 and
has been responsible for overseeing the proprietary computer model program used
in the U.S. equity selection process. Mr. Lovito has been responsible for the
debt portion of the Fund since July 1998.
Select Equity Income Fund
Tony Gleason, a Vice President of Chase, has been responsible for the day-to-day
management of the Fund's portfolio since September 1997. Mr. Gleason joined
Chase in 1995. Prior to joining Chase, Mr. Gleason spent nine years as a Vice
President and Portfolio Manager with Prudential Equity Management.
Bill Ellsworth, Senior Research Analyst and Associate Portfolio Manager at
Chase, participates in the management of the Fund. Mr. Ellsworth has been
employed by Chase since 1992.
Select Large Cap Equity Fund
55
<PAGE>
Mr. Adams has been primarily responsible for the management of the Fund since
January, 1997.
Select Large Cap Growth Fund
Stephen Humphrey, a vice-president of Chase, manages the Fund's portfolio. Mr.
Humphrey has worked at Chase since 1976. He has managed private accounts since
1981 and pooled investment funds since 1985.
Select Growth and Income Fund
Mr. Adams and Diane Sobin, a Senior Portfolio Manager at Chase, are responsible
for the day-to-day management of the Growth and Income portfolio. Mr. Adams has
been a manager of the Portfolio since March 1995.
Ms. Sobin joined Chase in 1997 and has been a manager of the Portfolio since
July 1997. Prior to joining Chase, Ms. Sobin was a Senior Portfolio Manager at
Oppenheimer Funds Inc., where she managed mutual funds. Prior to 1995, Ms. Sobin
was a Senior Portfolio Manager at Dean Witter Discover, where she managed
several mutual funds and other accounts.
Select New Growth Opportunities Fund
Ronald Zibelli, a vice-president and Senior Portfolio Manager at Chase, manages
the portfolio. Mr. Zibelli joined Chase in 1996. Before that, he was a Portfolio
Manager at The Portfolio Group and at Princeton Bank & Trust Company. Mr.
Zibelli began his career with JP Morgan Investment Management.
Select Small Cap Value Fund
Richard Rolle and Judith Havard, both Vice-Presidents at Chase, are managing the
Fund. Mr. Rolle has worked for Chase since 1978. Since 1982, he has served as
trust Portfolio Manager, securities analyst and fund manager. Before joining
Chase in 1994, Ms. Havard was an associate director at Massachusetts Mutual Life
Insurance Company, where she managed the company's convertible stock and bond
portfolio.
Select International Equity Fund
Michael Browne and David Webb, both Vice Presidents of Chase, have been
responsible for the Fund's portfolio since August 1996. Mr. Browne is
responsible for investment management and equity research for European equities.
He joined Chase in 1994. Before that, he was assistant director of European
equity fund management at BZW Investment Management in London. Mr. Webb is
responsible for investment management and equity research in the Asia region. He
joined Chase in 1992. Before that he was with Hambros Bank Ltd. where he was
responsible for the Hambros Equus Pacific Trust and Hambros Japan Trust.
[Sidenote]
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The Year 2000
The Fund, like any business, could be affected if the computer systems on which
it relies fail to properly process information beginning on January 1, 2000. The
Fund's advisers are updating their own systems and encouraging service providers
to do the same, but there's no guarantee these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally.
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How your account works
Who may buy these shares
Only qualified investors may buy shares. Qualified Fund investors are trusts,
fiduciary accounts and investment management clients of Chase, other financial
institution or their affiliates. The financial institution must have an
agreement with the Funds to buy and sell shares.
Financial institutions may set other eligibility requirements, including minimum
investments. They must maintain at least $5 million in an account with one or
more Chase Vista Select Funds on behalf of their clients. If you are no longer a
qualified investor, your financial institution may redeem your shares or allow
you to keep holding your shares through a separate account. If you hold Fund
shares through a separate account, you may incur additional fees. The Funds may
refuse to sell Fund shares to any institution.
Buying Fund shares
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your financial Tell Chase or your financial institution which Funds
institution you want to buy. Your financial institution is
responsible for forwarding orders in a timely manner.
Your financial institution may impose different
minimum investments and earlier deadlines to buy
shares.
- --------------------------------- --------------------------------------------------------
</TABLE>
The price of the shares is based on the net asset value per share (NAV). NAV is
the value of everything a Fund owns, minus everything it owes, divided by the
number of shares held by investors. If the account administrator at your
financial institution receives your order in proper form before the New York
Stock Exchange closes regular trading (or the institution's earlier deadline, if
any) and the order, along with payment in federal funds, is received by the
Funds before they close for business, your order will be confirmed at that day's
net asset value. Each Fund calculates its NAV once each day at the close of
regular trading on the New York Stock Exchange (normally 4 p.m. Eastern time.)
Each fund generally values its assets at their market value but may use fair
value if market prices are unavailable.
The Select International Equity Fund invests in securities which are primarily
listed on foreign exchanges and these exchanges may trade on Saturdays or other
United States holidays on which the Fund does not price. As a result, the Fund's
portfolio will trade and its NAV may fluctuate significantly on days when the
investor has no access to the Fund.
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You can buy shares on any business day that the Federal Reserve Bank of New York
and the New York Stock Exchange are open.
You must provide a Social Security Number or Taxpayer Identification Number when
you open an account. The Fund has the right to refuse any purchase order or to
stop offering shares for sale at any time.
The Funds will not issue certificates for shares.
Selling Fund shares
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
Through your financial Tell your financial institution which Funds you want
institution to sell. You must supply the names of the registered
shareholders on your account and your account
number. Your financial institution is
responsible for sending the Funds all
necessary documents and may charge you for
this service.
- --------------------------------- --------------------------------------------------------
</TABLE>
You can sell some or all of your shares on any day the Chase Vista Select Funds
Service Center is accepting purchase orders. You'll receive the next NAV
calculated after the Chase Vista Funds Service Center receives your order in
proper form from your financial institution. If the Fund receives your order
before the New York Stock Exchange closes regular trading, you will receive that
day's net asset value.
The Funds generally send proceeds of the sale in federal funds to your financial
institution on the business day after the Fund receives your request in proper
form.
Under unusual circumstances, the Funds may stop accepting orders to sell shares
or postpone payment for more than seven days, as federal securities laws permit.
Other information concerning the Funds
You may authorize your financial institution to act on redemption and transfer
instructions received by phone. If someone trades on your account by phone, your
financial institution has a responsibility to take all reasonable precautions to
confirm that the instructions are genuine. If your financial institution fails
to use such reasonable precautions, it may be liable for any losses due to
unauthorized or fraudulent instructions. Investors agree, however, that they
will not hold the Funds or their financial institution or any of their agents
liable for any losses or expenses arising from any sales request, if reasonable
precautions are taken.
Your financial institution may offer other services. These could include special
procedures for buying and selling Fund shares, such as pre-authorized or
systematic
59
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buying and selling plans. Each financial institution may establish its own terms
and conditions for these services.
Chase and its affiliates and the Funds and their affiliates, agents and
subagents may share information about shareholders and their accounts with each
other and with others unless this sharing is prohibited by contract. This
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
Vista Fund Distributors, Inc. (VFD), a subsidiary of The BISYS Group, Inc., is
the FundsO distributor. VFD is unaffiliated with Chase.
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Distributions and taxes
Each Fund can earn income and it can realize capital gain. The Funds deduct any
expenses then pay out these earnings to shareholders as distributions.
The Select Short-Term Bond Fund, Select Intermediate Bond Fund and Select Bond
Fund declare dividends daily and distribute any net investment income at least
monthly. The Select Balanced Fund, Select Equity Income Fund, Select Large Cap
Equity Fund and Select Large Cap Growth Fund distribute any net investment
income at least monthly. The Select New Growth Opportunities Fund, Select Small
Cap Value Fund and Select International Equity Fund distribute any net
investment income at least quarterly. Each Fund distributes net capital gain at
least annually. You have three options for your distributions. You may
o reinvest all of them in additional Fund shares without a sales charge;
o take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain in
additional shares; or
o take all distributions in cash or as a deposit in a pre-assigned bank account.
If your financial institution does not offer distribution reinvestment or if you
don't select an option when you open your account, weOll pay all distributions
in cash. The taxation of dividends won't be affected by the form in which you
receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. The state or municipality where you live may
not charge you state and local taxes on tax exempt interest earned on certain
bonds. Dividends earned on bonds issued by the U.S. government and its agencies
may also be exempt from some types of state and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long the Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
Investment income received by the Select International Equity Fund from sources
in foreign countries may be subject to foreign taxes withheld at the source.
Since it is anticipated that more than 50% of this Fund's assets at the close of
its taxable year will be in securities of foreign corporations, the Fund may
elect to "pass through" to its shareholder the foreign taxes that it paid.
The Select Short-Term Bond Fund, Select Intermediate Bond Fund, Select Bond
Fund, Select Balanced Fund and Select Equity Income Fund expect that their
distributions will consist primarily of ordinary income. The Select Growth and
Income Fund, Select New
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Growth Opportunities Fund, Select Small Cap Value Fund and Select International
Equity Fund expect that their distributions will consist primarily of capital
gains.
Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.
The above is a general summary of tax implications of investing in the Funds.
Please consult your tax adviser to see how investing in the Funds will affect
your own tax situation.
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What the terms mean
Collateralized mortgage obligations: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
Debt securities: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
Depositary receipts: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
Distribution fee: a fee that covers the cost of the distribution system used to
sell shares to the public.
Dollar-weighted average maturity: The average maturity of the Fund is the
average amount of time until the issuers of the debt securities in the Fund's
portfolio must pay off the principal amount of the debt. "Dollar weighted" means
the larger the dollar value of the debt security in the Fund's portfolio, the
more weight it gets in calculating this average.
Duration: A mathematical calculation of the average life of a bond that serves
as a useful measure of its price risk. Each year of duration represents an
expected 1% change in interest rates. For example, if a bond has an average
duration of 4 years, its price will move 4% when interest rates move 1%.
Fundamental research: method which concentrates on " fundamental" information
about an issuer such as it's financial statements, history, management, etc.
Growth approach: approach which focuses on identifying securities of companies
whose earnings growth potential appears to the manager to be greater than the
market in general and whose growth in revenue is expected to continue for an
extended period.
Management fee: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
Mortgage-related securities: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
Other expenses: miscellaneous items, including transfer agency, administration,
shareholder servicing, custody and registration fees.
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Repurchase agreements: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
Shareholder service fee: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
Stripped obligations: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
Technical analysis: method which focuses on historical price trends in an
attempt to predict future price movements
Value approach: approach which focuses on identifying securities that the
advisers believe are undervalued by the market as measured by certain financial
formulas.
Yield curve: measure showing relationship among yields of similar bonds with
different maturities.
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More information
You'll find more information about the Funds in the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports contain more information about each Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
each Fund's performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI contains more detailed information about the Funds and their policies.
It's incorporated by reference into this prospectus. That means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-34-VISTA or writing to:
Chase Vista Fund Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
If you buy your shares through The Chase Manhattan Bank or another institution,
you should contact that institution directly for more information. You can also
find information on-line at www.chasevista.com on the Internet.
65
<PAGE>
You can write the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-7843
<PAGE>
[CHASE VISTA LOGO]
STATEMENT OF
ADDITIONAL INFORMATION
June 30, 1998
BALANCED FUND
BOND FUND
CAPITAL GROWTH FUND
EQUITY INCOME FUND
FOCUS FUND
GROWTH AND INCOME FUND
LARGE CAP EQUITY FUND
SHORT TERM BOND FUND
SMALL CAP EQUITY FUND
SMALL CAP OPPORTUNITIES FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT SECURITIES FUND
U.S. TREASURY INCOME FUND
One Chase Manhattan Plaza, Third Floor, New York, New York 10081
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering shares
of U.S. Government Securities Fund, U.S. Treasury Income Fund, Bond Fund,
Short-Term Bond Fund and Strategic Income Fund (collectively, the "Income
Funds"), and Balanced Fund, Equity Income Fund, Focus Fund, Growth and Income
Fund, Capital Growth Fund, Large Cap Equity Fund, Small Cap Equity Fund and
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 Chase Vista
Funds Service Center at:
1-800-34-VISTA
Chase Vista Funds Service Center
P.O. Box 419392
Kansas City, MO 64141
MFG-SAI
<PAGE>
<TABLE>
<S> <C>
Table of Contents Page
- --------------------------------------------------------------------------------
The Funds .............................................................. 3
Investment Policies and Restrictions ................................... 3
Performance Information ................................................ 25
Determination of Net Asset Value ....................................... 34
Purchases, Redemptions and Exchanges ................................... 34
Distributions; Tax Matters ............................................. 38
Management of the Trust and the Funds or Portfolios .................... 43
Independent Accountants ................................................ 58
Certain Regulatory Matters ............................................. 58
General Information .................................................... 59
Appendix A--Description of Certain Obligations Issued or Guaranteed
by U.S. Government Agencies or Instrumentalities ...................... A-1
Appendix B--Description of Ratings ..................................... B-1
</TABLE>
2
<PAGE>
THE 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
18 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. 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 (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 Large Cap Equity Fund merged into the
Institutional Shares of Large Cap Equity Fund, The Hanover Short-Term Bond Fund
merged into the Class A shares of Short-Term Bond Fund, Investor Shares of The
Hanover Small Cap Equity Fund merged into the Class A shares of Small Cap
Equity Fund, CBC Benefit Shares of The Hanover Small Cap Equity Fund merged
into the Institutional Shares of Small Cap Equity Fund and The Hanover U.S.
Government Securities Fund merged into the Institutional Shares of U.S.
Government Securities Fund. The foregoing mergers are referred to herein as the
"Hanover Reorganization."
Effective as of May 6, 1996, U.S. Government Income Fund changed its name
to U.S. Treasury Income Fund and Equity Fund changed its name to 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 and
Capital Growth Fund, which do not have their own advisers) and the two
Portfolios. Chase also serves as the Trust's administrator (the
"Administrator") and supervises the overall administration of the Trust,
including the Funds, 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. All the Funds and Portfolios may invest in
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including: U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to ten years) and
U.S. Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary
3
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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.
The dependence on the banking industry may involve certain credit risks,
such as defaults or downgrades, if at some future date adverse economic
conditions prevail in such industry. Banks are subject to
4
<PAGE>
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.
These investment risks may involve, among other considerations, risks relating
to future political and economic developments, more limited liquidity of
foreign obligations than comparable domestic obligations, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls or other restrictions. There may be less publicly available
information concerning foreign issuers, there may be difficulties in obtaining
or enforcing a judgment against a foreign issuer (including branches) and
accounting, auditing and financial reporting standards and practices may differ
from those applicable to U.S. issuers. In addition, foreign banks are not
subject to regulations comparable to U.S. banking regulations.
Foreign Securities. For purposes of a Fund's investment policies, the
issuer of a security may be deemed to be located in a particular country if (i)
the principal trading market for the security is in such country, (ii) the
issuer is organized under the laws of such country or (iii) the issuer derives
at least 50% of its assets situated in such country.
Depositary Receipts. The Equity Funds and Portfolios may invest their
assets in securities of multinational companies in the form of American
Depositary Receipts or other similar securities representing securities of
foreign issuers, such as European Depositary Receipts, Global Depositary
Receipts and other similar securities representing securities of foreign
issuers (collectively, "Depositary Receipts"). The Funds and Portfolios treat
Depositary Receipts as interests in the underlying securities for purposes of
their investment policies.
Supranational Obligations. The Balanced Fund, the Equity Income Fund, the
Growth and Income Portfolio and the Strategic Income Fund may invest in
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.
Obligations of supranational agencies are supported by subscribed, but unpaid,
commitments of member countries. There is no assurance that these commitments
will be undertaken or complied with in the future, and foreign and
supranational securities are subject to certain risks associated with foreign
investing.
Money Market Instruments. Each Fund and Portfolio may invest in cash or
high-quality, short-term money market instruments. These may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money market
instruments may involve certain risks associated with foreign investment.
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 port-
5
<PAGE>
folio 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 or
Portfolio and increase its brokerage and other transaction expenses.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants but normally have a shorter duration and are
distributed directly by the issuer to shareholders. Rights and warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Preferred Stock. Preferred Stock are securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the corporation's earnings or assets.
Investment Grade Debt Securities. The Fixed Income Funds, the Equity
Income Fund and the Growth and Income Portfolio may invest in investment grade
debt securities. Investment grade debt securities are securities rated in the
category BBB or higher by Standard & Poor's Corporation ("S&P"), or Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or the equivalent by
another national rating organization, or, if unrated, determined by the
advisers to be of comparable quality.
Repurchase Agreements. All the Funds and Portfolios may enter into
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 100% of the
amount of the loan, including the accrued interest thereon, and the Fund or
Portfolio or its custodian or sub-custodian will have possession of the
collateral, which the Board of Trustees believes will give it a valid,
perfected security interest in the collateral. Whether a repurchase agreement
is the purchase and sale of a security or a collateralized loan has not been
conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by
the seller under a repurchase agreement construed to be a collateralized loan,
the underlying securities would not be owned by the Fund or Portfolio, but
would only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, 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'
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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. All the Funds and Portfolios may purchase securities
on a forward commitment basis. 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 or Portfolio's payment obligations). The sale of securities to meet
such obligations may result in the realization of capital gains or losses.
Purchasing securities on a forward commitment basis can also involve the risk
of default by the other party on its obligation, delaying or preventing the
Fund or Portfolio from recovering the collateral or completing the transaction.
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
Fixed Income Funds may invest in floating rate securities, whose interest rates
adjust automatically whenever a specified interest rate changes, and variable
rate securities, whose interest rates are periodically adjusted. Certain of
these instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Funds may invest include participation
certificates and certificates of indebtedness or safekeeping. Participation
certificates are pro rata interests in securities held by others; certificates
of indebtedness or safekeeping are documentary receipts for such original
securities held in custody by others. As a result of the floating or variable
rate nature of these investments, the Funds' yields may decline, and they may
forego the opportunity for capital appreciation during periods when interest
rates decline; however, during periods when interest rates increase, the Funds'
yields may increase, and they may have reduced risk of capital depreciation.
Demand features on certain floating or variable rate securities may obligate
the Funds to pay a "tender fee" to a third party. Demand features provided by
foreign banks involve certain risks associated with foreign investments.
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
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or affiliated organizations ("Participation Certificates"). A Participation
Certificate gives a Fund or Portfolio an undivided interest in the security in
the proportion that the Fund's or Portfolio's participation interest bears to
the total principal amount of the security and generally provides the demand
feature described below. Each Participation Certificate is backed by an
irrevocable letter of credit or guaranty of a bank (which may be the bank
issuing the Participation Certificate, a bank issuing a confirming letter of
credit to that of the issuing bank, or a bank serving as agent of the issuing
bank with respect to the possible repurchase of the Participation Certificate)
or insurance policy of an insurance company that the Board of Trustees of the
Trust has determined meets the prescribed quality standards for a particular
Fund or Portfolio.
A Fund or Portfolio may have the right to sell the Participation
Certificate back to the institution and draw on the letter of credit or
insurance on demand after the prescribed notice period, for all or any part of
the full principal amount of the Fund's or Portfolio's participation interest
in the security, plus accrued interest. The institutions issuing the
Participation Certificates would retain a service and letter of credit fee and
a fee for providing the demand feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
Participation Certificates were purchased by a Fund or Portfolio. The total
fees would generally range from 5% to 15% of the applicable prime rate or other
short-term rate index. With respect to insurance, a Fund or Portfolio will
attempt to have the issuer of the participation certificate bear the cost of
any such insurance, although the Funds and Portfolios retain the option to
purchase insurance if deemed appropriate. Obligations that have a demand
feature permitting a Fund or Portfolio to tender the obligation to a foreign
bank may involve certain risks associated with foreign investment. A Fund's or
Portfolio's ability to receive payment in such circumstances under the demand
feature from such foreign banks may involve certain risks such as future
political and economic developments, the possible establishments of laws or
restrictions that might adversely affect the payment of the bank's obligations
under the demand feature and the difficulty of obtaining or enforcing a
judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and
variable rate securities held by the Funds and Portfolios, including
Participation Certificates, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Funds and Portfolios may subscribe. Although these instruments may be sold by a
Fund or Portfolio, it is intended that they be held until maturity.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the underlying
floating or variable rate securities may change with changes in interest rates
generally, the floating or variable rate nature of the underlying floating or
variable rate securities should minimize changes in value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed rate securities. A Fund's or Portfolio's
portfolio may contain floating or variable rate securities on which stated
minimum or maximum rates, or maximum rates set by state law, limit the degree
to which interest on such floating or variable rate securities may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Because the adjustment of interest
rates on the floating or variable rate securities is made in relation to
movements of the applicable banks' "prime rates" or other short-term rate
adjustment indices, the floating or variable rate securities are not comparable
to long-term fixed rate securities. Accordingly, interest rates on the floating
or variable rate securities may be higher or lower than current market rates
for fixed rate obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund or Portfolio is entitled to receive
payment of the principal amount of the security upon demand or (ii) the period
remaining until the security's next interest rate adjustment.
Inverse Floaters and Interest Rate Caps. The Balanced Fund, the U.S.
Government Securities Fund, the Bond Fund, the Short-Term Bond Fund and the
Strategic Income Fund may invest in inverse floaters and in securities with
interest rate caps. Inverse floaters are instruments whose interest rates bear
an
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inverse relationship to the interest rate on another security or the value of
an index. The market value of an inverse floater will vary inversely with
changes in market interest rates and will be more volatile in response to
interest rates changes than that of a fixed-rate obligation. Interest rate caps
are financial instruments under which payments occur if an interest rate index
exceeds a certain predetermined interest rate level, known as the cap rate,
which is tied to a specific index. These financial products will be more
volatile in price than securities which do not include such a structure.
Borrowings. Each Fund and Portfolio may borrow money from banks for
temporary or short-term purposes. But, none of the Funds or Portfolios, except
for the Strategic Income Fund, may borrow money to buy additional securities,
which is known as "leveraging."
Reverse Repurchase Agreements. Each Fund and Portfolio may enter into
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. Each Fund and Portfolio may use
this practice to generate cash for shareholder redemptions without selling
securities during unfavorable market conditions. Whenever a Fund or 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 Fund
or Portfolio would be required to pay interest on amounts obtained through
reverse repurchase agreements, which are considered borrowings under federal
securities laws. 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.
Other Investment Companies. Apart from being able to invest all of their
investable assets in another investment company having substantially the same
investment objectives and policies, each Fund and Portfolio, except the U.S.
Treasury Fund, may invest up to 10% of their 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.
Zero Coupon, Payment-in-Kind and Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts separately. The
interest component of STRIPS may be more volatile than that of United States
Treasury bills with comparable maturities. The risk is greater when the period
to maturity is longer.
Each Fund and Portfolio, except for the Focus Fund, may invest in stripped
obligations. However, whereas the Balanced Fund, the U.S. Government Securities
Fund, the Bond Fund, the Short-Term Bond Fund and the Strategic Income Fund can
invest in all stripped obligations, the U.S. Treasury Income Fund, the Small
Cap Opportunities Fund, the Small Cap Equity Fund, the Large Cap Equity Fund,
the Equity Income Fund, the Growth and Income Portfolio and the Capital Growth
Portfolio may invest up to 20% of their total assets in stripped obligations
only where the underlying obligations are backed by the full faith and credit
of the U.S. Government.
The Balanced Fund, the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund, the U.S. Treasury Income Fund and the Strategic
Income Fund may invest in zero coupon securities issued by governmental and
private issuers. Zero coupon securities are debt securities that do not pay
regular interest payments, and instead are sold at substantial discounts from
their value at maturity. When zero coupon obligations are held to maturity,
their entire return, which consists of the amortization of discount, comes from
the difference between their purchase price and maturity value. Because
interest on a zero coupon obligation is not distributed on a current basis, the
obligation tends to be subject to greater price fluctuations in response to
changes in interest rates than are ordinary interest-paying securities with
similar matu-
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rities. As with STRIPS, the risk is greater when the period to maturity is
longer. 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.
The Balanced Fund, the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund and the Strategic Income Fund may invest in
payment-in-kind obligations. Payment-in-kind ("PIK") bonds are debt obligations
which provide that the issuer thereof may, at its option, pay interest on such
bonds in cash or in the form of additional debt obligations. Such investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments experience greater volatility in
market value due to changes in interest rates than debt obligations which
provide for regular payments of interest. A Fund or Portfolio will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's or Portfolio's distribution obligations.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund and Portfolio may elect to treat as liquid, in
accordance with procedures established by the Board of Trustees, certain
investments in restricted securities for which there may be a secondary market
of qualified institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") and commercial
obligations issued in reliance on the so-called "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act ("Section 4(2)
paper"). Rule 144A provides an exemption from the registration requirements of
the Securities Act for the resale of certain restricted securities to qualified
institutional buyers. Section 4(2) paper is restricted as to disposition under
the federal securities laws, and generally is sold to institutional investors
such as a Fund or Portfolio who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale of Section
4(2) paper by the purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A and
Section 4(2) paper are liquid or illiquid for purposes of the limitation on
investment in illiquid securities. Pursuant to those policies and procedures,
the Trustees have delegated to the advisers the determination as to whether a
particular instrument is liquid or illiquid, requiring that consideration be
given to, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to sell the security and the number of
potential purchasers, dealer undertakings to make a market in the security, the
nature of the security and the time needed to dispose of the security. The
Trustees will periodically review the Funds' and Portfolios' purchases and
sales of Rule 144A securities and Section 4(2) paper.
