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STATEMENT OF
ADDITIONAL INFORMATION
February 28, 2000
BALANCED FUND
BOND FUND
CAPITAL GROWTH FUND
CORE EQUITY FUND
EQUITY GROWTH FUND
EQUITY INCOME FUND
FOCUS FUND
GROWTH AND INCOME FUND
LARGE CAP EQUITY FUND
SELECT GROWTH AND INCOME FUND
SHORT TERM BOND FUND
SMALL CAP EQUITY FUND
SMALL CAP OPPORTUNITIES FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT SECURITIES FUND
U.S. TREASURY INCOME FUND
1211 Avenue of The Americas, 41st Floor, New York, NY 10081
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering shares
of U.S. Government Securities Fund, U.S. Treasury Income Fund, Bond Fund,
Short-Term Bond Fund and Strategic Income Fund (collectively, the "Income
Funds"), and Balanced Fund, Core Equity Fund, Equity Income Fund, Equity Growth
Fund, Focus Fund, Growth and Income Fund, Capital Growth Fund, Large Cap Equity
Fund, Select Growth and Income Fund, Small Cap Equity Fund and Small Cap
Opportunities Fund (collectively, the "Equity Funds"). Any references to a
"Prospectus" in this Statement of Additional Information is a reference to one
or more of the foregoing Prospectuses, as the context requires. Copies of each
Prospectus may be obtained by an investor without charge by contacting Vista
Fund Distributors, Inc. ("VFD"), the Funds' distributor (the "Distributor"), at
the above-listed address.
This Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by an
effective prospectus.
For more information about your account, simply call or write the Chase Vista
Funds Service Center at:
1-800-34-VISTA
Chase Vista Funds Service Center
P.O. Box 419392
Kansas City, MO 64141
MFG-SAI-200
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Table of Contents Page
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The Funds ............................................................ 3
Investment Policies and Restrictions ................................. 3
Performance Information .............................................. 25
Determination of Net Asset Value ..................................... 36
Purchases, Redemptions and Exchanges ................................. 37
Distributions; Tax Matters ........................................... 42
Management of the Trust and the Funds or Portfolios .................. 47
Independent Accountants .............................................. 64
Certain Regulatory Matters ........................................... 64
General Information .................................................. 65
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
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THE FUNDS
Mutual Fund Group (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 11, 1987. The Trust presently consists of
21 separate series (the "Funds"). Certain of the Funds are diversified and
other Funds are non-diversified, as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The shares of the Funds are
collectively referred to in this Statement of Additional Information as the
"Shares."
The Growth and Income Fund and Capital Growth Fund converted to a master
fund/feeder fund structure in December 1993. The Select Growth and Income Fund,
Core Equity Fund and Equity Growth Fund were formed with a master fund/feeder
fund structure. Under this structure, each of these Funds seeks to achieve its
investment objective by investing in all of its investable assets in an
open-end management investment company which has the same investment objective
as that Fund. Growth and Income Fund and Select Growth and Income Fund invest
in Growth and Income Portfolio. Capital Growth Fund, Core Equity Fund and
Equity Growth Fund invest in Capital Growth Portfolio, Core Equity Portfolio
and Equity Growth Portfolio, respectively. Growth and Income Portfolio, Capital
Growth Portfolio, Core Equity Portfolio and Equity Growth Portfolio are
hereafter collectively referred to as the "Portfolios". Growth and Income
Portfolio and Capital Growth Portfolio are each a New York trust with its
principal office in New York. Core Equity Portfolio and Equity Growth Portfolio
are separate series of Mutual Fund Master Investment Trust, an open-end
management investment company that was organized as a business trust under the
laws of the Commonwealth of Massachusetts. Core Equity Portfolio and Equity
Growth Portfolio were formed when the Chase Core Equity Fund and Chase Equity
Growth Fund series of Mutual Fund Investment Trust, another open-end management
investment company, were converted to a master/feeder structure. Certain
qualified investors, in addition to a Fund, may invest in a Portfolio. For
purposes of this Statement of Additional Information, any information or
references to the Portfolios refer to the operations and activities after
implementation of the master fund/feeder fund structure.
On May 3, 1996, The Hanover Large Cap Equity Fund merged into the
Institutional Shares of Large Cap Equity Fund, The Hanover Short-Term Bond Fund
merged into the Class A shares of Short-Term Bond Fund, Investor Shares of The
Hanover Small Cap Equity Fund merged into the Class A shares of Small Cap
Equity Fund, CBC Benefit Shares of The Hanover Small Cap Equity Fund merged
into the Institutional Shares of Small Cap Equity Fund and The Hanover U.S.
Government Securities Fund merged into the Institutional Shares of U.S.
Government Securities Fund. The foregoing mergers are referred to herein as the
"Hanover Reorganization."
Effective as of May 6, 1996, U.S. Government Income Fund changed its name
to U.S. Treasury Income Fund and Equity Fund changed its name to Large Cap
Equity Fund.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. In the case of the Portfolios,
separate Boards of Trustees provide broad supervision. The Chase Manhattan Bank
("Chase") is the investment adviser for the Funds (other than the Growth and
Income Fund, Capital Growth Fund, Select Growth and Income Fund, Core Equity
Fund and Equity Growth Fund, which do not have their own advisers) and the four
Portfolios. Chase also serves as the Trust's administrator (the
"Administrator") and supervises the overall administration of the Trust,
including the Funds, and is the administrator of the Portfolios. A majority of
the Trustees of the Trust are not affiliated with the investment adviser or
sub-advisers. Similarly, a majority of the Trustees of the Portfolios are not
affiliated with the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies of each Fund
and Portfolio. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. For descriptions of
the securities ratings of Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's
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Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"), see Appendix B.
U.S. Government Securities. All the Funds and Portfolios may invest in
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including: U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to ten years) and
U.S. Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the
agency or instrumentality. Agencies and instrumentalities of the U.S.
Government include but are not limited to: Federal Land Banks, Federal
Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks,
Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Student Loan Marketing
Association, United States Postal Service, Chrysler Corporate Loan Guarantee
Board, Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Certain U.S.
Government Securities, including U.S. Treasury bills, notes and bonds,
Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or guaranteed by
federal agencies or government sponsored enterprises and are not supported by
the full faith and credit of the United States. These securities include
obligations that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of the Federal Home Loan Banks, and
obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small Business
Administration, Federal Aviation Administration, Department of Defense, Bureau
of Indian Affairs and Private Export Funding Corporation, which often provide
higher yields than are available from the more common types of
government-backed instruments. However, such specialized instruments may only
be available from a few sources, in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if a Fund or Portfolio were required to liquidate
any of them, it might not be able to do so advantageously; accordingly, each
Fund and Portfolio investing in such securities normally to hold such
securities to maturity or pursuant to repurchase agreements, and would treat
such securities (including repurchase agreements maturing in more than seven
days) as illiquid for purposes of its limitation on investment in illiquid
securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are insured
by either the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation, and foreign banks (including their
U.S. branches) having total assets in excess of $10 billion (or the equivalent
in other currencies), and such other U.S. and foreign commercial banks which
are judged by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank
by a borrower, usually in connection with an international commercial
transaction. The borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Fixed time deposits are obligations of branches of United States banks or
foreign banks which are payable at a stated maturity date and bear
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a fixed rate of interest. Although fixed time deposits do not have a market,
there are no contractual restrictions on the right to transfer a beneficial
interest in the deposit to a third party. Fixed time deposits subject to
withdrawal penalties and with respect to which a Fund or Portfolio cannot
realize the proceeds thereon within seven days are deemed "illiquid" for the
purposes of its restriction on investments in illiquid securities. Deposit
notes are notes issued by commercial banks which generally bear fixed rates of
interest and typically have original maturities ranging from eighteen months to
five years.
The dependence on the banking industry may involve certain credit risks,
such as defaults or downgrades, if at some future date adverse economic
conditions prevail in such industry. Banks are subject to extensive
governmental regulations that may limit both the amounts and types of loans and
other financial commitments that may be made and the interest rates and fees
that may be charged. The profitability of this industry is largely dependent
upon the availability and cost of capital funds for the purpose of financing
lending operations under prevailing money market conditions. Also, general
economic conditions play an important part in the operations of this industry
and exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligations or by government
regulation. Investors should also be aware that securities of foreign banks and
foreign branches of United States banks may involve foreign investment risks in
addition to those relating to domestic bank obligations. These investment risks
may involve, among other considerations, risks relating to future political and
economic developments, more limited liquidity of foreign obligations than
comparable domestic obligations, the possible imposition of withholding taxes
on interest income, the possible seizure or nationalization of foreign assets
and the possible establishment of exchange controls or other restrictions.
There may be less publicly available information concerning foreign issuers,
there may be difficulties in obtaining or enforcing a judgment against a
foreign issuer (including branches) and accounting, auditing and financial
reporting standards and practices may differ from those applicable to U.S.
issuers. In addition, foreign banks are not subject to regulations comparable
to U.S. banking regulations.
Foreign Securities. For purposes of a Fund's investment policies, the
issuer of a security may be deemed to be located in a particular country if (i)
the principal trading market for the security is in such country, (ii) the
issuer is organized under the laws of such country or (iii) the issuer derives
at least 50% of its assets situated in such country.
Depositary Receipts. The Equity Funds and Portfolios may invest their
assets in securities of multinational companies in the form of American
Depositary Receipts or other similar securities representing securities of
foreign issuers, such as European Depositary Receipts, Global Depositary
Receipts and other similar securities representing securities of foreign
issuers (collectively, "Depositary Receipts"). The Funds and Portfolios treat
Depositary Receipts as interests in the underlying securities for purposes of
their investment policies.
Supranational Obligations. The Balanced Fund, the Equity Income Fund, the
Growth and Income Portfolio and the Strategic Income Fund may invest in
supranational obligations. Supranational organizations, include organizations
such as The World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations steel
and coal industries; and, the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations of the Asian and Pacific regions.
Obligations of supranational agencies are supported by subscribed, but unpaid,
commitments of member countries. There is no assurance that these commitments
will be undertaken or complied with in the future, and foreign and
supranational securities are subject to certain risks associated with foreign
investing.
Money Market Instruments. Each Fund and Portfolio may invest in cash or
high-quality, short-term money market instruments. These may include U.S.
Government securities, commercial paper of domestic
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and foreign issuers and obligations of domestic and foreign banks. Investments
in foreign money market instruments may involve certain risks associated with
foreign investment.
Corporate Reorganizations. In general, securities that are the subject of
a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal.
The increased market price of these securities may also discount what the
stated or appraised value of the security would be if the contemplated action
were approved or consummated. These investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or, fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or
proposal of greater value. The evaluation of these contingencies requires
unusually broad knowledge and experience on the part of the advisers that must
appraise not only the value of the issuer and its component businesses as well
as the assets or securities to be received as a result of the contemplated
transaction, but also the financial resources and business motivation of the
offeror as well as the dynamics of the business climate when the offer or
proposal is in progress. Investments in reorganization securities may tend to
increase the turnover ratio of a Fund or Portfolio and increase its brokerage
and other transaction expenses.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants but normally have a shorter duration and are
distributed directly by the issuer to shareholders. Rights and warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Preferred Stock. Preferred Stock are securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the corporation's earnings or assets.
Investment Grade Debt Securities. The Fixed Income Funds, the Equity
Income Fund and the Growth and Income Portfolio may invest in investment grade
debt securities. Investment grade debt securities are securities rated in the
category BBB or higher by Standard & Poor's Corporation ("S&P"), or Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or the equivalent by
another national rating organization, or, if unrated, determined by the
advisers to be of comparable quality.
Repurchase Agreements. All the Funds and Portfolios may enter into
repurchase agreements. A Fund or Portfolio will enter into repurchase
agreements only with member banks of the Federal Reserve System and securities
dealers believed creditworthy, and only if fully collateralized by securities
in which such Fund or Portfolio is permitted to invest. Under the terms of a
typical repurchase agreement, a Fund or Portfolio would acquire an underlying
instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase the instrument and the
Fund or Portfolio to resell the instrument at a fixed price and time, thereby
determining the yield during the Fund's or Portfolio's holding period. This
procedure results in a fixed rate of return insulated from market fluctuations
during such period. A repurchase agreement is subject to the risk that the
seller may fail to repurchase the security. Repurchase agreements are
considered under the 1940 Act to be loans collateralized by the underlying
securities. All repurchase agreements entered into by a Fund or Portfolio will
be fully collateralized at all times during the period of the agreement in that
the value of the underlying security will be at least equal to 100% of the
amount of the loan, including the accrued interest thereon, and the Fund or
Portfolio or its custodian or sub-custodian will have possession of the
collateral, which the Board of Trustees believes will give it a valid,
perfected security interest in the collateral. Whether a repurchase agreement
is the purchase and sale of a security or a
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collateralized loan has not been conclusively established. This might become an
issue in the event of the bankruptcy of the other party to the transaction. In
the event of default by the seller under a repurchase agreement construed to be
a collateralized loan, the underlying securities would not be owned by the Fund
or Portfolio, but would only constitute collateral for the seller's obligation
to pay the repurchase price. Therefore, a Fund or Portfolio may suffer time
delays and incur costs in connection with the disposition of the collateral.
The Board of Trustees believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
would be the case with securities owned by a Fund or Portfolio. Repurchase
agreements maturing in more than seven days are treated as illiquid for
purposes of the Funds' and Portfolios' restrictions on purchases of illiquid
securities. Repurchase agreements are also subject to the risks described below
with respect to stand-by commitments.
Forward Commitments. All the Funds and Portfolios may purchase securities
on a forward commitment basis. In order to invest a Fund's assets immediately,
while awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will
normally be purchased. When a commitment to purchase a security on a forward
commitment basis is made, procedures are established consistent with the
General Statement of Policy of the Securities and Exchange Commission
concerning such purchases. Since that policy currently recommends that an
amount of the respective Fund's or Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
a separate account of such Fund or Portfolio consisting of cash or liquid
securities equal to the amount of such Fund's or Portfolio's commitments
securities will be established at such Fund's or Portfolio's custodian bank.
For the purpose of determining the adequacy of the securities in the account,
the deposited securities will be valued at market value. If the market value of
such securities declines, additional cash, cash equivalents or highly liquid
securities will be placed in the account daily so that the value of the account
will equal the amount of such commitments by the respective Fund or Portfolio.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the respective Fund's or
Portfolio's portfolio are subject to changes in value based upon the public's
perception of the issuer and changes, real or anticipated, in the level of
interest rates. Purchasing securities on a forward commitment basis can involve
the risk that the yields available in the market when the delivery takes place
may actually be higher or lower than those obtained in the transaction itself.
On the settlement date of the forward commitment transaction, the respective
Fund or Portfolio will meet its obligations from then available cash flow, sale
of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the forward
commitment securities themselves (which may have a value greater or lesser than
such Fund's or Portfolio's payment obligations). The sale of securities to meet
such obligations may result in the realization of capital gains or losses.
Purchasing securities on a forward commitment basis can also involve the risk
of default by the other party on its obligation, delaying or preventing the
Fund or Portfolio from recovering the collateral or completing the transaction.
To the extent a Fund or Portfolio engages in forward commitment
transactions, it will do so for the purpose of acquiring securities consistent
with its investment objective and policies and not for the purpose of
investment leverage, and settlement of such transactions will be within 90 days
from the trade date.
Floating and Variable Rate Securities; Participation Certificates. The
Fixed Income Funds may invest in floating rate securities, whose interest rates
adjust automatically whenever a specified interest rate changes, and variable
rate securities, whose interest rates are periodically adjusted. Certain of
these instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Funds may invest include participation
certificates and certificates of indebtedness or safekeeping. Participation
certificates are pro rata interests in securities held by others; certificates
of indebtedness or safekeeping are documentary receipts for such original
securities held in custody by others. As a result of the floating or variable
rate nature of these
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investments, the Funds' yields may decline, and they may forego the opportunity
for capital appreciation during periods when interest rates decline; however,
during periods when interest rates increase, the Funds' yields may increase,
and they may have reduced risk of capital depreciation. Demand features on
certain floating or variable rate securities may obligate the Funds to pay a
"tender fee" to a third party. Demand features provided by foreign banks
involve certain risks associated with foreign investments.
The securities in which certain Funds and Portfolios may be invested
include participation certificates issued by a bank, insurance company or other
financial institution in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate gives
a Fund or Portfolio an undivided interest in the security in the proportion
that the Fund's or Portfolio's participation interest bears to the total
principal amount of the security and generally provides the demand feature
described below. Each Participation Certificate is backed by an irrevocable
letter of credit or guaranty of a bank (which may be the bank issuing the
Participation Certificate, a bank issuing a confirming letter of credit to that
of the issuing bank, or a bank serving as agent of the issuing bank with
respect to the possible repurchase of the Participation Certificate) or
insurance policy of an insurance company that the Board of Trustees of the
Trust has determined meets the prescribed quality standards for a particular
Fund or Portfolio.
A Fund or Portfolio may have the right to sell the Participation
Certificate back to the institution and draw on the letter of credit or
insurance on demand after the prescribed notice period, for all or any part of
the full principal amount of the Fund's or Portfolio's participation interest
in the security, plus accrued interest. The institutions issuing the
Participation Certificates would retain a service and letter of credit fee and
a fee for providing the demand feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
Participation Certificates were purchased by a Fund or Portfolio. The total
fees would generally range from 5% to 15% of the applicable prime rate or other
short-term rate index. With respect to insurance, a Fund or Portfolio will
attempt to have the issuer of the participation certificate bear the cost of
any such insurance, although the Funds and Portfolios retain the option to
purchase insurance if deemed appropriate. Obligations that have a demand
feature permitting a Fund or Portfolio to tender the obligation to a foreign
bank may involve certain risks associated with foreign investment. A Fund's or
Portfolio's ability to receive payment in such circumstances under the demand
feature from such foreign banks may involve certain risks such as future
political and economic developments, the possible establishments of laws or
restrictions that might adversely affect the payment of the bank's obligations
under the demand feature and the difficulty of obtaining or enforcing a
judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and
variable rate securities held by the Funds and Portfolios, including
Participation Certificates, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Funds and Portfolios may subscribe. Although these instruments may be sold by a
Fund or Portfolio, it is intended that they be held until maturity.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the underlying
floating or variable rate securities may change with changes in interest rates
generally, the floating or variable rate nature of the underlying floating or
variable rate securities should minimize changes in value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed rate securities. A Fund's or Portfolio's
portfolio may contain floating or variable rate securities on which stated
minimum or maximum rates, or maximum rates set by state law, limit the degree
to which interest on such floating or variable rate securities may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Because the adjustment of interest
rates on the floating or variable rate securities is made in relation to
movements of the applicable banks' "prime rates" or other short-term rate
adjustment indices, the floating or variable rate securities are not comparable
to long-term fixed rate securities. Accordingly, interest rates on the floating
or variable rate securities may be higher or lower than current market rates
for fixed rate obligations of comparable quality with similar maturities.
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The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund or Portfolio is entitled to receive
payment of the principal amount of the security upon demand or (ii) the period
remaining until the security's next interest rate adjustment.
Inverse Floaters and Interest Rate Caps. The Balanced Fund, the U.S.
Government Securities Fund, the Bond Fund, the Short-Term Bond Fund and the
Strategic Income Fund may invest in inverse floaters and in securities with
interest rate caps. Inverse floaters are instruments whose interest rates bear
an inverse relationship to the interest rate on another security or the value
of an index. The market value of an inverse floater will vary inversely with
changes in market interest rates and will be more volatile in response to
interest rates changes than that of a fixed-rate obligation. Interest rate caps
are financial instruments under which payments occur if an interest rate index
exceeds a certain predetermined interest rate level, known as the cap rate,
which is tied to a specific index. These financial products will be more
volatile in price than securities which do not include such a structure.
Borrowings. Each Fund and Portfolio may borrow money from banks for
temporary or short-term purposes. But, none of the Funds or Portfolios, except
for the Strategic Income Fund, may borrow money to buy additional securities,
which is known as "leveraging."
Reverse Repurchase Agreements. Each Fund and Portfolio may enter into
reverse repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by a Fund or Portfolio with an agreement to repurchase the
securities at an agreed upon price and date. Each Fund and Portfolio may use
this practice to generate cash for shareholder redemptions without selling
securities during unfavorable market conditions. Whenever a Fund or Portfolio
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets on a daily basis in an amount
at least equal to the repurchase price (including accrued interest). The Fund
or Portfolio would be required to pay interest on amounts obtained through
reverse repurchase agreements, which are considered borrowings under federal
securities laws. The repurchase price is generally equal to the original sales
price plus interest. Reverse repurchase agreements are usually for seven days
or less and cannot be repaid prior to their expiration dates. Reverse
repurchase agreements involve the risk that the market value of the portfolio
securities transferred may decline below the price at which the Fund or
Portfolio is obliged to purchase the securities.
Other Investment Companies. Apart from being able to invest all of their
investable assets in another investment company having substantially the same
investment objectives and policies, each Fund and Portfolio, except the U.S.
Treasury Fund, may invest up to 10% of their total assets in shares of other
investment companies when consistent with its investment objective and
policies, subject to applicable regulatory limitations. Additional fees may be
charged by other investment companies.
Zero Coupon, Payment-in-Kind and Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts separately. The
interest component of STRIPS may be more volatile than that of United States
Treasury bills with comparable maturities. The risk is greater when the period
to maturity is longer.
Each Fund and Portfolio, except for the Focus Fund, may invest in stripped
obligations. However, whereas the Balanced Fund, the U.S. Government Securities
Fund, the Bond Fund, the Short-Term Bond Fund and the Strategic Income Fund can
invest in all stripped obligations, the U.S. Treasury Income Fund, the Small
Cap Opportunities Fund, the Small Cap Equity Fund, the Large Cap Equity Fund,
the Equity Income Fund, the Growth and Income Portfolio and the Capital Growth
Portfolio may invest up to 20% of their total assets in stripped obligations
only where the underlying obligations are backed by the full faith and credit
of the U.S. Government.
The Balanced Fund, the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund, the U.S. Treasury Income Fund and the Strategic
Income Fund may invest in zero coupon securities
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issued by governmental and private issuers. Zero coupon securities are debt
securities that do not pay regular interest payments, and instead are sold at
substantial discounts from their value at maturity. When zero coupon
obligations are held to maturity, their entire return, which consists of the
amortization of discount, comes from the difference between their purchase
price and maturity value. Because interest on a zero coupon obligation is not
distributed on a current basis, the obligation tends to be subject to greater
price fluctuations in response to changes in interest rates than are ordinary
interest-paying securities with similar maturities. As with STRIPS, the risk is
greater when the period to maturity is longer. The value of zero coupon
obligations appreciates more than such ordinary interest-paying securities
during periods of declining interest rates and depreciates more than such
ordinary interest-paying securities during periods of rising interest rates.
Under the stripped bond rules of the Internal Revenue Code of 1986, as amended,
investments by a Fund or Portfolio in zero coupon obligations will result in
the accrual of interest income on such investments in advance of the receipt of
the cash corresponding to such income.
Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the coupon
payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury Receipts,
are examples of stripped U.S. Treasury securities separated into their
component parts through such custodial arrangements.
