[Front Cover]
Prospectus September 20, 2000 [CHASE FLEMING LOGO]
Asset Management
Chase Fleming
H&Q Technology Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
[CHASE LOGO]
THE RIGHT RELATIONSHIP IS EVERYTHING.[RegTM]
PSHQT-1-900
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<TABLE>
<S> <C>
H&Q TECHNOLOGY FUND 1
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THE FUND'S INVESTMENT ADVISER 9
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HOW YOUR ACCOUNT WORKS 11
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ABOUT SALES CHARGES 11
BUYING FUND SHARES 13
SELLING FUND SHARES 15
OTHER INFORMATION CONCERNING THE FUND 16
DISTRIBUTIONS AND TAXES 17
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SHAREHOLDER SERVICES 19
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WHAT THE TERMS MEAN 20
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HOW TO REACH US Back cover
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</TABLE>
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CHASE FLEMING H&Q TECHNOLOGY FUND
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[Begin Sidebar]
The Fund's
objective
The Fund seeks
capital growth over
the long term.
[End Sidebar]
The Fund's main investment strategy
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of technology
companies. The Fund will invest in equity securities of companies with various
market capitalizations including large, mid and small capitalizations. As a
result, at times the Fund may be investing a significant portion of its assets
in securities of small and mid-sized companies.
Equity securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to purchase common stocks.
Technology companies are companies with revenues primarily generated by
technology products and services. These include the internet, computers and
computer peripherals, software, electronic components and systems,
communications equipment and services, semiconductors and media and information
services.
The Fund's advisers do quantitative analysis and fundamental research in an
attempt to identify equities with the best growth potential within the universe
of technology securities. Quantitative analysis will include looking at
financial ratios as well as historical patterns in growth rates. Fundamental
research involves concentrating on "fundamental" information about an issuer,
such as the health and growth rate of the company's
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end-market, long-term profitability trends of its industry, and its competitive
position history and management. Accordingly, the advisers may look at
growth-oriented factors such as projected earnings and/or revenue growth and
improved earnings characteristics. The advisers will also seek to identify
companies whose products are targeted to markets which the advisers expect to
grow at a high rate such as the communications and internet-related sectors. The
advisers' research will include discussions with company management and other
industry participants to determine the quality of individual companies' services
and products relative to its competitors.
CHASE FLEMING H&Q TECHNOLOGY FUND
In determining whether to sell a stock, the advisers will use the same type of
analysis that they use in buying a stock in order to determine if the stock is
still an attractive investment opportunity.
The Fund may invest up to 20% of its 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. Convertible securities are not
expected to be a significant portion of the Fund's assets.
From time to time, the Fund may invest in shares of companies through initial
public offerings (IPOs), though such investments are not expected to represent a
significant portion of the Fund's assets.
The Fund may also invest 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
[Begin Sidebar]
FREQUENCY OF TRADING
The Fund may trade securities actively, which would increase transaction costs
(and lower performance) and increase your taxable dividends.
[End Sidebar]
2
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income or gain. However, investments in derivatives are not expected to
represent a significant portion of the Fund's assets.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
The Funds' 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 H&Q
Technology Fund.
The Fund may not achieve its objective if the advisers' expectations regarding
particular securities or markets are not met.
The value of shares of the Fund will be influenced by conditions in the stock
market as well as the performance of companies selected for the Fund's
portfolio.
The Fund's focus on stocks in the technology sector makes it more susceptible to
factors affecting that sector. Investing in technology companies exposes the
Fund to special risks. For example, rapid advances in technology might cause
existing products to become obsolete or have relatively short product cycles,
and the Fund's returns could suffer to the extent it holds an affected company's
shares. Competition among technology companies may result in increasingly
aggressive pricing of their products and services, which may affect the
profitability of companies in the Fund's portfolio. Additionally, technology
companies are dependent upon consumer and business acceptance as new
technologies evolve. Companies in a number of technology industries are also
subject to more governmental regulations and approval processes than many other
industries. Changes in governmental policies, such as telephone and
[Begin Sidebar]
Investments in the Fund are not bank deposits or obligations of, or guaranteed
or endorsed by, The Chase Manhattan Bank or any of its affiliates and are not
insured or guaranteed by the Federal Deposit Insurance Corporation, Federal
Reserve Board or any other government agency.
[End Sidebar]
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<PAGE>
cable regulations and antitrust enforcement, may have a material effect on the
products and services of technology companies. In addition, the rate of
technological change often requires extensive and sustained investment in
research and development. Some technology companies, particularly
internet-related companies, may trade at prices that do not reflect traditional
valuation methods. All these factors may affect a company's overall
profitability and cause its stock price to be more volatile.
The Fund may not achieve its objective if companies which the advisers believe
will experience earnings growth do not grow as expected.
The securities of mid-capitalization and small-capitalization 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. Mid-sized and small-sized companies may have limited product
lines, markets or financial resources, and they may depend on a small management
group. As a result, the value of your investment is likely to fluctuate more
dramatically than an investment in a fund which invests mostly in larger
companies.
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
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CHASE FLEMING H&Q TECHNOLOGY FUND
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.
IPOs and companies that have recently gone public have the potential to produce
substantial gains for the fund. However, there is no assurance that the fund
will have access to profitable IPOs. Furthermore, stocks of some newly public
companies may decline shortly after the initial public offering. The securities
of companies that have recently gone public may trade less frequently and in
smaller volumes than securities of more established companies.
The market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Although the value of a
convertible security may not exactly track that of its underlying common or
preferred stock, its value does tend to change whenever the market value of
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, including where the
Fund is investing for temporary defensive purposes, it could reduce the Fund's
potential return.
Derivatives may be more risky than other types of investments because they may
respond more to changes in economic conditions than other types of investments.
If they are used for non-hedging purposes, they could cause losses that exceed
the Fund's original investment.
The Fund is not diversified. It will invest a greater percentage of its assets
in technology companies than a diversified fund would. In addition, it may
invest a greater percentage of its assets in a particular issuer or group of
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issuers than a a diversified fund would. That makes the value of its shares more
sensitive to economic problems among those issuing securities.
The Fund may have to sell stocks at a loss in order to fund shareholder
redemptions. Redemptions are more likely to occur when prices of technology
companies are declining, and prices of these securities may fall more rapidly
than those of other securities.