Convertible Securities. The Strategic Income Fund and all the Equity Funds
and Portfolios, except for the Focus Fund, may invest in convertible
securities, which are securities generally offering fixed interest or dividend
yields that may be converted either at a stated price or stated rate for common
or preferred stock.
Stand-By Commitments. Each Fund and Portfolio may utilize stand-by
commitments in securities sales transactions. In a put transaction, a Fund or
Portfolio acquires the right to sell a security at an agreed
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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. A put transaction will increase the cost of the underlying
security and consequently reduce the available yield.
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 100% 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. The Equity Income Fund and the Growth and
Income Portfolio 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.
Diversified Funds. The following Funds are classified as "diversified"
under federal securities law: the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund, the Balanced Fund, the Equity Income Fund, the
Large Cap Equity Fund and the Strategic Income Fund.
Unique Characteristics of Master/Feeder Fund Structure. Unlike other
mutual funds which directly acquire and manage their own portfolio securities,
each Fund is permitted to invest all of its investable assets in a separate
registered investment company (a "Master Portfolio"). The Capital Growth Fund
and Growth and Income Fund utilize this structure. In that event, a
shareholder's interest in a Fund's underlying investment securities would be
indirect. In addition to selling a beneficial interest to a Fund, a Master
Portfolio could also sell beneficial interests to other mutual funds or
institutional investors. Such investors would invest in such Master Portfolio
on the same terms and conditions and would pay a proportionate share of such
Master Portfolio's expenses. However, other investors in a Master Portfolio
would not be required to sell their shares at the same public offering price as
the Fund, and might bear different levels of ongoing expenses than the Fund.
Shareholders of the Funds should be aware that these differences would result
in differences in returns experienced in the different funds that invest in a
Master Portfolio. Such differences in return are also present in other mutual
fund structures.
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Smaller funds investing in a Master Portfolio could be materially affected
by the actions of larger funds investing in the Master Portfolio. For example,
if a large fund were to withdraw from a Master Portfolio, the remaining funds
might experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Master Portfolio could become less diverse,
resulting in increased portfolio risk. However, the possibility also exists for
traditionally structured funds which have large or institutional investors.
Funds with a greater pro rata ownership in a Master Portfolio could have
effective voting control of such Master Portfolio. Under this master/feeder
investment approach, whenever the Trust was requested to vote on matters
pertaining to a Master Portfolio, the Trust would hold a meeting of
shareholders of the relevant Fund and would cast all of its votes in the same
proportion as did the Fund's shareholders. Shares of the Fund for which no
voting instructions had been received would be voted in the same proportion as
those shares for which voting instructions had been received. Certain changes
in a Master Portfolio's objective, policies or restrictions might require the
Trust to withdraw the Fund's interest in such Master Portfolio. Any such
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution from such Master Portfolio). The Funds could
incur brokerage fees or other transaction costs in converting such securities
to cash. In addition, a distribution in kind could result in a less diversified
portfolio of investments or adversely affect the liquidity of the Funds.
State securities regulations generally would not permit the same
individuals who are disinterested Trustees of the Trust to be Trustees of a
Master Portfolio absent the adoption of procedures by a majority of the
disinterested Trustees of the Trust reasonably appropriate to deal with
potential conflicts of interest up to and including creating a separate Board
of Trustees. The Funds will not adopt a master/feeder structure under which the
disinterested Trustees of the Trust are Trustees of the Master Portfolio unless
the Trustees of the Trust, including a majority of the disinterested Trustees,
adopt procedures they believe to be reasonably appropriate to deal with any
conflict of interest up to and including creating a separate Board of Trustees.
If a Fund invests all of its investable assets in a Master Portfolio,
investors in the Fund will be able to obtain information about whether
investment in the Master Portfolio might be available through other funds by
contacting the Fund at 1-800-622-4273. In the event a Funds adopt a
master/feeder structure and invests all of its investable assets in a Master
Portfolio, shareholders of the Fund will be given at least 30 days' prior
written notice.
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.
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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, and no assurance can be
given that any strategy will succeed. The value of certain derivatives or
related instruments in which a Fund or Portfolio may invest may be particularly
sensitive to changes in prevailing economic conditions and market value. The
ability of the Fund or 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 Fund or Portfolio to a risk of
loss. 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. The Funds are not required to use any hedging strategies, and
strategies not involving hedging involve leverage and may increase the risk to
a Fund or Portfolio. Certain strategies, such as yield enhancement, can have
speculative characteristics and may result in more risk to a Fund or Portfolio
than hedging strategies using the same instruments. There can be no assurance
that a liquid market will exist at a time when a Fund or Portfolio seeks to
close out an option, futures contract or other derivative or related position.
Many exchanges and boards of trade limit the amount of fluctuation permitted in
option or futures contract prices during a single day; once the daily limit has
been reached on particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain instruments are relatively new and
without a significant trading history. As a result, there is no assurance that
an active secondary market will develop or continue to exist. Finally,
over-the-counter instruments typically do not have a liquid market. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position. Activities of large traders in the futures and securities markets
involving arbitrage, "program trading," and other investment strategies may
cause price distortions in these markets. In certain instances, particularly
those involving over-the-counter transactions, forward contracts there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a default, a Fund or Portfolio
may experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund or Portfolio.
Options on Securities, Securities Indexes and Debt Instruments. A Fund or
Portfolio may PURCHASE, SELL or EXERCISE call and put options on (i)
securities, (ii) securities indexes, and (iii) debt instruments. Specifically,
each Fund and Portfolio may (i) purchase, write and exercise call and put
options
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on securities and securities indexes (including using options in combination
with securities, other options or derivative instruments) and (ii) enter into
swaps, futures contracts and options on futures contracts. Each Fund and
Portfolio, except for the Focus Fund, may also (i) employ forward currency
contracts and (ii) purchase and sell structured products, which are instruments
designed to restructure or reflect the characteristics of certain other
investments. In addition, the Fixed Income Funds and the Balanced Fund may
employ interest rate contracts. Only the Fixed Income Funds may purchase and
sell mortgage-backed and asset-backed securities as well.
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").
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
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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, 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
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the net amount of the two payments. Interest rate and currency swaps do not
involve the delivery of securities, the underlying currency, other underlying
assets or principal. Accordingly, the risk of loss with respect to interest
rate and currency swaps is limited to the net amount of interest or currency
payments that a Fund or Portfolio is contractually obligated to make. If the
other party to an interest rate or currency swap defaults, a Fund's or
Portfolio's risk of loss consists of the net amount of interest or currency
payments that the Fund or Portfolio is contractually entitled to receive. Since
interest rate and currency swaps are individually negotiated, the Funds and
Portfolios expect to achieve an acceptable degree of correlation between their
portfolio investments and their interest rate or currency swap positions.
A Fund or Portfolio may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate.
A Fund or Portfolio may purchase or sell without limitation as to a
percentage of its assets forward foreign currency exchange contracts when the
advisers anticipate that the foreign currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not held by such Fund or Portfolio. In
addition, a Fund or Portfolio may enter into forward foreign currency exchange
contracts in order to protect against adverse changes in future foreign
currency exchange rates. A Fund or Portfolio may engage in cross-hedging by
using forward contracts in one currency to hedge against fluctuations in the
value of securities denominated in a different currency if its advisers believe
that there is a pattern of correlation between the two currencies. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. Dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
or Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts will not eliminate fluctuations in the underlying
U.S. dollar equivalent value of the prices of or rates of return on a Fund's or
Portfolio's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund or Portfolio to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Fund or Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices, and this will limit a Fund's
or Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Fund's or Portfolio's use of cross-hedges, there can be
no assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a Fund's or Portfolio's cross-hedges and the
movements in the exchange rates of the foreign currencies in which the Fund's
or Portfolio's assets that are the subject of such cross-hedges are
denominated.
A Fund or Portfolio may enter into interest rate and currency swaps to the
maximum allowed limits under applicable law. A Fund or Portfolio will typically
use interest rate swaps to shorten the effective duration of its portfolio.
Interest rate swaps involve the exchange by a Fund or Portfolio with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of their respective rights to make or receive payments in
specified currencies.
Mortgage-Related Securities. A Fund or Portfolio may purchase
mortgage-backed securities--i.e., securities representing an ownership interest
in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Mortgage loans included in
the pool--but not the security itself--may be insured by the Government National
Mortgage Association or the Federal Housing Administration or guaranteed by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Veterans Administration, which guarantees are supported only
by the discretionary authority of the U.S. Government to purchase the agency's
obligations. Mortgage-backed securities
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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. In addition, as with callable fixed-income securities
generally, if the Fund or Portfolio purchased the securities at a premium,
sustained early repayment would limit the value of the premium.
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
residential or commercial mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by the U.S.
Government, or U.S. Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different
expected average life and/or stated maturity. Actual maturity and average life
will depend upon the prepayment experience of the collateral. Monthly payments
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 Balanced Fund, the U.S. Government Securities Fund, the Bond Fund, the
Short-Term Bond Fund and the Strategic Income Fund may also invest in
principal-only or interest-only stripped mortgage-backed securities. Stripped
mortgage-backed securities have greater volatility than other types of
mortgage-related securities. Stripped mortgage-backed securities, which are
purchased at a substantial premium or discount, generally are extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on such securities' yield to maturity. In addition, stripped
mortgage securities may be illiquid.
The advisers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. 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
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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. Also, these transactions involve some risk to the
Fund or Portfolio if the other party should default on its obligation and the
Fund or Portfolio is delayed or prevented from completing the transaction. In
the event the buyer of securities under a mortgage dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the dollar roll
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Asset-Backed Securities. A Fund or Portfolio may invest in asset-backed
securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another, such as motor vehicle receivables or credit card
receivables. These securities also include 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 remar-
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keting 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 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.
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
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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. Except as otherwise indicated herein, the Fund or
Portfolio is not subject to any percentage limits with respect to the practices
described below.
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.
Except for the investment objectives of the Balanced Fund, the Large Cap
Equity Fund, the Short-Term Bond Fund, the U.S. Government Securities Fund and
the U.S. Treasury Income Fund, as well as the investment policies designated as
fundamental herein, the Funds' investment policies are not fundamental. In the
event of a change in a Fund's investment objective where the investment
objective is not fundamental, shareholders will be given at least 30 days'
written notice prior to such a change.
With respect to the Growth and Income Fund and the Capital Growth Fund, it
is a fundamental policy of each Fund that when the Fund holds no portfolio
securities except interests in the Portfolio 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. Each Fund and Portfolio other than the Strategic Income Fund
may borrow money only for temporary or emergency purposes. Any borrowings
representing more than 5% of a Fund's or Portfolio's total assets for each
Fund or Portfolio other than the Strategic Income Fund, 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 instru-
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ments backed by real estate or securities of companies engaged in the real
estate business). Investments by a Fund or Portfolio in securities backed
by mortgages on real estate or in marketable securities of companies
engaged in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund or Portfolio may engage in transactions that may result in
the issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order; (b)
a Fund or Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund or Portfolio may
borrow money as authorized by the 1940 Act. For purposes of this
restriction, collateral arrangements with respect to permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as a
Fund or Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (5) above, real estate includes
Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." Investment restriction (3) above, however, is not applicable to
investments by a Fund or Portfolio in municipal obligations where the issuer is
regarded as a state, city, municipality or other public authority since such
entities are not members of an "industry." Supranational organizations are
collectively considered to be members of a single "industry" for purposes of
restriction (3) above.
In addition, each Fund and Portfolio is subject to the following
nonfundamental restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Capital Growth Fund, Focus 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, Focus 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. No Fund or Portfolio has the
current intention of making short sales against the box.
(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
21
<PAGE>
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 in
the securities of other investment companies to the extent permitted by
applicable Federal securities law; provided, however, that a Mauritius
holding company (a "Mauritius Portfolio Company") will not be considered
an investment company for this purpose.
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 and
foreign countries, a Fund or Portfolio may make commitments more
restrictive than the investment policies and limitations described above
and in its Prospectus. Should a Fund or Portfolio determine that any such
commitment is no longer in its best interests, it will revoke the
commitment by terminating sales of its shares in the state or country
involved. In order to comply with certain regulatory policies, as a matter
of operating policy, each Fund and Portfolio will not: (i) borrow money in
an amount which would cause, at the time of such borrowing, the aggregate
amount of borrowing by the Fund to exceed 10% of the value of the Fund's
total assets, (ii) invest more than 10% of its total assets in the
securities of any one issuer (other than obligations of the U.S.
Government, its agencies and instrumentalities), (iii) acquire more than
10% of the outstanding shares of any issuer and may not acquire more than
15% of the outstanding shares of any issuer together with other mutual
funds managed by The Chase Manhattan Bank, (iv) invest more than 10% of
its total assets in the securities of other investment companies, except
as they might be acquired as part of a merger, consolidation or
acquisition of assets, (v) invest more than 10% 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 the
procedures established by the Board of Trustees), (vi) grant privileges to
purchase shares of the Fund to shareholders or investors by issuing
warrants, subscription rights or options, or other similar rights or (vii)
sell, purchase or loan securities (excluding shares in the Fund) or grant
or receive a loan or loans to or from the adviser, corporate and
domiciliary agent, or paying agent, the distributors and the authorized
agents or any of their directors, officers or employees or any of their
major shareholders (meaning a shareholder who holds, in his own or other
name (as well as a nominee's name), more than 10% of the total issued and
outstanding shares of stock of such company) acting as principal, or for
their own account, unless the transaction is made within the other
restrictions set forth above and either (a) at a price determined by
current publicly available quotations, or (b) at competitive prices or
interest rates prevailing from time to time on internationally recognized
securities markets or internationally recognized money markets.
A Mauritius Portfolio Company is a special purpose company organized
under the laws of the Republic of Mauritius. The Fund may invest in India
through a Mauritius Portfolio Company, which is intended to allow a Fund
to take advantage of a favorable tax treaty between India and Mauritius.
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
22
<PAGE>
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. A high turnover rate may increase transaction costs, including
brokerage commissions and dealer mark-ups, and the possibility of taxable
short-term gains. A high turn-over rate could thus make it more difficult for a
Fund to qualify as a registered investment company under federal tax law.
Therefore, the advisers will weigh the added costs of short-term investment
against anticipated gains, and 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, 1995, 1996 and 1997, the annual
rates of portfolio turnover for the following Funds were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Balanced Fund 68% 149% 136%
U.S. Treasury Income Fund 164% 103% 179%
Growth and Income Fund * * *
Capital Growth Fund * * *
Equity Income Fund 91% 114% 75%
Bond Fund 30% 122% 823%
Short-Term Bond Fund 62% 158% 471%
Large Cap Equity Fund 45% 89% 72%
Small Cap Equity Fund -- 78% 55%
U.S. Government Securities Fund -- -- 569%
</TABLE>
- ----------
* 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 Growth Portfolio for the fiscal year ended October
31, 1995 were 71% and 86%, respectively, for the fiscal year ended October
31, 1996, the portfolio turnover rates were 62% and 90%, respectively and
for the fiscal year ended October 31, 1997, the portfolio turnover rates
were 65% and 67%, 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 period February 3, 1995 through November 30, 1995, the American
Value Fund had a portfolio turnover rate of 11%.
For the fiscal period December 1, 1995 through October 31, 1996, the
annual portfolio turnover rates for the American Value Fund and the U.S.
Government Securities Fund were 25% and 101%, respectively.
For the period May 13, 1997 through October 31, 1997, the Small Cap
Opportunities Fund had a portfolio turnover rate of 7%.
For the fiscal year ending October 31, 1998, the annual rate of portfolio
turnover for Focus Fund is not expected to exceed 100%.
For the fiscal year ended October 31, 1999, the annual rate of portfolio
turnover for Strategic Income Fund is not expected 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
23
<PAGE>
terms available for any transaction, the adviser and sub-advisers consider all
factors they deem relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the adviser
or sub-advisers, and the reasonableness of the commissions, if any, both for
the specific transaction and on a continuing basis. The adviser and
sub-advisers are not required to obtain the lowest commission or the best net
price for any Fund or Portfolio on any particular transaction, and are not
required to execute any order in a fashion either preferential to any or
Portfolio Fund relative to other accounts they manage or otherwise materially
adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund or Portfolio normally seeks to deal directly with the
primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
adviser or sub-adviser on the tender of a Fund's or Portfolio's portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for a Funds and Portfolios by the adviser and
sub-advisers. At present, no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds and Portfolios to pay a broker-dealer which provides brokerage
and research services to the adviser or sub-advisers, the Funds or Portfolios
and/or other accounts for which they exercise investment discretion an amount
of commission for effecting a securities transaction for a Fund or Portfolio in
excess of the amount other broker-dealers would have charged for the
transaction if they determine in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of either a particular
transaction or their overall responsibilities to accounts over which they
exercise investment discretion. Not all of such services are useful or of value
in advising the Funds and Portfolios. The adviser and sub-advisers report to
the Board of Trustees regarding overall commissions paid by the Funds and
Portfolios and their reasonableness in relation to the benefits to the Funds
and Portfolios. The term "brokerage and research services" includes advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or of purchasers or
sellers of securities, furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts, and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
The management fees that the Funds and Portfolios pay to the adviser will
not be reduced as a consequence of the adviser's or sub-advisers' receipt of
brokerage and research services. To the extent the Funds' or Portfolios'
portfolio transactions are used to obtain such services, the brokerage
commissions paid by the Funds or Portfolios will exceed those that might
otherwise be paid by an amount which cannot be presently determined. Such
services generally would be useful and of value to the adviser or sub-advisers
in serving one or more of their other clients and, conversely, such services
obtained by the placement of brokerage business of other clients generally
would be useful to the adviser and sub-advisers in carrying out their
obligations to the Funds and Portfolios. While such services are not expected
to reduce the expenses of the adviser or sub-advisers, 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
24
<PAGE>
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, 1995, 1996 and 1997, the Capital
Growth Portfolio paid aggregate brokerage commissions of $2,311,291, $1,618,640
and $2,240,823, respectively. For the fiscal years ended October 31, 1995, 1996
and 1997, the Growth and Income Portfolio paid aggregate brokerage commissions
of $2,352,596, $1,304,272 and $3,456,823, respectively.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Large Cap
Equity Fund paid aggregate brokerage commissions of $23,824, $201,001 and
$171,628, respectively.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Balanced
Fund paid aggregate brokerage commissions of $27,315, $62,036 and $62,342,
respectively.
For the period December 20, 1994 through October 31, 1995 and the fiscal
years ended October 31, 1996 and 1997, the Small Cap Equity Fund paid aggregate
brokerage commissions of $56,980, $327,762 and $716,769, respectively.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Equity
Income Fund paid aggregate brokerage commissions of $23,824, $44,136 and
$75,090, respectively.
For the period from May 13, 1997 through October 31, 1997, the Small Cap
Opportunities Fund paid aggregate brokerage commissions of $49,826.
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. Performance is calculated separately for each
class of shares. Because such performance information is based on past
investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the
performance and yield of a Fund or its classes. A Fund's performance may be
compared with indices such as the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Government Bond Index, the Lehman Government Bond
1-3 Year Index and the Lehman Aggregate Bond Index; the S&P 500 Index, the Dow
Jones Industrial Average or any other commonly quoted index of common stock
prices; and the Russell 2000 Index and the NASDAQ Composite Index.
Additionally, a Fund may, with proper authorization, reprint articles written
about such Fund and provide them to prospective shareholders.
25
<PAGE>
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
and Class C 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 or classes. Performance information
is restated to reflect the current maximum front-end sales charge (in the case
of Class A Shares) or the maximum applicable contingent deferred sales charge
(in the case of Class B and Class C 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 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 U.S. Government
Securities Fund was established to receive the assets of The Hanover U.S.
Government Securities Fund. Performance results presented for each class of the
U.S. Government Securities Fund include the performance of The Hanover U.S.
Government Securities Fund for periods prior to the consummation of the Hanover
Organization.
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 Chase 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
26
<PAGE>
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, 1997 and for the period from
commencement of business operations of each such Fund to October 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Since Date of Date of
One Five Ten Fund Fund Class
Fund Year Years Years Inception Inception Introduction
- --------------------------- ---------- ---------- ---------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund 9/8/87
A Shares 7.35% 6.20% 8.21% 8.80% 9/8/87
B Shares+ 6.56% 5.63% 7.92% 8.51% 11/4/93
Balanced Fund 11/4/92
A Shares+ 21.48% -- -- 14.86% 11/4/92
B Shares 20.55% -- -- 14.17% 11/4/93
Equity Income Fund 7/15/93
A Shares 33.66% -- -- 19.34% 7/15/93
B Shares+ 32.87% -- -- 19.06% 5/7/96
C Shares++ 32.87% -- -- 19.06% 1/2/98****
Growth and Income Fund 9/23/87
A Shares 28.84% 16.96% 23.48% 23.21% 9/23/87
B Shares+ 28.20% 16.49% 23.23% 22.96% 11/4/93
C Shares++ 28.20% 16.49% 23.23% 22.96% 1/2/98
Institutional Shares+++ 29.37% 17.14% 23.57% 23.30% 1/25/96
Capital Growth Fund 9/23/87
A Shares 26.47% 18.29% 21.27% 21.02% 9/23/87
B Shares+ 25.85% 17.84% 21.03% 20.79% 11/4/93
C Shares++ 25.85% 17.84% 21.03% 20.79% 1/2/98
Institutional Shares+++ 26.98% 18.46% 21.35% 21.10% 1/25/96
Bond Fund 11/30/90
Class A Shares*** 9.45% 7.38% 8.50% 5/6/96
Class B Shares*** 8.32% 7.19% 8.36% 5/6/96
Institutional Shares 9.93% 7.56% 8.63% 11/30/90
Short-Term Bond Fund 11/30/90
Class A Shares*** 5.91% 5.22% 5.82% 5/6/96
Institutional Shares 6.23% 5.35% 5.91% 11/30/90
Large Cap Equity Fund 11/30/90
Class A Shares*** 30.69% 18.07% 17.93% 5/8/96
Class B Shares*** 30.15% 17.93% 17.83% 5/7/96
Institutional Shares 31.50% 18.32% 18.11% 11/30/90
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Since Date of Date of
One Five Ten Fund Fund Class
Fund Year Years Years Inception Inception Introduction
- -------------------------- ----------- ------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Equity Fund 12/20/94
A Shares 24.61% -- 36.33% 12/20/94
B Shares+ 23.84% -- 35.44% 3/28/95
Institutional Shares+++ 25.15% -- 36.61% 5/7/96
U.S. Government
Securities Fund** 2/19/93
A Shares*** 7.61% -- 5.73% 5/6/96
Institutional Shares 7.78% -- 5.82% 2/19/93
Small Cap Opportunities
Fund 5/19/97
A Shares -- -- 38.50% 5/19/97
B Shares -- -- 38.10% 5/19/97
C Shares++ -- -- 38.10% 1/2/98
</TABLE>
- ----------
* The ongoing fees and expenses borne by Class B and Class C Shares are
greater than those borne by Class A Shares; the ongoing fees and expenses
borne by a Fund's Class A, Class B and Class C 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 or classes 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.
** Performance information 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 information 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
28
<PAGE>
this Fund prior to the date this class was introduced is based on the
performance of predecessor classes and, except for the Small Cap
Opportunities Fund, for the period prior to November 5, 1993 (May 7, 1996
in the case of the Equity Income Fund) does not reflect the distribution
fees and 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.
29
<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
and Class C shares for each period length, the average annual total rate of
return figures for the same periods would be as follows:
<TABLE>
<CAPTION>
Since
One Five Ten Fund
Fund Year Years Years Inception
- ---------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Income Fund
A Shares 2.52% 5.23% 7.71% 8.31%
B Shares 1.56% 3.70% 7.92% 8.51%
Balanced Fund
A Shares 16.02% -- -- 13.81%
B Shares 15.55% -- -- 11.17%
Equity Income Fund
A Shares 27.65% -- -- 18.07%
B Shares 27.87% -- -- 15.66%
Growth and Income Fund
A Shares 22.72% 15.83% 22.88% 22.62%
B Shares 23.20% 14.49% 23.23% 22.96%
Capital Growth Fund
A Shares 20.46% 17.15% 20.68% 20.44%
B Shares 20.85% 15.84% 21.03% 20.79%
Bond Fund
Class A Shares 4.53% 6.40% -- 7.78%
Class B Shares 3.32% 5.19% -- 8.36%
Short-Term Bond Fund
Class A Shares 4.32% 4.90% -- 5.59%
Large Cap Equity Fund
Class A Shares 24.48% 16.93% -- 17.10%
Class B Shares 25.15% 15.93% -- 17.83%
Small Cap Equity Fund
A Shares 18.69% -- -- 34.03%
B Shares 18.84% -- -- 32.44%
U.S. Government Securities Fund**
A Shares 2.77% -- -- 4.69%
Small Cap Opportunities Fund
A Shares -- -- -- 31.92%
B Shares -- -- -- 33.10%
</TABLE>
- ----------
*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.