The Balanced Fund, the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund and the Strategic Income Fund may invest in
payment-in-kind obligations. Payment-in-kind ("PIK") bonds are debt obligations
which provide that the issuer thereof may, at its option, pay interest on such
bonds in cash or in the form of additional debt obligations. Such investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments experience greater volatility in
market value due to changes in interest rates than debt obligations which
provide for regular payments of interest. A Fund or Portfolio will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's or Portfolio's distribution obligations.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund and Portfolio may elect to treat as liquid, in
accordance with procedures established by the Board of Trustees, certain
investments in restricted securities for which there may be a secondary market
of qualified institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") and commercial
obligations issued in reliance on the so-called "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act ("Section 4(2)
paper"). Rule 144A provides an exemption from the registration requirements of
the Securities Act for the resale of certain restricted securities to qualified
institutional buyers. Section 4(2) paper is restricted as to disposition under
the federal securities laws, and generally is sold to institutional investors
such as a Fund or Portfolio who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale of Section
4(2) paper by the purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A and
Section 4(2) paper are liquid or illiquid for purposes of the limitation on
investment in illiquid securities. Pursuant to those policies and procedures,
the Trustees have delegated to the advisers the determination as to whether a
particular instrument is liquid or illiquid, requiring that consideration be
given to, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to sell the security and the number of
potential purchasers, dealer undertakings to make a market in the security, the
nature of the security and the time needed to dispose of the security. The
Trustees will periodically review the Funds' and Portfolios' purchases and
sales of Rule 144A securities and Section 4(2) paper.
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Convertible Securities. The Strategic Income Fund and all the Equity Funds
and Portfolios, except for the Focus Fund, may invest in convertible
securities, which are securities generally offering fixed interest or dividend
yields that may be converted either at a stated price or stated rate for common
or preferred stock.
Stand-By Commitments. Each Fund and Portfolio may utilize stand-by
commitments in securities sales transactions. In a put transaction, a Fund or
Portfolio acquires the right to sell a security at an agreed upon price within
a specified period prior to its maturity date, and a stand-by commitment
entitles a Fund or Portfolio to same-day settlement and to receive an exercise
price equal to the amortized cost of the underlying security plus accrued
interest, if any, at the time of exercise. Stand-by commitments are subject to
certain risks, which include the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised, the fact that
the commitment is not marketable by a Fund or Portfolio, and that the maturity
of the underlying security will generally be different from that of the
commitment. A put transaction will increase the cost of the underlying security
and consequently reduce the available yield.
Securities Loans. To the extent specified in its Prospectus, each Fund and
Portfolio is permitted to lend its securities to broker-dealers and other
institutional investors in order to generate additional income. Such loans of
portfolio securities may not exceed 30% of the value of a Fund's or Portfolio's
total assets. In connection with such loans, a Fund or Portfolio will receive
collateral consisting of cash, cash equivalents, U.S. Government securities or
irrevocable letters of credit issued by financial institutions. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value plus accrued interest of the securities loaned. A Fund or
Portfolio can increase its income through the investment of such collateral. A
Fund or Portfolio continues to be entitled to the interest payable or any
dividend-equivalent payments received on a loaned security and, in addition, to
receive interest on the amount of the loan. However, the receipt of any
dividend-equivalent payments by a Fund or Portfolio on a loaned security from
the borrower will not qualify for the dividends-received deduction. Such loans
will be terminable at any time upon specified notice. A Fund or Portfolio might
experience risk of loss if the institutions with which it has engaged in
portfolio loan transactions breach their agreements with such Fund or
Portfolio. The risks in lending portfolio securities, as with other extensions
of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower experience financial difficulty. Loans will
be made only to firms deemed by the advisers to be of good standing and will
not be made unless, in the judgment of the advisers, the consideration to be
earned from such loans justifies the risk.
Real Estate Investment Trusts. The Equity Income Fund and the Growth and
Income Portfolio may invest in shares of real estate investment trusts
("REITs"), which are pooled investment vehicles which invest primarily in
income-producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs or mortgage REITs. Equity REITs invest
the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. The value of equity trusts will
depend upon the value of the underlying properties, and the value of mortgage
trusts will be sensitive to the value of the underlying loans or interests.
Diversified Funds. The following Funds are classified as "diversified"
under federal securities law: the Bond Fund, the Short-Term Bond Fund, the U.S.
Government Securities Fund, the Balanced Fund, the Core Equity Fund, the Equity
Income Fund, the Equity Growth Fund, the Large Cap Equity Fund and the
Strategic Income Fund.
Unique Characteristics of Master/Feeder Fund Structure. Unlike other
mutual funds which directly acquire and manage their own portfolio securities,
each Fund is permitted to invest all of its investable assets in a separate
registered investment company (a "Master Portfolio"). The Capital Growth Fund,
Growth and Income Fund, Select Growth and Income Fund, Core Equity Fund and
Equity Growth Fund utilize this structure. In that event, a shareholder's
interest in a Fund's underlying investment securities would be
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indirect. In addition to selling a beneficial interest to a Fund, a Master
Portfolio could also sell beneficial interests to other mutual funds or
institutional investors. Such investors would invest in such Master Portfolio
on the same terms and conditions and would pay a proportionate share of such
Master Portfolio's expenses. However, other investors in a Master Portfolio
would not be required to sell their shares at the same public offering price as
the Fund, and might bear different levels of ongoing expenses than the Fund.
Shareholders of the Funds should be aware that these differences would result
in differences in returns experienced in the different funds that invest in a
Master Portfolio. Such differences in return are also present in other mutual
fund structures.
Smaller funds investing in a Master Portfolio could be materially affected
by the actions of larger funds investing in the Master Portfolio. For example,
if a large fund were to withdraw from a Master Portfolio, the remaining funds
might experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Master Portfolio could become less diverse,
resulting in increased portfolio risk. However, the possibility also exists for
traditionally structured funds which have large or institutional investors.
Funds with a greater pro rata ownership in a Master Portfolio could have
effective voting control of such Master Portfolio. Under this master/feeder
investment approach, whenever the Trust was requested to vote on matters
pertaining to a Master Portfolio, the Trust would hold a meeting of
shareholders of the relevant Fund and would cast all of its votes in the same
proportion as did the Fund's shareholders. Shares of the Fund for which no
voting instructions had been received would be voted in the same proportion as
those shares for which voting instructions had been received. Certain changes
in a Master Portfolio's objective, policies or restrictions might require the
Trust to withdraw the Fund's interest in such Master Portfolio. Any such
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution from such Master Portfolio). The Funds could
incur brokerage fees or other transaction costs in converting such securities
to cash. In addition, a distribution in kind could result in a less diversified
portfolio of investments or adversely affect the liquidity of the Funds.
State securities regulations generally would not permit the same
individuals who are disinterested Trustees of the Trust to be Trustees of a
Master Portfolio absent the adoption of procedures by a majority of the
disinterested Trustees of the Trust reasonably appropriate to deal with
potential conflicts of interest up to and including creating a separate Board
of Trustees. The Funds will not adopt a master/feeder structure under which the
disinterested Trustees of the Trust are Trustees of the Master Portfolio unless
the Trustees of the Trust, including a majority of the disinterested Trustees,
adopt procedures they believe to be reasonably appropriate to deal with any
conflict of interest up to and including creating a separate Board of Trustees.
If a Fund invests all of its investable assets in a Master Portfolio,
investors in the Fund will be able to obtain information about whether
investment in the Master Portfolio might be available through other funds by
contacting the Fund at 1-800-622-4273. In the event a Funds adopt a
master/feeder structure and invests all of its investable assets in a Master
Portfolio, shareholders of the Fund will be given at least 30 days' prior
written notice.
Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Funds and Portfolios may
employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of other instruments or assets, interest or currency exchange
rates, or indexes. For instance, derivatives include futures, options, forward
contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways:
first, to reduce risk by hedging (offsetting) an investment position; second,
to substitute for another security particularly where it is quicker, easier and
less expensive to invest in derivatives; and lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits,
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including easier and more effective hedging, lower transaction costs, quicker
investment and more profitable use of portfolio assets. However, derivatives
also have the potential to significantly magnify risks, thereby leading to
potentially greater losses for a Fund or Portfolio.
Each Fund and Portfolio may invest its assets in derivative and related
instruments subject only to the Fund's or Portfolio's investment objective and
policies and the requirement that the Fund or Portfolio maintain segregated
accounts consisting of cash or other liquid assets (or, as permitted by
applicable regulation, enter into certain offsetting positions) to cover its
obligations under such instruments with respect to positions where there is no
underlying portfolio asset so as to avoid leveraging the Fund or Portfolio.
The value of some derivative or similar instruments in which the Funds or
Portfolios may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Funds and Portfolios--the ability of a Fund or Portfolio to successfully
utilize these instruments may depend in part upon the ability of the advisers
to forecast interest rates and other economic factors correctly. If the
advisers inaccurately forecast such factors and has taken positions in
derivative or similar instruments contrary to prevailing market trends, a Fund
or Portfolio could be exposed to the risk of a loss. The Funds and Portfolios
might not employ any or all of the strategies described herein, and no
assurance can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Funds or Portfolios may employ along with risks or
special attributes associated with them. This discussion is intended to
supplement the Funds' current prospectuses as well as provide useful
information to prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments, and no assurance can be
given that any strategy will succeed. The value of certain derivatives or
related instruments in which a Fund or Portfolio may invest may be particularly
sensitive to changes in prevailing economic conditions and market value. The
ability of the Fund or Portfolio to successfully utilize these instruments may
depend in part upon the ability of its advisers to forecast these factors
correctly. Inaccurate forecasts could expose the Fund or Portfolio to a risk of
loss. There can be no guarantee that there will be a correlation between price
movements in a hedging vehicle and in the portfolio assets being hedged. An
incorrect correlation could result in a loss on both the hedged assets in a
Fund or Portfolio and the hedging vehicle so that the portfolio return might
have been greater had hedging not been attempted. This risk is particularly
acute in the case of "cross-hedges" between currencies. The advisers may
inaccurately forecast interest rates, market values or other economic factors
in utilizing a derivatives strategy. In such a case, a Fund or Portfolio may
have been in a better position had it not entered into such strategy. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. In other words, hedging usually limits both potential losses as well as
potential gains. The Funds are not required to use any hedging strategies, and
strategies not involving hedging involve leverage and may increase the risk to
a Fund or Portfolio. Certain strategies, such as yield enhancement, can have
speculative characteristics and may result in more risk to a Fund or Portfolio
than hedging strategies using the same instruments. There can be no assurance
that a liquid market will exist at a time when a Fund or Portfolio seeks to
close out an option, futures contract or other derivative or related position.
Many exchanges and boards of trade limit the amount of fluctuation permitted in
option or futures contract prices during a single day; once the daily limit has
been reached on particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain instruments are relatively new and
without a significant trading history. As a result, there is no assurance that
an active secondary market will develop or continue to exist. Finally,
over-the-counter instruments typically do not have a liquid market. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position. Activities of large traders in the futures and securities markets
involving arbitrage, "program trading," and other investment strategies may
cause price distortions in these markets. In certain instances, particularly
those involving over-the-counter transactions, forward contracts there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a
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default, a Fund or Portfolio may experience a loss. In transactions involving
currencies, the value of the currency underlying an instrument may fluctuate
due to many factors, including economic conditions, interest rates,
governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund or Portfolio.
Options on Securities, Securities Indexes and Debt Instruments. A Fund or
Portfolio may PURCHASE, SELL or EXERCISE call and put options on (i)
securities, (ii) securities indexes, and (iii) debt instruments. Specifically,
each Fund and Portfolio may (i) purchase, write and exercise call and put
options on securities and securities indexes (including using options in
combination with securities, other options or derivative instruments) and (ii)
enter into swaps, futures contracts and options on futures contracts. Each Fund
and Portfolio, except for the Focus Fund, may also (i) employ forward currency
contracts and (ii) purchase and sell structured products, which are instruments
designed to restructure or reflect the characteristics of certain other
investments. In addition, the Fixed Income Funds and the Balanced Fund may
employ interest rate contracts. Only the Fixed Income Funds may purchase and
sell mortgage-backed and asset-backed securities as well.
Although in most cases these options will be exchange-traded, the Funds
and Portfolios may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund or Portfolio
may also use combinations of options to minimize costs, gain exposure to
markets or take advantage of price disparities or market movements. For
example, a Fund or Portfolio may sell put or call options it has previously
purchased or purchase put or call options it has previously sold. These
transactions may result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. A Fund or Portfolio may
write a call or put option in order to earn the related premium from such
transactions. Prior to exercise or expiration, an option may be closed out by
an offsetting purchase or sale of a similar option. The Funds will not write
uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
Fund or Portfolio writing a covered call (i.e., where the underlying securities
are held by the Fund or Portfolio) has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but has retained the risk of
loss should the price of the underlying securities decline. The writer of an
option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price.
If a put or call option purchased by a Fund or Portfolio is not sold when
it has remaining value, and if the market price of the underlying security, in
the case of a put, remains equal to or greater than the exercise price or, in
the case of a call, remains less than or equal to the exercise price, such Fund
or Portfolio will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund or Portfolio seeks to close out an
option position. Furthermore, if trading restrictions or suspensions are
imposed on the options markets, a Fund or Portfolio may be unable to close out
a position.
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Futures Contracts and Options on Futures Contracts. A Fund or Portfolio
may purchase or sell (i) interest-rate futures contracts, (ii) futures
contracts on specified instruments or indices, and (iii) options on these
futures contracts ("futures options").
The futures contracts and futures options may be based on various
instruments or indices in which the Funds and Portfolios may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
a Fund or Portfolio may sell a futures contract--or buy a futures option--to
protect against a decline in value, or reduce the duration, of portfolio
holdings. Likewise, these instruments may be used where a Fund or Portfolio
intends to acquire an instrument or enter into a position. For example, a Fund
or Portfolio may purchase a futures contract--or buy a futures option--to gain
immediate exposure in a market or otherwise offset increases in the purchase
price of securities or currencies to be acquired in the future. Futures options
may also be written to earn the related premiums.
When writing or purchasing options, the Funds and Portfolios may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may entail
additional risks in certain instances. The Funds and Portfolios may engage in
cross-hedging by purchasing or selling futures or options on a security or
currency different from the security or currency position being hedged to take
advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds and
Portfolios will only enter into futures contracts or options on futures
contracts which are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system.
Forward Contracts. A Fund and Portfolio may use foreign currency and
interest-rate forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. A Fund or Portfolio
that may invest in securities denominated in foreign currencies may, in
addition to buying and selling foreign currency futures contracts and options
on foreign currencies and foreign currency futures, enter into forward foreign
currency exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency contract, a Fund or
Portfolio "locks in" the exchange rate between the currency it will deliver and
the currency it will receive for the duration of the contract. As a result, a
Fund or Portfolio reduces its exposure to changes in the value of the currency
it will deliver and increases its exposure to changes in the value of the
currency it will exchange into. The effect on the value of a Fund or Portfolio
is similar to selling securities denominated in one currency and purchasing
securities denominated in another. Transactions that use two foreign currencies
are sometimes referred to as "cross-hedges."
A Fund or Portfolio may enter into these contracts for the purpose of
hedging against foreign exchange risk arising from the Fund's or Portfolio'
investments or anticipated investments in securities denominated in foreign
currencies. A Fund or Portfolio may also enter into these contracts for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another.
A Fund or Portfolio may also use forward contracts to hedge against
changes in interest rates, increase exposure to a market or otherwise take
advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at a
future date.
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Interest Rate and Currency Transactions. A Fund or Portfolio may employ
currency and interest rate management techniques, including transactions in
options (including yield curve options), futures, options on futures, forward
foreign currency exchange contracts, currency options and futures and currency
and interest rate swaps. The aggregate amount of a Fund's or Portfolio's net
currency exposure will not exceed the total net asset value of its portfolio.
However, to the extent that a Fund or Portfolio is fully invested while also
maintaining currency positions, it may be exposed to greater combined risk.
The Funds and Portfolios will only enter into interest rate and currency
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund or Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. Interest rate and currency swaps do not involve the
delivery of securities, the underlying currency, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate and
currency swaps is limited to the net amount of interest or currency payments
that a Fund or Portfolio is contractually obligated to make. If the other party
to an interest rate or currency swap defaults, a Fund's or Portfolio's risk of
loss consists of the net amount of interest or currency payments that the Fund
or Portfolio is contractually entitled to receive. Since interest rate and
currency swaps are individually negotiated, the Funds and Portfolios expect to
achieve an acceptable degree of correlation between their portfolio investments
and their interest rate or currency swap positions.
A Fund or Portfolio may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate.
A Fund or Portfolio may purchase or sell without limitation as to a
percentage of its assets forward foreign currency exchange contracts when the
advisers anticipate that the foreign currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not held by such Fund or Portfolio. In
addition, a Fund or Portfolio may enter into forward foreign currency exchange
contracts in order to protect against adverse changes in future foreign
currency exchange rates. A Fund or Portfolio may engage in cross-hedging by
using forward contracts in one currency to hedge against fluctuations in the
value of securities denominated in a different currency if its advisers believe
that there is a pattern of correlation between the two currencies. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. Dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
or Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts will not eliminate fluctuations in the underlying
U.S. dollar equivalent value of the prices of or rates of return on a Fund's or
Portfolio's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund or Portfolio to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Fund or Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices, and this will limit a Fund's
or Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Fund's or Portfolio's use of cross-hedges, there can be
no assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a Fund's or Portfolio's cross-hedges and the
movements in the exchange rates of the foreign currencies in which the Fund's
or Portfolio's assets that are the subject of such cross-hedges are
denominated.
A Fund or Portfolio may enter into interest rate and currency swaps to the
maximum allowed limits under applicable law. A Fund or Portfolio will typically
use interest rate swaps to shorten the effective duration of its portfolio.
Interest rate swaps involve the exchange by a Fund or Portfolio with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of their respective rights to make or receive payments in
specified currencies.
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Mortgage-Related Securities. A Fund or Portfolio may purchase
mortgage-backed securities--i.e., securities representing an ownership interest
in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Mortgage loans included in
the pool--but not the security itself--may be insured by the Government
National Mortgage Association or the Federal Housing Administration or
guaranteed by the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation or the Veterans Administration, which guarantees are
supported only by the discretionary authority of the U.S. Government to
purchase the agency's obligations. Mortgage-backed securities provide investors
with payments consisting of both interest and principal as the mortgages in the
underlying mortgage pools are paid off. Although providing the potential for
enhanced returns, mortgage-backed securities can also be volatile and result in
unanticipated losses.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of the
principal invested far in advance of the maturity of the mortgages in the pool.
The actual rate of return of a mortgage-backed security may be adversely
affected by the prepayment of mortgages included in the mortgage pool
underlying the security. In addition, as with callable fixed-income securities
generally, if the Fund or Portfolio purchased the securities at a premium,
sustained early repayment would limit the value of the premium.
A Fund or Portfolio may also invest in securities representing interests
in collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs") and in pools of certain other asset-backed bonds
and mortgage pass-through securities. Like a bond, interest and prepaid
principal are paid, in most cases, monthly. CMOs may be collateralized by whole
residential or commercial mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by the U.S.
Government, or U.S. Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different
expected average life and/or stated maturity. Actual maturity and average life
will depend upon the prepayment experience of the collateral. Monthly payments
of principal received from the pool of underlying mortgages, including
prepayments, are allocated to different classes in accordance with the terms of
the instruments, and changes in prepayment rates or assumptions may
significantly affect the expected average life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar
to CMOs in that they issue multiple classes of securities. REMICs issued by
private entities are not U.S. Government securities and are not directly
guaranteed by any government agency. They are secured by the underlying
collateral of the private issuer.
The Balanced Fund, the U.S. Government Securities Fund, the Bond Fund, the
Short-Term Bond Fund and the Strategic Income Fund may also invest in
principal-only or interest-only stripped mortgage-backed securities. Stripped
mortgage-backed securities have greater volatility than other types of
mortgage-related securities. Stripped mortgage-backed securities, which are
purchased at a substantial premium or discount, generally are extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on such securities' yield to maturity. In addition, stripped
mortgage securities may be illiquid.
The advisers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. A Fund or Portfolio may
also invest in debentures and other securities of real estate investment
trusts. As new types of mortgage-related securities are developed and offered
to investors, the Funds and Portfolios may consider making investments in such
new types of mortgage-related securities.
17
<PAGE>
Dollar Rolls. Under a mortgage "dollar roll," a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, a Fund forgoes principal and
interest paid on the mortgage-backed securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A Fund may only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position which matures on or before the forward
settlement date of the dollar roll transaction. At the time a Fund enters into
a mortgage "dollar roll", it will establish a segregated account with its
custodian bank in which it will maintain cash or liquid securities equal in
value to its obligations in respect of dollar rolls, and accordingly, such
dollar rolls will not be considered borrowings. Mortgage dollar rolls involve
the risk that the market value of the securities the Fund is obligated to
repurchase under the agreement may decline below the repurchase price. Also,
these transactions involve some risk to the Fund or Portfolio if the other
party should default on its obligation and the Fund or Portfolio is delayed or
prevented from completing the transaction. In the event the buyer of securities
under a mortgage dollar roll files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the dollar roll may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities.
Asset-Backed Securities. A Fund or Portfolio may invest in asset-backed
securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another, such as motor vehicle receivables or credit card
receivables. These securities also include conditional sales contracts,
equipment lease certificates and equipment trust certificates. The advisers
expect that other asset-backed securities (unrelated to mortgage loans) will be
offered to investors in the future. Several types of asset-backed securities
already exist, including, for example, "Certificates for Automobile
ReceivablesSM" or "CARSSM" ("CARS"). CARS represent undivided fractional
interests in a trust whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARS are passed-through
monthly to certificate holders, and are guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the CARS trust. An
investor's return on CARS may be affected by early prepayment of principal on
the underlying vehicle sales contracts. If the letter of credit is exhausted,
the CARS trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the
failure of servicers to take appropriate steps to perfect the CARS trust's
rights in the underlying loans and the servicer's sale of such loans to bona
fide purchasers, giving rise to interests in such loans superior to those of
the CARS trust, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted. A
Fund or Portfolio also may invest in other types of asset-backed securities. In
the selection of other asset-backed securities, the advisers will attempt to
assess the liquidity of the security giving consideration to the nature of the
security, the frequency of trading in the security, the number of dealers
making a market in the security and the overall nature of the marketplace for
the security.
Structured Products. A Fund or Portfolio may invest in interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of certain other investments. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, or specified instruments (such as commercial bank loans)
and the issuance by that entity of one or more classes of securities
("structured products") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured products to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured products is dependent on the extent of the cash flow on the
underlying instruments. A Fund or Portfolio may invest in structured products
18
<PAGE>
which represent derived investment positions based on relationships among
different markets or asset classes.
A Fund or Portfolio may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by a
formula to the price of an underlying instrument. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase
in the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities where the value of
the investment position is determined by movements in the difference between
the prices or interest rates, as the case may be, of the respective securities.