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CHASE FLEMING H&Q TECHNOLOGY FUND
Fees and expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDERS FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES
(LOAD) WHEN YOU BUY CHARGE (LOAD) SHOWN AS
SHARES, SHOWN AS % OF THE LOWER OF ORIGINAL PURCHASE
OFFERING PRICE(1) PRICE OR REDEMPTION PROCEEDS
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<S> <C> <C>
CLASS A SHARES 5.75% NONE
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CLASS B SHARES NONE 5.00%
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CLASS C SHARES NONE 1.00%
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</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)*
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
CLASS OF SHARES FEE (12B-1) FEES EXPENSES EXPENSES
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<S> <C> <C> <C> <C>
CLASS A 0.75% 0.25% 0.85% 1.85%
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CLASS B 0.75% 0.75% 0.85% 2.35%
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CLASS C 0.75% 0.75% 0.85% 2.35%
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</TABLE>
(1)The offering price is the net asset value of the shares purchased plus any
sales charge.
* The table is based on estimated expenses for the current fiscal year.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
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EXAMPLE This example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. 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
o you reinvest all your dividends, and
o the Fund's operating expenses remain the same as shown above.
Although your actual costs may be higher or lower, based on these assumptions:
IF YOU SELL YOUR SHARES YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
CLASS A SHARES* $752 $1,123 $1,518 $2,619
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CLASS B SHARES** $738 $1,033 $1,455 $2,562***
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CLASS C SHARES** $338 $ 733 $1,255 $2,686
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</TABLE>
IF YOU DON'T SELL YOUR SHARES YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
CLASS B SHARES $238 $733 $1,255 $2,562***
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CLASS C SHARES $238 $733 $1,255 $2,686
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</TABLE>
*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.
8
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FUND'S INVESTMENT ADVISER
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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 Fund 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 0.75% of
the average daily net assets.
Chase Fleming Asset Management, (U.S.A.) Inc. (CFAM (USA)) is the sub-adviser to
the Fund. It makes the day-to-day investment decisions for the Fund. Chase pays
CFAM (USA) a sub-advisory fee for its services. CFAM (USA) is a wholly-owned
subsidiary of Chase. CFAM (USA) provides discretionary investment advice to
institutional clients and is located at 1211 Avenue of the Americas, New York,
New York 10036.
Chase H&Q provides significant investment research to CFAM (USA) for the Fund.
It is a wholly-owned subsidiary of The Chase Manhattan Corporation. Chase H&Q
is located at One Bush Street, San Francisco, CA 94104.
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The portfolio managers
Henry Lartigue, Chief Investment Officer at CFAM (USA) since August 1999, is
responsible for asset allocation and investment strategy for CFAM (USA)'s
domestic equity portfolios. Mr. Lartigue began his career as a securities
analyst at Chase in 1984. Mr. Lartigue then worked as an independent registered
adviser, from July 1992 to June 1994, when he returned to Chase to become the
Chief Investment Officer of another Chase subsidiary.
H&Q TECHNOLOGY FUND
Portfolio Manager T. Gary Liberman, Senior Vice President, is responsible for
management of the Fund's portfolio. Mr. Liberman joined Chase Fleming Asset
Management in 1995 as a small cap technology analyst. He has been portfolio
manager of the Fleming US Technology Fund since its inception in December 1997.
Prior to joining Fleming, Mr. Liberman worked for Salomon Brothers Asset
Management as a large cap technology analyst. Before his career in investments,
Mr. Liberman worked for Arthur Andersen & Co. as a public accountant. Mr.
Liberman received a BS in Accounting from the University of Maryland in 1990 and
an MBA in Finance from New York University in 1993.
10
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HOW YOUR ACCOUNT WORKS
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About sales charges
There's a sales charge to buy shares in the Fund. 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.
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.
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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 a 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
AS % OF THE
OFFERING AS % OF
AMOUNT OF PRICE NET AMOUNT
INVESTMENT PER SHARE INVESTED
-----------------------------------------
<S> <C> <C>
LESS THAN
$ 100,000 5.75% 6.10%
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$ 100,000
BUT UNDER
$ 250,000 3.75% 3.90%
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$ 250,000
BUT UNDER
$ 500,000 2.50% 2.56%
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$ 500,000
BUT UNDER
$1 MILLION 2.00% 2.04%
-----------------------------------------
</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
-------------------------------
8 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. Shares
acquired by reinvestment distribution can be sold without a deferred sales
charge.
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.
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HOW YOUR ACCOUNT WORKS
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. The 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, up to 0.75% of the average daily net assets attributed to Class B shares
and 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 the 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 the Fund.
Your investment representative may be able to advise you about the best class
of shares for you.
Buying Fund shares
You can buy shares three ways:
Through your investment representative
Tell your representative that you want to buy shares of the Fund 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 Service Center
Call 1-800-348-4782
13
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Or
Complete the 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 219392
Kansas City, MO 64121-9392
Through a Systematic Investment Plan
You can make regular automatic purchases of at least $100. See more on the
Systematic Investment Plan later in this document.
--------------------------
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.
The Fund calculates its NAV once each day at the close of regular trading on the
New York Stock Exchange. The 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 Fund may invest 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 may
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 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.
TO OPEN AN ACCOUNT, BUY OR SELL SHARES OR GET FUND INFORMATION, CALL:
------------------------------------
THE CHASE VISTA FUNDS SERVICE CENTER
------------------------------------
1-800-348-4782
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MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENT INVESTMENTS
--------------------------------------------
<S> <C> <C>
REGULAR
ACCOUNT $2,500 $100
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SYSTEMATIC
INVESTMENT
PLAN $1,000 $100
--------------------------------------------
IRAS $1,000 $100
--------------------------------------------
SEP-IRAS $1,000 $100
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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
14
<PAGE>
HOW YOUR ACCOUNT WORKS
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 Fund. 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 Fund 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.
Selling Fund shares
You can sell your shares three ways:
Through your investment representative
Tell your representative that you want to sell Fund shares. 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 Service Center
Call 1-800-348-4782. We will mail you a check or send 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 Fund shares by phone, we'll send it by wire only to a bank account on our
records.
Or
Send a signed letter with your instructions to:
Chase Vista Funds Service Center,
P.O. Box 219392
Kansas City, MO 64121-9392
Through a Systematic Withdrawal Plan
You can automatically sell as little as $50 worth of shares. See Shareholder
Services for details.
--------------------------
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,
the 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.
The 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:
15
<PAGE>
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.
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:
Through your investment representative
Tell your representative which Funds you want to 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 Service Center
Call 1-800-348-4782 to ask for details.
Through a Systematic Exchange Plan
You can automatically exchange money from one Chase Vista account to another of
the same class. Call the Chase Vista Funds Service Center for details.
--------------------------
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 Fund
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
16
<PAGE>
HOW YOUR ACCOUNT WORKS
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 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 Fund has 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 Fund may issue multiple classes of shares. This prospectus relates only to
Class A, Class B and Class C shares of the 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 Fund 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 or by law. The
information can be used for a variety of purposes, including offering investment
and insurance products to shareholders.