30
<PAGE>
Yield Quotations
Any current "yield" quotation for a class of shares shall consist of an
annualized hypothetical yield, carried at least to the nearest hundredth of one
percent, based on a thirty calendar day period and shall be calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum offering price per share on the last day
of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
The yields of the shares of the Funds for the thirty-day period ended
October 31, 1997 were as follows:
<TABLE>
<CAPTION>
Class A Class B Institutional--
--------- --------- ----------------
<S> <C> <C> <C>
Balanced Fund 2.55% 1.93% --
Bond Fund 5.52% 5.04% 6.19%
Capital Growth Fund 0% 0% 0.13%
Equity Income Fund 1.51% 1.05% --
Growth and Income Fund 0.21% 0% 0.63%
Large Cap Equity Fund 0.75% 0.29% 1.28%
Short-Term Bond Fund 5.52% -- 5.94%
Small Cap Equity Fund 0% 0% 0%
Small Cap Opportunities Fund 0% 0% --
U.S. Government Securities Fund 5.16% -- 5.61%
U.S. Treasury Income Fund 5.12% 4.63% --
</TABLE>
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, 1997. 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
A Shares $11,260 $1,184 $11,104 $23,548
B Shares $11,250 $1,251 $10,415 $22,916
Balanced Fund 11/4/92
A Shares $15,410 $1,975 $ 2,601 $19,987
B Shares $15,210 $1,934 $ 2,251 $19,395
</TABLE>
31
<PAGE>
<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>
Equity Income Fund 7/15/92
Class A $14,627 $ 5,329 $1,427 $21,383
Class B $14,521 $ 5,283 $1,362 $21,166
Class C $14,521 $ 5,283 $1,362 $21,166
Growth and Income Fund 9/23/87
Class A $46,210 $26,680 $9,672 $82,562
Class B $45,960 $26,180 $8,750 $80,890
Class C $45,960 $26,180 $8,750 $80,890
Institutional Shares $46,350 $26,873 $9,963 $83,186
Capital Growth Fund 9/23/87
Class A $46,760 $17,674 $4,453 $68,887
Class B $46,110 $17,418 $4,037 $67,565
Class C $46,110 $17,418 $4,037 $67,565
Institutional Shares $46,900 $17,786 $4,681 $69,367
Bond Fund 11/1/90
Class A Shares $10,820 $ 398 $6,371 $17,589
Class B Shares $10,820 $ 394 $6,220 $17,434
Institutional Shares $10,820 $ 401 $6,512 $17,732
Short-Term Bond Fund 11/30/90
Class A Shares $10,100 $ 18 $4,676 $14,794
Institutional Shares $10,110 $ 18 $4,754 $14,883
Large Cap Equity Fund 11/30/90
Class A Shares $14,830 $14,317 $2,173 $31,320
Class B Shares $14,760 $14,245 $2,134 $31,139
Institutional Shares $14,850 $14,461 $2,342 $31,652
Small Cap Equity Fund 12/20/94
A Shares $23,570 $ 619 $ 136 $24,325
B Shares $23,190 $ 612 $ 73 $23,875
Institutional Shares $23,710 $ 622 $ 137 $24,468
U.S. Government Securities Fund 2/19/93
A Shares $10,060 $ 129 $2,801 $12,990
Institutional Shares $10,040 $ 130 $2,873 $13,043
Small Cap Opportunities Fund 5/19/97
Class A $13,850 $ 0 $ 0 $13,850
Class B $13,810 $ 0 $ 0 $13,810
Class C $13,810 $ 0 $ 0 $13,810
</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 or classes, 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.
32
<PAGE>
Non-Standardized Performance Results*
(includes sales charges)
With the current maximum sales charge for Class A shares (1.50% for the
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 and 4.75% for
Growth and Income Fund, Capital Growth Fund, Large Cap Equity Fund, Small Cap
Equity Fund and Small Cap Opportunities Fund) reflected, and the currently
applicable CDSC for Class B and Class C 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, 1997 Investment Distributions Dividends Total Value
- -------------------------------- ------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Income Fund
A Shares $10,753 $ 1,131 $10,604 $22,488
B Shares $11,250 $ 1,251 $10,415 $22,916
Balanced Fund
A Shares $14,717 $ 1,887 $ 2,484 $19,087
B Shares $14,910 $ 1,934 $ 2,251 $19,095
Equity Income Fund
Class A $13,369 $ 5,089 $ 1,363 $20,421
Class B $14,221 $ 5,283 $ 1,362 $20,866
Class C $14,521 $ 5,283 $ 1,362 $21,166
Growth and Income Fund
Class A $44,015 $25,413 $ 9,213 $78,641
Class B $45,960 $26,180 $ 8,750 $80,890
Class C $45,960 $26,180 $ 8,750 $80,890
Institutional Shares
Capital Growth Fund
Class A $44,539 $16,835 $ 4,241 $65,615
Class B $46,110 $17,418 $ 4,037 $67,565
Class C $46,110 $17,418 $ 4,037 $67,565
Institutional Shares
Bond Fund
Class A Shares $10,333 $ 380 $ 6,085 $16,797
Class B Shares $10,820 $ 394 $ 6,220 $17,434
Short-Term Bond Fund
Class A Shares $ 9,949 $ 18 $ 4,606 $14,572
Large Cap Equity Fund
Class A Shares $14,126 $13,637 $ 2,070 $29,883
Class B Shares $14,760 $14,245 $ 2,134 $31,139
Small Cap Equity Fund
A Shares $22,450 $ 590 $ 129 $23,169
B Shares+ $22,890 $ 612 $ 73 $23,575
U.S. Government Securities Fund
A Shares $ 9,607 $ 123 $ 2,675 $12,406
Institutional Shares
Small Cap Opportunities Fund
Class A $13,192 $ 0 $ 0 $13,192
Class B $13,310 $ 0 $ 0 $13,310
Class C $13,710 $ 0 $ 0 $13,310
</TABLE>
33
<PAGE>
- ----------
* 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 or classes, 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.
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, Martin Luther King Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Equity securities in a Fund's or Portfolio's portfolio are valued at the
last sale price on the exchange on which they are primarily traded or on the
NASDAQ National Market System, or at the last quoted bid price for securities
in which there were no sales during the day or for other unlisted
(over-the-counter) securities not reported on the NASDAQ National Market
System. Bonds and other fixed income securities (other than short-term
obligations, but including listed issues) in a Fund's or Portfolio's portfolio
are valued on the basis of valuations furnished by a pricing service, the use
of which has been approved by the Board of Trustees. In making such valuations,
the pricing service utilizes both dealer-supplied valuations and electronic
data processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations which
mature in 60 days or less are valued at amortized cost, which constitutes fair
value as determined by the Board of Trustees. Futures and option contracts that
are traded on commodities or securities exchanges are normally valued at the
settlement price on the exchange on which they are traded. Portfolio securities
(other than short-term obligations) for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
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. The Telephone Exchange
Privilege is not available if you were issued certificates for shares that
remain outstanding.
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
34
<PAGE>
to the inquiries, consistent with the service options chosen by the shareholder
or joint shareholders in his or their latest account application or other
written request for services, including purchasing, exchanging, or redeeming
shares of such Fund and depositing and withdrawing monies from the bank account
specified in the Bank Account Registration section of the shareholder's latest
account application or as otherwise properly specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
With respect to the Growth and Income Fund and Capital Growth Fund, the
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of such
Portfolio and in no case will they receive a security issued by the Portfolio.
Each Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the corresponding Fund is permitted to redeem
in kind or unless requested by the corresponding Fund.
Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each day that the New York Stock
Exchange is open for business. Once each such day, based upon prices determined
as of the close of regular trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time, however, options are priced at 4:15 p.m., Eastern
time) the value of each investor's interest in a Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions which are to be effected on that day
will then be effected. The investor's percentage of the aggregate beneficial
interests in a Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of such time on such day plus or minus, as the case may be,
the amount of net additions to or reductions in the investor's investment in
the Portfolio effected on such day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of such time on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of such time on the following day the
New York Stock Exchange is open for trading.
Investors in Class A shares may qualify for reduced initial sales charges
by signing a statement of intention (the "Statement"). This enables the
investor to aggregate purchases of Class A shares in the Fund with purchases of
Class A shares of any other Fund in the Trust (or if a Fund has only one class,
shares of such Fund), excluding shares of any Chase 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
35
<PAGE>
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 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 and Class C 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 con-
36
<PAGE>
tingent 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. 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. If any exchanges of Class B shares during the CDSC Period
occurred, the holding period for the shares exchanged will be counted toward
the CDSC Period. At the time of the conversion the net asset value per share of
the Class A shares may be higher or lower than the net asset value per share of
the Class B shares; as a result, depending on the relative net asset values per
share, a shareholder may receive fewer or more Class A shares than the number
of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described
in the Prospectuses. A Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A signature
guarantee may be obtained from a bank, trust company, broker-dealer or other
member of a national securities exchange. Please note that a notary public
cannot provide a signature guarantee.
Investors may be eligible to buy Class A shares at reduced sales charges.
Interested parties should consult their investment representative or the Chase
Vista Funds Service Center for details about Chase Vista's combined purchase
privilege, cumulative quantity discount, statement of intention, group sales
plan, employee benefit plans and other plans. Sales charges are waived if the
investor is using redemption proceeds received within the prior ninety days
from non-Chase Vista mutual funds to buy his or her shares, and on which he or
she paid a front-end or contingent deferred sales charge.
Some participant-directed employee benefit plans participate in a
"multi-fund" program which offers both Chase Vista and non-Chase Vista mutual
funds. The money that is invested in Chase Vista Funds may be combined with the
other mutual funds in the same program when determining the plan's eligibility
to buy Class A shares for purposes of the discount privileges and programs
described above.
No initial sales charge will apply to the purchase of a Fund's Class A
shares if (i) one is investing proceeds from a qualified retirement plan where
a portion of the plan was invested in the Chase Vista Funds, (ii) one is
investing through any qualified retirement plan with 50 or more participants or
(iii) one is a participant in certain qualified retirement plans and is
investing (or reinvesting) the proceeds from the repayment of a plan loan made
to him or her.
For purchases of a Fund's Class A shares made from January 1, 1998 through
December 31, 1998, no initial sales charge was assessed for investments through
an IRA or qualified retirement plan for which
37
<PAGE>
The Chase Manhattan Bank or its designee serves as trustee or custodian, and
additional investments in Class A shares of the Fund through such an IRA or
qualified plan made subsequent to 1998 are not subject to initial sales charges
for the life of the Fund account.
Purchases of a 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 a 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 a 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 the time
of the investment to the Fund, the Fund's distributor or the Chase Vista Funds
Service Center.
A Fund may sell Class A shares without an initial sales charge to the
current and retired Trustees (and their immediate families), current and
retired employees (and their immediate families) of Chase, the Fund's
distributor and transfer agent or any affiliates or subsidiaries thereof,
registered representatives and other employees (and their immediate families)
of broker-dealers having selected dealer agreements with the Fund's
distributor, employees (and their immediate families) of financial institutions
having selected dealer agreements with the Fund's distributor (or otherwise
having an arrangement with a broker-dealer or financial institution with
respect to sales of Chase Vista Fund shares) and financial institution trust
departments investing an aggregate of $1 million or more in the Chase Vista
Funds.
Shareholders of record of any Chase Vista fund as of November 30, 1990 and
certain immediate family members may purchase a Fund's Class A shares with no
initial sales charge for as long as they continue to own Class A shares of any
Chase Vista fund, provided there is no change in account registration.
Shareholders of other Chase 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.
The Funds reserve the right to change any of these policies at any time
and may reject any request to purchase shares at a reduced sales charge.
Investors may incur a fee if they effect transactions through a broker or
agent.
DISTRIBUTIONS; 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") 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. Net
investment income for each Fund consists of all interest accrued and discounts
earned, less amortization of any market premium on the portfolio assets of the
Fund and the accrued expenses of the Fund. 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 regard to the deduction for dividends paid ) and
net capital
38
<PAGE>
gain (i.e., the excess of net long-term capital gain over net short-term
capital loss) that it distributes to shareholders, provided that it distributes
at least 90% of its net investment income for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Because 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").
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.
Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Fund and defer recognition of certain
of the Fund's losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. In addition, these provisions (1)
will require a Fund to "mark-to-market" certain types of positions in its
portfolio (that is, treat them as if they were closed out) and (2) may cause a
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the Distribution Requirement
and avoid the 4% excise tax (described below). Each Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate
the effect of these rules.
A Fund or Portfolio may make investments that produce income that is not
matched by a corresponding cash distribution to the Fund, such as investments
in pay-in-kind bonds or in obligations such as zero coupon securities having
original issue discount (i.e., an amount equal to the excess of the stated
redemption price of the security at maturity over its issue price) or market
discount (i.e., an amount equal to the excess of the stated redemption price of
the security over the basis of such bond immediately after it was acquired), if
the Fund elects to accrue market discount on a current basis. In addition,
income may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any such income would be treated as income earned by
a Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding cash
distribution to a Fund, the Fund may be required to borrow money or dispose of
other securities to be able to make distributions to its investors. In
addition, if an election is not made to currently accrue market discount with
respect to a market discount bond, all or a portion of any deduction or any
interest expenses incurred to purchase or hold such a bond may be deferred
until such bond is sold or otherwise disposed.
39
<PAGE>
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.
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 net investment
income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below. Dividends paid on Class A,
Class B and Class C shares are calculated at the same time. In general,
dividends on Class B and Class C shares are expected to be lower than those on
Class A shares due to the higher distribution expenses borne by the Class B and
Class C shares. Dividends may also differ between classes as a result of
differences in other class specific expenses.
If a check representing a Fund distribution is not cashed within a
specified period, the Chase Vista Service Center will notify the investor that
he or she has the option of requesting another check or reinvesting the
distribution in the Fund or in an established account of another Chase Vista
Fund. If the Chase Vista Service Center does not receive his or her election,
the distribution will be reinvested in the Fund. Similarly, if the Fund or the
Chase Vista Service Center sends the investor correspondence returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
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.
Under recently enacted legislation, the maximum rate of tax on long-term
capital gains of individuals will generally be reduced from 28% to 20% (10% for
gains otherwise taxed at 15%) for long-term capital gains realized after July
28, 1997 with respect to capital assets held for more than 18 months.
Additionally, beginning after December 31, 2000, the maximum tax rate for
capital assets with a holding period beginning after that date and held for
more than five years will be 18%. Under a literal reading of the legislation,
capital gain dividends paid by a regulated investment company would not appear
eligible for the reduced capital gain rates. However, the legislation
authorizes the Treasury Department to promulgate regulations that would apply
the new rates to capital gain dividends paid by a regulated investment company.
Conversely, if 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
40
<PAGE>
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) during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock)
under the Rules of the Code Section 246(c)(3) and (4); (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 if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a Fund. 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.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income dividends,
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net asset
value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any share-
41
<PAGE>
holder (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.
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, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund and
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from 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 their
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
42
<PAGE>
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 exemptions from state and
local income taxes that would be available if the shareholders had purchased
U.S. government securities directly. Shareholders' dividends attributable to a
Fund's income from repurchase agreements generally are subject to state and
local income taxes, although states and regulations vary in their treatment of
such income. The exemption from state and local income taxes does not preclude
states from asserting other taxes on the ownership of U.S. government
securities. To the extent that a Fund invests to a substantial degree in U.S.
government securities which are subject to favorable state and local tax
treatment, shareholders of such Fund will be notified as to the extent to which
distributions from the Fund are 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 Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
MANAGEMENT OF THE TRUST AND THE 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: 65. Address: 202 June Road, Stamford, CT 06903.
*H. Richard Vartabedian--Trustee and President of the Trust. Investment
Management Consultant; formerly, Senior Investment Officer, Division Executive
of the Investment Management Division of The Chase Manhattan Bank, N.A., 1980
through 1991. Age: 62. Address: P.O. Box 296, Beach Road, Hendrick's Head,
Southport, ME 04576.
William J. Armstrong--Trustee. Vice President and Treasurer,
Ingersoll-Rand Company. Age: 56. Address: 49 Aspen Way, Upper Saddle River, NJ
07458.
John R.H. Blum--Trustee. Attorney in private practice; formerly, partner
in the law firm of Richards, O'Neil & Allegaert; Commissioner of Agriculture -
State of Connecticut, 1992-1995. Age: 68. Address: 322 Main Street, Lakeville,
CT 06039.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 64. Address: 108 Valley
Road, Cos Cob, CT 06807.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc. (1971-1988);
Director, Janel Hydraulics, Inc.; formerly Director of The Hanover Funds, Inc.
Age: 65. Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
43
<PAGE>
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.
*Sarah E. Jones--Trustee. President and Chief Operating Officer of Chase
Mutual Funds Corp.; formerly Managing Director for the Global Asset Management
and Private Banking Division of The Chase Manhattan Bank. Age: 46. Address: One
Chase Manhattan Plaza, Third Floor, New York, NY 10081.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; formerly Director of The
Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Age: 71. Address:
624 East 45th Street, Savannah, GA 31405.
W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; formerly Director and Chairman of The Hanover Funds, Inc.;
formerly Director, Chairman and President of The Hanover Investment Funds, Inc.
Age: 71. Address: RR 1 Box 102, Weston, VT 05181.
*Leonard M. Spalding, Jr.--Trustee. Chief Executive Officer of Chase
Mutual Funds Corp.; formerly President and Chief Executive Officer of Vista
Capital Management and formerly Chief Investment Executive of The Chase
Manhattan Private Bank. Age: 62. Address: One Chase Manhattan Plaza, Third
Floor, New York, NY 10081.
Richard E. Ten Haken--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers' Retirement
System. Age: 63. Address: 4 Barnfield Road, Pittsford, NY 14534.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 67. Address: 80 Perkins
Road, Greenwich, CT 06830.
Martin R. Dean--Treasurer. Associate Director, Accounting Services, BISYS
Fund Services; formerly Senior Manager, KPMG Peat Marwick (1987-1994). Age: 34.
Address: 3435 Stelzer Road, Columbus, OH 43219.
Richard Baxt--Secretary. Senior vice President, Client Services, BISYS
Fund Services; formerly General Manager of Investment and Insurance, First
Fidelity Bank, President of First Fidelity Brokers, and President of Citicorp
Investment Services. Age: 44. Address: 125 W. 55th Street, New York, NY 10019.
Vicky M. Hayes--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributors, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 36. Address: One Chase Manhattan Plaza, 3rd Fl., New York, NY 10081.
Alaina Metz--Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Department, Alliance Capital Management
L.P. Age: 30. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lee Schultheis--Assistant Treasurer and Assistant Secretary. President,
BISYS Fund Distributors; formerly Managing Director, Forum Financial Group.
Age: 41. Address: One Chase Manhattan Plaza, 3rd Fl., New York, New York 10081.
- ----------
* Asterisks indicate those Trustees that are "interested persons" (as defined
in the 1940 Act). Mr. Reid is not
44
<PAGE>
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), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to
recommend independent auditors and monitor accounting and financial matters.
The Audit Committee met two times during the fiscal year ended October 31,
1997.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(President), Reid and Spalding. 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 and International Equity
Portfolio (these entities, together with the Trust, are referred to below as
the "Chase 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.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1997 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Capital Equity Growth and
Balanced Bond Growth Income Income
Fund Fund Fund Fund Fund
------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $ 407.61 $ 117.00 $ 3,165.53 $ 153.79 $ 5,960.37
H. Richard Vartabedian, Trustee 335.03 96.52 2,635.42 121.78 4,933.97
William J. Armstrong, Trustee 213.68 61.73 1,679.21 77.82 3,144.65
John R.H. Blum, Trustee 236.31 68.42 1,860.74 85.63 3,485.89
Stuart W. Cragin, Jr., Trustee 223.36 64.34 1,756.93 81.20 3,289.30
Ronald R. Eppley, Jr., Trustee 223.36 64.34 1,756.93 81.20 3,289.30
Joseph J. Harkins, Trustee 231.97 67.05 1,827.03 84.03 3,420.83
Sarah E. Jones, Trustee -- -- -- -- --
W.D. MacCallan, Trustee 223.36 64.34 1,756.93 81.20 3,289.30
W. Perry Neff, Trustee 231.97 67.05 1,827.03 84.03 3,420.83
Leonard M. Spalding, Jr.,
Trustee -- -- -- -- --
Richard E. Ten Haken, Trustee $ 223.36 $ 64.34 $ 1,756.93 $ 81.20 $ 3,289.30
Irving L. Thode, Trustee 223.36 64.34 1,756.93 81.20 3,289.30
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Large Cap Short-Term Small Cap Small Cap U.S. Treasury U.S. Gov't
Equity Bond Equity Opportunities Income Securities
Fund Fund Fund Fund Fund Fund
------------ ------------ -------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $ 593.90 $ 251.04 $ 2,346.25 $ 44.99 $ 578.90 $ 348.37
H. Richard Vartabedian, Trustee 491.90 211.11 1,907.18 33.72 484.54 292.85
William J. Armstrong, Trustee 312.97 134.11 1,222.93 22.31 307.89 185.94
John R.H. Blum, Trustee 346.37 149.42 1,357.11 22.48 341.99 206.87
Stuart W. Cragin, Jr., Trustee 327.93 140.74 1,271.48 22.48 323.03 195.23
Ronald R. Eppley, Jr., Trustee 327.93 140.74 1,271.48 22.48 323.03 195.23
Joseph J. Harkins, Trustee 340.17 146.66 1,329.34 22.48 335.77 203.03
Sarah E. Jones, Trustee -- -- -- -- -- --
W.D. MacCallan, Trustee 327.93 140.74 1,271.48 22.48 323.03 195.23
W. Perry Neff, Trustee 340.17 146.88 1,329.34 22.48 335.77 203.03
Leonard M. Spalding, Jr., Trustee -- -- -- -- -- --
Richard E. Ten Haken, Trustee 327.93 140.74 1,271.48 22.48 323.03 195.23
Irving L. Thode, Trustee 327.93 140.74 1,271.48 22.48 323.03 195.23
</TABLE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from
by the Fund Complex(1) "Fund Complex"(2)
------------------------ ------------------
<S> <C> <C>
Fergus Reid, III, Trustee $56,368 $129,500
H. Richard Vartabedian, Trustee 47,622 102,750
William J. Armstrong, Trustee 38,372 67,000
John R.H. Blum, Trustee 41,363 73,000
Stuart W. Cragin, Jr., Trustee 34,965 68,500
Ronald R. Eppley, Jr., Trustee 53,267 68,500
Joseph J. Harkins, Trustee 52,508 71,500
Sarah E. Jones, Trustee -- --
W.D. MacCallan, Trustee 66,323 68,500
W. Perry Neff, Trustee 66,323 71,500
Leonard M. Spalding, Jr., Trustee -- --
Richard E. Ten Haken, Trustee 31,463 68,500
Irving L. Thode, Trustee 41,876 68,500
</TABLE>
- ----------
(1) Data reflects total benefits accrued by the Trust, Mutual Fund Select
Group, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio for the fiscal year ended October 31, 1997,
and by Mutual Fund Trust, Mutual Fund Select Trust and Mutual Fund
Variable Annuity Trust for the fiscal year ended August 31, 1997.
(2) Data reflects total compensation earned during the period January 1, 1997
to December 31, 1997 for service as a Trustee to the Trust, Mutual Fund
Trust, Mutual Fund Variable Annuity Trust, Mutual Fund Select Group,
Mutual Fund Select Trust, Capital Growth Portfolio, Growth and Income
Portfolio and International Equity Portfolio.
46
<PAGE>
As of December 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, 1997, 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
$9,200, which amount was then apportioned among the Funds comprising the Trust.
Chase 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 Chase 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 the sum of (i) 8% of the
highest annual compensation received from the Covered Funds multiplied by the
number of such Trustee's years of service (not in excess of 10 years) completed
with respect to any of the Covered Funds and (ii) 4% of the highest annual
compensation received from the Covered Funds for each year of service in excess
of 10 years, provided that no Trustee's annual benefit will exceed the highest
annual compensation received by that Trustee from the Covered Funds. Such
benefit is payable to each eligible Trustee in monthly installments for the
life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of October 31, 1997, the estimated credited years
of service for Messrs. Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, MacCallan, Neff, Spalding, Ten Haken and Thode and for Ms. Jones are
12, 4, 9, 12, 4, 8, 6, 7, 7, 0, 12, 4 and 0, respectively.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by All Chase Vista Funds
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$60,000 $80,000 $100,000 $120,000 $140,000
Years of
Service Estimated Annual Benefits upon Retirement
-------- -----------------------------------------------------------------
14 $57,600 $76,800 $ 96,000 $115,200 $134,400
12 52,800 70,400 88,000 105,600 123,200
10 48,000 64,000 80,000 96,000 112,000
8 38,400 51,200 64,000 76,800 89,600
6 28,800 38,400 48,000 57,600 67,200
4 19,200 25,600 32,000 38,400 44,800
</TABLE>
Effective August 21, 1995, the Trustees instituted a Deferred Compensation
Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which
each Trustee (who is not an employee of any of the Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustee's fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination of
service). The deferred amounts are invested in shares of Chase Vista Funds
selected by the Trustee. The deferred amounts are paid out in a lump sum or
over a period of several years as elected by the Trustee at the time of
deferral. If a deferring Trustee dies prior to the distribution of amounts held
in the deferral account, the balance of the deferral account will be
distributed to the Trustee's designated beneficiary in a single lump sum
payment as soon as practicable after such deferring Trustee's death.
Messrs. Eppley, Ten Haken, Thode and Vartabedian each executed a deferred
compensation agreement for the 1997 calendar year and as of October 31, 1997
they had contributed $55,334, $27,669, $49,803 and $83,000, respectively.