When a Fund or Portfolio invests in notes linked to the price of an underlying
instrument, the price of the underlying security is determined by a multiple
(based on a formula) of the price of such underlying security. A structured
product may be considered to be leveraged to the extent its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index
rate of interest. Because they are linked to their underlying markets or
securities, investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
Total return on the structured product is derived by linking return to one or
more characteristics of the underlying instrument. Because certain structured
products of the type in which a Fund or Portfolio may invest may involve no
credit enhancement, the credit risk of those structured products generally
would be equivalent to that of the underlying instruments. A Fund or Portfolio
may invest in a class of structured products that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured products typically have higher yields and present greater risks than
unsubordinated structured products. Although a Fund's or Portfolio's purchase
of subordinated structured products would have similar economic effect to that
of borrowing against the underlying securities, the purchase will not be deemed
to be leverage for purposes of a Fund's or Portfolio' fundamental investment
limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which a Fund or Portfolio
invests may be deemed illiquid and subject to its limitation on illiquid
investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions on the Use of Futures and Option Contracts. None
of the Funds is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC) and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that a Fund may enter into such transactions for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5%
of the liquidation value of the Fund's portfolio, provided, further, that, in
the case of an option that is in-the-money, the in-the-money amount may be
excluded in calculating the 5% limitation.
When a Fund or Portfolio purchases a futures contract, an amount of cash
or cash equivalents or high quality debt securities will be deposited in a
segregated account with such Fund's or Portfolio's custodian or sub-custodian
so that the amount so segregated, plus the initial deposit and variation margin
held in the account of its broker, will at all times equal the value of the
futures contract, thereby insuring that the use of such futures is unleveraged.
19
<PAGE>
Investment Restrictions
The Funds and Portfolios have adopted the following investment
restrictions which may not be changed without approval by a "majority of the
outstanding shares" of a Fund or Portfolio which, as used in this Statement of
Additional Information, means the vote of the lesser of (i) 67% or more of the
shares of a Fund or total beneficial interests of a Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of a Fund or
total beneficial interests of a Portfolio are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of a Fund or total beneficial
interests of a Portfolio. Except as otherwise indicated herein, the Fund or
Portfolio is not subject to any percentage limits with respect to the practices
described below.
Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of shareholders of the Fund that
invests in such Portfolio and will cast its votes as instructed by the
shareholders of such Fund.
Except for the investment objectives of the Balanced Fund, the Large Cap
Equity Fund, the Short-Term Bond Fund, the U.S. Government Securities Fund and
the U.S. Treasury Income Fund, as well as the investment policies designated as
fundamental herein, the Funds' investment policies are not fundamental. In the
event of a change in a Fund's investment objective where the investment
objective is not fundamental, shareholders will be given at least 30 days'
written notice prior to such a change.
With respect to the Growth and Income Fund, the Capital Growth Fund, the
Select Growth and Income Fund, the Core Equity Fund and the Equity Growth Fund,
it is a fundamental policy of each Fund that when the Fund holds no portfolio
securities except interests in the Portfolio in which it invests, the Fund's
investment objective and policies shall be identical to the Portfolio's
investment objective and policies, except for the following: a Fund (1) may
invest more than 10% of its net assets in the securities of a registered
investment company, (2) may hold more than 10% of the voting securities of a
registered investment company, and (3) will concentrate its investments in the
investment company. It is a fundamental investment policy of each such Fund
that when the Fund holds only portfolio securities other than interests in the
Portfolio, the Fund's investment objective and policies shall be identical to
the investment objective and policies of the Portfolio at the time the assets
of the Fund were withdrawn from the Portfolio.
Each Fund and Portfolio may not:
(1) borrow money, except that each Fund and Portfolio may borrow
money for temporary or emergency purposes, or by engaging in reverse
repurchase transactions, in an amount not exceeding 33-1/3% of the value
of its total assets at the time when the loan is made and may pledge,
mortgage or hypothecate no more than 1/3 of its net assets to secure such
borrowings. Each Fund and Portfolio other than the Strategic Income Fund
may borrow money only for temporary or emergency purposes. Any borrowings
representing more than 5% of a Fund's or Portfolio's total assets for each
Fund or Portfolio other than the Strategic Income Fund, must be repaid
before the Fund or Portfolio may make additional investments;
(2) make loans, except that each Fund and Portfolio may: (i) purchase
and hold debt instruments (including without limitation, bonds, notes,
debentures or other obligations and certificates of deposit, bankers'
acceptances and fixed time deposits) in accordance with its investment
objectives and policies; (ii) enter into repurchase agreements with
respect to portfolio securities; and (iii) lend portfolio securities with
a value not in excess of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's or Portfolio's total assets would be
invested in the securities of companies whose principal business
activities are in the same industry. Notwithstanding the foregoing, with
respect to a Fund's or Portfolio's permissible futures and options
transactions in U.S. Government securities, positions in such options and
futures shall not be subject to this restriction;
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<PAGE>
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
a Fund or Portfolio from (i) purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities or (ii) engaging in forward purchases or sales of
foreign currencies or securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Fund or Portfolio from investing insecurities or other instruments backed
by real estate or securities of companies engaged in the real estate
business). Investments by a Fund or Portfolio in securities backed by
mortgages on real estate or in marketable securities of companies engaged
in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund or Portfolio may engage in transactions that may result in
the issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order; (b)
a Fund or Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund or Portfolio may
borrow money as authorized by the 1940 Act. For purposes of this
restriction, collateral arrangements with respect to permissible options
and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as a
Fund or Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (5) above, real estate includes
Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." Investment restriction (3) above, however, is not applicable to
investments by a Fund or Portfolio in municipal obligations where the issuer is
regarded as a state, city, municipality or other public authority since such
entities are not members of an "industry." Supranational organizations are
collectively considered to be members of a single "industry" for purposes of
restriction (3) above.
In addition, each Fund and Portfolio is subject to the following
nonfundamental restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Capital Growth Fund, Focus Fund, Growth
and Income Fund, Select Growth and Income Fund, Small Cap Opportunities
Fund, Small Cap Equity Fund and U.S. Treasury Income Fund may not, with
respect to 75% of its assets, hold more than 10% of the outstanding voting
securities of any issuer or invest more than 5% of its assets in the
securities of any one issuer (other than obligations of the U.S.
Government, its agencies and instrumentalities); Each Portfolio and each
of the Capital Growth Fund, Focus Fund, Growth and Income Fund, Select
Growth and Income Fund, Small Cap Opportunities Fund, Small Cap Equity
Fund and U.S. Treasury Income Fund may not, with respect to 50% of its
assets, hold more than 10% of the outstanding voting securities of any
issuer.
(2) Each Fund and Portfolio may not make short sales of securities,
other than short sales "against the box," or purchase securities on margin
except for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to limit
the use of options, futures contracts and related options, in the manner
otherwise permitted by the investment
21
<PAGE>
restrictions, policies and investment program of a Fund or Portfolio. No
Fund or Portfolio has the current intention of making short sales against
the box.
(3) Each Fund and Portfolio may not purchase or sell interests in
oil, gas or mineral leases.
(4) Each Fund and Portfolio may not invest more than 15% of its net
assets in illiquid securities.
(5) Each Fund and Portfolio may not write, purchase or sell any put
or call option or any combination thereof, provided that this shall not
prevent (i) the writing, purchasing or selling of puts, calls or
combinations thereof with respect to portfolio securities or (ii) with
respect to a Fund's or Portfolio's permissible futures and options
transactions, the writing, purchasing, ownership, holding or selling of
futures and options positions or of puts, calls or combinations thereof
with respect to futures.
(6) Except as specified above, each Fund and Portfolio may invest in
the securities of other investment companies to the extent permitted by
applicable Federal securities law; provided, however, that a Mauritius
holding company (a "Mauritius Portfolio Company") will not be considered
an investment company for this purpose.
For purposes of the Funds' and Portfolios' investment restrictions,
the issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of the principal of and
interest on the security.
In order to permit the sale of its shares in certain states and
foreign countries, a Fund or Portfolio may make commitments more
restrictive than the investment policies and limitations described above
and in its Prospectus. Should a Fund or Portfolio determine that any such
commitment is no longer in its best interests, it will revoke the
commitment by terminating sales of its shares in the state or country
involved. In order to comply with certain regulatory policies, as a matter
of operating policy, each Fund and Portfolio will not: (i) borrow money in
an amount which would cause, at the time of such borrowing, the aggregate
amount of borrowing by the Fund to exceed 10% of the value of the Fund's
total assets, (ii) invest more than 10% of its total assets in the
securities of any one issuer (other than obligations of the U.S.
Government, its agencies and instrumentalities), (iii) acquire more than
10% of the outstanding shares of any issuer and may not acquire more than
15% of the outstanding shares of any issuer together with other mutual
funds managed by The Chase Manhattan Bank, (iv) invest more than 10% of
its total assets in the securities of other investment companies, except
as they might be acquired as part of a merger, consolidation or
acquisition of assets, (v) invest more than 10% of its net assets in
illiquid securities (which include securities restricted as to resale
unless they are determined to be readily marketable in accordance with the
procedures established by the Board of Trustees), (vi) grant privileges to
purchase shares of the Fund to shareholders or investors by issuing
warrants, subscription rights or options, or other similar rights or (vii)
sell, purchase or loan securities (excluding shares in the Fund) or grant
or receive a loan or loans to or from the adviser, corporate and
domiciliary agent, or paying agent, the distributors and the authorized
agents or any of their directors, officers or employees or any of their
major shareholders (meaning a shareholder who holds, in his own or other
name (as well as a nominee's name), more than 10% of the total issued and
outstanding shares of stock of such company) acting as principal, or for
their own account, unless the transaction is made within the other
restrictions set forth above and either (a) at a price determined by
current publicly available quotations, or (b) at competitive prices or
interest rates prevailing from time to time on internationally recognized
securities markets or internationally recognized money markets.
A Mauritius Portfolio Company is a special purpose company organized
under the laws of the Republic of Mauritius. The Fund may invest in India
through a Mauritius Portfolio Company, which is intended to allow a Fund
to take advantage of a favorable tax treaty between India and Mauritius.
If a percentage or rating restriction on investment or use of assets
set forth herein or in a Prospectus is adhered to at the time a
transaction is effected, later changes in percentage resulting from
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<PAGE>
any cause other than actions by a Fund or Portfolio will not be considered
a violation. If the value of a Fund's or Portfolio's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the
time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund or Portfolio
are made by a portfolio manager who is an employee of the adviser or
sub-adviser to such Fund or Portfolio and who is appointed and supervised by
senior officers of such adviser or sub-adviser. Changes in a Fund's or
Portfolio's investments are reviewed by the Board of Trustees of the Trust or
Portfolio. The portfolio managers may serve other clients of the advisers in a
similar capacity.
The frequency of a Fund's or Portfolio's portfolio transactions--the
portfolio turnover rate--will vary from year to year depending upon market
conditions. A high turnover rate may increase transaction costs, including
brokerage commissions and dealer mark-ups, and the possibility of taxable
short-term gains. Therefore, the advisers will weigh the added costs of
short-term investment against anticipated gains, and each Fund or Portfolio
will engage in portfolio trading if its advisers believe a transaction, net of
costs (including custodian charges), will help it achieve its investment
objective. Funds investing in both equity and debt securities apply this policy
with respect to both the equity and debt portions of their portfolios.
For the fiscal years ended October 31, 1997, 1998 and 1999, the annual
rates of portfolio turnover for the following Funds were as follows:
<TABLE>
<CAPTION>
Funds 1997 1998 1999
----- ---- ---- ----
<S> <C> <C> <C>
Balanced Fund 136% 94% 86%
Equity Income Fund 75% 160% 172%
Large Cap Equity Fund 72% 72% 70%
Focus Fund* N/A 33% 173%
Small Cap Equity Fund 55% 74% 92%
Small Cap Opportunities Fund# 7% 68% 92%
U.S. Treasury Income Fund 179% 75% 59%
U.S. Government Securities Fund 569% 590% 258%
Bond Fund 823% 329% 283%
Short-Term Bond Fund 471% 439% 302%
Strategic Income Fund ** N/A N/A 136%
</TABLE>
----------
* The portfolio turnover for fiscal year 1998 was calculated from June 30,
1998 (commencement of operations) to October 31, 1998.
** The portfolio turnover for fiscal year 1999 was calculated from November
30, 1998 (commencement of operations) to October 31, 1999.
# The portfolio turnover for fiscal year 1997 was calculated from May 19,
1997 (commencement of operations) to October 31, 1997.
The Capital Growth Fund, Growth and Income Fund, and Select Growth and
Income Fund invest all of their investable assets in their respective Portfolio
and do not invest directly in a portfolio of assets, and therefore do not have
reportable portfolio turnover rates. The portfolio turnover rates of the
Portfolios for the fiscal years ended October 31, 1997, 1998 and 1999 were as
follows:
<TABLE>
<CAPTION>
Portfolios 1997 1998 1999
---------- ---- ---- ----
<S> <C> <C> <C>
Capital Growth Portfolio 67% 104% 86%
Growth and Income Portfolio 65% 113% 125%
</TABLE>
Core Equity Fund and Equity Growth Fund invest all of their investable
assets in Core Equity Portfolio and Equity Growth Portfolio, respectively. Core
Equity Portfolio and Equity Growth Portfolio are series of
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<PAGE>
Mutual Fund Master Investment Trust, which has a fiscal year end of December
31. The portfolio turnover rates of Core Equity Portfolio and Equity Growth
Portfolio for the period from August 12, 1999 (commencement of operations) to
December 31, 1999 were 6% and 1%, respectively.
Under the advisory agreement and the sub-advisory agreements, the adviser
and sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds and Portfolios. In assessing the
best overall terms available for any transaction, the adviser and sub-advisers
consider all factors they deem relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the adviser
or sub-advisers, and the reasonableness of the commissions, if any, both for
the specific transaction and on a continuing basis. The adviser and
sub-advisers are not required to obtain the lowest commission or the best net
price for any Fund or Portfolio on any particular transaction, and are not
required to execute any order in a fashion either preferential to any or
Portfolio Fund relative to other accounts they manage or otherwise materially
adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund or Portfolio normally seeks to deal directly with the
primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
adviser or sub-adviser on the tender of a Fund's or Portfolio's portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for a Funds and Portfolios by the adviser and
sub-advisers. At present, no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds and Portfolios to pay a broker-dealer which provides brokerage
and research services to the adviser or sub-advisers, the Funds or Portfolios
and/or other accounts for which they exercise investment discretion an amount
of commission for effecting a securities transaction for a Fund or Portfolio in
excess of the amount other broker-dealers would have charged for the
transaction if they determine in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of either a particular
transaction or their overall responsibilities to accounts over which they
exercise investment discretion. Not all of such services are useful or of value
in advising the Funds and Portfolios. The adviser and sub-advisers report to
the Board of Trustees regarding overall commissions paid by the Funds and
Portfolios and their reasonableness in relation to the benefits to the Funds
and Portfolios. The term "brokerage and research services" includes advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or of purchasers or
sellers of securities, furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts, and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
The management fees that the Funds and Portfolios pay to the adviser will
not be reduced as a consequence of the adviser's or sub-advisers' receipt of
brokerage and research services. To the extent the Funds' or Portfolios'
portfolio transactions are used to obtain such services, the brokerage
commissions paid by the Funds or Portfolios will exceed those that might
otherwise be paid by an amount which cannot be presently determined. Such
services generally would be useful and of value to the adviser or sub-advisers
in serving one or more of their other clients and, conversely, such services
obtained by the placement of brokerage business of other clients generally
would be useful to the adviser and sub-advisers in carrying out their
obligations to the Funds and Portfolios. While such services are not expected
to reduce the expenses of the adviser or sub-advisers, the advisers would,
through use of the services, avoid the additional expenses which would be
incurred if they should attempt to develop comparable information through their
own staffs.
24
<PAGE>
In certain instances, there may be securities that are suitable for one or
more of the Funds and Portfolios as well as one or more of the adviser's or
sub-advisers' other clients. Investment decisions for the Funds and Portfolios
and for other clients are made with a view to achieving their respective
investment objectives. It may develop that the same investment decision is made
for more than one client or that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more Funds
or Portfolios or other clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Funds or Portfolios are concerned. However, it is
believed that the ability of the Funds and Portfolios to participate in volume
transactions will generally produce better executions for the Funds and
Portfolios.
For the fiscal periods listed, the Funds and Portfolios paid brokerage
commissions as detailed below:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
October 31,1997 October 31,1998 October 31,1999
------------------- ----------------- ----------------
<S> <C> <C> <C>
Balanced Fund $ 62,342 $ 82,860 $ 80,682
Equity Income Fund 75,090 392,017 453,107
Large Cap Equity Fund 171,628 258,341 467,214
Growth and Income Portfolio 3,456,823 7,074,824 9,083,706
Focus Fund N/A 52,166* 192,313
Capital Growth Portfolio 2,240,823 3,781,335 3,471,454
Small Cap Equity Fund 716,769 858,732 1,082,346
Small Cap Opportunities Fund 49,826** 131,466 234,757
</TABLE>
----------
* Represents brokerage commissions paid for the period June 30, 1998
(commencement of operations) through October 31, 1998.
** Represents brokerage commissions paid for the period May 19, 1997
(commencement of operations) through October 31, 1997.
For the period from August 12, 1999 (commencement of operations) to
December 31, 1999, Core Equity Portfolio and Equity Growth Portfolio paid
aggregate brokerage commissions of $47,626 and $2,409, respectively.
No portfolio transactions are executed with the advisers or a Shareholder
Servicing Agent, or with any affiliate of the advisers or a Shareholder
Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Performance is calculated separately for each
class of shares. Because such performance information is based on past
investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance
25
<PAGE>
of mutual funds. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in local or regional
publications, may also be used in comparing the performance and yield of a Fund
or its classes. A Fund's performance may be compared with indices such as the
Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers Government
Bond Index, the Lehman Government Bond 1-3 Year Index and the Lehman Aggregate
Bond Index; the S&P 500 Index, the Dow Jones Industrial Average or any other
commonly quoted index of common stock prices; and the Russell 2000 Index and
the NASDAQ Composite Index. Additionally, a Fund may, with proper
authorization, reprint articles written about such Fund and provide them to
prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in a
Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A and Class M shares, the average annual total rate of return figures
will assume payment of the maximum initial sales load at the time of purchase.
For Class B and Class C shares, the average annual total rate of return figures
will assume deduction of the applicable contingent deferred sales charge
imposed on a total redemption of shares held for the period. One-, five-, and
ten-year periods will be shown, unless the class has been in existence for a
shorter-period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values of the classes of
shares of a Fund will vary based on market conditions, the current market value
of the securities held by the Fund and changes in the Fund's expenses. The
advisers, Shareholder Servicing Agents, the Administrator, the Distributor and
other service providers may voluntarily waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of a
Fund's operating expenses on a month-to-month basis. These actions would have
the effect of increasing the net income (and therefore the yield and total rate
of return) of the classes of shares of the Fund during the period such waivers
are in effect. These factors and possible differences in the methods used to
calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of the classes of shares of a
Fund to yields and total rates of return published for other investment
companies and other investment vehicles (including different classes of
shares). The Trust is advised that certain Shareholder Servicing Agents may
credit to the accounts of their customers from whom they are already receiving
other fees amounts not exceeding the Shareholder Servicing Agent fees received,
which will have the effect of increasing the net return on the investment of
customers of those Shareholder Servicing Agents. Such customers may be able to
obtain through their Shareholder Servicing Agents quotations reflecting such
increased return.
Each Fund presents performance information for each class thereof since
the commencement of operations of that Fund (or the related predecessor fund,
as described below), rather than the date such class was introduced.
Performance information for each class introduced after the commencement of
operations of the related Fund (or predecessor fund) is therefore based on the
performance history of a predecessor class or classes. Performance information
is restated to reflect the current maximum front-end sales charge (in the case
of Class A and Class M Shares) or the maximum applicable contingent deferred
sales charge (in the case of Class B and Class C Shares) when presented
inclusive of sales charges. Additional performance information may be presented
which does not reflect the deduction of sales charges. Historical expenses
reflected in performance information are based upon the distribution,
shareholder servicing fees and other expenses actually incurred during the
periods presented and have not been restated, for periods during which the
performance information for a particular class is based upon the performance
history of a predecessor class, to reflect the ongoing expenses currently borne
by the particular class.
In connection with the Hanover Reorganization, the U.S. Government
Securities Fund was established to receive the assets of The Hanover U.S.
Government Securities Fund. Performance results presented for each class of the
U.S. Government Securities Fund include the performance of The Hanover U.S.
Government Securities Fund for periods prior to the consummation of the Hanover
Organization.
26
<PAGE>
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to a
Fund.
Advertisements for the Chase Vista Funds may include references to the
asset size of other financial products made available by Chase, such as the
offshore assets of other funds.
Total Rate of Return
A Fund's or class' total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect
to shares purchased with such dividends and capital gains distributions, by
(ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. The average annual rate of return quotation
will be calculated by (x) adding 1 to the period total rate of return quotation
as calculated above, (y) raising such sum to a power which is equal to 365
divided by the number of days in such period, and (z) subtracting 1 from the
result.
Average Annual Total Returns*
(excluding sales charges)
The average annual total rates of return for the following Funds,
reflecting the initial investment and assuming the reinvestment of all
distributions (but excluding the effects of any applicable sales charges), for
the one, five, and ten year periods ending October 31, 1999 and for the period
from commencement of business operations of each such Fund to October 31,1999,
were as follows:
<TABLE>
<CAPTION>
Since Date of Date of
One Five Ten Fund Fund Class
Year Years Years Inception Inception Introduction
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund 11/4/92
A Shares 11.71% 15.40% N/A 13.65% 11/4/92
B Shares+ 10.88% 14.59% N/A 12.94% 11/4/93
C Shares++ 10.79% 14.58% N/A 12.92% 11/20/98
Equity Income Fund 7/15/93
A Shares 11.92% 19.61% N/A 16.09% 7/15/93
B Shares+ 11.31% 19.13% N/A 15.72% 5/7/96
C Shares++ 11.35% 19.15% N/A 15.73% 1/8/98
Large Cap Equity Fund 11/30/90
A Shares*** 14.96% 21.11% N/A 17.29% 5/8/96
B Shares*** 14.38% 20.76% N/A 17.10% 5/7/96
C Shares++ 14.04% 20.69% N/A 17.06% 11/11/98
Institutional Shares 15.37% 21.60% N/A 17.55% 11/30/90
Growth and Income Fund 9/23/87
A Shares 12.82% 17.44% 17.32% 21.11% 9/23/87
B Shares+ 12.29% 16.86% 16.96% 20.80% 11/4/93
C Shares++ 12.29% 16.47% 16.77% 20.64% 1/2/98
Institutional Shares+++ 13.30% 17.79% 17.49% 21.26% 1/25/96
Select Growth and Income Fund^ 13.57% 17.91% 17.55% 21.31% 1/6/98 N/A
Focus Fund 6/30/98
A Shares 4.67% N/A N/A (1.21)% 6/30/98
B Shares 4.16% N/A N/A (1.73)% 6/30/98
C Shares 4.05% N/A N/A (1.80)% 6/30/98
Institutional Shares 5.05% N/A N/A (0.94)% 6/30/98
Capital Growth Fund 9/23/87
A Shares 14.30% 14.50% 15.93% 18.42% 9/23/87
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Since Date of Date of
One Five Ten Fund Fund Class
Year Years Years Inception Inception Introduction
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B Shares+ 13.71% 13.93% 15.59% 18.14% 11/4/93
C Shares++ 13.81% 13.75% 15.50% 18.06% 1/2/98
Institutional Shares+++ 14.71% 14.83% 16.10% 18.56% 1/25/96
Small Cap Equity Fund 12/20/94
A Shares 12.49% N/A N/A 20.09% 12/20/94
B Shares+ 11.69% N/A N/A 19.27% 3/28/95
Institutional Shares+++ 13.06% N/A N/A 20.44% 5/7/96
Small Cap Opportunities Fund 5/19/97
A Shares 24.94% N/A N/A 21.07% 5/19/97
B Shares 23.99% N/A N/A 20.23% 5/19/97
C Shares++++ 23.93% N/A N/A 20.17% 1/7/98
Institutional Shares+++ 24.94% N/A N/A 21.07% 4/5/99
Core Equity Fund@ 8/12/99
A Shares 29.39% 23.51% N/A 18.20% 8/12/99
B Shares 28.90% 23.01% N/A 17.69% 8/12/99
C Shares++++ 28.90% 23.01% N/A 17.69% 8/13/99
Equity Growth Fund# 8/12/99
A Shares 31.70% 25.58% 16.15% 16.13% 8/12/99
B Shares+ 31.45% 25.53% 16.13% 16.11% 8/13/99
C Shares++ 31.45% 25.53% 16.13% 16.11% 8/20/99
U.S. Treasury Income Fund 9/8/87
A Shares (2.41)% 6.57% 6.76% 7.98% 9/8/87
B Shares+ (3.27)% 5.75% 6.29% 7.59% 11/4/93
U.S. Government Securities Fund** 2/19/93
A Shares*** (2.11)% 6.50% N/A 5.10% 5/6/96
Institutional Shares (1.93)% 6.67% N/A 5.22% 2/19/93
Bond Fund 11/30/90
A Shares*** (0.66)% 7.34% N/A 7.41% 5/6/96
B Shares*** (1.46)% 6.88% N/A 7.15% 5/6/96
Institutional Shares (0.42)% 7.61% N/A 7.56% 11/30/90
Short-Term Bond 11/30/90
A Shares*** 2.64% 5.44% N/A 5.43% 5/6/96
Institutional Shares 2.97% 5.73% N/A 5.60% 11/30/90
M Shares**** 2.64% 5.44% N/A 5.43% 7/1/99
Strategic Income Fund 11/30/98
A Shares N/A N/A N/A 3.23% 11/30/98
B Shares N/A N/A N/A 3.13% 11/30/98
C Shares N/A N/A N/A 3.12% 11/30/98
I Shares N/A N/A N/A 3.29% 11/30/98
M Shares+++ N/A N/A N/A 3.14% 10/28/99
</TABLE>
----------
* The ongoing fees and expenses borne by Class B and Class C Shares are
greater than those borne by Class A and Class M Shares; the ongoing fees
and expenses borne by a Fund's Class A, Class B, Class C and Class M
Shares are greater than those borne by the Fund's Institutional Shares.