Distributions and taxes
The Fund can earn income and can realize capital gain. The Fund deducts any
expenses then pay out these earnings to shareholders as distributions.
The Fund will 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;
17
<PAGE>
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 a 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 Fund expects that its distributions will consist primarily of capital gains.
Early in each calendar year, the 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 Fund.
Please consult your tax adviser to see how investing in the Fund will affect
your own tax situation.
18
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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 1-800-348-4782 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
1-800-348-4782 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 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.
19
<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.
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.
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. The
price includes interest. 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.
VALUE APPROACH: approach which focuses on identifying securities that the
advisers believe are undervalued by the market as measured by certain financial
formulas.
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HOW TO REACH US
More information
You'll find more information about the Fund in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Our annual and semi-annual reports contain more information about the Fund's
investments and performance. The annual report also includes details about the
market conditions and investment strategies that had a significant effect on
the Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed information about the Fund and its 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 1-800-348-4782 or writing to:
Chase Vista Fund Service Center
P.O. Box 219392
Kansas City, MO 64121-9392
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 or e-mail the SEC's Public Reference Room and ask them to mail
you information about the Fund, 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 20549-0102.
1-202-942-8090
E-mail: [email protected]
Reports, a copy of the SAI and other information about the Fund is also
available on the SEC's website at http://www.sec.gov.
The Fund's Investment Company Act File No. is 811-5151
(C) 2000 The Chase Manhattan Corporation. All Rights Reserved. September 2000
Chase Vista Funds Fulfillment Center
393 Manley Street
West Bridgewater, MA 02379-1039
<PAGE>
[CHASE VISTA FUNDS LOGO]
STATEMENT OF
ADDITIONAL INFORMATION
September 19, 2000
CHASE FLEMING TECHNOLOGY FUND
1211 Avenue of the Americas, 41st 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 Fund. This Statement of Additional
Information should be read in conjunction with the Prospectus offering shares
of H&Q Technology Fund. Copies of the Prospectus may be obtained by an investor
without charge by contacting Vista Fund Distributors, Inc. ("VFD"), the Fund's
distributor (the "Distributor"), at the above-listed address.
This Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by an
effective prospectus.
For more information about your account, simply call or write the Vista Service
Center at:
1-800-348-4782
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
HQT-SAI-900
<PAGE>
<TABLE>
<CAPTION>
Table of Contents Page
--------------------------------------------------------------------------------------------
<S> <C>
The Fund ............................................................................. 3
Investment Policies and Restrictions ................................................. 3
Performance Information .............................................................. 19
Determination of Net Asset Value ..................................................... 20
Purchases, Redemptions and Exchanges ................................................. 21
Distributions; Tax Matters ........................................................... 25
Management of the Trust and the Fund ................................................. 31
Independent Accountants .............................................................. 42
Certain Regulatory Matters ........................................................... 42
General Information .................................................................. 42
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
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THE FUND
Mutual Fund Group (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 11, 1987. The Trust presently consists of
22 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 H&Q Technology Fund (the "Fund")
seeks to achieve its investment objective by investing all of its investable
assets in an open-end, management investment company which has the same
investment objective as such Fund.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The Chase Manhattan Bank ("Chase") is
the investment adviser for the Funds. Chase also serves as the administrator of
the Trust, including the Funds . A majority of the Trustees of the Trust are
not affiliated with the investment adviser or sub-advisers. Chase Asset
Management, Inc., ("CAM") is a sub-adviser to the Fund and makes day-to-day
investment deceisions for the Fund. CAM is a wholly-owned subsidiary of Chase.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectus sets forth the investment policies of the Fund. The
following information supplements and should be read in conjunction with the
related sections of the Prospectus. For descriptions of the securities ratings
of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and Fitch Investors Service, Inc. ("Fitch"), see Appendix B.
U.S. Government Securities. The Fund 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 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 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
3
<PAGE>
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 the Fund was required to liquidate any of them,
it might not be able to do so advantageously; accordingly, the Fund investing
in such securities normally is required 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 the Fund 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 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 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 in
other ways, including restrictions on investing in issuers or industries deemed
sensitive to relevant national interests.
Foreign Securities. For purposes of the Fund'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,
4
<PAGE>
(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. The Fund may invest
up to 35% of its assets in debt securities of foreign or U.S. issuers.
Depositary Receipts. The Fund 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 Fund treats 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. The 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.
Money Market Instruments. The Fund 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;
significantly 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 the Fund and increase its brokerage and other transaction expenses.
Repurchase Agreements. The Fund may enter into repurchase agreements.
Repurchase agreements are agreements to purchase and resell securities at an
agreed-upon price and time. The Fund 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
is permitted to invest. Under the terms of a typical repurchase agreement, the
Fund would acquire an underlying instru-
5
<PAGE>
ment for a relatively short period (usually not more than one week) subject to
an obligation of the seller to repurchase the instrument and the Fund to resell
the instrument at a fixed price and time, thereby determining the yield during
the Fund's holding period. This procedure results in a fixed rate of return
insulated from market fluctuations during such period. A repurchase agreement
is subject to the risk that the seller may fail to repurchase the security.
Repurchase agreements are considered under the 1940 Act to be loans
collateralized by the underlying securities. All repurchase agreements entered
into by the Fund will be fully collateralized at all times during the period of
the agreement in that the value of the underlying security will be at least
equal to 100% of the amount of the loan, including the accrued interest
thereon, and the Fund or its custodian or sub-custodian will have possession of
the collateral, which the Board of Trustees believes will give it a valid,
perfected security interest in the collateral. Whether a repurchase agreement
is the purchase and sale of a security or a collateralized loan has not been
conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by
the seller under a repurchase agreement construed to be a collateralized loan,
the underlying securities would not be owned by the Fund, but would only
constitute collateral for the seller's obligation to pay the repurchase price.
Therefore, the Fund may suffer time delays and incur costs in connection with
the disposition of the collateral. The Board of Trustees believes that the
collateral underlying repurchase agreements may be more susceptible to claims
of the seller's creditors than would be the case with securities owned by the
Fund. Repurchase agreements maturing in more than seven days are treated as
illiquid for purposes of the Funds 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. The Fund may borrow money
from banks for temporary or short-term purposes. The Fund may also borrow up to
10% of its total assets (including the amount borrowed) to buy additional
securities, known as "leveraging." The Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by the Fund with an agreement to repurchase the securities at an agreed upon
price and date. The Fund may use this practice to generate cash for shareholder
redemptions without selling securities during unfavorable market conditions.
Whenever the Fund 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 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
is obliged to purchase the securities.