47
<PAGE>
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or
with respect to any matter unless it is finally adjudicated that they did not
act in good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination based
upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
Adviser and Sub-Adviser
Chase acts as investment adviser to the 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
48
<PAGE>
the Funds are qualified for sale, as such limitations may be raised or lowered
from time to time, the adviser shall reduce its advisory fee (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the adviser shall be deducted from the
monthly advisory fee otherwise payable with respect to the Funds during such
fiscal year; and if such amounts should exceed the monthly fee, the adviser
shall pay to a Fund its share of such excess expenses no later than the last
day of the first month of the next succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser of the Fund and are under the common control of Chase as long as all
such persons are functioning as part of an organized group of persons, managed
by authorized officers of Chase.
Chase, on behalf of the Funds or Portfolios (except 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 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 provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
State Street is a subsidiary of the Metropolitan Life Insurance Company.
State Street is registered with the Securities and Exchange Commission as an
investment adviser and provides discretionary investment advisory services to
institutional and other clients.
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 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.
49
<PAGE>
For the fiscal years ended October 31, 1995, 1996 and 1997, 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:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
------------------------------------------------------------------------------------------
1995 1996 1997
Fund paid/accrued waived paid/accrued waived paid/accrued waived
- --------------------------------- -------------- -------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $145,295 $(145,295) 253,986 (125,808) 419,971 (19,663)
Bond Fund 162,618 (162,618) 143,017 (143,017) 74,105 (74,105)
Capital Growth Fund * -- * -- * --
Equity Income Fund $ 44,277 $ (35,433) $ 54,769 $ (53,342)
142,666 (14,010)
Growth and Income Fund * -- * -- * --
Large Cap Equity Fund 250,452 (250,452) 337,772 (337,772) 476,896 (476,885)
Short-Term Bond Fund 85,353 (85,353) 105,509 (105,509) 120,146 (120,146)
Small Cap Equity Fund 130,401 (130,401) 1,069,668 (31,530) 3,122,539 --
U.S. Government Securities Fund -- -- 288,582 (17,569)# 195,014 --
U.S. Treasury Income Fund 319,705 (220,998) 331,915 (137,440) 329,197 (78,607)
</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. For the year ended October 31, 1997, Chase was paid or accrued
investment advisory fees of $9,877,868 and $4,971,835, respectively, with
respect to such Portfolios.
# Fees paid or accrued for the period from December 1, 1995 through October 31,
1996.
With respect to Small Cap Opportunities Fund, for the period from May 19,
1997 through October 31, 1997, Chase was paid or accrued the following
investment advisory fees and waived the amount in parentheses following such
fees: $123,519 ($110,695).
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.
50
<PAGE>
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will continue
in effect from year to year with respect to each Fund or Portfolio only if such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust or Portfolio or by vote of a majority of such Fund's or
Portfolio's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Administration Agreements or
"interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreements are terminable without penalty by the Trust on behalf
of each Fund or by a Portfolio on 60 days' written notice when authorized
either by a majority vote of such Fund's or Portfolio shareholders or by vote
of a majority of the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust or
Portfolios, or by Chase on 60 days' written notice, and will automatically
terminate in the event of their "assignment" (as defined in the 1940 Act). The
Administration Agreements also provide that neither 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 and Capital Growth
Fund, Chase receives from each of the Funds and the Portfolios a fee computed
daily and paid monthly at an annual rate equal to 0.05% of their respective
average daily net assets. Chase may voluntarily waive a portion of the fees
payable to it with respect to each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1995, 1996 and 1997, 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,
------------------------------------------------------------------------------------------------
1995 1996 1997
Fund paid/accrued waived paid/accrued waived paid/accrued waived
- --------------------------- -------------- ------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balanced Fund $ 29,053 $ (29,053) 50,797 (14,689) 83,940 None
Bond Fund 54,206 (54,206) 47,715 (47,715) 24,703 (24,703)
Capital Growth Fund+ 435,695 (116,282) 526,852 None 619,816 None
Equity Income Fund 11,069 (8,855) 13,692 (13,293) 35,929 (1,560)
Growth and Income Fund+ 830,077 (252,586) 971,251 None 1,169,015 None
Large Cap Equity Fund 52,613 (62,613) 84,443 (84,443) 119,235 (119,235)
Short-Term Bond Fund 34,141 (34,141) 42,171 (42,171) 48,058 (48,058)
Small Cap Equity Fund 20,040 (20,040) 164,564 (6,152) 480,368 None
U.S. Government Securities
Fund -- -- 63,984 (26,354)* 65,005 None
U.S. Treasury Income Fund 106,559 (76,094) 110,678 (23,372) 109,732 None
</TABLE>
- ----------
+ On November 23, 1993, these Funds changed their structure to a Master/Feeder
Structure. The Portfolios'
51
<PAGE>
administrator is Chase. With respect to the Growth and Income Portfolio and
the Capital Growth Portfolio, for the fiscal year ended October 31, 1995,
Chase was paid or accrued administration fees of $851,900 and $445,399,
respectively. For the fiscal year ended October 31, 1996, Chase was paid or
accrued administration fees of $1,012,648 and $528,308, respectively. For the
fiscal year ended October 31, 1997, Chase was paid or accrued administration
fees of $1,234,733 and $621,480, respectively.
* Fees paid or accrued for the period from December 1, 1995 through October 31,
1996.
With respect to the Small Cap Opportunities Fund, for the period May 19,
1997 through October 31, 1997, Chase was paid or accrued the following
administration fees and voluntarily waived the amount in parentheses following
such fees: $18,909 ($7,783).
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. Promotional activities for the sale of each
class of shares of each Fund will be conducted generally by the Chase Vista
Funds, and activities intended to promote one class of shares of a Fund may
also benefit the Fund's other shares and other Chase Vista Funds.
Class B and Class C 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 and Class C shares of up
to 4.00% and 1.00%, respectively, 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 0.75%
annualized of the average net asset value of the Class C shares, maintained in
a Fund by such broker-dealers' customers. Trail or maintenance commissions on
Class B and Class C shares will be paid to broker-dealers beginning the 13th
month following the purchase of such Class B or Class C 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 and Class C 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 or Class C 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 or Class C 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 and Class C 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.
52
<PAGE>
Each Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually by
a vote of both a majority of the Trustees and a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the operation of the
Distribution Plans or in any agreement related to such Plan ("Qualified
Trustees"). The continuance of each Distribution Plan was most recently
approved on October 13, 1995. Each Distribution Plan requires that the Trust
shall provide to the Board of Trustees, and the Board of Trustees shall review,
at least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Distribution Plan. Each Distribution Plan further provides
that the selection and nomination of Qualified Trustees shall be committed to
the discretion of the disinterested Trustees (as defined in the 1940 Act) then
in office. Each Distribution Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or, with respect to a particular Fund, by
vote of a majority of the outstanding voting Shares of the class of such Fund
to which it applies (as defined in the 1940 Act). Each Distribution Plan may
not be amended to increase materially the amount of permitted expenses
thereunder without the approval of shareholders and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees. Each of the Funds will preserve copies of any plan,
agreement or report made pursuant to a Distribution Plan for a period of not
less than six years from the date of the Distribution Plan, and for the first
two years such copies will be preserved in an easily accessible place. For the
fiscal year ended October 31, 1997, the Distributor was paid or accrued the
following Distribution Fees and voluntarily waived the amounts of such fees:
<TABLE>
<CAPTION>
Fund Paid/Accrued Waived
- -------------------------------- -------------- ------------
<S> <C> <C>
U.S. Treasury Income Fund
A Shares 248,112 --
B Shares 78,656 --
Balanced Fund
A Shares 179,363 --
B Shares 91,463 --
Growth and Income Fund
A Shares 3,744,605 --
B Shares 3,277,746 --
Capital Growth Fund
A Shares 2,030,033 --
B Shares 2,885,630 --
Equity Income Fund
A Shares 72,607 --
B Shares 51,643 --
Bond Fund
Class A Shares 13,451 --
Class B Shares 8,367 --
Short-Term Bond Fund
Class A Shares 21,379 $ (8,902)
Large Cap Equity Fund
Class A Shares 37,298 --
Class B Shares 21,655 --
Small Cap Equity Fund
A Shares 408,427 --
B Shares 679,155 --
U.S. Government Securities Fund
A Shares 7,685 $ (7,685)
</TABLE>
53
<PAGE>
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
A Shares $ 53,096 $ 152,093 $ 42,923
Balanced Fund
A Shares 38,384 109,950 31,030
Capital Growth Fund
A Shares 434,427 1,244,410 351,196
Equity Income Fund
A Shares 15,538 44,508 12,561
Growth and Income Fund
A Shares 801,345 2,295,443 647,817
Bond Fund
Class A Shares 2,879 8,245 2,327
Short-Term Bond Fund
Class A Shares 2,670 7,648 2,159
Large Cap Equity Fund
Class A Shares 7,982 22,864 6,453
Small Cap Equity Fund
A Shares 87,403 250,366 70,658
</TABLE>
With respect to Small Cap Opportunities Fund, for the period May 13, 1997
through October 31, 1997, the Distributor was paid or accrued the following
fees and voluntarily waived the amount in parentheses following such fees:
$27,016 ($0) in the case of Class A shares and $60,398 ($0) in the case of
Class B shares.
With respect to the Class A shares of Small Cap Opportunities Fund, the
Distribution Fee was allocated as follows: $5,781 (Printing, Postage and
Handling); $16,561 (Sales Compensation); and $4,674 (Advertising and
Administrative Filings).
With respect to the Class B shares of the Funds, the Distribution Fee was
paid to FEP Capital L.P. for acting as finance agent.
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
54
<PAGE>
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, 1995, 1996 and
1997 the Distributor was paid or accrued the following sub-administration fees
under the Distribution Agreement, and voluntarily waived the amounts in
parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
-----------------------------------------------------------------------------------
1995 1996 1997
Fund payable waived payable waived payable waived
- --------------------------------- ---------- ------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $14,527 $ (14,527) 25,399 $ (1,680) 41,997 None
Bond Fund 27,103 None 23,793 None 12,350 $ (6,968)
Capital Growth Fund 435,488 None 526,852 None 619,911 None
Equity Income Fund 5,535 None 6,846 None 17,963 None
Growth and Income Fund 830,077 None 971,201 None 1,169,014 None
Large Cap Equity Fund 31,306 None 42,221 None 59,617 None
Short-Term Bond Fund 17,071 None 21,085 None 24,030 (5,836)
Small Cap Equity Fund 10,030 (3,488) 82,282 None 240,179 None
U.S. Government Securities Fund -- -- 18,814 None* 32,502 (15,205)
U.S. Treasury Income Fund 53,284 None 53,339 None 54,866 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.
With respect to Small Cap Opportunities Fund, for the period May 13, 1997
through October 31, 1997, the Distributor was paid or accrued the following
sub-administration fees under the Distribution Agreement and voluntarily waived
the amount in parentheses following such fees: $9,451 ($3,891).
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
55
<PAGE>
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. Shareholder Servicing Agents may subcontract with other
parties for the provision of shareholder support services.
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, 1995, 1996 and 1997, 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,
--------------------------------------------------------------------------------------
1995 1996 1997
Fund payable waived payable waived payable waived
- -------------------------- ------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund
A Shares $ 246,251 $ (197,001) $ 249,561 $ (222,710) $ 248,112 $ (238,380)
B Shares 20,753 -- 27,059 -- $ 26,319 --
Balanced Fund
A Shares 60,650 (48,520) 107,171 (98,086) $ 179,498 $ (179,498)
B Shares 11,983 -- 19,822 -- $ 30,353 --
Growth and Income Fund
Class A $3,610,762 -- $3,989,725 -- $3,744,600 --
Class B $ 539,805 -- $ 820,579 -- $1,092,905 --
Institutional -- -- $ 46,244 -- $1,007,567 --
Capital Growth Fund
Class A $1,674,668 -- $1,836,642 -- $2,029,200 --
Class B $ 503,805 -- $ 746,722 -- $ 962,344 --
Institutional -- -- $ 50,897 -- $ 107,773 --
Equity Income Fund
Class A $ 27,673 $ (26,964) $ 33,998 $ (33,998) $ 67,368 (43,638)
Class B -- -- $ 240 -- $ 17,214 --
Bond Fund
Class A Shares -- -- $ 733 $ (733) $ 13,451 $ (13,451)
Class B Shares -- -- $ 516 -- $ 2,789 --
Institutional Shares -- -- $ 43,872 $ (12,631) $ 45,514 $ (45,313)
Short-Term Bond Fund
Class A Shares -- -- $ 12,200 $ (8,772) $ 22,218 $ (8,902)
Institutional Shares -- -- $ 46,925 $ (31,710) 97,928 $ (58,693)
Large Cap Equity Fund
Class A Shares -- -- $ 8,140 -- $ 37,298 --
Class B Shares -- -- 96 -- $ 7,218 --
Institutional Shares -- -- $ 131,164 $ (24,277) $ 253,543 --
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
----------------------------------------------------------------------
1995 1996 1997
Fund payable waived payable waived payable waived
- ------------------------ --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Equity Fund
A Shares -- -- $ 37,103 -- $ 66,388 --
B Shares -- -- $117,011 -- $226,585 --
Institutional Shares -- -- $ 38,235 $ (38,235) $566,164 $ (90,765)
U.S. Government
Securities Fund
A Shares -- -- $ 3,551 $ (3,551) $ 7,685 $ (7,685)
Institutional Shares -- -- $195,938 (935,060) $154,826 $ (21,879)
</TABLE>
With respect to Class A shares of Small Cap Opportunities Fund, for the
period May 13, 1997 through October 31, 1997, fees paid to the Shareholder
Servicing Agents (all of which are currently related parties) and the amount
voluntarily waived for such period (as indicated in parentheses) were as
follows: $27,016 ($26,585).
With respect to the Class B shares of Small Cap Opportunity Fund, for the
period May 19, 1997 through October 31, 1997, fees paid to the Shareholder
Servicing Agents (all of which are currently related parties) and the amount
voluntarily waived for such period (as indicated in parentheses) were as
follows: $20,133 ($--).
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks.
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 amounts not exceeding such
other fees or the fees for their services as Shareholder Servicing Agents.
For shareholders that bank with Chase, Chase may aggregate investments in
the Chase 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 Chase Vista Funds.
Chase and/or the Distributor 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 if
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 the Distributor.
Chase and its affiliates and the Chase Vista Funds, affiliates, agents and
subagents may exchange among themselves and others certain information about
shareholders and their accounts, including information used to offer investment
products and insurance products to them, unless otherwise contractually
prohibited.
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.
57
<PAGE>
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, 1997, 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.
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.
Expenses
Each 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
58
<PAGE>
settlement of security transactions; fees and expenses of the Funds' custodian
for all services to the funds, 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 Funds. Shareholder servicing and
distribution fees are all allocated to specific classes of the Funds. In
addition, the Funds may allocate transfer agency and certain other expenses by
class. Service providers to a Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment
company organized as Massachusetts business trust under the laws of the
Commonwealth of Massachusetts in 1987. The Trust currently consists of 18
series of shares of beneficial interest, par value $.001 per share. 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 whole share held, and each fractional share shall
be entitled to a proportionate fractional vote, except that Trust shares held
in the treasury of the Trust shall not be voted. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class. 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 Class A, Class B and Class C 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 business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special meetings
of shareholders of a series or class when, in the judgment of the Trustees, it
is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances, the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees. 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 share-
59
<PAGE>
holders 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.
Principal Holders
As of June 15, 1998, the following persons owned of record 5% or more of
the outstanding shares of the following classes of the following Funds:
<TABLE>
<S> <C>
BALANCED FUND A SHARES 24.50%
Testa and Company
C/O Chase Manhattan Bank
Attn: Mutual Funds / T-C
PO Box 1412
Rochester, NY 14603-1412
</TABLE>
<TABLE>
<S> <C>
Chase Manhattan Bank N/A 10.69%
Global Sec Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0001
</TABLE>
60
<PAGE>
<TABLE>
<S> <C>
Hamill and Company 10.06%
FBO Texas New Mexico Power
Mail Sta 16-HCB-09
PO Box 2558
Houston, TX 77252
BALANCED FUND B SHARES
MLPF&S for the sole benefit of its customers 6.93%
Attn: Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484
BOND FUND A SHARES
Liva & Company 49.10%
C/O Chase Manhattan Bank
Attn: Mut FDS / T-C
PO Box 1412
Rochester NY 14603-1412
Balsa and Company 10.37%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Testa and Company 8.06%
C/O Chase Manhattan Bank
Attn: Mutual Funds / T-C
PO Box 1412
Rochester, NY 14603-1412
Balsa and Company 7.91%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
BOND FUND B SHARES
Marilyn M. White TTEE 7.90%
U/A DTD Aug 10 90
Marilyn M. White Survivors Trust
6211 Prospect Road
San Jose, CA 95129-4740
Donaldson Lufkin Jenrette Securities 7.68%
Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
BOND FUND INSTITUTIONAL SHARES
Trulin and Company 57.18%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Texas Commerce Bank 11.27%
Avesta
MSC 101111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
SEI Trust Co. 6.82%
First National Bank of Rochester
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, PA 19456
Balsa & Co. 6.54%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Testa and Company 6.23%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
VISTA CAPITAL GROWTH FUND
A SHARES
Charles Schwab & Co. Inc. 6.28%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
CAPITAL GROWTH FUND
C SHARES
MLPF&S for the sole benefit of 27.84%
its customers
Attn: Fund Administration
SEC# 87TR4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
CAPITAL GROWTH FUND
INSTITUTIONAL SHARES
Testa and Company 23.45%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
State Street Bank & Trust Co. TTEE 20.56%
FBO Crane & Co. Profit Sharing Plan
PO Box 470
Boston, MA 02102-0470
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
Chase Manhattan Bank TTEE 18.84%
FBO Berg Electronics Savings Plan
Attn: Kurt Smailus
770 Broadway
10th Floor
New York, NY 10003-9522
International Wire 16.64%
Retirement Savings Plan
770 Broadway
10th Floor
New York, NY 10003-9522
Bankers Trust Trustee 15.00%
Alliance Coal Corp PSSP
Attn: Elijah Outen
34 Exchange Place
Jersey City, NJ 07302-3901
EQUITY INCOME FUND
A SHARES
Liva & Company 7.03%
C/O Chase Manhattan Bank
Attn: Mut FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
EQUITY INCOME FUND
C SHARES
Donaldson Lufkin Jenrette 5.09%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
VISTA EUROPEAN FUND
A SHARES
Balsa & Co. 24.49%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 17.47%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 10.22%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Cudd & Company 9.59%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Cudd & Company 9.32%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
VISTA EUROPEAN FUND
B SHARES
MLPF&S for the sole benefit of 6.59%
its customers
Attn: Fund Administration
SEC# 97HT4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
GROWTH AND INCOME FUND
C SHARES
PaineWebber FBO 7.07%
First Trust Corp. TR Baumgart
PO Box 173301
Denver, CO 80217-3301
IFTA Cust. IRA A/C 5.26%
Wrenna Scotton
360 Cambridge Drive
Ft. Lauderdale, FL 33326-3559
GROWTH AND INCOME FUND
INSTITUTIONAL SHARES
Testa and Company 98.60%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
INTERNATIONAL EQUITY FUND
A SHARES
Balsa and Company 11.36%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa and Company 9.22%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
VISTA JAPAN FUND
A SHARES
Cudd & Company 27.44%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Balsa & Co. 23.82%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 18.33%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 9.50%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
VISTA JAPAN FUND
B SHARES
MLPF&S for the sole benefit of its customers 45.46%
Attn: Fund Administation
SEC# 97HT6
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO # CL5-545830 18.35%
Mario Siragusa
23, rue de la Loi
Brussels, Belgium
LARGE CAP EQUITY FUND
A SHARES
Balsa and Company 35.48%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Liva & Company 11.77%
C/O Chase Manhattan Bank
Attn: Mut FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Corelink Financial Services 8.87%
PO Box 4054
Concord, CA 94524-4054
Testa and Co. 5.98%
C/O Chase Manhattan Bank NA
Attn: Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
LARGE CAP EQUITY FUND
INSTITUTIONAL SHARES
Trulin and Company 23.96%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Testa and Company 10.18%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
Chase Manhattan Bank 6.08%
FBA Jericho OCI Pension PL SLRD EE
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10081-1000
VISTA LATIN AMERICAN EQUITY--
A SHARES
Cudd & Company 80.21%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
BISYS as seed money for 11.54%
Latin American Fund
3435 Stelzer Road
Suite 1000
Columbus, OH 43219-6004
VISTA LATIN AMERICAN EQUITY--
B SHARES
Donaldson Lufkin Jenrette 71.26%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
IFTC Cust. IRA A/C 23.89%
James Chen
48-25 203rd Street
Flushing, NY 11364-1036
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
VISTA SOUTHEAST ASIAN FUND
A SHARES
Cudd & Company 18.72%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Balsa & Co. 14.26%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 7.96%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
CAMLL Rotterdam Ventures Inc. 7.22%
Attn: Cliff Bishop
Chase Asset Management London Ltd.
Colevile House
32 Curzon Street
London, England
United Kingdom
SHORT TERM BOND FUND
A SHARES
Mass Mutual Agents Health 2
Benefit Trust
C/O Richard Peck D113
1295 State Street
Springfield, MA 01111-0002
Balsa and Company 10.14%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Voluntary Hospitals of American Southwest 9.93%
14901 Quorum Drive
Suite 300
Dallas, TX 75240-6784
MLPF&S for the sole benefit of 5.53%
its customers
Attn: Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484
SHORT TERM BOND FUND
INSTITUTIONAL SHARES
Trulin and Company 37.78%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Liva & Company 22.45%
C/O Chase Manhattan Bank
Attn: Mut FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Testa and Company 19.75%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
Fleet Trust Co 8.87%
#20842002 DTD Jul 91
Custodian for Rochester area Foundation
Attn: 227-401512
PO Box 92800
Rochester, NY 14692-8900
Fleet National Bank 6.08%
FBO Rochester Area Foundation
Attn: #20845012
PO Box 92800
Rochester, NY 14692-8900
SMALL CAP EQUITY FUND
A SHARES
Charles Schwab & Co. 7.96%
Reinvest Account
Attn: Mutual Funds Dept
101 Montgomery Street
San Francisco, CA 94104-4122
SMALL CAP OPPORTUNITIES FUND
INSTITUTIONAL SHARES
Balsa and Company 9.07%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
64
<PAGE>
SMALL CAP OPPORTUNITIES FUND
B SHARES
MLPF&S for the sole benefit of 5.89%
its customers
Attn: Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484
SMALL CAP OPPORTUNITIES FUND
C SHARES
ITFC Cust. IRA R/O 6.24%
Edward W. Chasse
3004 Main Street
Caledonia, NY 14423-1216
IFTC Cust. IRA R/O 6.17%
Raymond C. Purlee
8081 Briggs Avenue
Wolcott, NY 14590-9370
Donaldson Lufkin Jenrette 5.84%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
IFTC Cust. IRA R/O 5.41%
Robert J. Puchyr
213 Rogene Street
Rochester, NY 14616-3305
IFTC Cust. IRA A/C 5.35%
Winston A. Cuthbert
155 Vermont Street
Rochester, NY 14609-4904
IFTC Cust. IRA A/C 5.35%
John G. Landry
355 Mill Run Drive
Rochester, NY 14626-1173
SMALL CAP EQUITY FUND
INSTITUTIONAL SHARES
Chase Manhattan Bank N/A 100.00%
Global Sec Services Omnibus
CMB Thrift Incentive Plan
Attn: Jeff Rosenberg
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0001
US GOVERNMENT SECURITIES FUND
A SHARES
Chemical Bank 15.95%
Custodian for the IRA of Rose Faggan
7 East 14th Street
Apt
Testa and Company 12.59%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
Chemical Bank 6.60%
Custodian for the IRA of Alice Ann Berryhill
PO Box 232
Mendham, NJ 10013-2408
Chemical Bank 5.36%
Custodian for the IRA of
Rose Faggan
7 East 14th Street
Apt. 19-T
New York, NY 10003-3127
NFSC FEBO # CR1-93871B 5.08%
The Chase Manhattan Bank Cust.
IRA of Ruth Benton
Trad L IRA Rollover
3315 Pleasant Avenue #7
Union City, NJ 07087-5918
US GOVERNMENT SECURITIES FUND
INSTITUTIONAL SHARES
Chase Manhattan Bank 7.79%
FBA Jericho Rockaway
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th floor
New York, NY 10081-1000
Chase Manhattan Bank 6.62%
Future Benefits--Custody
Fred Schildwachter Pension Plan
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th floor
New York, NY 10081-1000
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
Chase Manhattan Bank 6.17%
FBA Jericho Alleghany Corp Retire
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th floor
New York, NY 10081-1000
Chase Manhattan Bank 5.12%
FBA Jericho RBS Plastics
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10005-1401
US TREASURY INCOME FUND
A SHARES
Testa and Company 16.99%
C/O Chase Manhattan Bank
Attn: Mutual Funds/ T-C
PO Box 1412
Rochester, NY 14603-1412
</TABLE>
Financial Statements
The 1997 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, 1997 contained therein, are incorporated herein
by reference.