As indicated above, the performance information for each class introduced
after the commencement of operations of the related Fund (or predecessor
fund) is based on the performance history of a predecessor class or
classes and historical expenses have not been restated, for periods
during which the performance information for a particular class is based
upon the performance history of a predecessor class, to reflect the
ongoing expenses currently borne by the particular class. Accordingly,
the performance
28
<PAGE>
information presented in the table above and in each table that follows
may be used in assessing each Fund's performance history but does not
reflect how the distinct classes would have performed on a relative basis
prior to the introduction of those classes, which would require an
adjustment to the ongoing expenses.
The performance quoted reflects fee waivers that subsidize and reduce the
total operating expenses of certain Funds (or classes thereof). Returns
on these Funds (or classes) would have been lower if there were not such
waivers. With respect to certain Funds, Chase and/or other service
providers are obligated to waive certain fees and/or reimburse certain
expenses for a stated period of time. In other instances, there is no
obligation to waive fees or to reimburse expenses. Each Fund's Prospectus
discloses the extent of any agreements to waive fees and/or reimburse
expenses.
** Performance information presented in the table above and in each table
that follows for each class of this Fund includes the performance of its
respective predecessor fund for periods prior to the consummation of the
Hanover Reorganization. Performance information presented for each class
of this Fund is based on the historical expenses and performance of a
single class of shares of its predecessor fund and does not reflect the
current distribution, service and/or other expenses that an investor
would incur as a holder of such class of the Fund. Date of Fund inception
shown for this Fund is the date of inception of its respective
predecessor fund. This Fund commenced operations as part of the Trust on
May 6, 1996.
*** Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced does not reflect shareholder servicing fees, distribution fees
and certain other expenses borne by this class which, if reflected, would
reduce the performance quoted.
**** Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date this class was
introduced is based on the performance of predecessor classes and does
not reflect the distribution fees and certain other expenses borne by
this class which, if reflected, would reduce the performance quoted.
+ Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced does not reflect distribution fees and certain other expenses
borne by this class which, if reflected, would reduce the performance
quoted.
++ Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date this class was
introduced is based on the performance of predecessor classes. For the
period before Class B shares were launched, such performance information
does not reflect the distribution fees and other expenses borne by this
class which, if reflected, would reduce the performance quoted.
+++ Performance information presented in the table above and in each table
that follows for this class of this Fund prior to the date the class was
introduced is based upon historical expenses of a predecessor class which
are higher than the actual expenses that an investor would incur as a
holder of shares of this class.
++++ Performance information presented in the table above and in each table
that follows for Class C shares of this Fund prior to the date Class C
shares were introduced is based on the performance of Class B shares
which have substantially similar distribution fees and other expenses,
excluding deferred sales loads.
@ The performance information presented in the table above and in each
table that follows for each class of this Fund prior to the date of fund
inception is based upon the performance of the Core Equity Portfolio. The
Core Equity Portfolio was formed after the Chase Core Equity Fund series
of Mutual Fund Investment Trust was converted to a master/feeder
structure in August 1999. The performance of the Core Equity Portfolio
prior to conversion is based upon the performance of Premier Class shares
of the Chase Core Equity Fund. For each class, the Core Equity
Portfolio's performance has been adjusted to reflect the historical
expenses of that class (absent waivers and reimbursements) at the Fund's
inception.
29
<PAGE>
# The performance information presented in the table above and in each
table that follows for each class of this Fund prior to the date of fund
inception is based upon the performance of the Equity Growth Portfolio.
The Equity Growth Portfolio was formed after the Chase Equity Growth Fund
series of Mutual Fund Investment Trust was converted to a master/feeder
structure in August 1999. The performance of the Equity Growth Portfolio
prior to conversion is based upon the performance of Premier Class shares
of the Chase Equity Growth Fund. For each class, the Equity Growth
Portfolio's performance has been adjusted to reflect the historical
expenses of that class (absent waivers and reimbursements) at the Fund's
inception.
^ The performance information presented in the table above and in each
table that follows for this Fund prior to the date of fund inception is
based on the historical performance of Class A shares of the Growth and
Income Fund, adjusted to eliminate the effects of any sales charges.
30
<PAGE>
Average Annual Total Returns*
(including sales charges)
With the current maximum respective sales charges of 5.75% for A shares
(1.50% for the Short-Term Bond Fund, 4.50% for the U.S. Treasury Income Fund,
U.S. Government Securities Fund, Bond Fund and Strategic Income Fund), 1.50%
and 3.00% for M Shares of Short-Term Bond Fund and Strategic Income Fund
respectively, and the current applicable CDSC for B and C shares for each
period length, reflected, the average annual total rate of return figures would
be as follows:
<TABLE>
<CAPTION>
Since
One Five Ten Fund
Year Years Years Inception
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balanced Fund
A Shares 5.28% 14.04% N/A 12.69%
B Shares 5.88% 14.36% N/A 12.94%
C Shares 9.79% 14.58% N/A 12.92%
Equity Income Fund
A Shares 5.48% 18.20% N/A 15.00%
B Shares 6.31% 18.93% N/A 15.72%
C Shares 10.35% 19.15% N/A 15.73%
Large Cap Equity Fund
A Shares 8.35% 19.69% N/A 16.51%
B Shares 9.38% 20.57% N/A 17.10%
C Shares 13.04% 20.69% N/A 17.06%
Growth and Income Fund
A Shares 6.33% 16.06% 16.63% 20.52%
B Shares 7.29% 16.65% 16.96% 20.80%
C Shares 11.29% 16.47% 16.77% 20.64%
Focus Fund
A Shares (1.35)% N/A N/A (5.49)%
B Shares (0.84)% N/A N/A (4.68)%
C Shares 3.05% N/A N/A (1.80)%
Capital Growth Fund
A Shares 7.73% 13.15% 15.25% 17.85%
B Shares 8.71% 13.70% 15.59% 18.14%
C Shares 12.81% 13.75% 15.50% 18.06%
Small Cap Equity Fund
A Shares 6.03% N/A N/A 18.64%
B Shares 6.69% N/A N/A 19.06%
Small Cap Opportunities Fund
A Shares 17.76% N/A N/A 18.18%
B Shares 18.99% N/A N/A 19.29%
C Shares 22.93% N/A N/A 20.17%
Core Equity Fund
A Shares 21.95% 22.06% N/A 17.14%
B Shares 23.90% 22.84% N/A 17.69%
C Shares 27.90% 23.01% N/A 17.69%
Equity Growth Fund
A Shares 24.13% 24.10% 15.47% 15.54%
B Shares 26.45% 25.37% 16.13% 16.11%
C Shares 30.45% 25.53% 16.13% 16.11%
U.S. Treasury Income Fund
A Shares (6.80)% 5.60% 6.27% 7.57%
B Shares (7.85)% 5.43% 6.29% 7.59%
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Since
One Five Ten Fund
Year Years Years Inception
------------- ---------- ------- ------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund
A Shares (6.51)% 5.52% N/A 4.38%
Bond Fund
A Shares (5.13)% 6.35% N/A 6.86%
B Shares (6.10)% 6.57% N/A 7.15%
Short-Term Bond
A Shares 1.10% 5.12% N/A 5.25%
M Shares 1.10% 5.13% N/A 5.26%
Strategic Income Fund
A Shares N/A N/A N/A (1.42)%
B Shares N/A N/A N/A (1.66)%
C Shares N/A N/A N/A 2.17%
M Shares N/A N/A N/A 0.05%
</TABLE>
----------
*See the notes to the preceding table.
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of
a Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for a class of shares shall consist of an
annualized hypothetical yield, carried at least to the nearest hundredth of one
percent, based on a thirty calendar day period and shall be calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum offering price per share on the last day
of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
The yields of the shares of the Funds for the thirty-day period ended
October 31, 1999 were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Institutional Class M
--------- --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balanced Fund 2.64% 2.11% 2.11% -- --
Equity Income Fund 0.41% 0% 0% -- --
Large Cap Equity Fund 0.78% 0.35% 0.31% 1.22% --
Growth and Income Fund 0.48% 0.03% 0.03% 0.89% --
Focus Fund 0% 0% 0% 0% --
Capital Growth Fund 0% 0% 0% 0.11% --
Small Cap Equity Fund 0% 0% -- 0% --
Small Cap Opportunities Fund 0% 0% 0% 0% --
Core Equity Fund 0% 0% 0% -- --
Equity Growth Fund 0% 0% 0% -- --
U.S. Treasury Income Fund 5.19% 4.55% -- -- --
U.S. Government Securities Fund 5.71% -- -- 6.18% --
Bond Fund 5.61% 5.13% -- 6.14% --
Short-Term Bond Fund 5.39% -- -- 5.72% 5.22%
Strategic Income Fund 8.37% 8.66% 8.66% 8.82% +
</TABLE>
----------
+ Strategic Income Fund commenced offering Class M Shares on October 28,
1999.
The yield of Select Growth and Income Fund for the thirty-day period ended
October 31, 1999 was 1.16%.
Advertisements for the Funds may include references to the asset size of
other financial products made available by Chase, such as the offshore assets
of other funds advised by Chase.
32
<PAGE>
Non-Standardized Performance Results*
(excluding sales charges)
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in each class of Fund shares in the following Funds
(excluding the effects of any applicable sale charges) for the period from the
commencement date of business for each such Fund through October 31, 1999, or
in the case of the Growth and Income Fund, Select Growth and Income Fund,
Capital Growth Fund, Equity Growth Fund and the U.S. Treasury Income Fund for
the ten-year period ending October 31, 1999. The values reflect an assumption
that capital gain distributions and income dividends, if any, have been
invested in additional shares of the same class. From time to time, the Funds
may provide these performance results in addition to the total rate of return
quotations required by the Securities and Exchange Commission. As discussed
more fully in the Prospectuses, neither these performance results, nor total
rate of return quotations, should be considered as representative of the
performance of the Funds in the future. These factors and the possible
differences in the methods used to calculate performance results and total
rates of return should be considered when comparing such performance results
and total rate of return quotations of the Funds with those published for other
investment companies and other investment vehicles.
<TABLE>
<CAPTION>
Fund
Inception
Total Value Date
------------- ----------
<S> <C> <C>
Balanced Fund 11/4/92
A Shares $24,469
B Shares 23,416
C Shares 23,399
Equity Income Fund 7/15/93
A Shares 25,582
B Shares 25,073
C Shares 25,091
Large Cap Equity Fund 11/30/90
A Shares 41,462
B Shares 40,858
C Shares 40,737
Institutional Shares 42,300
Growth and Income Fund 9/23/87
A Shares 49,393
B Shares 47,912
C Shares 47,124
Institutional Shares 50,137
Select Growth and Income Fund 50,390 1/8/98
Focus Fund 6/30/98
A Shares 9,839
B Shares 9,770
C Shares 9,760
Institutional Shares 9,875
Capital Growth Fund 9/23/87
A Shares 43,849
B Shares 42,577
C Shares 42,244
Institutional Shares 44,480
Small Cap Equity Fund 12/20/94
A Shares 24,374
B Shares 23,574
Institutional Shares 24,720
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Fund
Inception
Total Value Date
------------- ----------
<S> <C> <C>
Small Cap Opportunities Fund 5/19/97
A Shares 15,980
B Shares 15,710
C Shares 15,690
Institutional Shares 15,980
Core Equity Fund 8/12/99
A Shares 30,091
B Shares 29,256
C Shares 29,256
Equity Growth Fund 8/12/99
A Shares 44,729
B Shares 44,644
C Shares 44,644
U.S. Treasury Income Fund 9/8/87
A Shares 19,237
B Shares 18,403
U.S. Government Securities Fund 2/19/93
A Shares 13,955
Institutional Shares 14,053
Bond Fund 11/30/90
A Shares 18,915
B Shares 18,514
Institutional Shares 19,156
Short-Term Bond 11/30/90
A Shares 16,029
Institutional Shares 16,328
M Shares 16,034
Strategic Income Fund 11/30/98
A Shares 10,323
B Shares 10,313
C Shares 10,312
I Shares 10,329
M Shares 10,314
</TABLE>
----------
* See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of
$10,000 in a particular class of a Fund for the period from the Fund's
commencement of operations or, in the case of Growth and Income Fund, Select
Growth and Income Fund, Capital Growth Fund, Equity Growth Fund and U.S.
Treasury Income Fund, from October 31, 1989, although the particular class may
have been introduced at a subsequent date. As indicated above, performance
information for each class introduced after the commencement of operations of
the related Fund (or predecessor fund) is based on the performance history of
a predecessor class or classes, and historical expenses have not been
restated, for periods during which the performance information for a
particular class is based upon the performance history of a predecessor class,
to reflect the ongoing expenses currently borne by the particular class.
34
<PAGE>
Non-Standardized Performance Results*
(including sales charges)
With the current maximum respective sales charges of 5.75% for A shares
(1.50% for the Short-Term Bond Fund, 4.50% for the U.S. Treasury Income Fund,
U.S. Government Securities Fund, Bond Fund and Strategic Income Fund), 1.50%
and 3.00% for M Shares of Short-Term Bond Fund and Strategic Income Fund
respectively, and the current applicable CDSC for B and C shares for each
period length, reflected, the average annual total rate of return figures would
be as follows:
<TABLE>
<CAPTION>
Fund
Inception
Total Value Date
------------- ----------
<S> <C> <C>
Balanced Fund 11/4/92
A Shares $23,062
B Shares 23,416
C Shares 23,399
Equity Income Fund 7/15/93
A Shares 24,111
B Shares 25,073
C Shares 25,091
Large Cap Equity Fund 11/30/90
A Shares 39,078
B Shares 40,858
C Shares 40,737
Growth and Income Fund 9/23/87
A Shares 46,553
B Shares 47,912
C Shares 47,124
Focus Fund 6/30/98
A Shares 9,273
B Shares 9,379
C Shares 9,760
Capital Growth Fund 9/23/87
A Shares 41,328
B Shares 42,577
C Shares 42,244
Small Cap Equity Fund 12/20/94
A Shares 22,973
B Shares 23,374
Small Cap Opportunities Fund 5/19/97
A Shares 15,061
B Shares 15,410
C Shares 15,690
Core Equity Fund 8/12/99
A Shares 28,361
B Shares 29,256
C Shares 29,256
Equity Growth Fund 8/12/99
A Shares 42,157
B Shares 44,644
C Shares 44,644
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Fund
Inception
Total Value Date
------------- ----------
<S> <C> <C>
U.S. Treasury Income Fund 9/8/87
A Shares 18,362
B Shares 18,403
U.S. Government Securities Fund 2/19/93
A Shares 13,327
Bond Fund 11/30/90
A Shares 18,063
B Shares 18,514
Short-Term Bond 11/30/90
A Shares 15,788
M Shares 15,793
Strategic Income Fund 11/30/98
A Shares 9,858
B Shares 9,834
C Shares 10,217
M Shares 10,005
</TABLE>
----------
* See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of
$10,000 in a particular class of a Fund for the period from the Fund's
commencement of operations or, in the case of Growth and Income Fund, Capital
Growth Fund, Equity Growth Fund and U.S. Treasury Income Fund, from October
31, 1989, although the particular class may have been introduced at a
subsequent date. As indicated above, performance information for each class
introduced after the commencement of operations of the related Fund (or
predecessor fund) is based on the performance history of a predecessor class
or classes, and historical expenses have not been restated, for periods during
which the performance information for a particular class is based upon the
performance history of a predecessor class, to reflect the ongoing expenses
currently borne by the particular class.
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Martin Luther King Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each Fund calculates its NAV once each day at the close of regular trading
on the New York Stock Exchange. Equity securities in a Fund's or Portfolio's
portfolio are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ National Market System, or at the last quoted
bid price for securities in which there were no sales during the day or for
other unlisted (over-the-counter) securities not reported on the NASDAQ
National Market System. Bonds and other fixed income securities (other than
short-term obligations, but including listed issues) in a Fund's or Portfolio's
portfolio are valued on the basis of valuations furnished by a pricing service,
the use of which has been approved by the Board of Trustees. In making such
valuations, the pricing service utilizes both dealer-supplied valuations and
electronic data processing techniques that take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or
exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Short-term
obligations which mature in 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Futures and
option contracts that are traded on commodities or securities exchanges are
normally valued at the settlement price on the exchange on which they are
traded. Portfolio
36
<PAGE>
securities (other than short-term obligations) for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees.
Interest income on long-term obligations in a Fund's or Portfolio's
portfolio is determined on the basis of coupon interest accrued plus
amortization of discount (the difference between acquisition price and stated
redemption price at maturity) and premiums (the excess of purchase price over
stated redemption price at maturity). Interest income on short-term obligations
is determined on the basis of interest and discount accrued less amortization
of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received by
the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application. The Telephone Exchange
Privilege is not available if you were issued certificates for shares that
remain outstanding.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their latest
account application or other written request for services, including
purchasing, exchanging, or redeeming shares of such Fund and depositing and
withdrawing monies from the bank account specified in the Bank Account
Registration section of the shareholder's latest account application or as
otherwise properly specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
With respect to the Growth and Income Fund, Select Growth and Income Fund,
Capital Growth Fund, Core Equity Fund and Equity Growth Fund, the Trust will
redeem Fund shares in kind only if it has received a redemption in kind from
the corresponding Portfolio and therefore shareholders of the Fund that receive
redemptions in kind will receive portfolio securities of such Portfolio and in
no case will they receive a security issued by the Portfolio. Each Portfolio
has advised the Trust that the Portfolio will not redeem in kind except in
circumstances in which the corresponding Fund is permitted to redeem in kind or
unless requested by the corresponding Fund.
Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each day that the New York Stock
Exchange is open for business. Once each such day, based upon prices determined
as of the close of regular trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time, however, options are priced at 4:15 p.m., Eastern
time) the value of each investor's interest in a Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions which are to be effected on that day
will then be effected. The investor's percentage of the aggregate beneficial
interests in a Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of such time on such day
37
<PAGE>
plus or minus, as the case may be, the amount of net additions to or reductions
in the investor's investment in the Portfolio effected on such day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
such time on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied
to determine the value of the investor's interest in the Portfolio as of such
time on the following day the New York Stock Exchange is open for trading.
The public offering price of Class A and Class M 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.
The broker-dealer allocation for Funds with a 5.75% sales charge on Class
A shares is set forth below:
<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 $40 million and
0.20% thereafter. The Fund's distributor may withhold such payments with
respect to short-term investments.
The broker-dealer allocation for Funds with a 4.50% sales charge on Class
A shares is set forth below:
<TABLE>
<CAPTION>
Amount of
Sales charge as a sales charge
percentage of: reallowed to
------------------------ dealers as a
Amount of transaction at Offering Net amount percentage of
offering price($) price invested offering price
----------------------------- --------- ------------ ---------------
<S> <C> <C> <C>
Under 100,000 4.50 4.71 4.00
100,000 but under 250,000 3.75 3.90 3.25
250,000 but under 500,000 2.50 2.56 2.25
500,000 but under 1,000,000 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1
million or more.
The Fund's distributor pays broker-dealers commissions on net sales of
Class A shares of $1 million or more based on an investor's cumulative
purchases. Such commissions are paid at the rate of 0.75% of the amount under
$2.5 million, 0.50% of the next $7.5 million. 0.25% of the next $40 million and
0.15% thereafter. The Fund's distributor may withhold such payments with
respect to short-term investments.
38
<PAGE>
The broker-dealer allocation for Class A shares of the Short-Term Bond
Fund is set forth below:
<TABLE>
<CAPTION>
Amount of
Sales charge as a sales charge
percentage of: reallowed to
------------------------ dealers as a
Amount of transaction at Offering Net amount percentage of
offering price($) price invested offering price
----------------------------- --------- ------------ ---------------
<S> <C> <C> <C>
Under 100,000 1.50 1.52 1.00
100,000 but under 250,000 1.00 1.00 0.50
250,000 but under 500,000 0.50 0.50 0.25
500,000 but under 1,000,000 0.25 0.25 0.25
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1
million or more.
The broker-dealer allocation is 1.25% for Class M shares of the Short-Term
Bond and 2.75% for Class M shares of the Strategic Income Fund.
Investors in Class A or Class M 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 or Class M shares in the
Fund with purchases of Class A or Class M 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 or Class M shares during
the 13-month period. All Class A or Class M 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 or Class M
shares (or if a Fund has only one class and is subject to an initial sales
charge, shares of such Fund) registered in the shareholder's name in order to
assure payment of the proper sales charge. If total purchases pursuant to the
Statement (less any dispositions and exclusive of any distributions on such
shares automatically reinvested) are less than the amount specified, the
investor will be requested to remit to the Transfer Agent an amount equal to
the difference between the sales charge paid and the sales charge applicable to
the aggregate purchases actually made. If not remitted within 20 days after
written request, an appropriate number of escrowed shares will be redeemed in
order to realize the difference. This privilege is subject to modification or
discontinuance at any time with respect to all shares purchased thereunder.