Forward Commitments. The Fund may purchase securities on a forward
commitment basis. In order to invest the 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 Fund's assets equal to the amount of the purchase be held aside
or segregated to be used to pay for the commitment, a separate account of the
Fund consisting of cash, cash equivalents or high quality debt securities equal
to the amount of the Fund's commitments securities will be established at the
Fund's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund.
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
6
<PAGE>
purchased on a forward commitment basis and the securities held in the Fund's
portfolio are subject to changes in value based upon the public's perception of
the issuer and changes, real or anticipated, in the level of interest rates.
Purchasing securities on a forward commitment basis can involve the risk that
the yields available in the market when the delivery takes place may actually
be higher or lower than those obtained in the transaction itself. On the
settlement date of the forward commitment transaction, the Fund will meet its
obligations from then available cash flow, sale of securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from sale of the forward commitment securities themselves
(which may have a value greater or lesser than the Fund's 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 from recovering the collateral or completing
the transaction.
Investment Grade Debt Securities. The Fund may invest in investment grade
debt securities. Investment grade debt securities are securities that are rated
in the category BBB or higher by S&P, Baa or higher by 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. The Fund 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. The Fund 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 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, the Fund may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act. ("Section 4(2) paper") Rule
144A provides an exemption from the registration requirements of the Securities
Act for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as the
Fund 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.
7
<PAGE>
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 Fund's purchases and sales of Rule 144A
securities and Section 4(2) paper.
Stand-By Commitments. The Fund may utilize stand-by commitments in
securities sales transactions. In a put transaction, the Fund acquires the
right to sell a security at an agreed upon price within a specified period
prior to its maturity date, and a stand-by commitment entitles the Fund to
same-day settlement and to receive an exercise price equal to the amortized
cost of the underlying security plus accrued interest, if any, at the time of
exercise. Stand-by commitments are subject to certain risks, which include the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, the fact that the commitment is not marketable by
the Fund 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, the Fund is
permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of the Fund's total assets. In
connection with such loans, the Fund will receive collateral consisting of
cash, cash equivalents, U.S. Government securities or irrevocable letters of
credit issued by financial institutions. Such collateral will be maintained at
all times in an amount equal to at least 100% of the current market value plus
accrued interest of the securities loaned. The Fund can increase its income
through the investment of such collateral. The Fund continues to be entitled to
the interest payable or any dividend-equivalent payments received on a loaned
security and, in addition, to receive interest on the amount of the loan.
However, the receipt of any dividend-equivalent payments by the Fund on a
loaned security from the borrower will not qualify for the dividends-received
deduction. Such loans will be terminable at any time upon specified notice. The
Fund might experience risk of loss if the institutions with which it has
engaged in portfolio loan transactions breach their agreements with the Fund.
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, the 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.
Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Fund 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.
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Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways:
First, to reduce risk by hedging (offsetting) an investment position. Second,
to substitute for another security particularly where it is quicker, easier and
less expensive to invest in derivatives. Lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction costs,
quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for the Fund.
The Fund may invest its assets in derivative and related instruments
subject only to the Fund's investment objective and policies and the
requirement that the Fund maintain segregated accounts consisting of liquid
assets, such as cash, U.S. Government securities, or other high-grade debt
obligations (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under such instruments with
respect to positions where there is no underlying portfolio asset so as to
avoid leveraging the Fund.
The value of some derivative or similar instruments in which the Fund may
invest may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--the ability of
the Fund 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 Fund could be exposed to the risk of a loss. The Funds 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 may employ along with risks or special
attributes associated with them. This discussion is intended to supplement the
Fund's current prospectuses as well as provide useful information to
prospective investors.
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 the Fund and the hedging vehicle so that
the portfolio return might have been greater had hedging not been attempted.
This risk is particularly acute in the case of "cross-hedges" between
currencies. The advisers may inaccurately forecast interest rates, market
values or other economic factors in utilizing a derivatives strategy. In such a
case, the Fund may have been in a better position had it not entered into such
strategy. 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 Fund is not required to use any hedging
strategies and strategies not involving hedging involve leverage and may
increase the risk to the Fund. Certain strategies, such as yield enhancement,
can have speculative characteristics and may result in more risk to the Fund
than hedging strategies using the same instruments.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out an option, futures contract or other derivative or
related position. Many exchanges and boards of trade limit the amount of
fluctuation permitted in option or futures contract prices during a single day;
once the daily limit has been reached on particular contract, no trades may be
made that day at a price beyond that limit. In addition, certain instruments
are relatively new and without a significant trading history. As a result,
there is no assurance that an active secondary market will develop or continue
to exist. Finally, over-the-counter instruments typically do not have a liquid
market. Lack of a liquid market for any reason may prevent the Fund from
liquidating an unfavorable position. 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,
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foreign exchanges or foreign boards of trade, there is a greater potential that
a counterparty or broker may default or be unable to perform on its
commitments. In the event of such a default, the Fund may experience a loss. In
transactions involving currencies, the value of the currency underlying an
instrument may fluctuate due to many factors, including economic conditions,
interest rates, governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by
the Fund.
Options on Securities, Securities Indexes, Currencies and Debt
Instruments. The Fund may PURCHASE, SELL or EXERCISE call and put options on:
securities; securities indexes; currencies; or debt instruments. Specifically,
the Fund 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 Fund may
also purchase, sell or exercise over-the-counter options. Over-the-counter
options differ from exchange-traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller. As
such, over-the-counter options generally have much less market liquidity and
carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. The Fund may also
use combinations of options to minimize costs, gain exposure to markets or take
advantage of price disparities or market movements. For example, the Fund may
sell put or call options it has previously purchased or purchase put or call
options it has previously sold. These transactions may result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and other transaction costs paid on the put or call option which is
sold. The Fund may write a call or put option in order to earn the related
premium from such transactions. Prior to exercise or expiration, an option may
be closed out by an offsetting purchase or sale of a similar option. The Fund
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, the
Fund writing a covered call (i.e., where the underlying securities are held by
the Fund) has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price, but has retained the risk of loss should the price of the
underlying securities decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price.
If a put or call option purchased by the Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Fund will
lose its entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when the Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, the
Fund may be unable to close out a position.
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Futures Contracts and Options on Futures Contracts. The Fund 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,
the Fund may sell a futures contract--or buy a futures option--to protect
against a decline in value, or reduce the duration, of portfolio holdings.
Likewise, these instruments may be used where the Fund intends to acquire an
instrument or enter into a position. For example, the Fund may purchase a
futures contract--or buy a futures option--to gain immediate exposure in a
market or otherwise offset increases in the purchase price of securities or
currencies to be acquired in the future. Futures options may also be written to
earn the related premiums.