<TABLE>
Specimen Computations of Offering Prices Per Share
Focus Fund (specimen computations)
<S> <C>
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at an assumed net
asset value of $10.00 per share....................................................... $ 10.00
Maximum Offering Price per Share (an assumed net value of $10.00 per share divided by
.9525) (reduced on purchases of $100,000 or more)..................................... $ 10.50
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at an assumed net
asset value of $10.00 per share....................................................... $ 10.00
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at an assumed net
asset value of $10.00 per share....................................................... $ 10.00
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at an assumed net
asset value of $10.00 per share ...................................................... $ 10.00
Growth and Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ..................................................................... $ 46.21
Maximum Offering Price per Share ($46.21 divided by .9525) (reduced on purchases of
$100,000 or more)..................................................................... $ 48.51
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 45.96
C Shares:
Net Asset Value and Redemption Price Per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 45.96
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 46.35
Capital Growth Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 46.76
Maximum Offering Price per Share ($46.76 divided by .9525) (reduced on purchases of
$100,000 or more)................................................................. $ 49.09
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 46.11
C Shares:
Net Asset Value and Redemption Price Per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 46.11
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 46.90
Equity Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 19.32
Maximum Offering Price per Share ($19.32 divided by .955) (reduced on purchases of
$100,000 or more)................................................................. $ 20.19
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 19.09
C Shares:
Net Asset Value and Redemption Price Per Share of Beneficial Interest at
October 31, 1997 ................................................................. $ 19.09
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Small Cap Opportunities Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ........................................................................ $ 13.85
Maximum Offering Price per Share ($13.85 divided by .9525) (reduced on purchases of
$100,000 or more)........................................................................ $ 14.54
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ........................................................................ $ 13.81
C Shares:
Net Asset Value and Redemption Price Per Share of Beneficial Interest at
October 31, 1997 ........................................................................ $ 13.81
Balanced Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ........................................................................ $ 15.41
Maximum Offering Price per Share ($15.41 divided by .955) (reduced on purchases of
$100,000 or more)........................................................................ $ 16.14
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ........................................................................ $ 15.21
Large Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1996 ........................................................................ $ 14.83
Maximum Offering Price per Share ($14.83 divided by .9525) (reduced on purchases of
$100,000 or more)........................................................................ $ 15.57
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ........................................................................ $ 14.76
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ........................................................................ $ 14.85
Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1997 $ 10.82
Maximum Offering Price per Share ($10.82 divided by .955) (reduced on purchases of
$100,000 or more)........................................................................ $ 11.33
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 10.87
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 10.82
Short-Term Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 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, 1997 ................................................................... $ 10.11
Small Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 23.57
Maximum Offering Price per Share ($23.57 divided by .9525) (reduced on purchases of
$100,000 or more)................................................................... $ 24.75
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 23.19
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 23.71
U.S. Government Securities Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 10.06
Maximum Offering Price per Share ($10.06 divided by .955) (reduced on purchases of
$100,000 or more)................................................................... $ 10.53
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................... $ 10.04
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
U.S. Treasury Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................ $ 11.26
Maximum Offering Price per Share ($11.26 divided by .955) (reduced on purchases of
$100,000 or more)................................................................ $ 11.79
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1997 ................................................................ $ 11.25
</TABLE>
70
<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 safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
B-1
<PAGE>
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only
in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
B-2
<PAGE>
Standard & Poor's Ratings Group Commercial Paper Ratings
S&P commercial paper rating is current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded in several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Fitch Bond Ratings
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated F-1+ by Fitch.
A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs, however, are not used in
the AAA category.
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.
B-3
<PAGE>
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by a Fund. However, a Fund's investment
manager will consider such event in its determination of whether such Fund
should continue to hold the security. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations
or their rating systems, a Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in this Prospectus and in the Statement of Additional Information.
B-4
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 27, 1998
EUROPEAN FUND
INTERNATIONAL EQUITY FUND
JAPAN FUND
LATIN AMERICAN EQUITY FUND
SOUTHEAST ASIAN FUND
One Chase Manhattan Plaza, Third Floor, New York, New York 10081
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering shares
of International Equity Fund, European Fund, Japan Fund, Latin American Equity
Fund and Southeast Asian Fund. 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
INTL-SAI
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Table of Contents Page
- --------------------------------------------------------------------------------------------
The Funds ............................................................................ 3
Investment Policies and Restrictions ................................................. 3
Performance Information .............................................................. 28
Determination of Net Asset Value ..................................................... 33
Purchases, Redemptions and Exchanges ................................................. 34
Distributions; Tax Matters ........................................................... 39
Management of the Trust and the Funds or Portfolios .................................. 45
Independent Accountants .............................................................. 59
Certain Regulatory Matters ........................................................... 59
General Information .................................................................. 60
Appendix A--Description of Certain Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities ....................................................... A-1
Appendix B--Description of Ratings ................................................... B-1
</TABLE>
2
<PAGE>
THE 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
18 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 Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The International Equity Fund seeks to
achieve its investment objective by investing all of its investable assets in an
open-end, management investment company which has the same investment objective
as such Fund. The International Equity Fund invests in the International Equity
Portfolio (the "Portfolio"). The Portfolio is a New York trust with its
principal office in New York. Certain qualified investors, in addition to the
Fund, may invest in the Portfolio. For purposes of this Statement of Additional
Information, any information or references to the Portfolio refer to the
operations and activities after implementation of the master fund/feeder fund
structure.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. In the case of the Portfolio, a
separate Board of Trustees, with the same members as the Board of Trustees of
the Trust, provides broad supervision. The Chase Manhattan Bank ("Chase") is the
investment adviser for the Funds (other than the International Equity Fund,
which does not have its own adviser) and the Portfolio. Chase also serves as the
administrator of the Trust, including the Funds, and is the administrator of the
Portfolio. A majority of the Trustees of the Trust are not affiliated with the
investment adviser or sub-advisers. Similarly, a majority of the Trustees of the
Portfolio are not affiliated with the investment adviser or sub-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. Each Fund and Portfolio may invest in U.S.
Government securities. U.S. Government Securities include (1) U.S. Treasury
obligations, which generally differ only in their interest rates, maturities and
times of issuance, including: U.S. Treasury bills (maturities of one year or
less), U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years); and (2) obligations
issued or guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Treasury, (b) the right of the issuer to borrow any amount listed to a specific
line of credit from the U.S. Treasury, (c) discretionary authority of the U.S.
Government to purchase certain obligations of the U.S. Government agency or
instrumentality or (d) the credit of the agency or instrumentality. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Student
Loan Marketing Association, United States Postal Service, Chrysler Corporate
Loan Guarantee Board, Small Business Administration, Tennessee Valley Authority
and any other enterprise established or sponsored by the U.S. Government.
Certain U.S. Government Securities, including U.S. Treasury bills, notes and
bonds, Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or guaranteed by
federal agen-
3
<PAGE>
cies 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 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 that are available from the more common types of
government-backed instruments. However, such specialized instruments may only
be available from a few sources in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if a Fund or Portfolio were required to liquidate
any of them, it might not be able to do so advantageously; accordingly, each
Fund and Portfolio investing in such securities normally to hold such
securities to maturity or pursuant to repurchase agreements, and would treat
such securities (including repurchase agreements maturing in more than seven
days) as illiquid for purposes of its limitation on investment in illiquid
securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are insured
by either the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation, and foreign banks (including their
U.S. branches) having total assets in excess of $10 billion (or the equivalent
in other currencies), and such other U.S. and foreign commercial banks which
are judged by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks or foreign banks
which are payable at a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. Fixed time deposits subject to withdrawal penalties and with
respect to which a Fund or Portfolio cannot realize the proceeds thereon within
seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by commercial
banks which generally bear fixed rates of interest and typically have original
maturities ranging from eighteen months to five years.
Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may be
made and the interest rates and fees that may be charged. The profitability of
this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations. Bank obligations may be general obligations of the parent
bank or may be limited to the issuing branch by the terms of the specific
obligations or by government regulation. Investors should also be aware that
securities of foreign banks and foreign branches of United States banks may
involve foreign investment risks in addition to those relating to domestic bank
obligations. These investment risks may involve, among other consider-
4
<PAGE>
ations, risks relating to future political and economic developments, more
limited liquidity of foreign obligations than comparable domestic obligations,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign assets and the possible establishment of
exchange controls or other restrictions. There also may be less publicly
available information concerning foreign issuers, difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches) and
differences in accounting, auditing and financial reporting standards and
practices from those applicable to U.S. issuers. In addition, foreign banks are
also not subject to regulations comparable to U.S. banking regulations. Certain
national policies may also impede the investment opportunities of the Fund or
Portfolio in other ways, including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests. For example, the
Latin American Equity Fund currently does not intend to invest directly in
Chile due to certain restrictions and deposit requirements imposed on foreign
investors.
Foreign Securities. For purposes of a Fund's or a Portfolio's investment
policies, an issuer of a security may be deemed to be located in a particular
country if (i) the principal trading market for the security is in such
country, (ii) the issuer is organized under the laws of such country or (iii)
the issuer derives at least 50 percent of its revenues or profits from such
country or has at least 50 percent of its assets situated in such country.
Depositary Receipts. Each Fund and Portfolio may invest its assets in
securities of multinational companies in the form of American Depositary
Receipts or other similar securities representing securities of foreign
issuers, such as European Depositary Receipts, Global Depositary Receipts and
other similar securities representing securities of foreign issuers
(collectively, "Depositary Receipts"). The Funds and the Portfolio treat
Depositary Receipts as interests in the underlying securities for purposes of
their investment policies. Unsponsored Depositary Receipts may not carry
comparable voting rights to sponsored Depositary Receipts, and a purchaser of
unsponsored Depositary Receipts may not receive as much information about the
issuer of the underlying securities as with a sponsored Depositary Receipt.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unse- cured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Supranational Obligations. Each Fund and Portfolio may invest in
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.
Money Market Instruments. Each Fund and Portfolio may invest in cash or
high-quality, short-term money market instruments. These may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money market
instruments may involve certain risks associated with foreign investment
Corporate Reorganizations. In general securities that are subject to 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; sig-
5
<PAGE>
nificantly undervalues the securities, assets or cash to be received by
shareholder 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 apprise 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 or Portfolio and increase its brokerage and other transaction
expenses.
Loan Participations. The Latin American Equity Fund may invest in
participations in fixed and floating rate loans arranged through private
negotiations between a borrower and one or more financial institutions. The Fund
may have difficulty disposing of participations because to do so it will have to
assign such securities to a third party. Because there is no established
secondary market for such securities, the Fund anticipates that such securities
could be sold only to a limited number of institutional investors. The lack of
an established secondary market may have an adverse impact on the value of such
securities and the Fund's ability to dispose of particular assignments or
participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the borrower. When investing in a participation, the Fund will typically have
the right to receive payments only from the lender, and not from the borrower
itself, to the extent the lender receives payments from the borrower.
Accordingly, the Fund may be subject to the credit risk of both the borrower and
the lender. The lack of an established secondary market for assignments and
participations also may make it more difficult for the Fund to assign a value to
these securities for purposes of valuing the Fund's portfolio and calculating
its net asset value. The Fund will not invest more than 15% of the value of its
net assets in participations and assignments that are illiquid, and in other
illiquid securities.
Brady Bonds. The Latin American Equity Fund may invest in Brady Bonds. The
Brady Plan framework, as it has developed, contemplates the exchange of external
commercial bank debt for newly issued bonds, called Brady Bonds. Brady Bonds may
also be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. Brady Bonds issued to date generally
have maturities of between 15 and 30 years from the date of issuance. The
following Latin American countries have issued Brady Bonds: Argentina, Brazil,
Costa Rica, the Dominican Republic, Ecuador, Mexico, Uruguay and Venezuela. In
addition, other countries may announce plans to issue Brady Bonds. The Funds may
invest in Brady Bonds of countries that have been issued to date, as well as
those which may be issued in the future.
Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, the financial packages offered by
each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt which carry a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from the face value of such debt (generally
known as discount bonds), bonds bearing an interest rate which increases over
time and bonds issued in exchange for the advancement of new money by existing
lenders. Regardless of the stated face amount and stated interest rate of the
various types of Brady Bonds, the Fund will purchase Brady Bonds in secondary
markets, as described below, in which the price and yield to the investor
reflect market conditions at the time of purchase. Brady Bonds issued to date
have traded at a deep discount from their face value. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). The Fund may purchase Brady Bonds with
no or limited collateralization and will be relying for payment of interest and
(except in the case of principal collateralized Brady Bonds) principal primarily
on the willingness and ability of the foreign government to make payment in
accor-
6
<PAGE>
dance with the terms of the Brady Bonds. Brady Bonds issued to date are
purchased and sold in secondary markets through U.S. securities dealers and
other financial institutions and are generally maintained through European
transnational securities depositories.
In addition to Brady Bonds, the Latin American Equity Fund may invest in
Latin American governmental obligations which may be issued as a result of
other debt restructuring agreements.
Repurchase Agreements. Each Fund and Portfolio may enter into repurchase
agreements. Repurchase agreements are agreements to purchase and resell
securities at an agreed-upon price and time. 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 100% of the
amount of the loan, including the accrued interest thereon, and the Fund or
Portfolio or its custodian or sub-custodian will have possession of the
collateral, which the Board of Trustees believes will give it a valid, perfected
security interest in the collateral. Whether a repurchase agreement is the
purchase and sale of a security or a collateralized loan has not been
conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by the
seller under a repurchase agreement construed to be a collateralized loan, the
underlying securities would not be owned by the Fund or Portfolio, but would
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, 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.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow to buy
additional securities, known as "leveraging." Each Fund and Portfolio may enter
into 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. A Fund or Portfolio may use
this practice to generate cash for shareholder redemptions without selling
securities during unfavorable market conditions. Whenever a Fund or 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.) A Fund or
Portfolio would be required to pay interest on amounts obtained through reverse
repurchase agreements, which are considered borrowings under federal securities
laws. 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.
Forward Commitments. Each Fund and Portfolio may purchase securities on a
forward commitment basis. 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 nor-
7
<PAGE>
mally be purchased. When a commitment to purchase a security on a forward
commitment basis is made, procedures are established consistent with the
General Statement of Policy of the Securities and Exchange Commission
concerning such purchases. Since that policy currently recommends that an
amount of the respective Fund's or Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
a separate account of such Fund or Portfolio consisting of cash, cash
equivalents or high quality debt securities equal to the amount of such Fund's
or Portfolio's commitments securities will be established at such Fund's or
Portfolio's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
respective Fund or Portfolio.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the respective Fund's or
Portfolio's portfolio are subject to changes in value based upon the public's
perception of the issuer and changes, real or anticipated, in the level of
interest rates. Purchasing securities on a forward commitment basis can involve
the risk that the yields available in the market when the delivery takes place
may actually be higher or lower than those obtained in the transaction itself.
On the settlement date of the forward commitment transaction, the respective
Fund or Portfolio will meet its obligations from then available cash flow, sale
of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the forward
commitment securities themselves (which may have a value greater or lesser than
such Fund's or Portfolio's payment obligations). The sale of securities to meet
such obligations may result in the realization of capital gains or losses.
Purchasing securities on a forward commitment basis can also involve the risk
of default by the other party on its obligation, delaying or preventing the
Fund or Portfolio from recovering the collateral or completing the transaction.
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.
Investment Grade Debt Securities. Each Fund and Portfolio may invest in
investment grade debt securities. Investment grade debt securities are
securities that are rated in the category BBB or higher by Standard & Poor's
Corporation ("S&P"), Baa or higher by Moody's Investors Service, Inc.
("Moody's"), rated at an equivalent level by another national rating
organization or, if unrated, determined by the advisers to be of comparable
quality.
Stripped Obligations. The principal and interest components of United
States Treasury bonds with remaining maturities of longer than ten years are
eligible to be traded independently under the Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program. Under the STRIPS
program, the principal and interest components are separately issued by the
United States Treasury at the request of depository financial institutions,
which then trade the component parts separately. The interest component of
STRIPS may be more volatile than that of United States Treasury bills with
comparable maturities. The risk is greater when the period to maturity is
longer. Each Fund and Portfolio may invest up to 20 percent of its total assets
in stripped obligations where the underlying obligation is backed by the full
faith and credit of the U.S. Government.
Indexed Investments. Each Fund and Portfolio may invest in instruments
which are indexed to certain specific foreign currency exchange rates. The
terms of such instruments may provide that their principal amounts or just
their coupon interest rates are adjusted upwards or downwards (but not below
zero) at maturity or on established coupon payment dates to reflect changes in
the exchange rate between two or more
8
<PAGE>
currencies while the obligation is outstanding. Such indexed investments entail
the risk of loss of principal and/or interest payments from currency movements
in addition to principal risk, but offer the potential for realizing gains as a
result of changes in foreign currency exchange rates.
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.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund and the Portfolio may elect to treat as liquid,
in accordance with procedures established by the Board of Trustees, certain
investments in restricted securities for which there may be a secondary market
of qualified institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") and commercial
obligations issued in reliance on the so-called "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act. ("Section
4(2) paper") Rule 144A provides an exemption from the registration requirements
of the Securities Act for the resale of certain restricted securities to
qualified institutional buyers. Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is sold to
institutional investors such as a Fund or Portfolio who agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale of Section 4(2) paper by the purchaser must be in an exempt
transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A and
Section 4(2) paper are liquid or illiquid for purposes of the limitation on
investment in illiquid securities. Pursuant to those policies and procedures,
the Trustees have delegated to the advisers the determination as to whether a
particular instrument is liquid or illiquid, requiring that consideration be
given to, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to sell and 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 Portfolio's purchases and
sales of Rule 144A securities and Section 4(2) paper.
Stand-By Commitments. Each Fund and Portfolio may utilize stand-by
commitments in securities sales transactions. 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. A put transaction will increase the cost of the underlying security
and consequently reduce the available yield.
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 100% 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
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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.
Other Investment Companies. Apart from being able to invest all of their
investable assets in another investment company having substantially the same
investment objectives and policies, each Fund 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. For purposes of this restriction, a Mauritius Company will not be
considered an investment company. Additional fees may be charged by other
investment companies.
Unique Characteristics of Master/Feeder Fund Structure. Unlike other
mutual funds which directly acquire and manage their own portfolio securities,
the International Equity Fund invests all of its investable assets in the
Portfolio, a separate registered investment company. Therefore, a shareholder's
interest in the Portfolio's securities is indirect. In addition to selling a
beneficial interest to the Fund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in
the Portfolio on the same terms and conditions and will pay a proportionate
share of the Portfolio's expenses. However, other investors investing in the
Portfolio are not be 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 return 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
were to withdraw from the Portfolio, the remaining funds might experience higher
pro rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
However, the 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 have
been received. Certain changes in the Portfolio's objective, policies or
restrictions may require the Trust to withdraw the Fund's interest in such the
Portfolio. Any withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution from the Portfolio). The Fund
could incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind may result in a less
diversified portfolio of investments or adversely affect the liquidity of the
Fund.
The same individuals who are disinterested Trustees of the Trust serve as
Trustees of the Portfolio. The Trustees of the Trust, including a majority of
the disinterested Trustees, have adopted procedures they believe are reasonably
appropriate to deal with any conflict of interest up to and including creating
a separate Board of Trustees.
Investors in the Fund may obtain information about whether an investment
in the Portfolio may be available through other funds by calling the Chase
Vista Service Center at 1-800-34-VISTA.
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Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Funds and the Portfolio
may employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of other instruments or assets, interest or currency exchange
rates, or indexes. For instance, derivatives include futures, options, forward
contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways: First,
to reduce risk by hedging (offsetting) an investment position. Second, to
substitute for another security particularly where it is quicker, easier and
less expensive to invest in derivatives. Lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction costs,
quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for a Fund or Portfolio.
Each Fund and Portfolio may invest its assets in derivative and related
instruments subject only to the Fund's or Portfolio's investment objective and
policies and the requirement that the Fund or Portfolio maintain segregated
accounts consisting of liquid assets, such as cash, U.S. Government securities,
or other high-grade debt obligations (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover its obligations
under such instruments with respect to positions where there is no underlying
portfolio asset so as to avoid leveraging the Fund or Portfolio.
The value of some derivative or similar instruments in which the Funds and
the Portfolio may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Funds and the Portfolio--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 forecasts such factors and has taken positions in derivative or
similar instruments contrary to prevailing market trends, the Funds and the
Portfolio could be exposed to the risk of a loss. The Funds and/or the Portfolio
may 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 and the Portfolio 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. The Funds and
Portfolio are not required to use any hedging strategies and strategies not
involving hedging involve leverage and 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.
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There can be no assurance that a liquid market will exist at a time when a
Fund or Portfolio seeks to close out an option, futures contract or other
derivative or related position. Many exchanges and boards of trade limit the
amount of fluctuation permitted in option or futures contract prices during a
single day; once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition, certain
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. Finally, over-the-counter instruments typically do not have
a liquid market. Lack of a liquid market for any reason may prevent a Fund or
Portfolio from liquidating an unfavorable position. Activities of large traders
in the futures and securities markets involving arbitrage, "program trading,"
and other investment strategies may cause price distortions in these markets.
In certain instances, particularly those involving over-the-counter
transactions, forward contracts, foreign exchanges or foreign boards of trade,
there is a greater potential that a counterparty or broker may default or be
unable to perform on its commitments. In the event of such a default, a 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, Currencies and Debt
Instruments. A Fund or Portfolio may PURCHASE, SELL or EXERCISE call and put
options on: securities; securities indexes; currencies; or debt instruments.
Specifically, each Fund and 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 and interest rate contracts and (iv) purchase and sell
structured products, which are instruments designed to restructure or reflect
the characteristics of certain other investments.
Although in most cases these options will be exchange-traded, the Funds
and the Portfolio may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities a Fund or Portfolio 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.
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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 on Portfolio
may purchase or sell: interest-rate futures contracts; stock index futures
contracts; foreign currency futures contracts; futures contracts on specified
instruments or indices; and options on these futures contracts ("futures
options").
The futures contracts and futures options may be based on various
instruments or indices in which the Funds and the Portfolio may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
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 the Portfolio may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may entail
additional risks in certain instances. The Funds and the Portfolio may engage
in cross-hedging by purchasing or selling futures or options on a security or
currency different from the security or currency position being hedged to take
advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds and
the Portfolio will only enter into futures contracts or options or 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. Each Fund and Portfolio may enter into forward
contracts. A Fund or 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. The Funds and the
Portfolio may invest in securities denominated in foreign currencies and may,
in addition to buying and selling foreign currency futures contracts and
options on foreign currencies and foreign currency futures, enter into forward
foreign currency exchange contracts to reduce the risks or otherwise take a
position in anticipation of changes in foreign exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be a fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. By entering into a forward foreign currency contract, a Fund
or Portfolio
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"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 investments or anticipated
investments in securities denominated in foreign currencies. A Fund or
Portfolio may also enter into these contracts for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
A Fund or Portfolio may also use forward contracts to hedge against
changes in interest-rates, increase exposure to a market or otherwise take
advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at a
future date.
Interest Rate and Currency Transactions. A Fund or Portfolio may employ
currency and interest rate management techniques, including transactions in
options (including yield curve options), futures, options on futures, forward
foreign currency exchange contracts, currency options and futures and currency
and interest rate swaps. The aggregate amount of a Fund's or Portfolio's net
currency exposure will not exceed the total net asset value of its portfolio.
However, to the extent that a Fund or Portfolio is fully invested while also
maintaining currency positions, it may be exposed to greater combined risk.
The Funds and the Portfolio will only enter into interest rate and
currency swaps on a net basis, i.e., the two payment streams are netted out,
with the Fund or Portfolio receiving or paying, as the case may be, only the
net amount of the two payments. Interest rate and currency swaps do not involve
the delivery of securities, the underlying currency, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate and
currency swaps is limited to the net amount of interest or currency payments
that 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 the Portfolio 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.
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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.
Structured Products. Each Fund and Portfolio may invest in structured
products. Structured products are 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 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
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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's fundamental investment limitation related to borrowing and
leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, an investment 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.
Investment Restrictions
The Funds and the Portfolio 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 the Portfolio are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of a Fund or total
beneficial interests of the Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of the
Portfolio, the Trust will hold a meeting of shareholders of the International
Equity Fund and will cast its votes as instructed by the shareholders of such
Fund.
With respect to the International Equity Fund, it is a fundamental policy
that when the Fund holds no portfolio securities except interests in the
Portfolio, the Fund's investment objective and policies shall be identical to
the Portfolio's investment objective and policies, except for the following:
the Fund (1) may invest more than 10% of its net assets in the securities of a
registered investment company, (2) may hold more than 10% of the voting
securities of a registered investment company, and (3) will concentrate its
investments in the investment company. It is a fundamental investment policy of
the Fund that when the Fund holds only
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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 the 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 total assets must
be repaid before the Fund or Portfolio may make additional investments;
(2) make loans, except that each Fund and the 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 in securities or other instruments backed
by real estate or securities of companies engaged in the real estate
business). Investments by a Fund or Portfolio in securities backed by
mortgages on real estate or in marketable securities of companies engaged
in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund or Portfolio may engage in transactions that may result in
the issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order; (b)
a Fund or Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund or Portfolio may
borrow money as authorized by the 1940 Act. For purposes of this
restriction, collateral arrangements with respect to permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as a
Fund or Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, each of the Southeast
Asian Fund, Japan Fund and European Fund may not:
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(8) make or guarantee loans to any person or otherwise become liable
for or in connection with any obligation or indebtedness of any person
without the prior written consent of the Trustees, provided that for
purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investments in government bonds,
short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of a loan;
(9) invest in securities which are not traded or have not sought a
listing on a stock exchange, over-the-counter market or other organized
securities market that is open to the international public and on which
securities are regularly traded if, regarding all such securities, more
than 10% of its total net assets would be invested in such securities
immediately after and as a result of such transaction;
(10) deal in put options, write or purchase call options, including
warrants, unless such options or warrants are covered and are quoted on a
stock exchange or dealt in on a recognized market, and, at the date of the
relevant transaction: (i) call options written do not involve more than
25%, calculated at the exercise price, of the market value of the
securities within the Fund's portfolio excluding the value of any
outstanding call options purchased, and (ii) the cost of call options or
warrants purchased does not exceed, in terms of premium, 2% of the value
of the net assets of the Fund; or
(11) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer
to be held by the Fund.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (2) above, loan participations are
considered to be debt instruments. For purposes of investment restriction (5)
above, real estate includes Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." Investment restriction (3) above, however, is not applicable to
investments by 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 the Portfolio is subject to the following
nonfundamental restrictions which may be changed without shareholder approval:
(1) The International Equity Fund and the Portfolio may not, with
respect to 50% of its assets, hold more than 10% of the outstanding voting
securities of an issuer.