Reinvested dividend and capital gain distributions are not counted toward
satisfying the Statement.
Class A or Class M shares of a Fund may also be purchased by any person at
a reduced initial sales charge which is determined by (a) aggregating the
dollar amount of the new purchase and the greater of the purchaser's total (i)
net asset value or (ii) cost of any shares acquired and still held in the Fund,
or any other Vista fund excluding any Vista money market fund, and (b) applying
the initial sales charge applicable to such aggregate dollar value (the
"Cumulative Quantity Discount"). The privilege of the Cumulative Quality
Discount is subject to modification or discontinuance at any time with respect
to all Class A or Class M shares (or if a Fund has only one class and is
subject to an initial sales charge, shares of such Fund) purchased thereafter.
An individual who is a member of a qualified group (as hereinafter
defined) may also purchase Class A or Class M shares of a Fund (or if a Fund
has only one class and is subject to an initial sales charge, shares
39
<PAGE>
of such Fund) at the reduced sales charge applicable to the group taken as a
whole. The reduced initial sales charge is based upon the aggregate dollar
value of Class A or Class M shares (or if a Fund has only one class and is
subject to an initial sales charge, shares of such Fund) previously purchased
and still owned by the group plus the securities currently being purchased and
is determined as stated in the preceding paragraph. In order to obtain such
discount, the purchaser or investment dealer must provide the Transfer Agent
with sufficient information, including the purchaser's total cost, at the time
of purchase to permit verification that the purchaser qualifies for a
cumulative quantity discount, and confirmation of the order is subject to such
verification. Information concerning the current initial sales charge
applicable to a group may be obtained by contacting the Transfer Agent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Class A or Class M shares
(or if a Fund has only one class and is subject to an initial sales charge,
shares of such Fund) at a discount and (iii) satisfies uniform criteria which
enables the Distributor to realize economies of scale in its costs of
distributing Class A or Class M shares (or if a Fund has only one class and is
subject to an initial sales charge, shares of such Fund). A qualified group
must have more than 10 members, must be available to arrange for group meetings
between representatives of the Fund and the members must agree to include sales
and other materials related to the Fund in its publications and mailings to
members at reduced or no cost to the Distributor, and must seek to arrange for
payroll deduction or other bulk transmission of investments in the Fund. This
privilege is subject to modification or discontinuance at any time with respect
to all Class A or Class M shares (or if a Fund has only one class and is
subject to an initial sales charge, shares of such Fund) purchased thereafter.
Under the Exchange Privilege, shares may be exchanged for shares of
another fund only if shares of the fund exchanged into are registered in the
state where the exchange is to be made. Shares of a Fund may only be exchanged
into another fund if the account registrations are identical. With respect to
exchanges from any Vista money market fund, shareholders must have acquired
their shares in such money market fund by exchange from one of the Vista
non-money market funds or the exchange will be done at relative net asset value
plus the appropriate sales charge. Any such exchange may create a gain or loss
to be recognized for federal income tax purposes. Normally, shares of the fund
to be acquired are purchased on the redemption rate, but such purchase may be
delayed by either fund for up to five business days if a fund determines that
it would be disadvantaged by an immediate transfer of the proceeds.
The Funds' 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 a Fund's
systematic withdrawal plan, subject to the conditions described in the
Prospectuses. In addition, subject to confirmation of a shareholder's status,
the contingent deferred sales charge will be waived for: (i) a total or partial
redemption made within one year of the shareholder's death or initial
qualification for Social Security disability payments; (ii) a redemption in
connection with a Minimum Required Distribution from an IRA, Keogh or custodial
account under section 403(b) of the Internal Revenue Code or a mandatory
distribution from a qualified plan; (iii) redemptions made from an IRA, Keogh
or custodial account under section 403(b) of the Internal Revenue Code through
an established Systematic Redemption Plan; (iv) a redemption resulting from an
over-contribution to an IRA; (v) distributions from a qualified plan upon
retirement; and (vi) an involuntary redemption of an account balance under
$500.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares attributable to the
Class B shares then converting. The conversion of Class B shares purchased on
or after May 1, 1996, will be effected at the relative net asset values per
share of the two classes on the first business day of the month following the
eighth anniversary
40
<PAGE>
of the original purchase. The conversion of Class B shares purchased prior to
May 1, 1996, will be effected at the relative net asset values per share of the
two classes on the first business day of the month following the seventh
anniversary of the original purchase. Up to 12% of the value of Class B shares
subject to a systematic withdrawal plan may also be redeemed each year without
a CDSC, provided that the Class B account had a minimum balance of $20,000 at
the time the systematic withdrawal plan was established. If any exchanges of
Class B shares during the CDSC Period occurred, the holding period for the
shares exchanged will be counted toward the CDSC Period. At the time of the
conversion the net asset value per share of the Class A shares may be higher or
lower than the net asset value per share of the Class B shares; as a result,
depending on the relative net asset values per share, a shareholder may receive
fewer or more Class A shares than the number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described
in the Prospectuses. A Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A signature
guarantee may be obtained from a bank, trust company, broker-dealer or other
member of a national securities exchange. Please note that a notary public
cannot provide a signature guarantee.
Investors may be eligible to buy Class A or Class M shares at reduced
sales charges. Interested parties should consult their investment
representative or the Chase Vista Funds Service Center for details about Chase
Vista's combined purchase privilege, cumulative quantity discount, statement of
intention, group sales plan, employee benefit plans and other plans. Sales
charges are waived if the investor is using redemption proceeds received within
the prior ninety days from non-Chase Vista mutual funds to buy his or her
shares, and on which he or she paid a front-end or contingent deferred sales
charge.
Some participant-directed employee benefit plans participate in a
"multi-fund" program which offers both Chase Vista and non-Chase Vista mutual
funds. The money that is invested in Chase Vista Funds may be combined with the
other mutual funds in the same program when determining the plan's eligibility
to buy Class A or Class M shares for purposes of the discount privileges and
programs described above.
No initial sales charge will apply to the purchase of a Fund's Class A or
Class M shares if (i) one is investing proceeds from a qualified retirement
plan where a portion of the plan was invested in the Chase Vista Funds, (ii)
one is investing through any qualified retirement plan with 50 or more
participants or (iii) one is a participant in certain qualified retirement
plans and is investing (or reinvesting) the proceeds from the repayment of a
plan loan made to him or her.
Purchases of a Fund's Class A or Class M 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 or Class M shares may be made with no
initial sales charge (i) by an investment adviser, broker or financial planner,
provided arrangements are preapproved and purchases are placed through an
omnibus account with the Fund or (ii) by clients of such investment adviser or
financial planner who place trades for their own accounts, if such accounts are
linked to a master account of such investment adviser or financial planner on
the books and records of the broker or agent. Such purchases may also be made
for retirement and deferred compensation plans and trusts used to fund those
plans.
Purchases of a Fund's Class A or Class M shares may be made with no
initial sales charge in accounts opened by a bank, trust company or thrift
institution which is acting as a fiduciary exercising investment discretion,
provided that appropriate notification of such fiduciary relationship is
reported at the time of the investment to the Fund, the Fund's distributor or
the Chase Vista Funds Service Center.
A Fund may sell Class A or Class M shares without an initial sales charge
to the current and retired Trustees (and their immediate families), current and
retired employees (and their immediate families) of Chase, the Fund's
distributor and transfer agent or any affiliates or subsidiaries thereof,
registered repre-
41
<PAGE>
sentatives and other employees (and their immediate families) of broker-dealers
having selected dealer agreements with the Fund's distributor, employees (and
their immediate families) of financial institutions having selected dealer
agreements with the Fund's distributor (or otherwise having an arrangement with
a broker-dealer or financial institution with respect to sales of Chase Vista
Fund shares) and financial institution trust departments investing an aggregate
of $1 million or more in the Chase Vista Funds.
Shareholders of record of any Chase Vista fund as of November 30, 1990 and
certain immediate family members may purchase a Fund's Class A shares with no
initial sales charge for as long as they continue to own Class A or Class M
shares of any Chase Vista fund, provided there is no change in account
registration.
Shareholders of other Chase Vista Funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of the Fund
at net asset value.
The Funds reserve the right to change any of these policies at any time
and may reject any request to purchase shares at a reduced sales charge.
Investors may incur a fee if they effect transactions through a broker or
agent.
DISTRIBUTIONS; TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the respective Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in each Fund's Prospectus are not intended as substitutes
for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to meet all other requirements that are necessary for it to be relieved of
federal taxes on income and gains it distributes to shareholders. Net
investment income for each Fund consists of all interest accrued and discounts
earned, less amortization of any market premium on the portfolio assets of the
Fund and the accrued expenses of the Fund. As a regulated investment company,
each Fund is not subject to federal income tax on the portion of its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, without regard to the deduction for dividends paid ) and
net capital gain (i.e., the excess of net long-term capital gain over net
short-term capital loss) that it distributes to shareholders, provided that it
distributes at least 90% of its net investment income for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Because certain Funds invest all of their assets
in Portfolios which will be classified as partnerships for federal income tax
purposes, such Funds will be deemed to own a proportionate share of the income
of the Portfolio into which each contributes all of its assets for purposes of
determining whether such Funds satisfy the Distribution Requirement and the
other requirements necessary to qualify as a regulated investment company
(e.g., Income Requirement (hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement for each taxable
year, a regulated investment company must: (1) derive at least 90% of its gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the
42
<PAGE>
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Fund and defer recognition of certain
of the Fund's losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. In addition, these provisions (1)
will require a Fund to "mark-to-market" certain types of positions in its
portfolio (that is, treat them as if they were closed out) and (2) may cause a
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the Distribution Requirement
and avoid the 4% excise tax (described below). Each Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate
the effect of these rules.
A Fund or Portfolio may make investments that produce income that is not
matched by a corresponding cash distribution to the Fund, such as investments
in pay-in-kind bonds or in obligations such as zero coupon securities having
original issue discount (i.e., an amount equal to the excess of the stated
redemption price of the security at maturity over its issue price) or market
discount (i.e., an amount equal to the excess of the stated redemption price of
the security over the basis of such bond immediately after it was acquired), if
the Fund elects to accrue market discount on a current basis. In addition,
income may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any such income would be treated as income earned by
a Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding cash
distribution to a Fund, the Fund may be required to borrow money or dispose of
other securities to be able to make distributions to its investors. In
addition, if an election is not made to currently accrue market discount with
respect to a market discount bond, all or a portion of any deduction or any
interest expenses incurred to purchase or hold such a bond may be deferred
until such bond is sold or otherwise disposed.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election").
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
43
<PAGE>
Fund Distributions
Each Fund anticipates distributing substantially all of its net investment
income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below. Dividends paid on Class A,
Class B and Class C shares are calculated at the same time. In general,
dividends on Class B and Class C shares are expected to be lower than those on
Class A shares due to the higher distribution expenses borne by the Class B and
Class C shares. Dividends may also differ between classes as a result of
differences in other class specific expenses.
If a check representing a Fund distribution is not cashed within a
specified period, the Chase Vista Service Center will notify the investor that
he or she has the option of requesting another check or reinvesting the
distribution in the Fund or in an established account of another Chase Vista
Fund. If the Chase Vista Service Center does not receive his or her election,
the distribution will be reinvested in the Fund. Similarly, if the Fund or the
Chase Vista Service Center sends the investor correspondence returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a "capital gain
dividend," it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Under 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 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 a Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by a
Fund from domestic corporations for the taxable year. A dividend received by a
Fund will not be treated as a qualifying dividend (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days
(91 days in the case of certain preferred stock) during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock)
under the Rules of the Code Section 246(c)(3) and (4); (2) to the extent that a
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a Fund. In the case where a Fund
invests all of its assets in a Portfolio and the Fund satisfies the holding
period rules pursuant to Code Section 246(c) as to its interest in the
Portfolio, a corporate shareholder which satisfies the foregoing requirements
with respect to its shares of the Fund should receive the dividends-received
deduction.
For purposes of the Corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a
44
<PAGE>
corporation's AMT. However, corporate shareholders will generally be required
to take the full amount of any dividend received from a Fund into account
(without a dividends-received deduction) in determining its adjusted current
earnings.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income dividends,
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net asset
value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation
or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital
gain or loss and will be long- term capital gain or loss if the shares were
held for longer than one year. However, any capital loss arising from the sale
or redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
45
<PAGE>
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund and
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
State and Local Tax Matters
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding
taxes. Most states provide that a regulated investment company may pass through
(without restriction) to its shareholders state and local income tax exemptions
available to direct owners of certain types of U.S. government securities (such
as U.S. Treasury obligations). Thus, for residents of these states,
distributions derived from a Fund's investment in certain types of U.S.
government securities should be free from state and local income taxes to the
extent that the interest income from such investments would have been exempt
from state and local income taxes if such securities had been held directly by
the respective shareholders themselves. Certain states, however, do not allow a
regulated investment company to pass through to its shareholders the state and
local income tax exemptions available to direct owners of certain types of U.S.
government securities unless the regulated investment company holds at least a
required amount of U.S. government securities. Accordingly, for residents of
these states, distributions derived from a Fund's investment in certain types
of U.S. government securities may not be entitled to the exemptions from state
and local income taxes that would be available if the shareholders had
purchased U.S. government securities directly. Shareholders' dividends
attributable to a Fund's income from repurchase agreements generally are
subject to state and local income taxes, although states and regulations vary
in their treatment of such income. The exemption from state and local income
taxes does not preclude states from asserting other taxes on the ownership of
U.S. government securities. To the extent that a Fund invests to a substantial
degree in U.S. government securities which are subject to favorable state and
local tax treatment, shareholders of such Fund will be notified as to the
extent to which distributions from the Fund are attributable to interest on
such securities. Rules of state and local taxation of ordinary income dividends
and capital gain dividends from regulated investment companies may differ from
the rules for U.S. federal income taxation in other respects. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in a Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
46
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUNDS OR PORTFOLIOS
Trustees and Officers
The Trustees and officers of the Trust and their principal occupations for
at least the past five years are set forth below. Their titles may have varied
during that period.
Fergus Reid, III--Chairman of the Trust. Chairman and Chief Executive
Officer, Lumelite Corporation, since September 1985; Trustee, Morgan Stanley
Funds. Age: 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. 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.; formerly Director of The Hanover Funds, Inc.
Age: 67. Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He was employed by Chase in numerous capacities and offices from 1954
through 1989. Director of Blessings Corporation, Jefferson Insurance Company of
New York, Monticello Insurance Company and National. Age: 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:
1211 Avenue of the Americas, 41st Floor, New York, NY 10081.
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; formerly Director of The
Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Age: 72. Address:
624 East 45th Street, Savannah, GA 31405.
W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; formerly Director and Chairman of The Hanover Funds, Inc.;
formerly Director, Chairman and President of The Hanover Investment Funds, Inc.
Age: 72. Address: RR 1 Box 102, Weston, VT 05181.
*Leonard M. Spalding, Jr.--Trustee. Chief Executive Officer of Chase
Mutual Funds Corp.; formerly President and Chief Executive Officer of Vista
Capital Management and formerly Chief Investment Executive of The Chase
Manhattan Private Bank. Age: 64. Address: One Chase Manhattan Plaza, Third
Floor, New York, NY 10081.
Richard E. Ten Haken--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers' Retirement
System. Age: 65. Address: 4 Barnfield Road, Pittsford, NY 14534.
47
<PAGE>
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. 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 Chairman of the Trust.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to
recommend independent auditors and monitor accounting and financial matters.
The Audit Committee met two times during the fiscal year ended October 31,
1999.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(President), Reid and Spalding. The function of the Investment Committee is to
review the investment management process of the Trust.
The Trustees and officers of the Trust appearing in the table above also
serve in the same capacities with respect to Mutual Fund Trust, Mutual Fund
Variable Annuity Trust, Mutual Fund Select Group, Mutual Fund Select Trust,
Capital Growth Portfolio, Growth and Income Portfolio and International Equity
Portfolio (these entities, together with the Trust, are referred to below as
the "Chase Vista Funds").
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the Trustee
serves, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1999 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Select
Equity Large Cap Growth and Growth and
Balanced Income Equity Income Income Focus
Fund Fund Fund Fund Fund Fund
------------ ------------ ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $ 466.72 $ 404.35 $ 710.02 $ 3,569.05 $ 1,648.74 $ 173.85
H. Richard Vartabedian, Trustee 350.04 303.25 534.11 2,675.45 1,216.52 130.90
William J. Armstrong, Trustee 233.36 202.16 356.08 1,783.64 811.01 87.27
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Select
Equity Large Cap Growth and Growth and
Balanced Income Equity Income Income Focus
Fund Fund Fund Fund Fund Fund
---------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
John R. H. Blum, Trustee 251.28 217.16 396.35 1,961.62 859.19 93.97
Stuart W. Cragin, Jr., Trustee 241.48 209.04 369.25 1,843.87 827.25 90.40
Roland R. Eppley, Jr. Trustee 233.36 202.16 356.08 1,783.64 811.01 87.27
Joseph J. Harkins, Trustee 241.48 209.04 369.25 1,843.87 827.25 90.40
Sarah E. Jones, Trustee -- -- -- -- -- --
W. D. MacCallan, Trustee 233.36 202.16 356.08 1,783.64 811.01 87.27
W. Perry Neff, Trustee 233.42 202.40 354.94 1,784.98 811.20 87.24
Leonard M. Spalding, Jr.,
Trustee 233.36 202.16 356.08 1,783.64 811.01 87.27
Richard E. Ten Haken, Trustee 239.14 206.89 376.66 1,871.45 834.85 89.29
Irving L. Thode, Trustee 233.36 202.16 356.08 1,783.64 811.01 87.27
</TABLE>
<TABLE>
<CAPTION>
Capital Small Cap Small Cap Core Equity
Growth Equity Opportunities Equity Growth
Fund Fund Fund Fund Fund
-------------- -------------- --------------- -------- -------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $ 1,782.79 $ 1,612.98 $ 474.28 $-- $--
H. Richard Vartabedian, Trustee 1,344.92 1,209.56 355.52 -- --
William J. Armstrong, Trustee 896.61 806.38 237.01 -- --
John R. H. Blum, Trustee 983.55 881.82 254.41 -- --
Stuart W. Cragin, Jr., Trustee 926.19 831.56 244.59 -- --
Roland R. Eppley, Jr. Trustee 896.61 806.38 237.01 -- --
Joseph J. Harkins, Trustee 926.19 831.56 244.59 -- --
Sarah E. Jones, Trustee -- -- -- -- --
W. D. MacCallan, Trustee 896.61 806.38 237.01 -- --
W. Perry Neff, Trustee 897.36 806.03 236.28 -- --
Leonard M. Spalding, Jr.,
Trustee 896.61 806.38 237.01 -- --
Richard E. Ten Haken, Trustee 939.26 844.09 243.09 -- --
Irving L. Thode, Trustee 896.61 806.38 237.01 -- --
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury U.S. Gov't Short-Term Strategic
Income Securities Bond Bond Income
Fund Fund Fund Fund Fund
--------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $ 298.62 $ 195.64 $ 205.13 $ 177.44 $ 11.82
H. Richard Vartabedian, Trustee 224.09 147.55 154.71 133.84 7.88
William J. Armstrong, Trustee 149.39 98.37 103.14 89.23 5.25
John R. H. Blum, Trustee 160.63 105.06 110.96 95.65 5.68
Stuart W. Cragin, Jr., Trustee 154.48 101.46 106.69 92.13 5.25
Roland R. Eppley, Jr. Trustee 149.39 98.37 103.14 89.23 5.25
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury U.S. Gov't Short-Term Strategic
Income Securities Bond Bond Income
Fund Fund Fund Fund Fund
-------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Joseph J. Harkins, Trustee 154.48 101.46 106.69 92.13 5.25
Sarah E. Jones, Trustee -- -- -- -- --
W. D. MacCallan, Trustee 149.39 98.37 103.14 89.23 5.25
W. Perry Neff, Trustee 149.56 98.53 103.24 89.29 4.72
Leonard M. Spalding, Jr., Trustee 149.39 98.37 103.14 89.23 5.25
Richard E. Ten Haken, Trustee 153.02 100.47 105.61 91.24 5.70
Irving L. Thode, Trustee 149.39 98.37 103.14 89.23 5.25
</TABLE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from
as Fund Expenses(1) "Fund Complex"(2)
--------------------- ------------------
<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
Roland 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, 1999.
(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 Select Group, Mutual Fund Select
Trust, Capital Growth Portfolio, Growth and Income Portfolio and
International Equity Portfolio.
As of December 31, 1999, 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 was then apportioned among the Funds comprising the
Trust.
Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan
for Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not
an employee of any of the 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
50
<PAGE>
multiplied by the number of such Trustee's years of service (not in excess of
10 years) completed with respect to any of the Covered Funds and (ii) 4% of the
highest annual compensation received from the Covered Funds for each year of
service in excess of 10 years, provided that no Trustee's annual benefit will
exceed the highest annual compensation received by that Trustee from the
Covered Funds. Such benefit is payable to each eligible Trustee in monthly
installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of October 31, 1999, the estimated credited years
of service for Messrs.Reid, Vartabedian, Armstrong, Blum, Cragin, Eppley,
Harkins, Neff, MacCallan, Spalding, TenHaken, Thode and 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 Vista Funds
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$80,000 $100,000 $120,000 $140,000 $160,000
</TABLE>
<TABLE>
<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 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 Funds or Portfolios pursuant to an
Investment Advisory Agreement, dated as of May 6, 1996 (the "Advisory
Agreement"). Subject to such policies as the Board of
51
<PAGE>
Trustees may determine, Chase is responsible for investment decisions for the
Funds or Portfolios. Pursuant to the terms of the Advisory Agreement, Chase
provides the Funds or Portfolios with such investment advice and supervision as
it deems necessary for the proper supervision of the Funds' or Portfolios'
investments. The advisers continuously provide investment programs and
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the Funds' or Portfolios' assets shall be held
uninvested. The advisers to the Funds or Portfolios furnish, at their own
expense, all services, facilities and personnel necessary in connection with
managing the investments and effecting portfolio transactions for the Funds or
Portfolios. The Advisory Agreement for the Funds or Portfolios will continue in
effect from year to year only if such continuance is specifically approved at
least annually by the Board of Trustees or by vote of a majority of a Fund's or
Portfolio's outstanding voting securities and by a majority of the Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on such Advisory
Agreement.
Under the Advisory Agreement, the adviser may utilize the specialized
portfolio skills of all its various affiliates, thereby providing the Funds and
Portfolios with greater opportunities and flexibility in accessing investment
expertise.
Pursuant to the terms of the Advisory Agreement and the sub-advisers'
agreements with the adviser, the adviser and sub-advisers are permitted to
render services to others. Each advisory agreement is terminable without
penalty by the Trust on behalf of the Funds on not more than 60 days', nor less
than 30 days', written notice when authorized either by a majority vote of a
Fund's shareholders or by a vote of a majority of the Board of Trustees of the
Trust, or by the adviser or sub-adviser on not more than 60 days', nor less
than 30 days', written notice, and will automatically terminate in the event of
its "assignment" (as defined in the 1940 Act). The advisory agreements provide
that the adviser or sub-adviser under such agreement shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of portfolio
transactions for the respective Fund, except for wilful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder.