When writing or purchasing options, the Fund may simultaneously enter into
other transactions involving futures contracts or futures options in order to
minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks in
certain instances. The Fund may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the
security or currency position being hedged to take advantage of relationships
between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Fund will
only enter into futures contracts or options or futures contracts which are
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system.
Forward Contracts. The Fund may enter into forward contracts. The Fund may
use foreign currency and interest-rate forward contracts for various purposes
as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. The Fund may invest
in securities denominated in foreign currencies and may, in addition to buying
and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency contract, the Fund "locks
in" the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. As a result, the Fund reduces
its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the value of the Fund is similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Transactions that use two foreign currencies are sometimes referred to as
"cross-hedges."
The Fund may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from investments or anticipated investments in
securities denominated in foreign currencies. The Fund or Portfolio may also
enter into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another.
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The Fund may also use forward contracts to hedge against changes in
interest-rates, increase exposure to a market or otherwise take advantage of
such changes. An interest-rate forward contract involves the obligation to
purchase or sell a specific debt instrument at a fixed price at a future date.
Interest Rate and Currency Transactions. The Fund may employ currency and
interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of the Fund's net currency exposure
will not exceed the total net asset value of its portfolio. However, to the
extent that the Fund is fully invested while also maintaining currency
positions, it may be exposed to greater combined risk.
The Fund will only enter into interest rate and currency swaps on a net
basis, i.e., the two payment streams are netted out, with the Fund or Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and currency swaps do not involve the delivery of
securities, the underlying currency, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and currency swaps
is limited to the net amount of interest or currency payments that the Fund is
contractually obligated to make. If the other party to an interest rate or
currency swap defaults, the Fund's risk of loss consists of the net amount of
interest or currency payments that the Fund or Portfolio is contractually
entitled to receive. Since interest rate and currency swaps are individually
negotiated, the Fund expect to achieve an acceptable degree of correlation
between their portfolio investments and their interest rate or currency swap
positions.
The Fund may hold foreign currency received in connection with investments
in foreign securities when it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate.
The Fund may purchase or sell without limitation as to a percentage of its
assets forward foreign currency exchange contracts when the advisers anticipate
that the foreign currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities and are not held by the Fund. In addition, the Fund may enter
into forward foreign currency exchange contracts in order to protect against
adverse changes in future foreign currency exchange rates. The Fund may engage
in cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
its advisers believe that there is a pattern of correlation between the two
currencies. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such contracts. The
use of foreign currency forward contracts will not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on the Fund's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Fund may not always be able to enter into foreign currency
forward contracts at attractive prices, and this will limit the Fund's ability
to use such contract to hedge or cross-hedge its assets. Also, with regard to
the Fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the Fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's or Portfolio's assets that are the subject of such
cross-hedges are denominated.
The Fund may enter into interest rate and currency swaps to the maximum
allowed limits under applicable law. The Fund will typically use interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by the Fund 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.
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<PAGE>
Structured Products. The Fund 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. The Fund may invest in structured products which
represent derived investment positions based on relationships among different
markets or asset classes.
The Fund 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 the Fund invests
in notes linked to the price of an underlying instrument, the price of the
underlying security is determined by a multiple (based on a formula) of the
price of such underlying security. A structured product may be considered to be
leveraged to the extent its interest rate varies by a magnitude that exceeds
the magnitude of the change in the index rate of interest. Because they are
linked to their underlying markets or securities, investments in structured
products generally are subject to greater volatility than an investment
directly in the underlying market or security. Total return on the structured
product is derived by linking return to one or more characteristics of the
underlying instrument. Because certain structured products of the type in which
the Fund may invest may involve no credit enhancement, the credit risk of those
structured products generally would be equivalent to that of the underlying
instruments. The Fund may invest in a class of structured products that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured products typically have higher yields and present
greater risks than unsubordinated structured products. Although the Fund's
purchase of subordinated structured products would have similar economic effect
to that of borrowing against the underlying securities, the purchase will not
be deemed to be leverage for purposes of the Fund's 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. The
Fund is not 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
13
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will be purchased, sold or entered into only for bona fide hedging purposes,
provided that the 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 the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's 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 ensuring that the use of such futures is unleveraged.
Investment Restrictions
The Fund have adopted the following investment restrictions which may not
be changed without shareholder approval by a "majority of the outstanding
shares" of a Fund which, as used in this Statement of Additional Information,
means the vote of the lesser of (i) 67% or more of the shares of a Fund present
at a meeting, if the holders of more than 50% of the outstanding shares of a
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of a Fund.
The Fund may not:
(1) borrow money, except that (i) the Fund 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,
and (ii) the Fund may borrow money to buy additional securities, in an
amount not exceeding 10% of its total assets (including the amount
borrowed.)
(2) make loans, except that the Fund 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 total assets would be invested in the
securities of companies whose principal business activities are in the
same industry. Notwithstanding the foregoing, with respect to the Fund's
permissible futures and options transactions in U.S. Government
securities, positions in such options and futures shall not be subject to
this restriction;
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
the Fund from (i) purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities or (ii) engaging in forward purchases or sales of foreign
currencies or securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
Investments by the Fund in securities backed by mortgages on real estate
or in marketable securities of companies engaged in such activities are
not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) the Fund may engage in transactions that may result in the
issuance of senior securities to the extent permitted under appli-
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cable regulations and interpretations of the 1940 Act or an exemptive
order; (b) the 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, the
Fund may borrow money as authorized by the 1940 Act. For purposes of this
restriction, collateral arrangements with respect to permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as
the Fund 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 the Fund may not:
(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, the Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (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 the Fund or Portfolio in municipal obligations where the issuer
is regarded as a state, city, municipality or other public authority since such
entities are not members of an "industry." Supranational organizations are
collectively considered to be members of a single "industry" for purposes of
restriction (3) above.
In addition, the Fund is subject to the following nonfundamental
restrictions which may be changed without shareholder approval:
(1) The Fund may not, with respect to 50% of its assets, hold more
than 10% of the outstanding voting securities of an issuer.
15
<PAGE>
(2) The Fund may not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment program
of the Fund or Portfolio. The Fund has the current intention of making
short sales against the box.
(3) The Fund may not purchase or sell interests in oil, gas or
mineral leases.
(4) The Fund may not invest more than 15% of its net assets in
illiquid securities.
(5) The Fund may not write, purchase or sell any put or call option
or any combination thereof, provided that this shall not prevent (i) the
writing, purchasing or selling of puts, calls or combinations thereof with
respect to portfolio securities or (ii) with respect to the Fund's
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, the Fund 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.