(2) Each Fund and the 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. No Fund or
Portfolio has the current intention of making short sales against the box.
(3) Each Fund and the Portfolio may not purchase or sell interests in
oil, gas or mineral leases.
(4) Each Fund and the Portfolio may not invest more than 15% of its
net assets in illiquid securities.
(5) Each Fund and the 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,
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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 the Portfolio may invest
in the securities of other investment companies to the extent permitted by
applicable Federal securities law; provided, however, that a Mauritius
holding company (a "Mauritius Portfolio Company") will not be considered
an investment company for this purpose.
In addition, each of the Southeast Asian Fund, Japan Fund and European
Fund is subject to the following nonfundamental restrictions which may be
changed without shareholder approval:
(7) The value of a Fund's investments in holdings of options and
warrants (other than those held for hedging purposes) may not exceed 15%
of the total net asset value of the Fund.
(8) Each Fund may not make any investment in assets that involve
assumption of any liability that is unlimited, or acquire any investments
that are for the time being nil paid or partly paid, unless according to
the terms of the issue thereof any call to be made thereon could be met in
full out of cash by the Fund's portfolio.
(9) Each Fund may not sell, purchase or loan securities (excluding
shares in the Fund) or grant or receive a loan or loans to or from the
adviser, corporate and domicillary agent, or paying agent, the
distributors and the authorized agents or any of their directors, officers
or employees or any of their major shareholders (meaning a shareholder who
holds, in his own or other name (as well as a nominee's name), more than
10% of the total issued and outstanding shares of stock of such company)
acting as principal, or for their own account, unless the transaction is
made within the other restrictions set forth above and either (i) at a
price determined by current publicly available quotations, or (ii) at
competitive prices or interest rates prevailing from time to time on
internationally recognized securities markets or internationally
recognized money markets.
For purposes of the Funds' and Portfolio's investment restrictions,
the issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of the principal of and
interest on the security.
With respect to each of the Funds, as a matter of nonfundamental
policy, to the extent permitted under applicable law, the above
restrictions do not apply to the following investments ("OECD
investments"): (i) any security issued by or the payment of principal and
interest on which is guaranteed by the government of any member state of
the Organization for Economic Cooperation and Development ("OECD
country"); (ii) any fixed income security issued in any OECD country by
any public or local authority or nationalized industry or undertaking of
any OECD country or anywhere in the world by the International Bank for
Reconstruction and Development, European Investment Bank, Asian
Development Bank or any body which is, in the Trustees' opinion, of
similar standing. However, no investment may be made in any OECD
investment of any one issue if that would result in the value of a Fund's
holding of that issue exceeding 30% of the net asset value of the Fund
and, if the Fund's portfolio consists only of OECD investments, those OECD
investments shall be of at least six different issues.
In order to permit the sale of its shares in certain states, a Fund
or Portfolio may make commitments more restrictive than the investment
policies and limitations described above and in its Prospectus. Should a
Fund or Portfolio determine that any such commitment is no longer in its
best interests, it will revoke the commitment by terminating sales of its
shares in the state involved. In order to comply with certain regulatory
policies, as a matter of operating policy, each Fund and the Portfolio
will not: (i) invest more
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than 5% of its assets in companies which, including predecessors, have a
record of less than three years' continuous operation; provided that this
restriction shall not apply to investments in a Mauritius Portfolio
Company, (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; provided, however, that this restriction shall not apply
to investments in a Mauritius Portfolio Company.
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.
Special Considerations
Investing in Southeast Asia. Investing in securities of Southeast Asian
countries entails risks of nationalization, expropriation or confiscatory
taxation, political changes, government regulation, social instability or
diplomatic developments that could adversely impact a Southeast Asian country
or the Fund's investment in that country.
Southeast Asian Fund. Southeast Asian economies and financial markets have
experienced significant volatility in recent years. Many of the countries of
Southeast Asia are developing both economically and politically. Southeast
Asian countries may have relatively unstable governments, economies based on
only a few commodities or industries, and securities markets trading
infrequently or in low volumes. Securities of issuers located in some Southeast
Asian countries tend to have volatile prices and such may offer significant
potential for loss as well as gain. Further, certain companies in Southeast
Asia may not have firmly established product markets, may lack depth of
management, or may be more vulnerable to political or economic developments
such as nationalization of their own industries.
The Fund is susceptible to political and economic factors affecting
issuers in Southeast Asian countries. In addition, although this Fund will not
invest in Japanese companies, some Southeast Asian economies are directly
affected by Japanese capital investment in the region, by Japanese consumer
demands and by the state of the Japanese economy.
Southeast Asian securities are normally denominated and traded in the
currencies of Southeast Asian countries. Accordingly, changes in the values of
these currencies against the U.S. dollar will result in corresponding changes
in the U.S. dollar value of the Fund's assets denominated in those currencies.
Many of the currencies of Southeast Asian countries have recently experienced
extreme volatility relative to the United States dollar. In particular,
Thailand, Indonesia, the Philippines and South Korea have experienced currency
crises of a magnitude warranting assistance from the International Monetary
Fund. Devaluations in the currencies in which the Fund's portfolio securities
are denominated will adversely affect the Fund's net asset value.
Trading volumes on Southeast Asian stock exchanges, although increasing,
are substantially less than in the U.S. stock market, and the stock markets of
Southeast Asian countries have exhibited extreme volatility. Further,
securities of some Southeast Asian companies are less liquid and more volatile
than secu-
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rities of comparable U.S. companies. Fixed commissions on Southeast Asian stock
exchanges are generally higher than negotiated commissions in U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transaction and me be able to purchase securities in which the Fund
may invest on other stock exchanges where commissions are negotiable.
These considerations are more of a concern in developing countries. For
example, the possibility of revolution and the dependence on foreign economic
assistance may be greater in these countries than in developed countries. The
management of the Fund seeks to mitigate the risks associated with the
foregoing considerations through continuous professional management.
Investing in Japan. Japan currently has the second largest GDP in the
world. The Japanese economy has grown substantially in the last three decades.
During the last seven years, however, despite small rallies and market gains,
Japan has been plagued with economic sluggishness. Economic conditions have
weakened considerably in Japan since October 1992. The boom in Japan's equity
and property markets during the expansion of the late 1980s supported high
rates of investment and consumer spending on durable goods, but both of these
components of demand have retreated sharply following the decline in asset
prices. It is suffering through its worst recession in two decades. Profits
have fallen sharply, unemployment has reached a historical high of 3.2% and
consumer confidence is low. The banking sector continues to suffer from
non-performing loans. Nine discount rate cuts since its 6% peak in 1991, a
succession of fiscal stimulus packages, support plans for a debt-burdened
financial system and spending for reconstruction following the Kobe earthquake
should help contain the recessionary forces, but substantial uncertainties
remain. The general government position has deteriorated as a result of
weakening economic growth, as well as stimulative measures taken recently to
support economic activity and to restore financial stability.
In addition to a cyclical downturn, Japan is suffering through structural
adjustments. The Japanese have seen a deterioration of their competitiveness
due to high wages, a string currency and structural rigidities. Japan has also
become a mature industrial economy and, as a result, will see its long-term
growth rate slow down over the next ten years. Finally, Japan is reforming its
political process and deregulating its economy. This has brought about turmoil,
uncertainty and a crisis of confidence.
Japan is heavily dependent upon international trade and, accordingly, has
been and may continue to be adversely affected by trade barriers and other
protectionist or retaliatory measures of, as well as economic conditions in the
U.S. and other countries with which it trades. Industry, the most important
sector of the economy, is heavily dependent on imported raw materials and
fuels. Japan's major industries are in the engineering, electrical, textile,
chemical, automobile, fishing and telecommunication fields. Japan imports iron
ore, copper, and many forest products. Only 19% of its land is suitable for
cultivation. Japan's agricultural economy is subsidized and protected. It is
about 50% self-sufficient in food production. Even though Japan produces a
minute rice surplus, it is dependent upon large imports of wheat, sorghum and
soybeans for m other countries. Japan's high volume of exports such as
automobiles, machine tools and semiconductors have caused trade tensions with
other countries, particularly the United States. Some trading agreements
between the countries have reduced the friction caused by the current trade
imbalance.
The relaxing of official and de facto barriers to imports, or hardships
created by any pressure brought by trading partners, could adversely affect
Japan's economy. A substantial rise in world oil or commodity prices could also
have a negative effect on the country's economy. The strength of the yen itself
may prove an impediment to string continued exports, because of the high prices
its means for Japanese goods sold in other countries. Because the Japanese
economy is so dependent on exports, any fall-off in exports may be seen as a
sign of economic weakness, which may adversely affect the market and the Fund.
Japanese securities are normally denominated and traded in the Japanese
yen. Accordingly, changes in the value of the yen, or other the currencies of
other securities in which the Fund has invested, against the U.S. dollar will
result in corresponding changes in the U.S. dollar value of the Fund's assets
denominated
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in the yen, or such other currency. Historically, over a number of years, the
yen has generally appreciated in relation to the dollar. Nonetheless, the yen
has recently experienced increasing volatility relative to the U.S. dollar,
including periods of devaluation. The Japanese yen may also be adversely
affected by currency difficulties of other countries in the Southeast Asian
region. Devaluations in the yen, and any other currencies in which the Fund's
portfolio securities are denominated, will adversely affect the Fund's net
asset value.
In 1990, the Japanese stock market, as measured by the Tokyo Stock Price
Index (TOPIX), began a spectacular decline which continued through 1992. Since
then, the market has failed to rebound and continues to exhibit substantial
volatility. The decline in the Japanese securities markets has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those of the United States, even
after recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
While the Japanese governmental system seems stable, the country's
politics have been unpredictable in recent years. The economic crisis of
1990-92 brought the downfall of the conservative Liberal Democratic Party,
which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go,
because of politics as well as personal scandals. While there appears to be no
reason for anticipating civil unrest, its is impossible to know when the
political instability will end and what trade and fiscal policies might be
pursued by the government that emerges.
A seven-year decline of the Tokyo stock market has made the country's
banks and financial institutions vulnerable because of their large share
portfolios, and has left Japanese banks holding large numbers of non-performing
loans. In addition, the Japanese economy labors under a heavy government budget
deficit and historically low interest rates. As a result of these factors,
several high-profile bankruptcies of Japanese banks, brokerage firms and
insurance companies have occurred, and there can be no assurance that the
number of such bankruptcies will not increase. The economic difficulties of
other countries in the Southeast Asian region have adversely affected and may
continue to adversely affect the Japan's economy as many Japanese banks and
companies have exposure to the region and as the region's demand for Japanese
exports fluctuates.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.
As in the United States and other markets, small company stocks are
typically more volatile than large company stocks, reacting more extremely to
good or bad news. Since Japan's market is dominated by large stocks (the
average company size in Japan is the largest anywhere in the world), the
behavior of the Japanese market in general and of the small-stock segment in
particular may be affected by the trading activity on a relatively small number
of large-company stocks to a much greater degree than is typically seen in the
United States. Further, during periods of economic difficulty, small companies
can find it harder to compete or survive. Since August 1990, the shares of
smaller Japanese companies have underperformed those of larger companies, as
they tend to do in periods of declining industrial production. However, the
reverse trend tends to apply in periods of economic recovery.
Investing in Europe. Investment in the securities of European countries
may entail risks relating to restrictions on foreign investment and on
repatriation of capital invested as well as risks relating to economic
conditions of the region.
The securities markets of many European countries are relatively small,
with the majority of market capitalization and trading volume concentrated in a
limited number of companies representing a small number of industries.
Consequently, the Fund's investment portfolio may experience greater price
volatility and
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significantly lower liquidity than a portfolio invested in equity securities of
U.S. companies. These markets may be subject to a greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the U.S. Securities
settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign investment in the securities markets of certain European countries
is restricted or controlled to varying degrees. These restrictions or controls
may at times limit or preclude investment in certain securities and may
increase the cost and expenses of the Fund, As illustrations, certain countries
require governmental approval prior to investments by foreign persons, or limit
the amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of securities of a
company which may have less advantageous terms than securities of the company
available for purchase by nationals. In addition, the repatriation of both
investment income and capital from certain of the countries is controlled under
regulations, including in some case the need for certain advance government
notification or authority. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for repatriation.
The economies of individual European countries may differ favorably or
unfavorably from the U.S economy in such respects as growth of gross domestic
product or gross national product, as the case may be, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. In addition, securities traded in certain emerging European
securities trading markets may be subject to risks due to inexperience of
financial intermediaries, the lack of modern technology, the lack of sufficient
capital base to expand business operations and the possibility of permanent or
temporary termination of trading and greater spreads between bid and asked
prices for securities in such markets.
Investing in Latin America. Investing in securities of Latin American
Issuers may entail risks relating to the potential political and economic
instability of certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities market of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the Unites States. Disclosure and regulatory standards
are in many respects less stringent that Unites States standards. Furthermore,
there is a lower level of monitoring and regulation of the markets and the
activities of investors in such markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume
of trading in the securities of Unites States issuer could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The Latin American Equity Fund invests insecurities denominated in
currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the Unites States dollar will result in corresponding
changes in the United States dollar value of the Fund's assets denominated in
those currencies.
Some Latin American countries also may have managed currencies, which are
not free floating against the Unites States dollar. In addition, there is risk
that certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies
may not be internationally traded. Certain of these currencies have experienced
a steep devaluation relative to the Unites States dollar. Amy devaluations in
the currencies win which the Fund's portfolio securities are denominated may
have a detrimental impact on the Fund's net asset value.
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The economies of individual Latin American countries may differ favorably
or unfavorably from the United States economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. furthermore, certain Latin American
countries may impose withholding taxes on dividends payable to the Fund at a
higher rate than those imposed by other foreign countries. this may reduce the
Fund's investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain Latin American counties have declared moratoria on the
payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able to willing to repay
the principal and/or interest when due in accordance with the terms of such
debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund, and the political constraints
to which a governmental entity may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entities
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties' commitments to lend
funds to the governmental entity, which may further impair such debtor's
ability or willingness to service its debts in a timely manner. Consequently,
governmental entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and the extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt say be collected in whole or in part.
Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron, ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. economic growth was strong in the 1960's and 1970's, but
slowed dramatically (and in sumo was negative ) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries
are currently experiencing lower rates of inflation and higher rates of real
growth in gross domestic product than the have in the past, other Latin
American countries continue to experience significant problems, including high
inflation rates and high interest rates. Capital flight has proven a persistent
problem and external debt has been forcibly rescheduled. Someway turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as he North American Free Trade Agreement ("NFTA"),
privatization, trade reform and fiscal and monetary reform are among the recent
steps taken to renew economic growth. External debt is being restructured and
flight capital (domestic
24
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capital that has left home country) has begun to return. Inflation control
efforts have also been implemented. Latin American equity markets can be
extremely volatile and in the past have shown little correlation with the
United States market. Currencies are typically weak, but most are now
relatively free floating, and it is not unusual for the currencies to undergo
wide fluctuations in value over short periods of time.
Lower Rated Securities. Each Fund and the Portfolio is permitted to
invest in non-investment grade securities. Such securities, though higher
yielding, are characterized by risk. Each Fund may invest in debt securities
rated as low as B- by Moody's or S&P or, if not rated, are determined to be of
comparable quality. Lower rated securities are securities such as those rated
Ba by Moody's or BB by S&P or as low as the lowest rating assigned by Moody's
or S&P. They generally are not meant for short-term investing and may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuation than certain lower yielding, higher rated fixed income
securities. Obligations rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered well assured and often the
protection of interest and principal payments may be very moderate. Obligations
rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability
to default than other speculative grade debt, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. Obligations rated C by Moody's are regarded as having extremely poor
prospects of ever attaining any real investment standing. Obligations rated D
by S&P are in default and the payment of interest and/or repayments of
principal is in arrears. Such obligations, though high yielding, are
characterized by great risk. See "Appendix B" herein for a general description
of Moody's and S&P ratings.
The ratings of Moody's and S&P represent their opinions as to the quality
of the securities which they undertake to rate. The ratings are relative and
subjective and, although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market risk of these
securities. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, the Investment Adviser will also evaluate
these securities and the ability of the issuers of such securities to pay
interest and principal. Each Fund or the Portfolio will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer. In this evaluation, the Investment Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund's or
Portfolio's ability to achieve its investment objective may be more dependent
on the Investment Adviser's credit analysis than might be the case for funds
that invested in higher rated securities. Once the rating of a security in the
Fund's or Portfolio's portfolio has been changed, the Investment Adviser will
consider all circumstances deemed relevant in determining whether the Fund or
Portfolio should continue to hold the security.
The market price and yield of debt securities rated Ba or lower by Moody's
and BB or lower by S&P are more volatile that those of higher rated securities.
Factors adversely affecting the market price and yield of these securities will
adversely affect a Fund's net asset value. It is likely that any economic
recession could disrupt severely the market for such securities and may have an
adverse impact on the value of such securities. In addition, it is likely that
any such economic downturn could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon and increase the
incidence for default for such securities.
The market values of certain lower rated debt securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates, and tend to be more sensitive to economic conditions than are
higher rated securities. Companies that issue such securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of these securities may experience financial
stress. During such periods, such issuers may not have sufficient revenues to
meet their interest
25
<PAGE>
payment obligations. The issuer's ability to service its debt obligations also
may be affected adversely by specific corporate developments or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss because of default by the issuer is
significantly greater for the holders of these securities because such
securities generally are unsecured and often are subordinated to other
creditors of the issuer.
Because there is no established retail secondary market for many of these
securities, the Investment Adviser anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it generally
is not as liquid as the secondary market for higher rated securities. The lack
of a liquid secondary market may have an adverse impact on market price and
yield and a Fund's ability to dispose of particular issues when necessary to
meet that Fund's liquidity needs or in response to a specific economic event
such as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for a Fund or Portfolio to obtain accurate market quotations for purposes of
valuing that Fund's or Portfolio's portfolio and calculating its net asset
value. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of these
securities. In such cases, judgment may play a greater role in valuation
because less reliable, objective data may be available.
A Fund or Portfolio may acquire these securities during an initial
offering. Such securities may involve special risks because they are new
issues. The Funds and Portfolio have no arrangement with any persons concerning
the acquisition of such securities, and the Investment Adviser will review
carefully the credit and other characteristics pertinent to such new issues.
Each Fund and Portfolio may invest in lower rated zero coupon securities
and pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds), which involve special considerations. These securities may
be subject to greater fluctuations in value due to changes in interest rates
that interest-bearing securities. These securities carry an additional risk in
that, unlike bonds which may interest throughout the period to maturity, the
Funds will realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Funds or Portfolio may
obtain no return at all on their investment. See "Tax Matters."
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
Portfolios. 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 a Fund's or Portfolio's
transaction costs and the possibility of taxable short-term gains, as well as
make it more difficult for the Fund to qualify as a registered investment
company under federal tax law. Therefore, 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.
The portfolio turnover rate for the International Equity Portfolio for the
fiscal year ended October 31, 1995, was 137%. For the fiscal year ended October
31, 1996, the portfolio turnover rate was 179%. For the fiscal year ended
October 31, 1997, the portfolio turnover rate was 199%. The International
Equity Fund invests all of its investable assets in the Portfolio and does not
invest directly in a portfolio of assets, and therefore does not have
reportable turnover rates.
26
<PAGE>
For the period November 2, 1995 (commencement of operations) through
October 31, 1996, the annual portfolio turnover rates for the Southeast Asian
Fund, Japan Fund and European Fund were 149%, 121% and 186%, respectively.
For the fiscal period ending October 31, 1997, the annual portfolio
turnover rates for the Southeast Asian Fund, Japan Fund and European Fund were
234%, 217% and 170%.
For the fiscal period ending October 31, 1998, the annual portfolio
turnover rate for the Latin American Equity Fund is not expected 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 Fund or
Portfolio relative to other accounts they manage or otherwise materially
adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to 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 the Funds and Portfolio 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 Portfolio to pay a broker-dealer which provides brokerage
and research services to the adviser or sub-advisers, the Funds or Portfolio
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 Portfolio. The adviser and sub-advisers report to the
Board of Trustees regarding overall commissions paid by the Funds and Portfolio
and their reasonableness in relation to the benefits to the Funds and
Portfolio. The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of purchasers or sellers of
securities, furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
The management fees that the Funds and Portfolio pay to the adviser will
not be reduced as a consequence of the adviser's or sub-advisers' receipt of
brokerage and research services. To the extent the Funds' or Portfolio's
portfolio transactions are used to obtain such services, the brokerage
commissions paid by the Funds or Portfolio will exceed those that might
otherwise be paid by an amount which cannot be pres-
27
<PAGE>
ently 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 Portfolio. While such services
are not expected to reduce the expenses of the adviser or sub-advisers, they
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 Portfolio as well as one or more of the adviser's or
sub-adviser's, other clients. Investment decisions for the Funds and Portfolio
and for other clients are made with a view to achieving their respective
investment objectives. It may develop that the same investment decision is made
for more than one client or that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more Funds
or Portfolio 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 Portfolio are concerned. However, it is
believed that the ability of the Funds and Portfolio to participate in volume
transactions will generally produce better executions for the Funds and
Portfolio.
The International Equity Portfolio and the Funds paid brokerage commissions
as detailed below:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
10/31/95 10/31/96 10/31/97
---------- ---------- -----------
<S> <C> <C> <C>
International
Equity Portfolio $383,649 $263,816 $222,212
European Fund -- $ 56,205 $109,903
Japan Fund -- $ 82,509 $ 78,861
Southeast Asian Fund -- $153,351 $241,480
</TABLE>
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. Performance is calculated separately for each
class of shares. Because such performance information is based on past
investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the
performance and yield of a Fund or its classes. A Fund's performance may be
compared with indices
28
<PAGE>
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 Morgan Stanley Capital International
Europe Index (Europe Fund); the Tokyo Stock Exchange (TOPIX) First Section
Index (Japan Fund); the Morgan Stanley Capital International (All Countries)
Asia Pacific ex Japan Free Index (Southeast Asian Fund); the Morgan Stanley
Capital International Europe, Australia and Far East Index (International
Equity Portfolio); 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 a 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 a 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 rather than the date such class was
introduced. Performance information for each class introduced after the
commencement of operations of the related 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 class is based upon
the performance history of a predecessor class, to reflect the ongoing expenses
currently borne by the particular class.
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 Chase 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.
29
<PAGE>
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. Any annualized total rate of return
quotation will be calculated by (x) adding 1 to the period total rate of return
quotation as calculated above, (y) raising such sum to a power which is equal
to 365 divided by the number of days in such period, and (z) subtracting 1 from
the result.
The 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
the Funds with other measures of investment return.
Average Annual Total Returns*
(excluding sales charges)
The average annual total rates of return 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 year period ended October 31, 1997 and for the period from commencement
of business operations of each such Fund to October 31, 1997, were as follows:
<TABLE>
<CAPTION>
Date of Date of
One Since Fund Class
Year Inception Inception Introduction
--------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
European Fund 11/2/95
Class A Shares 28.19% 24.43% 11/2/95
Class B Shares 27.25% 23.57% 11/3/95
Japan Fund 11/2/95
Class A Shares 3.49% (1.27%) 11/2/95
Class B Shares 2.72% (2.00%) 11/3/95
Southeast Asian Fund 11/2/95
Class A Shares (28.86%) (7.72%) 11/2/95
Class B Shares (29.48%) (8.43%) 11/3/95
International Equity Fund 12/31/92
A Shares 2.27% 5.47% 12/31/92
B Shares** 1.74% 5.02% 11/4/93
Latin American Equity Fund 12/1/97
A Shares N/A N/A 12/1/97
B Shares N/A N/A 12/1/97
</TABLE>
- ----------
*The ongoing fees and expenses borne by Class B Shares are greater than those
borne by Class A Shares. As indicated above, the performance information for
each class introduced after the commencement of operations of the related
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
30
<PAGE>
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.
**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.
Average Annual Total Returns*
(including sales charges)
With the current maximum respective sales charges of 4.75% for Class A
shares, and the currently applicable CDSC for Class B shares for each period
length, reflected, the total rates of return would be as follows:
<TABLE>
<CAPTION>
One Since
Year Inception
--------------------------- -----------------
<S> <C> <C>
European Fund
Class A Shares 22.10% 21.44%
Class B Shares 22.25% 21.94%
Japan Fund
Class A Shares ( 1.43%) ( 3.64%)
Class B Shares ( 2.28%) ( 3.94%)
Southeast Asian Fund
Class A Shares (32.24%) ( 9.94%)
Class B Shares (32.82%) (10.19%)
International Equity Fund
A Shares ( 2.58%) 4.41%
B Shares ( 3.26%) 4.50%
Latin American Equity Fund
A Shares N/A N/A
B Shares N/A N/A
</TABLE>
- ----------
*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 historical yield, carried at least to the nearest hundredth of one
percent, based on a thirty calendar day period and shall be calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum offering price per share on the last day
of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
31
<PAGE>
The yields of the Class A shares of the International Equity Fund,
European Fund, Japan Fund, and the Southeast Asian Fund for the thirty-day
period ended October 31, 1997 were (0%), (0.01%), (0%) and (0%), respectively.