With respect to the Equity Funds or Equity Portfolios, the equity research
team of the adviser looks for two key variables when analyzing stocks for
potential investment by equity portfolios: value and momentum. To uncover these
qualities, the team uses a combination of quantitative analysis, fundamental
research and computer technology to help identify undervalued stocks.
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Funds imposed by the securities laws or regulations
thereunder of any state in which the shares of the Funds are qualified for
sale, as such limitations may be raised or lowered from time to time, the
adviser shall reduce its advisory fee (which fee is described below) to the
extent of its share of such excess expenses. The amount of any such reduction
to be borne by the adviser shall be deducted from the monthly advisory fee
otherwise payable with respect to the Funds during such fiscal year; and if
such amounts should exceed the monthly fee, the adviser shall pay to a Fund its
share of such excess expenses no later than the last day of the first month of
the next succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of
one or more affiliated companies that are qualified to act as an investment
adviser of the Fund and are under the common control of Chase as long as all
such persons are functioning as part of an organized group of persons, managed
by authorized officers of Chase.
Chase, on behalf of the Funds or Portfolios (other than Strategic Income
Fund, Core Equity Portfolio and Equity Growth Portfolio), has entered into an
investment sub-advisory agreement with Chase Asset Management, Inc. ("CAM").
With respect to the Strategic Income Fund, Chase has entered into investment
sub-
52
<PAGE>
advisory agreements with each of CAM and State Street Research & Management
Company ("State Street"). With respect to the Core Equity Portfolio and Equity
Growth Portfolio, Chase has entered into an investment sub-advisory agreement
with Chase Bank of Texas, National Association ("Chase Texas"). With respect to
the day-to-day management of the Funds or Portfolios, under the sub-advisory
agreements, the sub-advisers make decisions concerning, and place all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The sub-advisers may, in their discretion, provide
such services through their own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of Chase;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the sub-advisers. This arrangement will not result in the payment of
additional fees by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. Also included among Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment adviser
and provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
State Street is a subsidiary of the Metropolitan Life Insurance Company.
State Street is registered with the Securities and Exchange Commission as an
investment adviser and provides discretionary investment advisory services to
institutional and other clients.
Chase Texas (and its predecessors) have been in the investment counseling
business since 1987. Chase Texas is a wholly-owned subsidiary of The Chase
Manhattan Corporation. Chase Texas is located at 600 Travis, Houston, Texas
77002.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund or
Portfolio an investment advisory fee computed daily and paid monthly based on a
rate equal to a percentage of such Fund's or Portfolio's average daily net
assets specified in the relevant Prospectuses. However, the adviser may
voluntarily agree to waive a portion of the fees payable to it on a
month-to-month basis. For its services under its sub-advisory agreement, CAM,
State Street or Chase Texas, as the case may be, will be entitled to receive,
with respect to each such Fund or Portfolio, such compensation, payable by the
adviser out of its advisory fee, as is described in the relevant Prospectuses.
For the fiscal years ended October 31, 1997, 1998 and 1999, Chase was paid
or accrued the following investment advisory fees with respect to the following
Funds, and voluntarily waived the amounts in parentheses following such fees
with respect to each such period:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------- ---------------------------- ------------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- ---------------- -------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 419,971 $ (19,663) $ 566,217 $ -- $ 698,506 $ --
Equity Income Fund 142,666 (14,010) 376,013 -- 479,036 --
Large Cap Equity Fund 476,896 (476,885) 684,337 (684,337) 908,698 (908,698)
Focus Fund (a) N/A N/A 36,757 (36,757) 206,729 (206,729)
Small Cap Equity Fund 3,122,539 -- 3,688,988 -- 3,049,840 --
Small Cap Opportunities Fund (b) 123,519 (110,695) 725,783 (96,116) 945,594 (225,558)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-------------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------- -------------------------------- ------------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- ---------------- -------------- ---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund 329,197 (78,607) 223,287 (104,604) 261,826 (157,985)
U.S. Government Securities
Fund 195,014 -- 169,150 (150,101) 167,522 (167,522)
Bond Fund 74,105 (74,105) 53,423 (53,423) 190,826 (190,826)
Short-Term Bond Fund 120,146 (120,146) 129,578 (129,578) 132,197 (132,197)
Strategic Income Fund (c) N/A N/A N/A N/A 29,509 (29,509)
</TABLE>
----------
(a) Advisory fees and waivers for 1998 are from the period June 30, 1998
(commencement of operations) through October 31, 1998.
(b) Advisory fees and waivers for 1997 are from the period May 19, 1997
(commencement of operations) through October 31, 1997.
(c) Advisory fees and waivers for 1999 are from the period November 30, 1998
(commencement of operations) through October 31, 1999.
Growth and Income Fund, Select Growth and Income Fund and Capital Growth
Fund utilize the Master/Feeder Fund Structure and do not have an investment
advisor because the Trust seeks to achieve the investment objective of the Fund
by investing all of the investable assets of each respective Fund in each
respective Portfolio. For the fiscal years ended October 31, 1997, 1998 and
1999, Chase was paid or accrued the following investment advisory fees with
respect to the following Portfolios, and voluntarily waived the amounts in
parentheses following such fees with respect to each such period:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
--------------------------------------------------------------------------------
1997 1998 1999
------------------------- ------------------------- ------------------------
Portfolio paid/accrued waived paid/accrued waived paid/accrued waived
--------- -------------- -------- -------------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Portfolio $9,877,868 $-- $11,363,349 $-- $11,408,864 $--
Capital Growth Portfolio 4,971,835 -- 5,459,469 -- 4,371,569 --
</TABLE>
Core Equity Fund and Equity Growth Fund also utilize the Master/Feeder
Fund Structure. For the period from August 12, 1999 (commencement of
operations) to December 31, 1999 (fiscal year end of Mutual Fund Master
Investment Trust), Chase was paid or accrued investment advisory fees of
$524,385 and $863,350 by Core Equity Portfolio and Equity Growth Portfolio,
respectively. Of these amounts, Chase voluntarily waived $69,918 and $34,534,
respectively.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Funds and the administrator of
each Portfolio. Chase provides certain administrative services to the Funds and
Portfolios, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Funds' and Portfolios' independent contractors and agents;
preparation for signature by an officer of the Trust and Portfolios of all
documents required to be filed for compliance by the Trust and Portfolios with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including
net asset value and yield; responding to shareholder inquiries; and arranging
for the maintenance of books and records of the Funds and Portfolios and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. Chase in its capacity as administrator does
not have any responsibility or authority for the management of the Funds or
Portfolios, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will continue
in effect from year to year with respect to each Fund or Portfolio only
54
<PAGE>
if such continuance is specifically approved at least annually by the Board of
Trustees of the Trust or Portfolio or by vote of a majority of such Fund's or
Portfolio's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Administration Agreements or
"interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreements are terminable without penalty by the Trust on behalf
of each Fund or by a Portfolio on 60 days' written notice when authorized
either by a majority vote of such Fund's or Portfolio shareholders or by vote
of a majority of the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust or
Portfolios, or by Chase on 60 days' written notice, and will automatically
terminate in the event of their "assignment" (as defined in the 1940 Act). The
Administration Agreements also provide that neither Chase or its personnel
shall be liable for any error of judgment or mistake of law or for any act or
omission in the administration of the Funds or Portfolios, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and
duties under the Administration Agreements.
In addition, the Administration Agreements provide that, in the event the
operating expenses of any Fund or Portfolio, including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for
any fiscal year exceed the most restrictive expense limitation applicable to
that Fund imposed by the securities laws or regulations thereunder of any state
in which the shares of such Fund are qualified for sale, as such limitations
may be raised or lowered from time to time, Chase shall reduce its
administration fee (which fee is described below) to the extent of its share of
such excess expenses. The amount of any such reduction to be borne by Chase
shall be deducted from the monthly administration fee otherwise payable to
Chase during such fiscal year, and if such amounts should exceed the monthly
fee, Chase shall pay to such Fund or Portfolio its share of such excess
expenses no later than the last day of the first month of the next succeeding
fiscal year.
In consideration of the services provided by Chase pursuant to the
Administration Agreements, Chase receives from each Fund a fee computed daily
and paid monthly at an annual rate equal to 0.10% of each of the Fund's average
daily net assets, on an annualized basis for the Fund's then-current fiscal
year, except that with respect to the Growth and Income Fund, Select Growth and
Income Fund, Capital Growth Fund, Core Equity Fund and Equity Growth Fund,
Chase receives from each of the Funds and the Portfolios a fee computed daily
and paid monthly at an annual rate equal to 0.05% of their respective average
daily net assets. Chase may voluntarily waive a portion of the fees payable to
it with respect to each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1997, 1998 and 1999, Chase was paid
or accrued the following administration fees and voluntarily waived the amounts
in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
--------------------------------------------------------------------------------------
1997 1998 1999
---------------------------- ---------------------------- ----------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- -------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 83,940 $ -- $ 113,243 $ -- $ 139,701 $ --
Equity Income Fund 35,929 (1,560) 94,003 -- 119,759 --
Large Cap Equity Fund 119,235 (119,235) 171,083 (171,083) 227,175 (227,175)
Growth and Income Fund 1,169,015 -- 1,112,549 -- 1,062,002 --
Select Growth and Income
Fund (e) N/A N/A 225,434 -- 282,172 --
Growth and Income Portfolio 1,234,733 -- 1,420,419 -- 1,426,108 --
Focus Fund (a) N/A N/A 9,189 (9,189) 51,682 (3,565)
Capital Growth Fund 619,816 -- 681,429 -- 545,078 --
Capital Growth Portfolio 621,480 -- 682,434 -- 546,446 --
Small Cap Equity Fund 480,368 -- 567,538 -- 469,206 --
Small Cap Opportunities Fund (b) 18,909 (7,783) 111,659 -- 145,476 --
Core Equity Fund (d) N/A N/A N/A N/A 612 (612)
Equity Growth Fund (d) N/A N/A N/A N/A 883 (883)
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------------------------------------------------------------
1997 1998 1999
--------------------------- --------------------------- ---------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- -------------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Income Fund 109,732 -- 74,429 -- 88,260 --
U.S. Government Securities
Fund 65,005 -- 56,383 (46,865) 55,841 (55,841)
Bond Fund 24,703 (24,703) 53,423 (53,423) 63,609 (45,526)
Short-Term Bond Fund 48,058 (48,058) 51,831 (51,831) 52,879 (52,879)
Strategic Income Fund (c) N/A N/A N/A N/A 5,902 (5,902)
</TABLE>
----------
(a) Administration fees and waivers for 1998 are from the period June 30, 1998
(commencement of operations) through October 31, 1998.
(b) Administration fees and waivers for 1997 are from the period May 19, 1997
(commencement of operations) through October 31, 1997.
(c) Administration fees and waivers for 1999 are from the period November 30,
1998 (commencement of operations through October 31, 1999.
(d) Administration fees and waivers for 1999 are from the period August 12, 1999
(commencement of operations) through October 31, 1999.
(e) Administration fees and waivers for 1998 are from the period January 6, 1998
(commencement of operations) through October 31, 1998.
For the period from August 12, 1999 (commencement of operations) to
December 31, 1999 (fiscal year end of Mutual Fund Master Investment Trust),
Chase was paid or accrued administration fees of $34,960 and $57,557 by Core
Equity Portfolio and Equity Growth Portfolio, respectively.
Distribution Plans
The Trust has adopted separate plans of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") on behalf of certain classes
of shares of certain Funds as described in the Prospectuses, which provide such
classes of such Funds shall pay for distribution services a distribution fee
(the "Distribution Fee"), including payments to the Distributor, at annual
rates not to exceed the amounts set forth in their respective Prospectuses. The
Distributor may use all or any portion of such Distribution Fee to pay for Fund
expenses of printing prospectuses and reports used for sales purposes, expenses
of the preparation and printing of sales literature and other such
distribution-related expenses. Promotional activities for the sale of each
class of shares of each Fund will be conducted generally by the Chase Vista
Funds, and activities intended to promote one class of shares of a Fund may
also benefit the Fund's other shares and other Chase Vista Funds.
Class B and Class C shares pay a Distribution Fee of up to 0.75% of
average daily net assets. The Distributor currently expects to pay sales
commissions to a dealer at the time of sale of Class B and Class C shares of up
to 4.00% and 1.00%, respectively, of the purchase price of the shares sold by
such dealer. The Distributor will use its own funds (which may be borrowed or
otherwise financed) to pay such amounts. Because the Distributor will receive a
maximum Distribution Fee of 0.75% of average daily net assets with respect to
Class B shares, it will take the Distributor several years to recoup the sales
commissions paid to dealers and other sales expenses.
Some payments under the Distribution Plans may be used to compensate
broker-dealers with trail or maintenance commissions in an amount not to exceed
0.25% annualized of the average net asset values of Class A shares, or 0.25%
annualized of the average net asset value of the Class B shares, or 0.75%
annualized of the average net asset value of the Class C shares, maintained in
a Fund by such broker-dealers' customers. Trail or maintenance commissions on
Class B and Class C shares will be paid to broker-dealers beginning the 13th
month following the purchase of such Class B or Class C shares. Since the
distribution
56
<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 or Class C shares in any one year will be
accrued and paid by a Fund to the Distributor in fiscal years subsequent
thereto. In determining whether to purchase Class B or Class C shares,
investors should consider that compensation payments could continue until the
Distributor has been fully reimbursed for the commissions paid on sales of
Class B and Class C shares. However, the Shares are not liable for any
distribution expenses incurred in excess of the Distribution Fee paid.
Each class of shares is entitled to exclusive voting rights with respect
to matters concerning its Distribution Plan.
Each Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually by
a vote of both a majority of the Trustees and a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the operation of the
Distribution Plans or in any agreement related to such Plan ("Qualified
Trustees"). The continuance of each Distribution Plan was most recently
approved on October 13, 1995. Each Distribution Plan requires that the Trust
shall provide to the Board of Trustees, and the Board of Trustees shall review,
at least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Distribution Plan. Each Distribution Plan further provides
that the selection and nomination of Qualified Trustees shall be committed to
the discretion of the disinterested Trustees (as defined in the 1940 Act) then
in office. Each Distribution Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or, with respect to a particular Fund, by
vote of a majority of the outstanding voting Shares of the class of such Fund
to which it applies (as defined in the 1940 Act). Each Distribution Plan may
not be amended to increase materially the amount of permitted expenses
thereunder without the approval of shareholders and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees. Each of the Funds will preserve copies of any plan,
agreement or report made pursuant to a Distribution Plan for a period of not
less than six years from the date of the Distribution Plan, and for the first
two years such copies will be preserved in an easily accessible place. For the
fiscal year ended October 31, 1999, the Distributor was paid or accrued the
following Distribution Fees and voluntarily waived the amounts of such fees:
<TABLE>
<CAPTION>
Fund Paid/Accrued Waived
---- -------------- -------
<S> <C> <C>
Balanced Fund
A Shares $ 278,552 $--
B Shares 208,967 --
C Shares (a) 3,138 --
Equity Income Fund
A Shares 210,385 --
B Shares 220,504 --
C Shares 46,534 --
Large Cap Equity Fund
A Shares 158,245 --
B Shares 187,541 --
C Shares (b) 5,301 --
Growth and Income Fund
A Shares 3,792,745 --
B Shares 4,280,374 --
C Shares 63,665 --
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Fund Paid/Accrued Waived
---- -------------- --------
<S> <C> <C>
Focus Fund
A Shares 49,145 --
B Shares 191,112 --
C Shares 49,062 --
Capital Growth Fund
A Shares 1,651,758 --
B Shares 2,861,416 --
C Shares 39,908 --
Small Cap Equity Fund
A Shares 306,049 --
B Shares 539,333 --
Small Cap Opportunities Fund
A Shares 186,265 --
B Shares 481,737 --
C Shares 50,438 --
Core Equity Fund
A Shares (c) 1,575 (1,575)
B Shares (c) 3,510 --
C Shares (d) 939 --
Equity Growth Fund
A Shares (c) 1,478 (1,478)
B Shares (d) 8,021 --
C Shares (e) 585 --
U.S. Treasury Income Fund
A Shares 179,154 (179,154)
B Shares 122,595 --
U.S. Government Securities Fund
A Shares 8,411 (8,411)
Bond Fund
A Shares 92,038 (37,023)
B Shares 36,227 --
Short Term Bond Fund
A Shares 57,561 (4,265)
M Shares (f) 1,681 (246)
Strategic Income Fund
A Shares (g) 3,535 (3,214)
B Shares (g) 15,182 (14,373)
C Shares (g) 11,917 (11,024)
M Shares (h) -- --
</TABLE>
----------
(a) Distribution fees and waivers are from the period November 20, 1998
(commencement of operations) through October 31, 1999.
(b) Distribution fees and waivers are from the period November 11, 1998
(commencement of operations) through October 31, 1999.
(c) Distribution fees and waivers are from the period August 12, 1999
(commencement of operations) through October 31, 1999.
(d) Distribution fees and waivers are from the period August 13, 1999
(commencement of operations) through October 31, 1999.
(e) Distribution fees and waivers are from the period August 20, 1999
(commencement of operations) through October 31, 1999.
(f) Distribution fees and waivers are from the period July 1, 1999 (commencement
of operations) through October 31, 1999.
58
<PAGE>
(g) Distribution fees and waivers are from the period November 30, 1998
(commencement of operations) through October 31, 1999.
(h) Distribution fees and waivers are from the period October 28, 1999
(commencement of operations) through October 31, 1999.
Expenses paid by the Distributor related to the distribution of Trust
shares during the year ended October 31, 1999 were as follows:
<TABLE>
<S> <C>
Advertising and sales literature ......................................................... $ 461,188
Printing, production and mailing of prospectuses prospectuses and shareholder reports to
other than current shareholders ......................................................... 237,166
Compensation to dealers .................................................................. 6,622,881
Compensation to sales personnel .......................................................... 5,286,769
B share financing charges ................................................................ 9,305,903
Equipment, supplies and other indirect distribution-related expenses ..................... 72,709
</TABLE>
With respect to the Class B shares and Class C shares of the Funds, the
Distribution Fee was paid to FEP Capital L.P. for acting as finance agent.
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement
dated August 24, 1995 (the "Distribution Agreement") with the Distributor,
pursuant to which the Distributor acts as the Funds' exclusive underwriter,
provides certain administration services and promotes and arranges for the sale
of each class of Shares. The Distributor is a wholly-owned subsidiary of BISYS
Fund Services, Inc. The Distribution Agreement provides that the Distributor
will bear the expenses of printing, distributing and filing prospectuses and
statements of additional information and reports used for sales purposes, and
of preparing and printing sales literature and advertisements not paid for by
the Distribution Plan. The Trust pays for all of the expenses for qualification
of the shares of each Fund for sale in connection with the public offering of
such shares, and all legal expenses in connection therewith. In addition,
pursuant to the Distribution Agreement, the Distributor provides certain sub-
administration services to the Trust, including providing officers, clerical
staff and office space.
The Distribution Agreement is currently in effect and will continue in
effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
such Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such
Fund's shareholders or by vote of a majority of the Board of Trustees of the
Trust, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust, or by the Distributor on 60 days'
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or connected with, rendering services under
the Distribution Agreement, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for
sale, as such limitations may be raised or lowered from time to time, the
Distributor shall reduce its sub-administration fee with respect to such Fund
(which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by the Distributor shall
59
<PAGE>
be deducted from the monthly sub-administration fee otherwise payable with
respect to such Fund during such fiscal year; and if such amounts should exceed
the monthly fee, the Distributor shall pay to such Fund its share of such
excess expenses no later than the last day of the first month of the next
succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable
to it under the Distribution Agreement with respect to each Fund on a
month-to-month basis. For the fiscal years ended October 31, 1997, 1998 and
1999 the Distributor was paid or accrued the following sub-administration fees
under the Distribution Agreement, and voluntarily waived the amounts in
parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
---------------------------------------------------------------------------------
1997 1998 1999
-------------------------- -------------------------- ---------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- -------------- ----------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 41,997 $ -- $ 56,622 $ -- $ 69,851 $ --
Equity Income Fund 17,963 -- 47,001 -- 59,880 --
Large Cap Equity Fund 59,617 -- 85,542 -- 113,587 --
Growth and Income Fund 1,169,014 -- 1,112,549 -- 1,062,002 --
Select Growth and Income Fund (e) N/A N/A 225,434 -- 282,172 --
Focus Fund (a) N/A N/A 4,595 (4,595) 25,841 (883)
Capital Growth Fund 619,911 -- 681,429 -- 545,078 --
Small Cap Equity Fund 240,179 -- 283,769 -- 234,603 --
Small Cap Opportunities Fund (b) 9,451 (3,891) 55,829 -- 72,738 --
Core Equity Fund (d) N/A N/A N/A N/A 612 (612)
Equity Growth Fund (d) N/A N/A N/A N/A 883 (883)
U.S. Treasury Income Fund 54,866 -- 37,214 -- 44,130 --
U.S. Government Securities Fund 32,502 (15,205) 28,182 (28,182) 27,920 (27,920)
Bond Fund 12,350 (6,968) 26,711 (26,711) 31,804 (18,667)
Short Term Bond Fund 24,030 (5,836) 25,916 (25,916) 26,439 (26,439)
Strategic Income Fund (c) N/A N/A N/A N/A 2,951 (2,951)
</TABLE>
----------
(a) Sub-administration fees and waivers for 1998 are from the period June 30,
1998 (commencement of operations) through October 31, 1998.
(b) Sub-administration fees and waivers for 1997 are from the period May 19,
1997 (commencement of operations) through October 31, 1997.
(c) Sub-administration fees and waivers for 1999 are from the period November
30, 1998 (commencement of operations through October 31, 1999.
(d) Sub-administration fees and waivers for 1999 are from the period August 12,
1999 (commencement of operations) through October 31, 1999.
(e) Sub-administration fees and waivers for 1998 are from the period January 6,
1998 (commencement of operations) through October 31, 1998.
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
60
<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.
Shareholder Servicing Agents may subcontract with other parties for the
provision of shareholder support services.
Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement with
respect to each Fund on a month-to-month basis. For the fiscal years ended
October 31, 1997, 1998 and 1999, fees payable to the Shareholder Servicing
Agents (all of which currently are related parties) and the amounts voluntarily
waived for each such period (as indicated in parentheses), were as follows:
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
--------------------------------------------------------------------------------------
1997 1998 1999
---------------------------- ---------------------------- ----------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- -------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund
A Shares 179,498 (179,498) 233,147 (171,504) 278,552 (208,887)
B Shares 30,353 -- 49,961 -- 69,656 --
C Shares (a) -- -- -- -- 1,046 --
Equity Income Fund
A Shares 67,368 (43,638) 173,516 -- 210,385 --
B Shares 17,214 -- 56,044 -- 73,501 --
C Shares (b) -- -- 5,449 -- 15,511 --
Large Cap Equity Fund
A Shares 37,298 -- 122,882 -- 158,245 --
B Shares 7,218 -- 18,148 -- 62,514 --
C Shares (c) -- -- 286,680 -- 1,767 --
Institutional Shares 253,543 -- -- -- 345,411 --
Growth and Income Fund
A Shares 3,744,600 -- 3,910,171 -- 3,792,745 --
B Shares 1,092,905 -- 1,356,558 -- 1,426,791 --
C Shares (d) -- -- 4,417 -- 21,222 --
Institutional Shares 1,007,567 -- 291,585 -- 69,253 --
Focus Fund
A Shares (e) N/A N/A 11,922 (11,922) 49,145 (29,885)
B Shares (e) N/A N/A 8,302 (5,018) 63,707 (13,679)
C Shares (e) N/A N/A 2,479 (1,613) 16,354 (3,236)
Capital Growth Fund
A Shares 2,029,200 -- 2,109,946 -- 1,651,758 --
B Shares 962,344 -- 1,113,911 -- 953,805 --
C Shares (d) -- -- 3,204 -- 13,303 --
Institutional Shares 107,773 -- 180,080 -- 106,525 --
Small Cap Equity Fund
A Shares 66,388 -- 62,952 -- 36,726 --
B Shares 226,585 -- 246,507 -- 179,778 --
Institutional Shares 566,164 (90,765) 766,562 (296,699) 687,189 (687,189)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
------------------------------------------------------------------------------------
1997 1998 1999
--------------------------- ---------------------------- ----------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
---- -------------- ------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Opportunities Fund
A Shares (f) 27,016 (26,585) 143,104 (137,222) 186,265 (179,935)
B Shares (f) 20,133 -- 130,786 -- 160,579 --
C Shares (g) -- -- 5,257 -- 16,813 --
Institutional Shares (h) N/A N/A N/A N/A 33 (33)
Core Equity Fund
A Shares (i) N/A N/A N/A N/A 1,575 (1,575)
B Shares (i) N/A N/A N/A N/A 1,170 (1,170)
C Shares (j) N/A N/A N/A N/A 313 (313)
Equity Growth Fund
A Shares (i) N/A N/A N/A N/A 1,478 (1,478)
B Shares (j) N/A N/A N/A N/A 2,674 (2,674)
C Shares (k) N/A N/A N/A N/A 195 (195)
U.S. Treasury Income Fund
A Shares 248,112 (238,380) 157,143 (102,503) 178,944 (100,498)
B Shares 26,319 -- 28,929 -- 41,705 --
U.S. Government Securities Fund
A Shares 7,685 (7,685) 6,591 (6,591) 8,411 (8,411)
Institutional Shares 154,826 (21,879) 134,367 -- 131,191 --
Bond Fund
A Shares 13,451 (13,451) 80,517 (58,222) 92,038 (73,873)
B Shares 2,789 -- 6,674 -- 12,076 --
Institutional Shares 45,514 (45,313) 46,366 (46,366) 54,907 (46,489)
Short-Term Bond Fund
A Shares 22,218 (8,902) 40,617 (35,336) 57,561 (46,240)
Institutional Shares 97,928 (58,693) 88,961 (78,738) 73,436 (58,891)
M Shares (l) N/A N/A N/A N/A 1,201 --
Strategic Income Fund
A Shares (m) N/A N/A N/A N/A 3,539 (3,539)
B Shares (m) N/A N/A N/A N/A 5,093 (5,093)
C Shares (m) N/A N/A N/A N/A 3,972 (3,972)
Institutional Shares (m) N/A N/A N/A N/A 2,186 (2,186)
M Shares (n) N/A N/A N/A N/A -- --
</TABLE>
----------
(a) Shareholder Servicing fees and waivers for 1999 are from the period November
20, 1998 (commencement of operations) through October 31, 1999.
(b) Shareholder Servicing fees and waivers for 1998 are from the period January
1, 1998 (commencement of operations) through October 31, 1998.
(c) Shareholder Servicing fees and waivers for 1999 are from the period November
11, 1998 (commencement of operations) through October 31, 1999.
(d) Shareholder Servicing fees and waivers for 1998 are from the period January
2, 1998 (commencement of operations) through October 31, 1998.
(e) Shareholder Servicing fees and waivers for 1998 are from the period June 30,
1998 (commencement of operations) through October 31, 1998.
(f) Shareholder Servicing fees and waivers for 1997 are from the period May 19,
1997 (commencement of operations) through October 31, 1997.
62
<PAGE>
(g) Shareholder Servicing fees and waivers for 1998 are from the period January
8, 1998 (commencement of operations) through October 31, 1998.
(h) Shareholder Servicing fees and waivers for 1999 are from the period April 5,
1999 (commencement of operations) through October 31, 1999.
(i) Shareholder Servicing fees and waivers for 1999 are from the period August
12, 1999 (commencement of operations) through October 31, 1999.
(j) Shareholder Servicing fees and waivers for 1999 are from the period August
13, 1999 (commencement of operations) through October 31, 1999.
(k) Shareholder Servicing fees and waivers for 1999 are from the period August
20, 1999 (commencement of operations) through October 31, 1999.
(l) Shareholder Servicing fees and waivers for 1999 are from the period July 1,
1999 (commencement of operations) through October 31, 1999.
(m) Shareholder Servicing fees and waivers for 1999 are from the period November
30, 1998 (commencement of operations) through October 31, 1999.
(n) Shareholder Servicing fees and waivers for 1999 are from the period October
28, 1999 (commencement of operations) through October 31, 1999.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks.
Each Shareholder Servicing Agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain Shareholder Servicing Agents may (although they are
not required by the Trust to do so) credit to the accounts of their customers
from whom they are already receiving other fees amounts not exceeding such
other fees or the fees for their services as Shareholder Servicing Agents.
For shareholders that bank with Chase, Chase may aggregate investments in
the Chase Vista Funds with balances held in Chase bank accounts for purposes of
determining eligibility for certain bank privileges that are based on specified
minimum balance requirements, such as reduced or no fees for certain banking
services or preferred rates on loans and deposits. Chase and certain
broker-dealers and other Shareholder Servicing Agents may, at their own
expense, provide gifts, such as computer software packages, guides and books
related to investment or additional Fund shares valued up to $250 to their
customers that invest in the Chase Vista Funds.
Chase and/or the Distributor may from time to time, at their own expense
out of compensation retained by them from the Fund or other sources available
to them, make additional payments to certain selected dealers or other
Shareholder Servicing Agents for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to an additional
0.10% annually of the average net assets of the Fund attributable to shares if
the Fund held by customers of such Shareholder Servicing Agents. Such
compensation does not represent an additional expense to the Fund or its
shareholders, since it will be paid by Chase and/or the Distributor.
Chase and its affiliates and the Chase Vista Funds, affiliates, agents and
subagents may exchange among themselves and others certain information about
shareholders and their accounts, including information used to offer investment
products and insurance products to them, unless otherwise contractually
prohibited.
The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund and Portfolio, except Core Equity Portfolio and Equity
Growth Portfolio, 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
63
<PAGE>
held in the portfolios of each Fund. Chase also provides fund accounting
services for the income, expenses and shares outstanding for all Funds except
Growth and Income Fund, Select Growth and Income Fund, Capital Growth Fund,
Core Equity Fund and Equity Growth Fund. Chase is located at 3 Metrotech
Center, Brooklyn, NY 11245. Investors Bank & Trust Company ("IBT") acts as the
custodian of the assets of Core Equity Portfolio and Equity Growth Portfolio.
IBT also provides fund accounting services for the income, expenses and shares
outstanding for Growth and Income Fund, Select Growth and Income Fund, Capital
Growth Fund, Core Equity Fund, Equity Growth Fund and the Portfolios. IBT is
located at 200 Clarendon Street, 16th Floor, Boston, MA 02116.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the Trust's
Annual Reports to Shareholders for the fiscal year ended October 31, 1999, and
the related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses in reliance on the reports
of PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants of the Funds, given on the authority of said
firm as experts in accounting and auditing. PricewaterhouseCoopers LLP provides
the Funds with audit services, tax return preparation and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
CERTAIN REGULATORY MATTERS
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of any
of the Funds, including outstanding loans to such issuers which may be repaid
in whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Funds' distributor or affiliates of the distributor. Chase
will not invest any Fund assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate,
although under certain circumstances such securities may be purchased from
other members of an underwriting syndicate in which Chase or an affiliate is a
non-principal member. This restriction my limit the amount or type of U.S.
Government obligations, municipal obligations or commercial paper available to
be purchased by any Fund. Chase has informed the Funds that in making its
investment decision, it does not obtain or use material inside information in
the possession of any other division or department of Chase, including the
division that performs services for the Trust as custodian, or in the
possession of any affiliate of Chase. Shareholders of the Funds should be aware
that, subject to applicable legal or regulatory restrictions, Chase and its
affiliates may exchange among themselves certain information about the
shareholder and his account. Transactions with affiliated broker-dealers will
only be executed on an agency basis in accordance with applicable federal
regulations.
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Funds' custodian
for all services to the funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to government offices and commissions; expenses of
meetings of investors; fees and expenses of independent accountants, of legal
counsel and of any transfer agent, registrar or dividend disbursing agent of
the Trust; insurance premiums; and expenses of calculating the net asset value
of, and the net income on, shares of the Funds. Shareholder servicing and
distribution fees are all allocated to specific classes of the Funds. In
addition, the Funds may allocate transfer agency and certain other expenses by
class. Service providers to a Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
64
<PAGE>
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment
company organized as Massachusetts business trust under the laws of the
Commonwealth of Massachusetts in 1987. The Trust currently consists of 21
series of shares of beneficial interest, par value $.001 per share. With
respect to certain Funds, the Trust may offer more than one class of shares.
The Trust has reserved the right to create and issue additional series or
classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each whole share held, and each fractional share shall
be entitled to a proportionate fractional vote, except that Trust shares held
in the treasury of the Trust shall not be voted. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class. With respect to shares
purchased through a Shareholder Servicing Agent and, in the event written proxy
instructions are not received by a Fund or its designated agent prior to a
shareholder meeting at which a proxy is to be voted and the shareholder does
not attend the meeting in person, the Shareholder Servicing Agent for such
shareholder will be authorized pursuant to an applicable agreement with the
shareholder to vote the shareholder's outstanding shares in the same proportion
as the votes cast by other Fund shareholders represented at the meeting in
person or by proxy.
Certain Funds offer Class A, Class B, Class C, Class M and Institutional
Class shares. The classes of shares have several different attributes relating
to sales charges and expenses, as described herein and in the Prospectuses. In
addition to such differences, expenses borne by each class of a Fund may differ
slightly because of the allocation of other class-specific expenses. For
example, a higher transfer agency fee may be imposed on Class B shares than on
Class A shares. The relative impact of initial sales charges, contingent
deferred sales charges, and ongoing annual expenses will depend on the length
of time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special meetings
of shareholders of a series or class when, in the judgment of the Trustees, it
is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances, the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such Shareholder
Servicing Agent is the agent of record. Any shares so voted by a Shareholder
Servicing Agent will be deemed represented at the meeting for purposes of
quorum requirements. Shares have no preemptive or conversion rights. Shares,
when issued, are fully paid and non-assessable, except as set forth below. Any
series or class may be terminated (i) upon the merger or consolidation with, or
the sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two-thirds of its outstanding
shares, except that if the Board of Trustees recommends such merger,
consolidation or sale
65
<PAGE>
or disposition of assets, the approval by vote of the holders of a majority of
the series' or class' outstanding shares will be sufficient, or (ii) by the
vote of the holders of a majority of its outstanding shares, or (iii) by the
Board of Trustees by written notice to the series' or class' shareholders.
Unless each series and class is so terminated, the Trust will continue
indefinitely.
Stock certificates are issued only upon the written request of a
shareholder, subject to the policies of the investor's Shareholder Servicing
Agent, but the Trust will not issue a stock certificate with respect to shares
that may be redeemed through expedited or automated procedures established by a
Shareholder Servicing Agent. No certificates are issued for Class B shares due
to their conversion feature. No certificates are issued for Institutional
Shares.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts of
interest that can arise in connection with personal trading activities of such
persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions,
pre-clearance requirements and blackout periods.
Principal Holders
As of February 16, 2000, the following persons owned of record 5% or more
of the outstanding shares of the following classes of the following Funds:
<TABLE>
<S> <C>
BALANCED FUND A SHARES
Texas Commerce Bank NA 24.94%
Attn: Avesta
MSC 10 1111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
MLPF&S for the sole benfit of its customers 10.73%
Attn: Fund Administration
SEC# 97FB6
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
BCO Popular TTEE 8.15%
FBO Texaco Pr Inc Pension Plan
Attn: Yantra Nazario
PO Box 762708
San Juan, PR 00916-2708
</TABLE>
<TABLE>
<S> <C>
Hamill and Company 8.00%
FBO Texas New Mexico Power
Mail Sta 16-HCB-09
PO Box 2558
Houston, TX 77252
BALANCED FUND B SHARES
MLPF&S for the sole benefit of its customers 5.21%
Attn: Fund Administration
SEC# 97FB7
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
BALANCED FUND C SHARES
MLPF&S for the sole benefit of its customers 66.12%
Attn: Fund Administration
SEC# 97TR4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO # C1B-405485 7.58%
Holy Redeemer Cemetary Sacred Heart
149 S. Plainfield Avenue
S. Plainfield, NJ 07080-4000
NFSC FEBO # C1B-405493 7.31%
Sacred Heart Church
149 S. Plainfield Avenue
S. Plainfield, NJ 07080-4099
BOND FUND A SHARES
Liva & Company 41.39%
C/O Chase Manhattan Bank
Attn: Mut FDS / T-C
PO Box 1412
Rochester NY 14603-1412
Balsa and Company 13.26%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Trulin and Company 7.86%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Texas Commerce Bank NA 6.01%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
BOND FUND INSTITUTIONAL SHARES
Trulin and Company 51.03%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Texas Commerce Bank 27.12%
Attn: Avesta
MSC 101111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
</TABLE>
<TABLE>
<S> <C>
CAPITAL GROWTH FUND
C SHARES
MLPF&S for the sole benefit of its customers 36.67%
Attn: Fund Administration
SEC# 97TR4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
CAPITAL GROWTH FUND
INSTITUTIONAL SHARES
Bankers Trust Trustee 54.06%
Alliance Coal Corp PSSP
Attn: Elijah Outen
34 Exchange Place
Jersey City, NJ 07302-3885
Texas Commerce Bank NA 29.61%
Attn: Avesta
MSC 10 1111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
Mellon Bank as Trustee Omnibus 13.13%
Attn: Nancy A. Ryan Rogers
135 Santilli Highway
AIM 026-0027
Everett, MA 02149-1906
CORE EQUITY FUND
A SHARES
MLPF&S for the sole benefit of its customers 13.27%
Attn: Fund Administration
SEC# 97B00
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Liva & Company 12.31%
C/O Chase Manhattan Bank NA
Attn: Mutual FDS/T-C
PO Box 1412
Rochester, NY 14603-1422
CORE EQUITY FUND
B SHARES
MLPF&S for the sole benefit of its customers 25.40%
Attn: Fund Administration
SEC# 97FBB
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
CORE EQUITY FUND
C SHARES
MLPF&S for the sole benefit of its customers 76.76%
Attn: Fund Administration
SEC# 97TR2
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
EQUITY GROWTH FUND
A SHARES
Liva & Company 12.00%
C/O Chase Manhattan Bank NA
Attn: Mutual FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
EQUITY GROWTH FUND
B SHARES
MLPF&S for the sole benefit of its customers 5.55%
Attn: Fund Administration
SEC# 97FB8
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
EQUITY GROWTH FUND
C SHARES
MLPF&S for the sole benefit of its customers 61.73%
Attn: Fund Administration
SEC# 97TR2
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
EQUITY INCOME FUND
A SHARES
Texas Commerce Bank NA 10.27%
Attn: Avesta
MSC 10 1111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
EQUITY INCOME FUND
C SHARES
MLPF&S for the sole benefit of its customers 7.37%
Attn: Fund Administration
SEC# 97TR3
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
<TABLE>
<S> <C>
FOCUS FUND A SHARES
MLPF&S for the sole benefit of its customers 5.58%
Attn: Fund Administration
SEC# 97FB8
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
FOCUS FUND B SHARES
MLPF&S for the sole benefit of its customers 27.90%
Attn: Fund Administration
SEC# 97FB8
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
FOCUS FUND C SHARES
MLPF&S for the sole benefit of its customers 24.64%
Attn: Fund Administration
SEC# 97FB8
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
FOCUS FUND INSTITUTIONAL SHARES
BISYS as seed money for Focus Fund C 83.34%
Shares
Attn: Todd Frank
3435 Stelzer Road, Suite 1000
Columbus, OH 43219-6004
GROWTH AND INCOME FUND
C SHARES
MLPF&S for the sole benefit of its customers 8.49%
Attn: Fund Administration
SEC# 97TR2
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
GROWTH AND INCOME FUND
INSTITUTIONAL SHARES
Texas Commerce Bank NA 94.25%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
Balsa and Company 5.68%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
LARGE CAP EQUITY FUND
A SHARES
Trulin and Company 27.94%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
MLPF&S for the sole benefit of its customers 12.38%
Attn: Fund Administration
SEC# 97JB4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Texas Commerce Bank NA 7.58%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
LARGE CAP EQUITY FUND
B SHARES
MLPF&S for the sole benefit of its customers 27.31%
Attn: Fund Administration
SEC# 97J85
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
LARGE CAP EQUITY FUND
C SHARES
MLPF&S for the sole benefit of its customers 45.15%
Attn: Fund Administration
SEC# 97TR4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 11.64%
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303-2052
LARGE CAP EQUITY FUND
INSTITUTIONAL SHARES
Texas Commerce Bank NA 34.45%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
Trulin and Company 9.72%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
</TABLE>
<TABLE>
<S> <C>
Chase Manhattan Bank 5.70%
FBA Jericho OCI Pension PL SLRD EE
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza 4th Floor
New York, NY 10081-1000
Chase Manhattan Bank 5.11%
FBA Jericho OCI Pension PL SLRD EE
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza 4th Floor
New York, NY 10005-1401
SELECT GROWTH AND INCOME FUND
Chase Manhattan Bank N/A 100%
Global SEC Services Omnibus
CMB Thrift Incentive Plan
Attn: Jeff Rosenberg
3 Chase Metro Tech Center, 7th Floor
Brooklyn, NY 11245-0001
SHORT TERM BOND FUND
A SHARES
Liva & Company 32.54%
c/o Chase Manhattan Bank
Attn: Mutual Funds/T-C
PO Box 1412
Rochester, NY 14603-1412
Mass Mutual Agents Health 30.95%
Benefit Trust
C/O Mary Swanson K032
1295 State Street
Springfield, MA 01111-0001
Balsa and Company 5.58%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
SHORT TERM BOND FUND
M SHARES
Sakura Bank Tokyo Japan 70.95%
Investment Products Division
1-2 Yurakucho 1 Chome Ceiyoda-Ku
Tokyo 100-0006 Japn
Shinyei Ishiro Securities Co. Ltd. 29.05%
36-2 Nieonbashihakozakicho Chou-Ku
Tokyo, Japan 103-0015
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
SHORT TERM BOND FUND
INSTITUTIONAL SHARES
Trulin and Company 40.97%
C/O Chase Manhattan Bank
Attn: Mutual Funds FDS/T-C
PO Box 1412
Rochester, NY 14603-1412
Texas Commerce Bank NA 30.63%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
Fleet National Bank 11.35%
Attn: 20842001
FBO Rochester Area Community Foundation
PO Box 92800
Rochester, NY 14692-8900
Fleet National Bank 9.49%
FBO Rochester Area Foundation
Attn: #20845012
PO Box 92800
Rochester, NY 14692-8900
SMALL CAP EQUITY FUND
A SHARES
Texas Commerce Bank 7.76%
Attn: Avesta
10 31111F 342
Asset Trading Unit
PO Box 2558
Houston, TX 77252-2558
Charles Schwab & Co. 6.04%
Reinvest Account
Attn: Mutual Funds Dept
101 Montgomery Street
San Francisco, CA 94104-4122
Balsa & Co. 5.86%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
SMALL CAP EQUITY FUND
INSTITUTIONAL SHARES
Chase Manhattan Bank N/A 99.87%
Global Sec Services Omnibus
CMB Thrift Incentive Plan
Attn: Jeff Rosenberg
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0001
</TABLE>
<TABLE>
<S> <C>
SMALL CAP OPPORTUNITIES FUND
A SHARES
Balsa & Co. 14.08%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
SMALL CAP OPPORTUNITIES FUND
B SHARES
MLPF&S for the sole benefit of its customers 9.26%
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
SMALL CAP OPPORTUNITIES FUND
C SHARES
MLPF&S for the sole benefit of its customers 23.88%
Attn: Fund Administration
SEC# 97TR1
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 7.63%
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303-2052
SMALL CAP OPPORTUNITIES FUND
INSTITUTIONAL SHARES
G. Murrell Runnels 98.94%
Olivia Runnels Ttee
D/A DTD Dec 30 96
FBO George & Olivia Runnels Liv Tr
295 N. Broadway Street, SPC 189
Orcutt, CA 93455-4645
STRATEGIC INCOME A SHARES
MLPF&S for the sole benefit of its customers 20.11%
Attn: Fund Administration
SEC# 97B00
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO # CR1-345B22 9.19%
Chase Manhattan Bank Cust
IRA of Allan T. Nance
Trad IRA
201 E. 66th Street, Apt. 8A
New York, NY 10021-6460
Donaldson Lufkin Jenrette 9.00%
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
70
<PAGE>
<TABLE>
<S> <C>
STRATEGIC INCOME B SHARES
MLPF&S for the sole benefit of its customers 25.73%
Attn: Fund Administration
SEC# 97B00
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
STRATEGIC INCOME C SHARES
MLPF&S for the sole benefit of its customers 26.67%
Attn: Fund Administration
SEC# 97B00
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO # C1B-511641 20.30%
Jim Poon
Maria M. H. Poon
132 Nassau Street, Rm. 515
New York, NY 10038-2400
NFSC FEBO # C1B-463426 17.12%
Atlantic Coast Investment
3 Coventry Court
Mt. Sinai, NY 11766-1516
Norma J. Stocker 6.26%
312 S. Main Street
Nazareth, PA 18064-2710
Micro Trim, Inc. 5.90%
3613 W. Macarthur Boulevard, Suite 604
Santa Ana, CA 92704-6846
STRATEGIC INCOME M SHARES
Ando Securities Co. Ltd. 100.00%
1-4-1 Shinkawa Chuo-Ku
Tokyo 104-0033 Japan
US GOVERNMENT SECURITIES FUND
A SHARES
Chemical Bank 16.57%
Custodian for the IRA of Rose Faggan
7 East 14th Street, Apt. 19-T
New York, NY 10003-3127
William H. McDavid 12.99%
Sylvia N. McDavid JTWROS
33 Norman Drive
Rye, NY 10580-2251
</TABLE>
<TABLE>
<S> <C>
Chemical Bank 6.85%
Custodian for the IRA of Alice Ann Berryhill
PO Box 232
Mendham, NJ 07945-0232
Chemical Bank 5.56%
Custodian for the IRA of Rose Faggan
7 East 14th Street, Apt. 19-T
New York, NY 10003-3127
US GOVERNMENT SECURITIES FUND
INSTITUTIONAL SHARES
Chase Manhattan Bank 10.20%
FBA Jericho Rockaway
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10081-1000
Chase Manhattan Bank 7.62%
FBA Jericho Rockaway
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10081-1000
Chase Manhattan Bank 6.06%
FBA Jericho RBS Plastics
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10081-1000
Chase Manhattan Bank 5.76%
FBA Jericho Adirondack
Future Benefits--Custody
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10005-1401
Chase Manhattan Bank 5.68%
Future Benefits--Custody
OCI Pension Plan Salaried EE's
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10005-1401
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
Chase Manhattan Bank 5.48%
Future Benefits--Custody
OCI Pension Plan Hourly EE's
Attn: Terry Zimmardi
One Chase Manhattan Plaza
4th Floor
New York, NY 10005-1401
US TREASURY INCOME FUND
A SHARES
Texas Commerce Bank NA 31.51%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
</TABLE>
72
<PAGE>
Financial Statements
The 1999 Annual Report to Shareholders of each Fund, including the reports
of independent accounts, financial highlights and financial statements for the
fiscal year ended October 31, 1999 contained therein, are incorporated herein
by reference.