(7) The value of the 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) The 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) The 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 Fund'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 the Fund, 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 invest-
16
<PAGE>
ment 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, the Fund
may make commitments more restrictive than the investment policies and
limitations described above and in its Prospectus. Should the Fund
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, the Fund will not: (i) invest more than 5% of its
assets in companies which, including predecessors, have a record of less
than three years' continuous operation; 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 the Fund will not be considered a violation.
If the value of the Fund's holdings of illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Board of
Trustees will consider what actions, if any, are appropriate to maintain
adequate liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for the Fund are made by
a portfolio manager who is an employee of the adviser or sub-adviser to the
Fund and who is appointed and supervised by senior officers of such adviser or
sub-adviser. Changes in the Fund'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 the Fund's portfolio transactions--the portfolio turnover
rate--will vary from year to year depending upon market conditions. Because a
high turnover rate may increase the Fund'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. The Fund will engage in portfolio trading if its
advisers believe a transaction, net of costs (including custodian charges),
will help it achieve its investment objective.
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 Fund. 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 the Fund on any particular transaction, and are not required to
execute any order in a fashion either preferential to the Fund relative to
other accounts they manage or otherwise materially adverse to such other
accounts.
17
<PAGE>
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to the Fund normally seeks to deal directly with the primary market
makers unless, in its opinion, best execution is available elsewhere. In the
case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the adviser or sub-adviser on the
tender of the Fund's portfolio securities in so-called tender or exchange
offers. Such soliciting dealer fees are in effect recaptured for the Fund by
the adviser 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 Fund to pay a broker-dealer which provides brokerage and research
services to the adviser or sub-advisers, the Fund and/or other accounts for
which they exercise investment discretion an amount of commission for effecting
a securities transaction for the Fund 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 Fund. The adviser and
sub-advisers report to the Board of Trustees regarding overall commissions paid
by the Fund and their reasonableness in relation to the benefits to the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or of purchasers or sellers of securities,
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
The management fees that the Fund 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 Fund's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Fund will exceed
those that might otherwise be paid by an amount which cannot be presently
determined. Such services 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 Fund. 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 the
Fund as well as one or more of the adviser's or sub-adviser's other clients.
Investment decisions for the Fund and for other clients are made with a view to
achieving their respective investment objectives. It may develop that the same
investment decision is made for more than one client or that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When the Fund or other clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned. However, it is believed that
the ability of the Fund to participate in volume transactions will generally
produce better executions for the Fund.
18
<PAGE>
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, the 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 the Fund may be quoted
and compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of the Fund or
its classes may be compared to data prepared by Lipper Analytical Services,
Inc. or Morningstar Mutual Funds on Disc, widely recognized independent
services which monitor the performance of mutual funds. Performance and yield
data as reported in national financial publications including, but not limited
to, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in local or regional publications, may also be used in comparing the
performance and yield of a Fund or its classes. The Fund's performance may be
compared with indices such as the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Government Bond Index, the Lehman Government Bond
1-3 Year Index and the Lehman Aggregate Bond Index; the 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, the Fund may,
with proper authorization, reprint articles written about the Fund and provide
them to prospective shareholders.
The Fund may provide period and average annual "total rates of return."
The "total rate of return" refers to the change in the value of an investment
in 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 the 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 the
Fund's operating expenses on a month-to-month basis. These actions would have
the effect of increasing the net income (and therefore the yield and total rate
of return) of the classes of shares of the Fund during the period such waivers
are in effect. These factors and possible differences in the methods used to
calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of the classes of shares of the
Fund to yields and total rates of return published for other investment
companies and other investment vehicles (including different classes of
shares). The 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 invest-
19
<PAGE>
ment of customers of those Shareholder Servicing Agents. Such customers may be
able to obtain through their Shareholder Servicing Agents quotations reflecting
such increased return.
The 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 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 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.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to the
Fund.
Advertisements for the Chase Fleming 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
The Fund's total rate of return for any period will be calculated by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect
to shares purchased with such dividends and capital gains distributions, by
(ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. 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 Fund may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of
the Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for 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.
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 Fund invests in securities primarily listed on foreign
exchanges which trade on Saturdays or other customary United States national
business holidays on which the Fund does not price, the Fund's
20
<PAGE>
portfolios will trade and the net asset value of the Fund shares may be
significantly affected on days on which the investor has no access to the Fund.
The Fund calculates its NAV once each day at the close of regular trading
on the New York Stock Exchange. 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 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 Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectus are not available
until a completed and signed account application has been received by the
Transfer Agent. 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, the 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 the Fund and depositing and withdrawing monies from the
bank account specified in the Bank Account Registration section of the
shareholder's latest account application or as otherwise properly specified to
the Fund in writing.
Subject to compliance with applicable regulations, the Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust
21
<PAGE>
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 $250,000).
Class A Shares
The public offering price of Class A shares is the net asset value plus a
sales charge that varies depending on the size of your purchase. The Fund
receives the net asset value. The sales charge is allocated between your
broker-dealer and the Fund's distributor as shown in the following table,
except when the Fund's distributor, in its discretion, allocates the entire
amount to your broker-dealer.
<TABLE>
<CAPTION>
Amount of
Sales charge as a sales charge
percentage of: reallowed to
------------------------- dealers as a
Amount of transaction at Offering Net amount percentage of
offering price ($) price invested offering price
---------------------------------------------------------------------------
<S> <C> <C> <C>
Under 100,000 5.75 6.10 5.00
100,000 but under 250,000 3.75 3.90 3.25
250,000 but under 500,000 2.50 2.56 2.25
500,000 but under 1,000,000 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1
million or more.
The Fund's distributor pays broker-dealers commissions on net sales of
Class A shares of $1 million or more based on an investor's cumulative
purchases. Such commissions are paid at the rate of 1.00% of the amount under
$2.5 million, 0.75% of the next $7.5 million, 0.50% of the next $40 million and
0.20% thereafter. The Fund's distributor may withhold payments with respect to
short-term investments.
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
the Fund has only one class and is subject to an initial sales charge, shares
of the 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 the 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
22
<PAGE>
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 the 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 the Fund (or if the Fund has only
one class and is subject to an initial sales charge, shares of the 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 the Fund has only one class and is subject to an initial sales charge,
shares of the 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 the
Fund has only one class and is subject to an initial sales charge, shares of
the 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 the Fund has only one class and is subject to an initial sales
charge, shares of the 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 the Fund has only one class and is subject to an initial sales charge,
shares of the Fund) purchased thereafter.
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 the 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.
The Fund may sell Class A shares at net asset value without an initial
sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Fund's distributor and transfer agent or any affiliates or
subsidiaries thereof, registered representatives and other employees (and their
immediate families) of broker-dealers having selected dealer agreements with
the Fund's distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor (or
otherwise having an arrangement with a broker-dealer or financial institution
with respect to sales of Chase Vista Fund shares), financial institutions 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.