The yields of the Class B shares of those Funds were (0%), (0%), (0%) and (0%),
respectively.
Non-Standardized Performance Results*
(including sales charges)
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in the following Funds (excluding the effects of any
applicable sales charges) for the period from the commencement date of business
for each Fund, with values reflecting 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 Value
Initial $10,000 Capital Gains Reinvested Total
Investment Distributions Dividends Value
----------------- ---------------- --------------- ----------
<S> <C> <C> <C> <C>
International Equity Fund
A Shares $12,110 $ 729 $ 99 $12,938
B Shares 11,940 720 10 12,670
European Fund
A Shares 14,110 1,016 366 15,482
B Shares 13,390 1,009 329 15,269
Japan Fund
A Shares 9,520 0 228 9,748
B Shares 9,420 0 185 9,605
Southeast Asian Fund
A Shares 8,070 438 7 8,515
B Shares 7,950 435 0 8,385
Latin American Equity Fund
A Shares NA NA NA NA
B Shares NA NA NA NA
</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 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 peformance history of a predecessor class,
to reflect the ongoing expenses currently borne by the particular class.
32
<PAGE>
Non-Standardized Performance Results*
(including sales charges)
With the current maximum sales charge of 4.75% for Class A Shares and the
currently applicable CDSC for Class B Shares for each period length, the
performance periods for the same periods would be as follows:
<TABLE>
<CAPTION>
Value of Value of Value
Initial $10,000 Capital Gains Reinvested Total
Investment Distributions Dividends Value
----------------- ---------------- --------------- ----------
<S> <C> <C> <C> <C>
International Equity Fund
A Shares $11,535 $ 694 $ 94 $12,323
B Shares 11,640 720 10 12,370
European Fund
A Shares 13,430 968 349 14,747
B Shares 13,530 1,009 329 14,869
Japan Fund
A Shares 9,068 0 218 9,285
B Shares 9,035 0 185 9,220
Southeast Asian Fund
A Shares 7,687 417 7 8,111
B Shares 7,632 417 0 8,049
Latin American Equity Fund
A Shares NA NA NA NA
B Shares NA NA NA NA
</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 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 peformance history of a predecessor class,
to reflect the ongoing expenses currently borne by the particular 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, Martin Luther King, Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Since the Funds and the Portfolio invest in securities primarily
listed on foreign exchanges which trade on Saturdays or other customary United
States national business holidays on which the Funds and the Portfolio do not
price, the Funds' and the Portfolio's portfolios will trade and the net asset
value of the Funds' shares may be significantly affected on days on which the
investor has no access to the Fund.
Equity securities are valued at the last sale price on the exchange on
which they are primarily traded or on the NASDAQ National Market System, or at
the last quoted bid price for securities in which there were no sales during
the day or for other unlisted (over-the-counter) securities. Bonds and other
fixed income securities (other than short-term obligations, but including
listed issues) are valued on the basis of valuations furnished by a pricing
service, the use of which has been approved by the Board of Trustees. In making
such valuations, the pricing service utilizes both dealer-supplied valuations
and electronic data processing techniques that take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or
exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Short-term
obligations which mature in
33
<PAGE>
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 is determined on the basis of
interest accrued plus amortization of discount (generally, the difference
between coupon acquisition price and stated redemption price at maturity) and
premiums (generally, 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. The Telephone Exchange
Privilege is not available if you were issued certificates for shares that
remain outstanding.
An investor can buy Fund shares three ways: (i) through an investment
representative; (ii) through the Fund's distributor by calling the Chase Vista
Service Center or (iii) through the Systematic Investment Plan. 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 International Equity 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. The 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 on each such day, based upon prices
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time, however, options are priced at 4:15 p.m.
Eastern time) the value of each investor's interest in a Portfolio will be
determined by multiplying the net asset value of the Portfolio by the per-
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centage 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 Chase 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 Chase Vista fund excluding any Chase 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 qualifies for a cumulative quantity discount,
and confirmation of the order is subject to such verification. Infor-
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mation 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.
Investors may be eligible to buy Class A shares at reduced sales charges.
One's investment representative or the Chase Vista Funds Service Center should
be consulted for details about Chase Vista's combined purchase privilege,
cumulative quantity discount, statement of intention, group sales plan,
employee benefit plans and other plans. For purchases of the Fund's Class A
shares made from January 1, 1998 through April 30, 1998 (CHANGE DATE), no
initial sales charge will be assessed if you are opening or adding to a Vista
prototype IRA by transferring or rolling over $50,000 or more of assets from a
qualified plan, consisting of redemption proceeds from non-Chase Vista mutual
funds on which you paid a front-end or deferred sales load. In connection with
such purchases of Class A shares, the Fund's distributor will pay
broker-dealers a 1% commission. If an investor opens or adds to a Vista
prototype IRA, from January 1, 1998 through April 30, 1998 (CHANGE DATE), by
investing $5,000 or more, the annual IRA maintenance fee payable to the IRA
sponsor will be waived for the life of the account. In addition, sales charges
are waived if one is using redemption proceeds received within the prior ninety
days from non-Chase Vista mutual funds to buy the shares, and on which the
investor paid a front-end or contingent deferred sales charge.
Some participant-directed employee benefit plans participate in a
"multi-fund" program which offers both Chase Vista and non-Chase Vista mutual
funds. With Board of Trustee approval, the money that is invested in Chase
Vista Funds may be combined with the other mutual funds in the same program
when determining 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.
No initial sales charge will apply to the purchase of a Fund's Class A
shares if (i) one is investing proceeds from a qualified retirement plan where
a portion of the plan was invested in the Chase Vista Funds, (ii) one is
investing through any qualified retirement plan with 50 or more participants or
(iii) the investor is a participant in certain qualified retirement plans and
is investing (or reinvesting) the proceeds from the repayment of a plan loan
made to him or her.
For purchases of a Fund's Class A shares made from January 1, 1998 through
December 31, 1998 (CHANGE THIS DATE), no initial sales charge will be assessed
if one is investing through an IRA or qualified retirement plan for which The
Chase Manhattan Bank or its designee serves as trustee or custodian, and
additional investments in Class A shares of the Fund through such an IRA or
qualified plan made subsequent to 1998 will not be subject to initial sales
charges for the life of the Fund account.
The Funds may sell Class A shares at net asset value without an initial
sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Funds' 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 Funds' distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Funds' distributor (or
otherwise having an arrangement with a broker-dealer or financial institution
with respect to sales of Chase Vista Fund shares), financial institutions
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trust departments investing an aggregate of $1 million or more in the Chase
Vista Funds and clients of certain administrators of tax-qualified plans when
proceeds from repayments of loans to participants are invested (or reinvested)
in the Chase Vista Funds.
For purchases of a Fund's Class A shares made from January 1, 1998 through
December 31, 1998, no initial sales charge will be assessed if one is investing
the proceeds of an IRA or other qualified plan for which The Chase Manhattan
Bank or its designee serves as trustee or custodian. No initial sales charge
will apply if you are investing the proceeds of a qualified retirement plan
where a portion of the plan was invested in the Chase Vista 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 a 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 a 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 pre-approved 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.
Investors may incur a fee if they effect transactions through a broker or
agent.
Purchases of a 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 the time
of the investment to the Fund, the Fund's distributor or the Chase Vista Funds
Service Center.
Shareholders of record of any Chase Vista fund as of November 30, 1990 and
certain immediate family members may purchase a Fund's Class A shares with no
initial sales charge for as long as they continue to own Class A shares of any
Chase Vista fund, provided there is no change in account registration.
Each 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.
Shareholders of other Chase Vista Funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of a Fund at
net asset value.
The Funds reserve the right to change any of these policies at any time
and may reject any request to purchase shares at a reduced sales charge.
Reinstatement Privilege. Upon written request, Class A shareholders of
each Fund and Portfolio 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. The reinstatement 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 (or C) 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 (or C) shares.
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 rec-
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ognized for federal income tax purposes. Normally, shares of the fund to be
acquired are purchased on the redemption date, 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. 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.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares attributable to the
Class B shares then converting. The conversion of Class B shares purchased on
or after May 1, 1996, will be effected at the relative net asset values per
share of the two classes on the first business day of the month following the
eighth anniversary of the original purchase. The conversion of Class B shares
purchased prior to May 1, 1996, will be effected at the relative net asset
values per share of the two classes on the first business day of the month
following the seventh anniversary of the original purchase. If any exchanges of
Class B shares during the CDSC Period occurred, the holding period for the
shares exchanged will be counted toward the CDSC Period. At the time of the
conversion the net asset value per share of the Class A shares may be higher or
lower than the net asset value per share of the Class B shares; as a result,
depending on the relative net asset values per share, a shareholder may receive
fewer or more Class A shares than the number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain of the 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.
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DISTRIBUTIONS; 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 Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of each Fund or its shareholders, and the discussion here
and in the Prospectus is not intended as a substitute 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") 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. Net
investment income for each Fund consists of all interest accrued and discounts
earned, less amortization of any market premium on the portfolio assets of the
Fund and the accrued expenses of the Fund. As a regulated investment company, a
Fund is not subject to federal income tax on the portion of its net investment
income (i.e., its investment company taxable income, as that term is defined in
the Code, without regard to the deduction for dividends paid) and net capital
gain (i.e., the excess of net long-term capital gain over net short-term
capital loss) that it distributes to shareholders, provided that it distributes
at least 90% of its net investment income for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Because International Equity Fund invests all of
its assets in the Portfolio which will be classified as a partnership for
federal income tax purposes, the Fund will be deemed to own a proportionate
share of the income of the Portfolio for purposes of determining whether the
Fund satisfies the Distribution Requirement and the other requirements
necessary to qualify as a regulated investment company (e.g., Income
Requirement (hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities)
and other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement").
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.
Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Fund and defer recognition of certain
of the Fund's losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. In addition, these provisions (1)
will require a Fund to "mark-to-market" certain types of positions in its
portfolio (that
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is, treat them as if they were closed out) and (2) may cause a Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the Distribution Requirement and
avoid the 4% excise tax (described below). Each Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate
the effect of these rules.
If a Fund purchases shares in a "passive foreign investment company" (a
"PFIC"), such Fund may be subject to U.S. federal income tax on a portion of
any "excess distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the Fund to its
shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
If a Fund were to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code (a "QEF"), in lieu of the foregoing
requirements, the Fund would be required to include in income each year a
portion of the ordinary earnings and net capital gain of the qualified electing
fund, even if not distributed to the Fund. Alternatively, under recently
enacted legislation, the Fund can elect to mark-to-market at the end of each
taxable year its shares in a PFIC; in this case, the Fund would recognize as
ordinary income any increase in the value of such shares, and as ordinary loss
any decrease in such value to the extent it did not exceed prior increases
included in income. Under either election, a Fund might be required to
recognize in a year income in excess of its distributions from PFICs and its
proceeds from dispositions of PFIC stock during that year, and such income
would nevertheless be subject to the Distribution Requirement and would be
taken into account for purposes of the 4% excise tax (described below).
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.
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 the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Funds anticipate distributing substantially all of their net
investment income for each taxable year. An investor can choose from three
distribution options: (i) reinvest all distributions in additional Fund shares
without a sales charge; (ii) 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. One can change his or her
distribution option by notifying the Chase Vista service center in writing. If
an investor does not select an option when he or she opens his or her account,
all distributions will be reinvested. All distributions not paid in cash or by
ACH will
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be reinvested in shares of the same share class. The investor 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 Chase Vista Service Center will notify the investor that
he or she has the option of requesting another check or reinvesting the
distribution in the Fund or in an established account of another Chase Vista
fund without a sales charge. If the Chase Vista Service Center does not receive
the investor's election, the distribution will be reinvested in the Fund.
Similarly, if the Fund or the Chase Vista Service Center sends you
correspondence returned as "undeliverable," distributions will automatically be
reinvested in the Fund. Such distributions will be taxable to shareholders as
ordinary income and treated as dividends for federal income tax purposes, but
they will not qualify for the 70% dividends-received deduction for corporate
shareholders of the Funds. 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. The Funds currently intend to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Under recently enacted legislation, the maximum rate of tax on long-term
capital gains of individuals will generally be reduced from 28% to 20% (10% for
gains otherwise taxed at 15%) for long-term capital gains realized after July
28, 1997 with respect to capital assets held for more than 18 months.
Additionally, beginning after December 31, 2000, the maximum tax rate for
capital assets with a holding period beginning after that date and held for
more than five years will be 18%. Under a literal reading of the legislation,
capital gain dividends paid by a regulated investment company would not appear
eligible for the reduced capital gain rates. However, the legislation
authorizes the Treasury Department to promulgate regulations that would apply
the new rates to capital gain dividends paid by a regulated investment company.
Conversely, if 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.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Funds 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 a Fund's assets to be invested in various countries
is not known. If more than 50% of the value of the Fund's total assets at the
close of its taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's shareholders
the amount of foreign taxes paid by such Fund. If a Fund so elects, each
shareholder would be required to include in gross income, even though not
actually received, his pro rata share of the foreign taxes paid by the Fund,
but would be treated as having paid his pro rata share of such foreign taxes
and would therefore be allowed to either deduct such amount in computing
taxable income or use such amount (subject to various Code limitations) as a
foreign tax credit against federal income tax
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(but not both). For purposes of the foreign tax credit limitation rules of the
Code, each shareholder would treat as foreign source income his pro rata share
of such foreign taxes plus the portion of dividends received from a Fund
representing income derived from foreign sources. In certain circumstances, a
shareholder that (i) has held shares of a Fund for less than a specified
minimum period during which it is not protected from risk of loss or (ii) is
obligated to make payments related to the dividends, will not be allowed a
foreign tax credit for foreign taxes deemed imposed on dividends paid on such
shares. A Fund must also meet this holding period requirement with respect to
its foreign stock and securities in order to flow through "creditable" taxes.
No deduction for foreign taxes could be claimed by an individual shareholder
who does not itemize deductions. Each shareholder should consult his own tax
advisor regarding the potential application of foreign tax credits.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in obligations
such as certain Brady Bonds or zero coupon securities having original issue
discount or market discount if the Fund elects to accrue market discount on a
current basis. In addition, income may continue to accrue for federal income
tax purposes with respect to a non-performing investment. Any of the foregoing
income would be treated as income earned by the Fund and therefore would be
subject to the distribution requirements of the Code. Because such income may
not be matched by a corresponding cash distribution to the Fund, the Fund may
be required to dispose of other securities to be able to make distributions to
its investors.
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.
Each 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
42
<PAGE>
other shares of such 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 treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Furthermore, such a foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) on the gross income
resulting from a Fund's election to treat any foreign taxes paid by it as paid
by its shareholders, but may not be allowed a deduction against this gross
income or a credit against this U.S. withholding tax for the foreign
shareholder's pro rata share of such foreign taxes which it is treated as
having paid. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund, and
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from 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 their
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 RIC may pass through (without restriction) to
its shareholders state and local income tax exemptions available to direct
owners of certain types of U.S. government securities (such as U.S. Treasury
obligations). Thus, for residents of these states, distributions derived from a
Fund's investment in certain types of U.S. government securities should be free
from state and local income taxes to the extent that the interest income from
such investments would have been exempt from state and local income taxes if
such securities had been held directly by the respective shareholders
themselves. Certain states, however, do not allow a RIC to pass through to its
shareholders the state and local income tax exemptions available to direct
owners of certain types of U.S. government securities unless the RIC holds at
least a required amount of U.S. government securities. Accordingly, for
residents of these states, distributions derived from a Fund's investment in
certain types of U.S. government securities may not be entitled to the
exemptions from state and local income taxes that would be available
43
<PAGE>
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 are attributable
to interest on such securities. Rules of state and local taxation of ordinary
income dividends and capital gain dividends from RICs may differ from the rules
for U.S. federal income taxation in other respects. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in a Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
44
<PAGE>
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: 65. Address: 202 June Road, Stamford, CT 06903.
*H. Richard Vartabedian--Trustee and President of the Trust. Investment
Management Consultant, formerly, Senior Investment Officer, Division Executive
of the Investment Management Division of The Chase Manhattan Bank, N.A., 1980
through 1991. Age: 61. Address: P.O. Box 296, Beach Road, Hendrick's Head,
Southport, ME 04576.
William J. Armstrong--Trustee. Vice President and Treasurer,
Ingersoll-Rand Company. Age: 55. Address: 49 Aspen Way, Upper Saddle River, NJ
07458.
John R.H. Blum--Trustee. Attorney in private practice; formerly, partner
in the law firm of Richards, O'Neil & Allegaert; Commissioner of
Agriculture--State of Connecticut, 1992-1995. Age: 68. Address: 322 Main
Street, Lakeville, CT 06039.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 64. Address: 108 Valley
Road, Cos Cob, CT 06807.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc., (1971-1988);
Director, Janel Hydraulics, Inc.; Director of The Hanover Funds, Inc. Age: 65.
Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He has been employed by Chase in numerous capacities and offices since
1954. Director of Blessings Corporation, Jefferson Insurance Company of New
York, Monticello Insurance Company and National. Age: 65. Address: 257
Plantation Circle South, Ponte Vedra Beach, FL 32082.
*Sarah E. Jones--Trustee. President and Chief Operating Officer of Chase
Mutual Funds Corp.; formerly Managing Director for the Global Asset Management
and Private Banking Division of The Chase Manhattan Bank. Age: 46. Address:
Chase Mutual Funds Corp., One Chase Manhattan Plaza, Third Floor, New York, New
York 10081.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; Director of The Hanover
Funds, Inc. and The Hanover Investment Funds, Inc. Age: 70. Address: 624 East
45th Street, Savannah, GA 31405
W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; Director and Chairman of The Hanover Funds, Inc.; Director,
Chairman and President of The Hanover Investment Funds, Inc. Age: 70. Address:
RR 1 Box 102, Weston, VT 05181.
45
<PAGE>
*Leonard M. Spalding, Jr.--Trustee. Chief Executive Officer of Chase
Mutual Funds Corp.; formerly President and Chief Executive Officer of Vista
Capital Management; Chief Investment Executive of The Chase Manhattan Bank.
Age: 62. Address: Chase Mutual Funds Corp., One Chase Manhattan Plaza, Third
Floor, New York, New York 10081.
Richard E. Ten Haken--Trustee. Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers' Retirement
System. Age: 63. Address: 4 Barnfield Road, Pittsford, NY 14534.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 66. Address: 80 Perkins
Road, Greenwich, CT 06830.
Martin R. Dean--Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age: 33. Address: 3435 Stelzer Road, Columbus, OH 43219.
Richard Baxt--Secretary. Senior Vice President, Client Services, BISYS
Fund Services; formerly General Manager of Investment and Insurance, First
Fidelity Bank, President of First Fidelity Brokers, and President of Citicorp
Investment Services. Age: 44. Address: 125 W. 55th Street, New York, NY 10019.
Vicky M. Hayes--Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributors, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Age: 36. Address: One Chase Manhattan Plaza, 3rd Fl., New York, NY 10081.
Alaina Metz--Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Department, Alliance Capital Management
L.P. Age: 30. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lee Schultheis--Assistant Treasurer and Assistant Secretary. President,
BISYS Fund Distributors; formerly Managing Director, Forum Financial Group.
Age: 41. Address: One Chase Manhattan Plaza, 3rd Fl., New York, New York 10081.
- ----------
* Asterisks indicate those Trustees that are "Interested Persons" (as defined
in the 1940 Act). Mr. Reid is not an interested person of the Trust's
investment advisers or principal underwriter, but may be deemed an
interested person of the Trust solely by reason of being an officer of the
Trust.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to
recommend independent auditors and monitor accounting and financial matters.
The Audit Committee met two times during the fiscal year ended October 31,
1997.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(Chairman) Reid and Spalding. 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 and International
Equity Portfolio (these entities, together with the Trust, are referred to
below as the "Chase Vista Funds").
46
<PAGE>
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services 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.
47
<PAGE>
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1997 for each Trustee of the Trust:
<TABLE>
<CAPTION>
International Latin American Southeast
European Equity Japan Equity Asian
Fund Fund Fund Fund Fund
---------- --------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee 48.60 79.31 22.48 0 60.42
H. Richard Vartabedian, Trustee 38.06 65.25 17.83 0 48.45
William J. Armstrong, Trustee 24.67 41.61 11.61 0 30.83
John R.H. Blum, Trustee 26.97 46.30 12.58 0 34.39
Stuart W. Cragin, Jr., Trustee 25.35 43.49 11.88 0 32.29
Ronald R. Eppley, Jr., Trustee 25.35 43.49 11.88 0 32.29
Joseph J. Harkins, Trustee 26.37 45.38 12.34 0 33.63
Sarah E. Jones, Trustee -- -- -- -- --
W.D. MacCallan, Trustee 25.35 43.49 11.88 0 32.29
W. Perry Neff, Trustee 26.37 45.38 12.34 0 33.63
Leonard M. Spalding, Jr., Trustee -- -- -- -- --
Richard E. Ten Haken, Trustee 25.35 43.49 11.88 0 32.29
Irving L. Thode, Trustee 25.35 43.49 11.88 0 32.29
</TABLE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from
by the Fund Complex(1) "Fund Complex"(2)
------------------------ ------------------
<S> <C> <C>
Fergus Reid, III, Trustee $56,368 $129,500
H. Richard Vartabedian, Trustee 47,622 102,750
William J. Armstrong, Trustee 38,372 67,000
John R.H. Blum, Trustee 41,363 73,000
Stuart W. Cragin, Jr., Trustee 34,965 68,500
Ronald R. Eppley, Jr., Trustee 53,267 68,500
Joseph J. Harkins, Trustee 52,508 71,500
Sarah E. Jones, Trustee -- --
W.D. MacCallan, Trustee 66,323 68,500
W. Perry Neff, Trustee 66,323 71,500
Leonard M. Spalding, Jr., Trustee -- --
Richard E. Ten Haken, Trustee 31,463 68,500
Irving L. Thode, Trustee 41,876 68,500
</TABLE>
- ----------
(1) Data reflects total benefits accrued by the Trust, Mutual Fund Select
Group, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio for the fiscal year ended October 31, 1997,
and by Mutual Fund Trust, Mutual Fund Select Trust and Mutual Fund
Variable Annuity Trust for the fiscal year ended August 31, 1997.
(2) Data reflects total compensation earned during the period January 1, 1997
to December 31, 1997 for service as a Trustee to the Trust, Mutual Fund
Trust, Mutual Fund Variable Annuity Trust, Mutual Fund Select Group,
Mutual Fund Select Trust, Capital Growth Portfolio, Growth and Income
Portfolio and International Equity Portfolio.
- ----------
As of December 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, 1997, 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 $9,200
which amount is then apportioned among the Funds comprising the Trust.
48
<PAGE>
Chase Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan
for Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not
an employee of any of the Funds, the advisers, administrator or distributor or
any of their affiliates) may be entitled to certain benefits upon retirement
from the Board of Trustees. Pursuant to the 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, 1997, the estimated credited years
of service for Messrs. Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, MacCallan, Neff, Spalding, Ten Haken and Thode and for Ms. Jones are
12, 4, 9, 12, 4, 8, 6, 7, 7, 0, 12, 4 and 0, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C>
Highest Annual Compensation Paid by All Chase Vista Funds
--------------------------------------------------------------------
$60,000 $80,000 $100,000 $120,000 $140,000
Years of
Service Estimated Annual Benefits Upon Retirement
- ---- --------------------------------------------------------------------
14 $57,600 $76,800 $ 96,000 $115,200 $134,000
12 52,800 70,400 88,000 105,600 123,200
10 48,000 64,000 80,000 96,000 112,000
8 38,400 51,200 64,000 76,800 89,600
6 28,800 38,400 48,000 57,600 67,200
4 19,200 25,600 32,000 38,400 44,800
</TABLE>
Effective August 21, 1995, the Trustees instituted a Deferred Compensation
Plan for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which
each Trustee (who is not an employee of any of the Funds, the advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustee's fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination of
service). The deferred amounts are invested in shares of Chase Vista Funds
selected by the Trustee. The deferred amounts are paid out in a lump sum or
over a period of several years as elected by the Trustee at the time of
deferral. If a deferring Trustee dies prior to the distribution of amounts held
in the deferral account, the balance of the deferral account will be
distributed to the Trustee's designated beneficiary in a single lump sum
payment as soon as practicable after such deferring Trustee's death.
Messrs. Eppley, Ten Haken, Thode and Vartabedian have each executed a
deferred compensation agreement for the 1997 calendar year and as of October
31, 1997 they had contributed $55,334, $27,669, $49,803 and $83,000,
respectively.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or
with respect to any matter unless it is finally adjudicated that they did not
act in good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving
the settlement or other
49
<PAGE>
disposition, or by a reasonable determination based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Adviser and Sub-Adviser
Chase acts as investment adviser to the 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
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 willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder.
With respect to the Funds or Portfolios investing in equity securities,
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
sales, as such limitations may be raised or lowered from time to time, the
adviser shall reduce its advisory fee (which fee is described below) to the
extent of its share of such excess expenses. The amount of any such reduction
to be borne by the adviser shall be deducted from the monthly advisory fee
otherwise payable with respect to the Funds during such fiscal year; and if
such amounts should exceed the monthly fee, the adviser shall pay to a Fund its
share of such excess expenses no later than the last day of the first month of
the next succeeding fiscal year.