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
23
<PAGE>
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 the Fund's Class A shares may be made with no initial sales
charge in accounts opened by a bank, trust company or thrift institution which
is acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at 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.
The Fund may sell Class A shares at net asset value without an initial
sales charge in connection with the acquisition by the Fund of assets of an
investment company or personal holding company.
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 Fund reserves 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 the
Fund 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 the 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 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 Fund's distributor pays broker-dealers a commission of 4.00% of the
offering price on sales of Class B shares and a commission of 1.00% of the
offering price on sales of Class C shares. The distributor keeps the entire
amount of any CDSC the investor pays.
The contingent deferred sales charge for Class B and Class C shares will
be waived for certain exchanges and for redemptions in connection with the
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
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<PAGE>
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.
The Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in 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. The 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.
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 the 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
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") 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 the 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,
the Fund is not subject to federal income tax on the portion of its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, without regard to the deduction for dividends paid) and
net capital gain (i.e., the excess of net long-term capital gain over net
short-term capital loss) that it distributes to shareholders, provided that it
distributes at least 90% of its net investment income for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below.
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
25
<PAGE>
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, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
The Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Fund and defer recognition of certain
of the Fund's losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. In addition, these provisions (1)
will require the 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
the Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the Distribution
Requirement and avoid the 4% excise tax (described below). The Fund intends to
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate
the effect of these rules.
If the Fund purchases shares in a "passive foreign investment company" (a
"PFIC"), the 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 the 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, the 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 the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
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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.
The Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of 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 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.
The 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 current legislation, the maximum rate of tax on long-term capital
gains of individuals is 20% (10% for gains otherwise taxed at 15%) for
long-term capital gains realized with respect to capital assets held for more
than 12 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%.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable
27
<PAGE>
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 the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance
since the amount of the Fund's assets to be invested in various countries is
not known. 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 the Fund. If the 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 (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 the Fund representing income derived
from foreign sources. In certain circumstances, a shareholder that (i) has held
shares of the 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. The 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.
The 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 the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of the Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been
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<PAGE>
received by the shareholders (and made by the Fund) on December 31 of such
calendar year if such dividends are actually paid in January of the following
year. Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is
a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. 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 the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. 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 the 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 the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of 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 the
Fund, including the applicability of foreign taxes.
29
<PAGE>
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
the 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 the 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 the 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 the Fund
invests to a substantial degree in U.S. government securities which are subject
to favorable state and local tax treatment, shareholders of the 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 the 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.
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<PAGE>
MANAGEMENT OF THE TRUST AND THE FUND
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: 67. 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: 64. Address: P.O. Box 296, Beach Road, Hendrick's Head,
Southport, ME 04576.
William J. Armstrong--Trustee. Retired; formerly Vice President and
Treasurer, Ingersoll-Rand Company. Age: 58. 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: 70. 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: 66. 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: 67.
Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
Joseph J. Harkins--Trustee. Retired; formerly 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: 68. 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: 47. Address:
Chase Mutual Funds Corp., 1211 Avenue of the Americas, 41st 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: 72. Address: 624 East
45th Street, Savannah, GA 31405
George E. McDavid--Trustee. President, Houston Chronicle Publishing
Company. Age: 69. Address: P.O. Box 2558, Houston, TX 77252.
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: 72. Address:
RR 1 Box 102, Weston, VT 05181.
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<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: 64. 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: 65. 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: 69. 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: 37. Address: 3435 Stelzer Road, Columbus, OH 43219.
Lisa Hurley--Secretary. Senior Vice President and General Counsel, BISYS
Fund Services; formerly Counsel to Moore Capital Management and General Counsel
to Global Asset Management and Northstar Investments Management. Age: 44.
Address: 90 Park Avenue, New York, NY 10016.
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: 37. Address: 1211 Avenue of the Americas, 41st Floor, 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: 31. Address: 3435 Stelzer Road, Columbus, OH 43219.
----------
* 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,
1999.
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").
32
<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.
33
<PAGE>
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1999 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Total
Compensation
Pension or from
Retirement "Fund Complex"(2)
Benefits Accrued (includes all Chase Vista
by the Fund Complex(1) Trusts and Portfolios)
------------------------ --------------------------
<S> <C> <C>
Fergus Reid, III, Trustee $108,490 $160,000
H. Richard Vartabedian, Trustee 69,858 120,000
William J. Armstrong, Trustee 35,695 80,000
John R.H. Blum, Trustee 70,084 87,500
Stuart W. Cragin, Jr., Trustee 42,785 82,500
Ronald R. Eppley, Jr., Trustee 52,102 80,000
Joseph J. Harkins, Trustee 60,009 80,000
Sarah E. Jones, Trustee -- --
W.D. MacCallan, Trustee 73,291 80,000
W. Perry Neff, Trustee 70,365 80,000
Leonard M. Spalding, Jr., Trustee 25,509 80,000
Richard E. Ten Haken, Trustee 55,162 83,750
Irving L. Thode, Trustee 50,414 80,000
</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, 1999,
and by Mutual Fund Trust, Mutual Fund Select Trust and Mutual Fund
Variable Annuity Trust for the fiscal year ended August 31, 2000.
(2) Data reflects total compensation earned during the period January 1, 1999
to December 31, 1999 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 August 31, 2000, 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, 1999, 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 $89,000
which amount is 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 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
34
<PAGE>
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, 1998, 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
15, 7, 12, 15, 6, 10, 9, 9, 15, 1, 14, 6 and 0, respectively.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by All Chase Vista Funds
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$80,000 $100,000 $120,000 $140,000 $160,000
<CAPTION>
Years of
Service Estimated Annual Benefits Upon Retirement
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
16 $80,000 $100,000 $120,000 $140,000 $160,000
14 76,800 96,000 115,200 134,400 153,600
12 70,400 88,000 105,600 123,200 140,800
10 64,000 80,000 96,000 112,000 128,000
8 51,200 64,000 76,800 89,600 102,400
6 38,400 48,000 57,600 67,200 76,800
4 25,600 32,000 38,400 44,800 51,200
</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 1999 calendar year and as of October
31, 1999 they had contributed $52,400, $27,700, $58,950 and $98,250,
respectively.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or
with respect to any matter unless it is finally adjudicated that they did not
act in good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination based
upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
Adviser and Sub-Adviser
Chase acts as investment adviser to the Fund 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 Fund. Pursuant to the terms of the Advisory
35
<PAGE>
Agreement, Chase provides the Fund with such investment advice and supervision
as it deems necessary for the proper supervision of the Fund's investments. The
advisers continuously provide investment programs and determine from time to
time what securities shall be purchased, sold or exchanged and what portion of
the Fund's assets shall be held uninvested. The advisers to the Fund furnish,
at their own expense, all services, facilities and personnel necessary in
connection with managing the investments and effecting portfolio transactions
for the Fund. The Advisory Agreement for the Fund will continue in effect from
year to year only if such continuance is specifically approved at least
annually by the Board of Trustees or by vote of a majority of 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 Fund 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 Fund 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 Fund 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 Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of the Fund are qualified for 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 Fund during such fiscal year; and if such amounts should
exceed the monthly fee, the adviser shall pay to the Fund its share of such
excess expenses no later than the last day of the first month of the next
succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser of the 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 Fund, has entered into an investment sub-advisory
agreement dated as of May 6, 1996 with Chase Asset Management, Inc. ("CAM")
which on September 5, 2000 was renamed Chase Fleming Asset Management (USA)
Inc. (CFAM). With respect to the day-to-day management of the Fund,
36
<PAGE>
under the sub-advisory agreement CFAM makes decisions concerning, and places
all orders for, purchases and sales of securities and helps maintain the
records relating to such purchases and sales. CFAM 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 Fund.
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.
CFAM is a wholly-owned operating subsidiary of the Adviser. CFAM 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 CFAM also
serve as portfolio managers for Chase. CFAM 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 the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal
to a percentage of the Fund'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, CFAM will be entitled to receive, with
respect to each the Fund, such compensation, payable by the adviser out of its
advisory fee, as is described in the relevant Prospectuses.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Fund. Chase provides certain
administrative services to the Fund, including, among other responsibilities,
coordinating the negotiation of contracts and fees with, and the monitoring of
performance and billing of, the Fund's independent contractors and agents;
preparation for signature by an officer of the Trust and Portfolio of all
documents required to be filed for compliance by the Trust and Portfolio with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including
net asset value and yield; responding to shareholder inquiries, and arranging
for the maintenance of books and records of the Fund and providing, at its own
expense, office facilities, equipment and personnel necessary to carry out its
duties. Chase in its capacity as administrator does not have any responsibility
or authority for the management of the Fund, the determination of investment
policy, or for any matter pertaining to the distribution of Fund shares.
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will continue
in effect from year to year with respect to the Fund 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 the Fund on
60 days' written notice when authorized either by a majority vote of the Fund's
shareholders or by vote of a majority of the Board of Trustees, including a
majority of the Trustees who are not
37
<PAGE>
"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 Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administration
Agreements.
In addition, the Administration Agreements provide that, in the event the
operating expenses of the Fund, including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for
any fiscal year exceed the most restrictive expense limitation applicable to
the Fund imposed by the securities laws or regulations thereunder of any state
in which the shares of the Fund are qualified for sale, as such limitations may
be raised or lowered from time to time, Chase shall reduce its administration
fee (which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by Chase shall be
deducted from the monthly administration fee otherwise payable to Chase during
such fiscal year, and if such amounts should exceed the monthly fee, Chase
shall pay to the 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 will receive from the 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, Chase receives from each of the Fund a fee computed daily and paid
monthly at an annual rate equal to 0.05% of their respective average daily net
assets. Chase may voluntarily waive a portion of the fees payable to it with
respect to the Fund on a month-to-month basis.
Distribution 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 the Fund as described in the Prospectus, which provide that such
classes of the Fund 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 the Fund will be conducted generally by the Chase Vista
Funds, and activities intended to promote one class of shares of the 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 value 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 and Class C shares. Since the
distribution
38
<PAGE>
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 and 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 and 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.
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 the Fund, by vote of a
majority of the outstanding voting Shares of the class of the 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. The
Fund 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.
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement
dated August 24, 1995 (the "Distribution Agreement") with the Distributor,
pursuant to which the Distributor acts as the Fund's exclusive underwriter,
provides certain administration services and promotes and arranges for the sale
of 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 the Fund for sale in connection with the public offering of such
shares, and all legal expenses in connection therewith. In addition, pursuant
to the Distribution Agreement, the Distributor provides certain
sub-administration services to the Trust, including providing officers,
clerical staff and office space. 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, Class B or Class C
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, Class B and Class C shares will be conducted generally by
the Chase Vista Funds, and activities intended to promote the Fund's Class A,
Class B or Class C shares may also benefit the Fund's other shares and other
Chase Vista Funds.
39
<PAGE>
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista Funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to
a sporting event or theater 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 the Fund only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of
a majority of the Fund's outstanding voting securities and, in either case, by
a majority of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf of
the Fund on 60 days' written notice when authorized either by a majority vote
of the Fund's shareholders or by vote of a majority of the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, or by the Distributor on 60
days' written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or connected with, rendering services under
the Distribution Agreement, except for wilful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
In the event the operating expenses of the Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of the Fund are qualified for sale,
as such limitations may be raised or lowered from time to time, the Distributor
shall reduce its sub-administration fee with respect to the Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to the Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to the Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of 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.
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
40
<PAGE>
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 the Fund on a month-to-month basis.
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.
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 the Fund and receives such compensation as is from time to time
agreed upon by the Trust and Chase. As custodian, Chase provides oversight and
record keeping for the assets held in the portfolios of each Fund. Chase also
provides fund account-
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ing 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.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants of the Fund, provides the Fund with audit
services, tax return preparation and assistance and consultation with respect
to the preparation of filings with the Securities and Exchange Commission.
CERTAIN REGULATORY MATTERS
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Fund's distributor or affiliates of the distributor. Chase
will not invest the Fund assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate,
although under certain circumstances such securities may be purchased from
other members of an underwriting syndicate in which Chase or an affiliate is a
non-principal member. This restriction may limit the amount or type of U.S.
Government obligations, municipal obligations or commercial paper available to
be purchased by the Fund. Chase has informed the Fund that in making its
investment 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 Fund should be aware
that, subject to applicable legal or regulatory restrictions, Chase and its
affiliates may exchange among themselves certain information about the
shareholder and his account. Transactions with affiliated broker-dealers will
only be executed on an agency basis in accordance with applicable federal
regulations.
GENERAL INFORMATION
Expenses
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Fund's custodian
for all services to the 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 Fund. Shareholder servicing and
distribution fees are all allocated to specific classes of the Funds. In
addition, the Fund may allocate transfer agency and certain other expenses by
class. Service providers to the Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
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.
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The Trust currently consists of 22 series of shares of beneficial
interest, par value $.001 per share. With respect to the Fund, 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.
The Fund offers 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 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.
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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.
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Principal Holders
As of August 31, 2000, no person owned of record 5% or more of the
outstanding shares of any class of the Fund.
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APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES
OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government 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
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New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured
by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
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APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with respect to
bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated "A" possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well 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
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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.
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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.
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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