50
<PAGE>
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 a part of an organized group of persons,
managed by authorized officers of Chase.
Chase, on behalf of the Funds or Portfolio, has entered into an investment
sub-advisory agreement dated as of May 6, 1996 with Chase Asset Management,
Inc. ("CAM"). With respect to the day-to-day management of the Funds or
Portfolio, under the sub-advisory agreement CAM makes decisions concerning, and
places all orders for, purchases and sales of securities and helps maintain the
records relating to such purchases and sales. CAM may, in its discretion,
provide such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of Chase;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the sub-advisers. This arrangement will not result in the payment of
additional fees by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. The Chase Manhattan Corporation is the entity resulting from
the merger of The Chase Manhattan Corporation into Chemical Banking Corporation
on March 31, 1996. Chemical Banking Corporation was thereupon renamed The Chase
Manhattan Corporation. Also included among Chase's accounts are commingled
trust funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives. Chase is located
at 270 Park Avenue, New York, New York 10017.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment adviser
and provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
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
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.
CAM London, the Portfolio's sub-investment adviser, is entitled to receive
a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.50%
of the average daily net assets of the Fund or Portfolio. CAM London provides
discretionary investment services to institutional clients. The same
individuals who serve as fund or portfolio managers for Chase with respect to
the Fund or Portfolio also serve as fund or portfolio managers of CAM London.
CAM London is located at Colvile House, 32 Curzon Street, London W1Y8AL.
51
<PAGE>
For the fiscal years ended October 31, 1995, 1996 and 1997, 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:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------- ------------------------------- -------------------------------
Fund paid/accrued waived paid/accrued wavied paid/accrued waived
- ---------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
International
Equity Portfolio* $462,855 ($ 202,144) $431,019 ($ 276,302) $325,433 ($325,433)
European Fund -- -- $112,618 ($112,618)
Japan Fund -- -- $ 55,120 ($ 55,120)
Southeast Asian Fund -- -- $125,923 ($125,923)
</TABLE>
- ----------
* The International Equity Fund and does 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.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Funds and the administrator of
the 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 Portfolio's independent contractors and agents;
preparation for signature by an officer of the Trust and Portfolio of all
documents required to be filed for compliance by the Trust and Portfolio with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including
net asset value and yield; responding to shareholder inquiries, and arranging
for the maintenance of books and records of the Funds and Portfolio and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. Chase in its capacity as administrator does
not have any responsibility or authority for the management of the Funds or
Portfolio, the determination of investment policy, or for any matter pertaining
to the distribution of Funds shares.
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will continue
in effect from year to year with respect to each Fund or Portfolio only if such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust or Portfolio or by vote of a majority of such Fund's or
Portfolio's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Administration Agreements or
"interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreements are terminable without penalty by the Trust on behalf
of each Fund or by a Portfolio on 60 days' written notice when authorized
either by a majority vote of such Fund's or Portfolio's shareholders or by vote
of a majority of the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust or
Portfolios, or by 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 Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and
duties under the Administration Agreements.
In addition, the Administration Agreements provide that, in the event the
operating expenses of 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
52
<PAGE>
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 International Equity Fund, Chase receives
from each of the Fund and the Portfolio a fee computed daily and paid monthly
at an annual rate equal to 0.05% of their respective average daily net assets.
Chase may 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, 1995, 1996 and 1997, Chase was paid
or accrued administration fees and voluntarily waived the amount in parentheses
following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ -----------------------------
paid/accrued waived paid/accrued waived paid/accrued waived
-------------- ------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund* $16,367 ($ 16,367) $18,799 ($ 18,799) $16,230 ($ 6,230)
European Fund -- -- $11,266 ($ 6,348)
Japan Fund -- -- $ 5,512 ($ 5,512)
Southeast Asian Fund -- -- $12,592 ($ 8,056)
</TABLE>
*On November 23, 1993, the Fund changed its structure to a Master/Feeder
Structure. The Portfolio's administrator is Chase. With respect to the
International Equity Portfolio, for the fiscal year ended October 31, 1995,
October 31, 1996 and October 31, 1997, Chase was paid or accrued administration
fees of $21,632, $16,550 and $16,272, respectively, and voluntarily waived all
of such fees.
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
or shares of certain Funds as described in the Prospectuses, which provide that
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 Class A 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. Promotional activities for the sale of each
class of shares of each Fund will be conducted generally by the Chase Vista
Funds, and activities intended to promote one class of shares of a Fund may
also benefit the Fund's other shares and other Chase Vista Funds.
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 value of Class A shares, or 0.25%
annualized of the average net asset value of the Class B shares maintained
53
<PAGE>
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. The Distribution Plans require 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 Plans. The Distribution Plans 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. The Distribution Plans 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). The Distribution Plans may
not be amended to increase materially the amount of permitted expenses
thereunder without the approval of shareholders and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees. Each of the Funds will preserve copies of any plan,
agreement or report made pursuant to a Distribution Plan for a period of not
less than six years from the date of the Distribution Plan, and for the first
two years such copies will be preserved in an easily accessible place.
54
<PAGE>
For the fiscal years ended October 31, 1995, 1996 and 1997, the
Distributor was paid or accrued distribution fees with respect to the Funds,
and voluntarily waived the amount in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
A Shares-
International Equity Fund $75,652 $63,418 $60,160
European Fund -- $13,367 $25,027
Japan Fund -- $11,515 $11,895
Southeast Asian Fund -- $17,928 $27,118
B Shares-
International Equity Fund $55,080 $57,266 $62,911
European Fund -- $ 409 $ 9,344
Japan Fund -- $ 878 $ 5,656
Southeast Asian Fund -- $ 4,693 $13,089
</TABLE>
With respect to the share of the Class A shares of the Funds, the Basic
Distribution Fee was allocated as follows:
<TABLE>
<CAPTION>
Printing, Postage Sale Advertising &
Fund and Handling Compensation Administrative Filings
- --------------------------- ------------------- -------------- -----------------------
<S> <C> <C> <C>
International Equity Fund $12,874 $36,878 $10,408
European Fund $ 5,356 $15,342 $ 4,330
Japan Fund $ 2,546 $ 7,292 $ 2,058
Southeast Asian Fund $ 5,803 $16,623 $ 4,691
</TABLE>
With respect to the Class B shares of the Funds, the Distribution Fee was
paid to FEP Capital L.P. for acting as a finance agent.
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 Fund's distributor is Vista Fund Distributors,
Inc. ("VFD"). VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated
with Chase. 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. Payments may also 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 Chase Vista
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 Chase 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
55
<PAGE>
meal, ticket to a sponsoring event or theater for entertainment for
broker-dealers and their guests; and payment or reimbursement for travel
expenses, including lodging and meals, in connection with attendance at training
and educational meetings within and outside the U.S.
VFD may from time to time, pursuant to objective criteria established by
it, pay additional compensation to qualifying authorized broker-dealers for
certain services or activities which are primarily intended to result in the
sale of shares of the Fund. In some instances, such compensation may be offered
only to certain broker-dealers who employ registered representatives who have
sold or may sell significant amounts of shares of the Fund and/or other Chase
Vista Funds during a specified period of time. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by VFD out of compensation retained by it from the Fund or other
sources available to it.
The Distribution Agreement is currently in effect and will continue in
effect thereafter 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 wilful 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. The
Distributor may voluntarily 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, 1995, 1996 and 1997, the Distributor was
paid or accrued sub-administration fees with respect to the Funds and
voluntarily waived the amount in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
----------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund: $18,799 ($ 18,794) $16,500 ($ 2,804) $16,220 ($ 8,136)
European Fund -- -- $ 2,701 ($ 2,701) $ 5,628 ($ 3,184)
Japan Fund -- -- $ 2,374 ($ 2,374) $ 2,755 ($ 2,755)
Southeast Asian Fund -- -- $ 3,899 ($ 3,899) $ 6,296 ($ 4,030)
</TABLE>
56
<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. For performing these services, each shareholder servicing
agent receives an annual fee of up to 0.25% of the average daily net assets of
the shares of the Funds 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.
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, 1995, 1996 and 1997, fees payable to the Shareholder Servicing
Agents and the amounts voluntarily waived for each such period (as indicated in
parentheses) were as follows:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
-----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- -------------------
payable waived payable waived payable waived
--------- -------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund:
Class A $75,631 -- $63,469 -- $60,160 --
Class B $18,367 -- $19,089 -- $20,965 --
European Fund
Class A -- -- $ 0 -- -- --
Class B -- -- $ 136 -- $ 3,107 --
Southeast Asian Fund
Class A -- -- $ 0 -- -- --
Class B -- -- $ 273 -- $ 4,363 --
Japan Fund
Class A -- -- $ 0 -- -- --
Class B -- -- $ 1,564 -- $ 1,886 --
</TABLE>
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 amounts not exceeding such
other fees or the fees for their services as Shareholder Servicing Agents.
57
<PAGE>
For shareholders that bank with Chase, Chase may aggregate investments in
the Chase 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 Chase Vista Funds.
Chase and/or the Distributor 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 if
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 the Distributor.
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 Metro- tech Center, Brooklyn,
NY 11245. Investors Bank and Trust Co., One First Canadian Place, Toronto,
Canada M5X 1C8, provides similar services for the International Equity
Portfolio.
58
<PAGE>
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the Trust's
Annual Reports to Shareholders for the fiscal year ended October 31, 1997, 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.
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.
59
<PAGE>
GENERAL INFORMATION
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Funds' custodian
for all services to the funds, 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 Funds. Shareholder servicing and
distribution fees are all allocated to specific classes of the Funds. In
addition, the Funds may allocate transfer agency and certain other expenses by
class. Service providers to a Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment
company organized as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts in 1987. Because the Trust is "non-diversified",
more than 5% of the assets of certain Funds may be invested in the obligations
of any single issuer, which may make the value of the shares in such a Fund
more susceptible to certain risks than shares of a diversified mutual fund.
The Trust currently consists of 18 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 among all the series in a manner believed by
management of the Trust to be fair and equitable. Shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each whole share
held, and each fractional share shall be entitled to a proportional fractional
vote, except that Trust shares held in the treasury of the Trust shall not be
voted. Shares of 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 Class A, Class B and Class C 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.
60
<PAGE>
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees.The Trust is not
required to hold annual meetings of shareholders but will hold special meetings
of shareholders of a series or class when, in the judgment of the Trustees, it
is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances, the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees. 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 series 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 series or class 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 wilful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code 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.
61
<PAGE>
Principal Holders
As of January 31, 1998 the following persons owned of record 5% or more of
the outstanding shares of the following classes of the following Funds:
<TABLE>
<S> <C>
EUROPEAN FUND A SHARES
Balsa & Co. 27.50%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 15.84 %
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Cudd & Company 13.78%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Cudd & Company Custody Division 13.57%
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Balsa & Co. PO Box 1768 6.70%
Grand Central Station
New York, NY 10163-1768
JAPAN FUND A SHARES
Cudd & Company 23.58%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Balsa & Co. 21.42%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 20.39%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 18.11%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
</TABLE>
<TABLE>
<S> <C>
JAPAN FUND B SHARES
MLPF&S for sole benefit of its 56.67%
customers
Attn: Fund Adminsitration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484
Prudential Securities Inc. FBO 7.80%
Leah Sullivan TTEE
Leah Sullivan Living Trust
UA DTD 9/30/97
17792 San Leandro
Huntington, CA 92647-6640
SOUTHEAST ASIAN FUND A SHARES
Balsa & Co. 19.23%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Cudd & Company 15.35%
Custody Division
1211 6th Avenue
35th Floor
New York, NY 10036-8701
Balsa & Co. 11.84%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 9.74%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
CAMLL Rotterdam Ventures 5.92%
Attn: Cliff Bishop
Chase Asset Management London
Coleville House
32 Curzon Street
London, England
United Kingdom
</TABLE>
62
<PAGE>
Financial Statements
The 1997 Annual Report to Shareholders of each Fund, including the reports
of independent accountants, financial highlights and financial statements for
the fiscal year ended October 31, 1997 contained therein, are incorporated
herein by reference.
63
<PAGE>
Specimen Computations of Offering Prices Per Share
International Equity Fund (specimen computations)
A Shares:
<TABLE>
<S> <C>
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 12.11
Maximum Offering Price per Share ($12.11 divided by .9525)
(reduced on purchases of $100,000 or more) $ 12.71
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 11.94
European Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 14.10
Maximum Offering Price per Share ($14.10 divided by .9525)
(reduced on purchases of $100,000 or more) $ 14.80
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 13.93
</TABLE>
<TABLE>
<S> <C>
Japan Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 9.52
Maximum Offering Price per Share ($9.52 divided by .9525)
(reduced on purchases of $100,000 or more) $ 9.99
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 9.42
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
Southeast Asian Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 8.07
Maximum Offering Price per Share ($8.07 divided by .9525)
(reduced on purchases of $100,000 or more) $ 8.47
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1997 $ 7.95
Latin American Equity Fund
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at an assumed net asset value
of $10.00 per share $ 10.00
Maximum Offering Price per Share
(an assumed net asset value of $10.00 per share divided by .9525)
(reduced on purchases of $100,000 or more) $ 10.50
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at an
assumed net asset value of $10.00 per share $ 10.00
</TABLE>
The European Fund, Japan Fund and Southeast Asian Fund commenced offering of
Shares on November 1, 1995. The Latin American Equity Fund commenced offering
of Shares on December 1, 1997.
65
<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 and 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,
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary from their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the effect
of raising the effective yield earned on the Certificates; and (iv) the actual
yield of each Certificate is affected by the prepayment of mortgages included
in the mortgage pool underlying the Certificates. Principal which is so prepaid
will be reinvested although possibly at a lower rate. In addition, prepayment
of mortgages included in the mortgage pool underlying a GNMA Certificate
purchased at a premium could result in a loss to a Fund. Due to the large
amount of GNMA Certificates outstanding and active participation in the
secondary market by securities dealers and investors, GNMA Certificates are
highly liquid instruments. Prices of GNMA Certificates are readily available
from securities dealers and depend on, among other things, the level of market
rates, the Certificate's coupon rate and the prepayment experience of the pool
of mortgages backing each Certificate. If agency securities are purchased at a
premium above principal, the premium is not guaranteed by the issuing agency
and a decline in the market value to par may result in a loss of the premium,
which may be particularly likely in the event of a prepayment. When and if
available, U.S. Government obligations may be purchased at a discount from face
value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
A-1
<PAGE>
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 safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
B-1
<PAGE>
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only
in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
B-2
<PAGE>
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
Standard & Poor's Ratings Group Commercial Paper Ratings
A S&P commercial paper rating is current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded in several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Fitch Bond Ratings
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issues
is generally rated F-1+ by Fitch
A--Bonds rated A by Fitch are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs, however, are not
used in the AAA category.
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.
B-3
<PAGE>
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by a Fund. However, a Fund's investment
manager will consider such event in its determination of whether such Fund
should continue to hold the security. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations
or their rating systems, a Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in this Prospectus and in the Statement of Additional Information.
B-4
<PAGE>
PART C
MUTUAL FUND GROUP
PART C. OTHER INFORMATION
ITEM 23. Exhibits
Exhibit
Number
- -------
1(a) Declaration of Trust, as amended. (1)
1(b) Certificate of Amendment to Declaration of Trust dated December 14,
1995.(6)
1(c) Certificate of Amendment to Declaration of Trust dated October 19,
1995.(6)
1(d) Certificate of Amendment to Declaration of Trust dated July 25,
1993.(6)
1(e) Certificate of Amendment to Declaration of Trust dated
November 1997.(10)
1(f) Certificate of Amendment to Declaration of Trust dated June 5,
1998.(12)
2 By-laws, as amended. (1)
3 None.
4(a) Form of Investment Advisory Agreement.(6)
4(b) Form of Sub-Advisory Agreement between The Chase Manhattan
Bank and Chase Asset Management, Inc.(6)
5 Distribution and Sub-Administration Agreement dated August 21,
1995.(6)
6(a) Retirement Plan for Eligible Trustees.(6)
6(b) Deferred Compensation Plan for Eligible Trustees.(6)
7 Custodian Agreement. (1)
8(a) Transfer Agency Agreement. (1)
8(b) Form of Shareholder Servicing Agreement. (6)
C-1
<PAGE>
8(c) Form of Administration Agreement.(6)
9 Opinion re: Legality of Securities being Registered.(1)
10 Consent of Price Waterhouse LLP.(11)
11 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 1997 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 7, 1998,
accession number 0000950146-98-000027, which
are incorporated into Part B by reference.
12 None.
13(a) Rule 12b-1 Distribution Plan of Mutual Funds including
Selected Dealer Agreement and Shareholder Service Agreement. (1)
13(b) Rule 12b-1 Distribution Plan - Class B Shares (including forms of
Selected Dealer Agreement and Shareholder Servicing Agreement).(6)
13(c) Form of Rule 12b-1 Distribution Plan - Class C Shares (including
forms of Shareholder Servicing Agreements).(9)
14 Financial Data Schedule.(11)
15 Form of Rule 18f-3 Multi-Class Plan.(6)
99(a) Powers of Attorney for: Fergus Reid, III, H. Richard Vartabedian,
William J. Armstrong, John R.H. Blum, Stuart W. Cragin, Jr., Roland
R. Eppley, Jr., Joseph J. Harkins, W.D. MacCallan, W. Perry Neff,
Richard E. Ten Haken, Irving L. Thode.(8)
99(b) Powers of Attorney for: Sarah E. Jones and Leonard M. Spalding,
Jr.(9)
- --------------------
(1) Filed as an exhibit to Amendment No. 6 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on March 23, 1990.
(2) Filed as an exhibit to Amendment No. 15 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) as filed with the
Securities and Exchange Commission on October 30, 1992.
(3) Filed as an Exhibit to Amendment No. 26 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on June 30, 1994.
(4) Filed as an Exhibit to Amendment No. 27 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on October 3, 1994.
(5) Filed as an Exhibit to Amendment No. 31 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on November 13, 1995.
(6) Filed as an Exhibit to Amendment No. 32 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on December 28, 1995.
(7) Filed as an Exhibit to Amendment No. 42 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) on February 28, 1997.
(8) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A of Mutual Fund Trust (File No.
33-75250) as filed with the Securities and Exchange Commission on September
6, 1996.
(9) Filed as an Exhibit to Amendment No. 45 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) filed on October 28, 1997.
(10) Filed as an Exhibit to Amendment No. 46 to the Registration Statement on
Form N-1A of the Registrant (File No. 33-14196) filed on December 1, 1997.
(11) Filed as an Exhibit to Amendment No. 50 to the Registration Statement on
Form N-1A on February 27, 1998.
(12) Filed as an Exhibit to Amendment No. 53 to the Registration Statement on
Form N-1A on June 29, 1998.
ITEM 24. Persons Controlled by or Under Common
Control with Registrant
Not applicable
C-2
<PAGE>
ITEM 25. 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 26(a). Business and Other Connections of Investment Adviser
The Chase Manhattan Bank (the "Adviser") is a commercial bank
providing a wide range of banking and investment services.
To the knowledge of the Registrant, none of the Directors or
executive officers of the Adviser, except those described below, are or have
been, at any time during the past two years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
Directors and executive officers of the Adviser also hold or have held various
positions with bank and non-bank affiliates of the Adviser, including its
parent, The Chase Manhattan Corporation. Each Director listed below is also a
Director of The Chase Manhattan Corporation.
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ------------- -----------------------------
<S> <C> <C>
Thomas G. Labreque President and Chief Operating Officer Chairman, Chief Executive Officer
and Director and a Director of The Chase
Manhattan Corporation and a Director
of AMAX, Inc.
M. Anthony Burns Director Chairman of the Board, President
and Chief Executive Officer of
Ryder System, Inc.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director of
Amoco Corporation and Director of
Abbott Laboratories
Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine
Company, Inc. and a Director of
each of American Telephone and
Telegraph Company and CBS Inc.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James L. Ferguson Director Retired Chairman and Chief
Executive Officer of General Foods
Corporation
William H. Gray III Director President and Chief Executive
Officer of the United Negro College
Fund, Inc.
Frank A. Bennack, Jr. Director President and Chief Executive Officer
The Hearst Corporation
Susan V. Berresford Director President, The Ford Foundation
Melvin R. Goodes Director Chairman of the Board and Chief Executive
Officer, The Warner-Lambert Company
George V. Grune Director Retired Chairman and Chief Executive
Officer, The Reader's Digest Association,
Inc.; Chairman, The DeWitt Wallace-
Reader's Digest Fund; The Lila-Wallace
Reader's Digest Fund
William B. Harrison, Jr. Vice Chairman of the Board
Harold S. Hook Director Chairman and Chief Executive Officer,
General Corporation
Helen L. Kaplan Director Of Counsel, Skadden, Arps, Slate, Meagher
& Flom
Walter V. Shipley Chairman of the Board and
Chief Executive Officer
Andrew C. Sigler Director Chairman of the Board and Chief
Executive Officer, Champion International
Corporation
John R. Stafford Director Chairman, President and Chief Executive
Officer, American Home Products
Corporation
Marina v. N. Whitman Director Professor of Business Administration and
Public Policy, University of Michigan
</TABLE>
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<PAGE>
Item 26(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.
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Sub-Advisor Nature During Past Two Years
- ---- --------------- ----------------------------
<S> <C> <C>
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
</TABLE>
Item 26(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.
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Sub-Advisor Nature During Past Two Years
- ---- --------------- ----------------------------
<S> <C> <C>
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.
</TABLE>
C-7
<PAGE>
ITEM 27. Principal Underwriters
(a) Vista Fund Distributors, Inc., a wholly-owned subsidiary of
The BISYS Group, Inc. is the underwriter for Mutual Fund Group, Mutual Fund
Trust and Mutual Fund Select Trust.
(b) The following are the Directors and officers of Vista Fund
Distributors, Inc. The principal business address of each of these persons, is
listed below.
<TABLE>
<CAPTION>
Position and Offices Position and Offices
Name and Address with Distributor with the Registrant
- ---------------- -------------------- --------------------
<S> <C> <C>
Lynn J. Mangum Chairman None
150 Clove Street
Little Falls, NJ 07424
Robert J. McMullan Director and Exec. Vice President None
150 Clove Street
Little Falls, NJ 07424
Lee W. Schultheis President None
101 Park Avenue, 16th Floor
New York, NY 10178
George O. Martinez Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219
Irimga McKay Vice President None
1230 Columbia Street
5th Floor, Suite 500
San Diego, CA 92101
Michael Burns Vice President/Compliance None
3435 Stelzer Road
Columbus, OH 43219
William Blundin Vice President None
125 West 55th Avenue
11th Floor
New York, NY 10019
Dennis Sheehan Vice President None
150 Clove Street
Little Falls, NJ 07424
Annamaria Porcaro Assistant Secretary None
150 Clove Street
Little Falls, NJ 97424
Robert Tuch Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219
Stephen Mintos Executive Vice President/COO None
3435 Stelzer Road
Columbus, OH 43219
Dale Smith Vice President/CFO None
3435 Stelzer Road
Columbus, OH 43219
William J. Tomko Vice President None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
(c) Not applicable
C-8
<PAGE>
ITEM 28. 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:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Vista Fund Distributors, Inc. One Chase Manhattan Plaza, 3rd Floor
New York, NY 10081
DST Systems, Inc. 210 W. 10th Street,
Kansas City, MO 64105
The Chase Manhattan Bank 270 Park Avenue,
New York, NY 10017
Chase Asset Mangement, Inc. 1211 Avenue of the
Americas,
New York, NY 10036
Chase Asset Management, Ltd. (London) Colvile House
32 Curzon Street
London, England W1Y8AL
The Chase Manhattan Bank One Chase Square,
Rochester, NY 14363
</TABLE>
ITEM 29. Management Services
Not applicable
ITEM 30. Undertakings
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.
C-9
<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 30th day of December, 1998.
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.
<TABLE>
<S> <C> <C>
* Chairman and Trustee December 30, 1998
- -------------------------------
Fergus Reid, III
/s/ H. Richard Vartabedian President December 30, 1998
- ------------------------------- and Trustee
H. Richard Vartabedian
* Trustee December 30, 1998
- -------------------------------
William J. Armstrong
* Trustee December 30, 1998
- -------------------------------
John R.H. Blum
* Trustee December 30, 1998
- -------------------------------
Stuart W. Cragin, Jr.
*
- ------------------------------- Trustee December 30, 1998
Roland R. Eppley, Jr.
* Trustee December 30, 1998
- -------------------------------
Joseph J. Harkins
* Trustee December 30, 1998
- -------------------------------
Sarah E. Jones
*
- ------------------------------- Trustee December 30, 1998
W.D. MacCallan
*
- ------------------------------- Trustee December 30, 1998
W. Perry Neff
* Trustee December 30, 1998
- -------------------------------
Leonard M. Spalding, Jr.
* Trustee December 30, 1998
- -------------------------------
Irv Thode
* Trustee December 30, 1998
- -------------------------------
Richard E. Ten Haken
/s/ Martin R. Dean Treasurer and December 30, 1998
- ------------------------------- Principal Financial
Martin R. Dean Officer
/s/ H. Richard Vartabedian Attorney in December 30, 1998
- ------------------------------- Fact
H. Richard Vartabedian
</TABLE>