<TABLE>
<S> <C>
Specimen Computations of Offering Prices Per Share
Balanced Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 16.24
Maximum Offering Price per Share ($16.24 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 17.23
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.94
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.89
Equity Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 21.06
Maximum Offering Price per Share ($21.06 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 22.34
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 20.88
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 20.87
Large Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 16.20
Maximum Offering Price per Share ($16.20 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 17.19
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 16.10
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 16.03
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 16.27
Growth and Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 43.65
Maximum Offering Price per Share ($43.65 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 46.31
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 43.25
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 42.34
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 43.89
Select Growth and Income Fund (specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 48.88
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
Focus Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.83
Maximum Offering Price per Share ($9.83 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.43
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.77
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.76
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.86
Capital Growth Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 42.85
Maximum Offering Price per Share ($42.85 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 45.46
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 41.67
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 41.31
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 43.36
Small Cap Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 22.77
Maximum Offering Price per Share ($22.77 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 24.16
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 22.06
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 23.10
Small Cap Opportunities Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.98
Maximum Offering Price per Share ($15.98 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 16.95
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.71
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.69
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 15.98
Core Equity Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.47
Maximum Offering Price per Share ($10.47 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 11.11
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.46
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.46
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
Equity Growth Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.53
Maximum Offering Price per Share ($10.53 divided by .9425) (reduced on purchases of
$100,000 or more)........................................................................ $ 11.17
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.51
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.51
U.S. Treasury Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.67
Maximum Offering Price per Share ($10.67 divided by .9550) (reduced on purchases of
$100,000 or more)........................................................................ $ 11.17
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.67
U.S. Government Securities Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.67
Maximum Offering Price per Share ($9.67 divided by .9550) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.13
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.65
Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.18
Maximum Offering Price per Share ($10.18 divided by .9550) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.66
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.21
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 10.16
</TABLE>
75
<PAGE>
<TABLE>
<S> <C>
Short-Term Bond Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.94
Maximum Offering Price per Share ($9.94 divided by .9850) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.09
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.95
M Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.94
Maximum Offering Price per Share ($9.94 divided by .9850) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.09
Strategic Income Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.59
Maximum Offering Price per Share ($9.59 divided by .9550) (reduced on purchases of
$100,000 or more)........................................................................ $ 10.04
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.59
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.59
Institutional Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.59
M Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at October 31, 1999 $ 9.59
Maximum Offering Price per Share ($9.59 divided by .9700) (reduced on purchases of
$100,000 or more)........................................................................ $ 9.89
</TABLE>
76
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government are guaranteed by the U.S.
Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary from their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the effect
of raising the effective yield earned on the Certificates; and (iv) the actual
yield of each Certificate is affected by the prepayment of mortgages included
in the mortgage pool underlying the Certificates. Principal which is so prepaid
will be reinvested although possibly at a lower rate. In addition, prepayment
of mortgages included in the mortgage pool underlying a GNMA Certificate
purchased at a premium could result in a loss to a Fund. Due to the large
amount of GNMA Certificates outstanding and active participation in the
secondary market by securities dealers and investors, GNMA Certificates are
highly liquid instruments. Prices of GNMA Certificates are readily available
from securities dealers and depend on, among other things, the level of market
rates, the Certificate's coupon rate and the prepayment experience of the pool
of mortgages backing each Certificate. If agency securities are purchased at a
premium above principal, the premium is not guaranteed by the issuing agency
and a decline in the market value to par may result in a loss of the premium,
which may be particularly likely in the event of a prepayment. When and if
available, U.S. Government obligations may be purchased at a discount from face
value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
A-1
<PAGE>
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured
by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with respect to
bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated "A" possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
B-1
<PAGE>
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only
in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
B-2
<PAGE>
Standard & Poor's Ratings Group Commercial Paper Ratings
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.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
B-3
<PAGE>
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by a Fund. However, a Fund's investment
manager will consider such event in its determination of whether such Fund
should continue to hold the security. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations
or their rating systems, a Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in this Prospectus and in the Statement of Additional Information.
B-4
<PAGE>
[Chase Vista Funds logo]
STATEMENT OF
ADDITIONAL INFORMATION
February 28, 2000
EUROPEAN FUND
INTERNATIONAL EQUITY FUND
JAPAN FUND
LATIN AMERICAN EQUITY FUND
SOUTHEAST ASIAN 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 Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering shares
of International Equity Fund, European Fund, Japan Fund, Latin American Equity
Fund and Southeast Asian Fund. Any references to a "Prospectus" in this
Statement of Additional Information is a reference to one or more of the
foregoing Prospectuses, as the context requires. Copies of each Prospectus may
be obtained by an investor without charge by contacting Vista Fund Distributors,
Inc. ("VFD"), the Funds' distributor (the "Distributor"), at the above-listed
address.
This Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by an
effective prospectus.
For more information about your account, simply call or write the Vista Service
Center at:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
NTL-SAI-200
<PAGE>
<TABLE>
<S> <C>
Table of Contents Page
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The Funds ............................................................................ 3
Investment Policies and Restrictions ................................................. 3
Performance Information .............................................................. 28
Determination of Net Asset Value ..................................................... 33
Purchases, Redemptions and Exchanges ................................................. 34
Distributions; Tax Matters ........................................................... 39
Management of the Trust and the Funds or Portfolios .................................. 45
Independent Accountants .............................................................. 59
Certain Regulatory Matters ........................................................... 59
General Information .................................................................. 60
Appendix A--Description of Certain Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities ....................................................... A-1
Appendix B--Description of Ratings ................................................... B-1
</TABLE>
2
<PAGE>
THE FUNDS
Mutual Fund Group (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 11, 1987. The Trust presently consists of
21 separate series (the "Funds"). Certain of the Funds are diversified and other
Funds are non-diversified, as such term is defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). The shares of the Funds are collectively
referred to in this Statement of Additional Information as the "Shares."
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The International Equity Fund seeks to
achieve its investment objective by investing all of its investable assets in an
open-end, management investment company which has the same investment objective
as such Fund. The International Equity Fund invests in the International Equity
Portfolio (the "Portfolio"). The Portfolio is a New York trust with its
principal office in New York. Certain qualified investors, in addition to the
Fund, may invest in the Portfolio. For purposes of this Statement of Additional
Information, any information or references to the Portfolio refer to the
operations and activities after implementation of the master fund/feeder fund
structure.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. In the case of the Portfolio, a
separate Board of Trustees, with the same members as the Board of Trustees of
the Trust, provides broad supervision. The Chase Manhattan Bank ("Chase") is the
investment adviser for the Funds (other than the International Equity Fund,
which does not have its own adviser) and the Portfolio. Chase also serves as the
administrator of the Trust, including the Funds, and is the administrator of the
Portfolio. A majority of the Trustees of the Trust are not affiliated with the
investment adviser or sub-advisers. Similarly, a majority of the Trustees of the
Portfolio are not affiliated with the investment adviser or sub-advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies of each Fund and
Portfolio. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. For descriptions of
the securities ratings of Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"), see
Appendix B.
U.S. Government Securities. Each Fund and Portfolio may invest in U.S.
Government securities. U.S. Government Securities include (1) U.S. Treasury
obligations, which generally differ only in their interest rates, maturities
and times of issuance, including: U.S. Treasury bills (maturities of one year
or less), U.S. Treasury notes (maturities of one to ten years) and U.S.
Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the
agency or instrumentality. Agencies and instrumentalities of the U.S.
Government include but are not limited to: Federal Land Banks, Federal
Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks,
Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Student Loan Marketing
Association, United States Postal Service, Chrysler Corporate Loan Guarantee
Board, Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Certain U.S.
Government Securities, including U.S. Treasury bills, notes and bonds,
Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or
3
<PAGE>
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
higher yields that are available from the more common types of government-backed
instruments. However, such specialized instruments may only be available from a
few sources in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
related to government guarantees. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
a Fund or Portfolio were required to liquidate any of them, it might not be able
to do so advantageously; accordingly, each Fund and Portfolio investing in such
securities normally to hold such securities to maturity or pursuant to
repurchase agreements, and would treat such securities (including repurchase
agreements maturing in more than seven days) as illiquid for purposes of its
limitation on investment in illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are insured
by either the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation, and foreign banks (including their
U.S. branches) having total assets in excess of $10 billion (or the equivalent
in other currencies), and such other U.S. and foreign commercial banks which are
judged by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks or foreign banks
which are payable at a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. Fixed time deposits subject to withdrawal penalties and with
respect to which a Fund or Portfolio cannot realize the proceeds thereon within
seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by commercial
banks which generally bear fixed rates of interest and typically have original
maturities ranging from eighteen months to five years.
Banks are subject to extensive governmental regulations that may limit both
the amounts and types of loans and other financial commitments that may be made
and the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by government regulation. Investors should also be aware that securities of
foreign banks and foreign branches of United States banks may involve foreign
investment risks in addition to those relating to domestic bank obligations.
These investment risks may involve, among other consider-
4
<PAGE>
ations, risks relating to future political and economic developments, more
limited liquidity of foreign obligations than comparable domestic obligations,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign assets and the possible establishment of
exchange controls or other restrictions. There also may be less publicly
available information concerning foreign issuers, difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches) and
differences in accounting, auditing and financial reporting standards and
practices from those applicable to U.S. issuers. In addition, foreign banks are
also not subject to regulations comparable to U.S. banking regulations. Certain
national policies may also impede the investment opportunities of the Fund or
Portfolio in other ways, including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests. For example, the
Latin American Equity Fund currently does not intend to invest directly in Chile
due to certain restrictions and deposit requirements imposed on foreign
investors.
Foreign Securities. For purposes of a Fund's or a Portfolio's investment
policies, an issuer of a security may be deemed to be located in a particular
country if (i) the principal trading market for the security is in such country,
(ii) the issuer is organized under the laws of such country or (iii) the issuer
derives at least 50 percent of its revenues or profits from such country or has
at least 50 percent of its assets situated in such country.
Depositary Receipts. Each Fund and Portfolio may invest its assets in
securities of multinational companies in the form of American Depositary
Receipts or other similar securities representing securities of foreign issuers,
such as European Depositary Receipts, Global Depositary Receipts and other
similar securities representing securities of foreign issuers (collectively,
"Depositary Receipts"). The Funds and the Portfolio treat Depositary Receipts as
interests in the underlying securities for purposes of their investment
policies. Unsponsored Depositary Receipts may not carry comparable voting rights
to sponsored Depositary Receipts, and a purchaser of unsponsored Depositary
Receipts may not receive as much information about the issuer of the underlying
securities as with a sponsored Depositary Receipt.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unse- cured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Supranational Obligations. Each Fund and Portfolio may invest in
supranational obligations. Supranational organizations include organizations
such as The World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations of the Asian and Pacific regions.
Money Market Instruments. Each Fund and Portfolio may invest in cash or
high-quality, short-term money market instruments. These may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money market
instruments may involve certain risks associated with foreign investment
Corporate Reorganizations. In general securities that are subject to a
tender or exchange offer or proposal sell at a premium to their historic market
price immediately prior to the announcement of the offer or proposal. The
increased market price of these securities may also discount what the stated or
appraised value of the security would be if the contemplated action were
approved or consummated. These investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; sig-
5
<PAGE>
nificantly undervalues the securities, assets or cash to be received by
shareholder of the prospective portfolio company as a result of the contemplated
transaction; or fails adequately to recognize the possibility that the offer or
proposal may be replaced or superseded by an offer or proposal of greater value.
The evaluation of these contingencies requires unusually broad knowledge and
experience on the part of the advisers that must apprise not only the value of
the issuer and its component businesses as well as the assets or securities to
be received as a result of the contemplated transaction, but also the financial
resources and business motivation of the offeror as well as the dynamics of the
business climate when the offer or proposal is in progress. Investments in
reorganization securities may tend to increase the turnover ratio of a Fund or
Portfolio and increase its brokerage and other transaction expenses.
Loan Participations. The Latin American Equity Fund may invest in
participations in fixed and floating rate loans arranged through private
negotiations between a borrower and one or more financial institutions. The Fund
may have difficulty disposing of participations because to do so it will have to
assign such securities to a third party. Because there is no established
secondary market for such securities, the Fund anticipates that such securities
could be sold only to a limited number of institutional investors. The lack of
an established secondary market may have an adverse impact on the value of such
securities and the Fund's ability to dispose of particular assignments or
participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the borrower. When investing in a participation, the Fund will typically have
the right to receive payments only from the lender, and not from the borrower
itself, to the extent the lender receives payments from the borrower.
Accordingly, the Fund may be subject to the credit risk of both the borrower and
the lender. The lack of an established secondary market for assignments and
participations also may make it more difficult for the Fund to assign a value to
these securities for purposes of valuing the Fund's portfolio and calculating
its net asset value. The Fund will not invest more than 15% of the value of its
net assets in participations and assignments that are illiquid, and in other
illiquid securities.
Brady Bonds. The Latin American Equity Fund may invest in Brady Bonds. The
Brady Plan framework, as it has developed, contemplates the exchange of external
commercial bank debt for newly issued bonds, called Brady Bonds. Brady Bonds may
also be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. Brady Bonds issued to date generally
have maturities of between 15 and 30 years from the date of issuance. The
following Latin American countries have issued Brady Bonds: Argentina, Brazil,
Costa Rica, the Dominican Republic, Ecuador, Mexico, Uruguay and Venezuela. In
addition, other countries may announce plans to issue Brady Bonds. The Funds may
invest in Brady Bonds of countries that have been issued to date, as well as
those which may be issued in the future.
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from the face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Regardless of the stated face amount and stated interest rate of the various
types of Brady Bonds, the Fund will purchase Brady Bonds in secondary markets,
as described below, in which the price and yield to the investor reflect market
conditions at the time of purchase. Brady Bonds issued to date have traded at a
deep discount from their face value. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk"). The Fund may purchase Brady Bonds with no or limited
collateralization and will be relying for payment of interest and (except in the
case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accor-
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dance with the terms of the Brady Bonds. Brady Bonds issued to date are
purchased and sold in secondary markets through U.S. securities dealers and
other financial institutions and are generally maintained through European
transnational securities depositories.
In addition to Brady Bonds, the Latin American Equity Fund may invest in
Latin American governmental obligations which may be issued as a result of other
debt restructuring agreements.
Repurchase Agreements. Each Fund and Portfolio may enter into repurchase
agreements. Repurchase agreements are agreements to purchase and resell
securities at an agreed-upon price and time. A Fund or Portfolio will enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers believed creditworthy, and only if fully collateralized by
securities in which such Fund or Portfolio is permitted to invest. Under the
terms of a typical repurchase agreement, a Fund or Portfolio would acquire an
underlying instrument for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase the instrument and
the Fund or Portfolio to resell the instrument at a fixed price and time,
thereby determining the yield during the Fund's or Portfolio's holding period.
This procedure results in a fixed rate of return insulated from market
fluctuations during such period. A repurchase agreement is subject to the risk
that the seller may fail to repurchase the security. Repurchase agreements are
considered under the 1940 Act to be loans collateralized by the underlying
securities. All repurchase agreements entered into by a Fund or Portfolio will
be fully collateralized at all times during the period of the agreement in that
the value of the underlying security will be at least equal to 100% of the
amount of the loan, including the accrued interest thereon, and the Fund or
Portfolio or its custodian or sub-custodian will have possession of the
collateral, which the Board of Trustees believes will give it a valid, perfected
security interest in the collateral. Whether a repurchase agreement is the
purchase and sale of a security or a collateralized loan has not been
conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by the
seller under a repurchase agreement construed to be a collateralized loan, the
underlying securities would not be owned by the Fund or Portfolio, but would
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, a Fund or Portfolio may suffer time delays and incur costs in
connection with the disposition of the collateral. The Board of Trustees
believes that the collateral underlying repurchase agreements may be more
susceptible to claims of the seller's creditors than would be the case with
securities owned by a Fund or Portfolio. Repurchase agreements maturing in more
than seven days are treated as illiquid for purposes of the Funds' and
Portfolios' restrictions on purchases of illiquid securities. Repurchase
agreements are also subject to the risks described below with respect to
stand-by commitments.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow to buy
additional securities, known as "leveraging." Each Fund and Portfolio may enter
into reverse repurchase agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund or Portfolio with an agreement to repurchase
the securities at an agreed upon price and date. A Fund or Portfolio may use
this practice to generate cash for shareholder redemptions without selling
securities during unfavorable market conditions. Whenever a Fund or Portfolio
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets on a daily basis in an amount at
least equal to the repurchase price (including accrued interest.) A Fund or
Portfolio would be required to pay interest on amounts obtained through reverse
repurchase agreements, which are considered borrowings under federal securities
laws. The repurchase price is generally equal to the original sales price plus
interest. Reverse repurchase agreements are usually for seven days or less and
cannot be repaid prior to their expiration dates. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities transferred
may decline below the price at which the Fund or Portfolio is obliged to
purchase the securities.
Forward Commitments. Each Fund and Portfolio may purchase securities on a
forward commitment basis. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will nor-
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mally be purchased. When a commitment to purchase a security on a forward
commitment basis is made, procedures are established consistent with the General
Statement of Policy of the Securities and Exchange Commission concerning such
purchases. Since that policy currently recommends that an amount of the
respective Fund's or Portfolio's assets equal to the amount of the purchase be
held aside or segregated to be used to pay for the commitment, a separate
account of such Fund or Portfolio consisting of cash, cash equivalents or high
quality debt securities equal to the amount of such Fund's or Portfolio's
commitments securities will be established at such Fund's or Portfolio's
custodian bank. For the purpose of determining the adequacy of the securities in
the account, the deposited securities will be valued at market value. If the
market value of such securities declines, additional cash, cash equivalents or
highly liquid securities will be placed in the account daily so that the value
of the account will equal the amount of such commitments by the respective Fund
or Portfolio.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the respective Fund's or
Portfolio's portfolio are subject to changes in value based upon the public's
perception of the issuer and changes, real or anticipated, in the level of
interest rates. Purchasing securities on a forward commitment basis can involve
the risk that the yields available in the market when the delivery takes place
may actually be higher or lower than those obtained in the transaction itself.
On the settlement date of the forward commitment transaction, the respective
Fund or Portfolio will meet its obligations from then available cash flow, sale
of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the forward
commitment securities themselves (which may have a value greater or lesser than
such Fund's or Portfolio's payment obligations). The sale of securities to meet
such obligations may result in the realization of capital gains or losses.
Purchasing securities on a forward commitment basis can also involve the risk of
default by the other party on its obligation, delaying or preventing the Fund or
Portfolio from recovering the collateral or completing the transaction.
To the extent a Fund or Portfolio engages in forward commitment
transactions, it will do so for the purpose of acquiring securities consistent
with its investment objective and policies and not for the purpose of investment
leverage, and settlement of such transactions will be within 90 days from the
trade date.
Investment Grade Debt Securities. Each Fund and Portfolio may invest in
investment grade debt securities. Investment grade debt securities are
securities that are rated in the category BBB or higher by Standard & Poor's
Corporation ("S&P"), Baa or higher by Moody's Investors Service, Inc.
("Moody's"), rated at an equivalent level by another national rating
organization or, if unrated, determined by the advisers to be of comparable
quality.
Stripped Obligations. The principal and interest components of United
States Treasury bonds with remaining maturities of longer than ten years are
eligible to be traded independently under the Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program. Under the STRIPS
program, the principal and interest components are separately issued by the
United States Treasury at the request of depository financial institutions,
which then trade the component parts separately. The interest component of
STRIPS may be more volatile than that of United States Treasury bills with
comparable maturities. The risk is greater when the period to maturity is
longer. Each Fund and Portfolio may invest up to 20 percent of its total assets
in stripped obligations where the underlying obligation is backed by the full
faith and credit of the U.S. Government.
Indexed Investments. Each Fund and Portfolio may invest in instruments
which are indexed to certain specific foreign currency exchange rates. The terms
of such instruments may provide that their principal amounts or just their
coupon interest rates are adjusted upwards or downwards (but not below zero) at
maturity or on established coupon payment dates to reflect changes in the
exchange rate between two or more
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currencies while the obligation is outstanding. Such indexed investments entail
the risk of loss of principal and/or interest payments from currency movements
in addition to principal risk, but offer the potential for realizing gains as a
result of changes in foreign currency exchange rates.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants but normally have a shorter duration and are distributed
directly by the issuer to shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund and the Portfolio may elect to treat as liquid,
in accordance with procedures established by the Board of Trustees, certain
investments in restricted securities for which there may be a secondary market
of qualified institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") and commercial
obligations issued in reliance on the so-called "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act. ("Section 4(2)
paper") Rule 144A provides an exemption from the registration requirements of
the Securities Act for the resale of certain restricted securities to qualified
institutional buyers. Section 4(2) paper is restricted as to disposition under
the federal securities laws, and generally is sold to institutional investors
such as a Fund or Portfolio who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale of Section
4(2) paper by the purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees have adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A and Section 4(2)
paper are liquid or illiquid for purposes of the limitation on investment in
illiquid securities. Pursuant to those policies and procedures, the Trustees
have delegated to the advisers the determination as to whether a particular
instrument is liquid or illiquid, requiring that consideration be given to,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to sell and security and the number of potential
purchasers, dealer undertakings to make a market in the security, the nature of
the security and the time needed to dispose of the security. The Trustees will
periodically review the Funds' and Portfolio's purchases and sales of Rule 144A
securities and Section 4(2) paper.
Stand-By Commitments. Each Fund and Portfolio may utilize stand-by
commitments in securities sales transactions. In a put transaction, a Fund or
Portfolio acquires the right to sell a security at an agreed upon price within a
specified period prior to its maturity date, and a stand-by commitment entitles
a Fund or Portfolio to same-day settlement and to receive an exercise price
equal to the amortized cost of the underlying security plus accrued interest, if
any, at the time of exercise. Stand-by commitments are subject to certain risks,
which include the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by a Fund or Portfolio, and that the maturity of the
underlying security will generally be different from that of the commitment. A
put transaction will increase the cost of the underlying security and
consequently reduce the available yield.
Securities Loans. To the extent specified in its Prospectus, each Fund and
Portfolio is permitted to lend its securities to broker-dealers and other
institutional investors in order to generate additional income. Such loans of
portfolio securities may not exceed 30% of the value of a Fund's or Portfolio's
total assets. In connection with such loans, a Fund or Portfolio will receive
collateral consisting of cash, cash equivalents, U.S. Government securities or
irrevocable letters of credit issued by financial institutions. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value plus accrued interest of the securities loaned. A Fund or
Portfolio can increase its income through the investment of such collateral. A
Fund or Portfolio
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continues to be entitled to the interest payable or any dividend-equivalent
payments received on a loaned security and, in addition, to receive interest on
the amount of the loan. However, the receipt of any dividend-equivalent payments
by a Fund or Portfolio on a loaned security from the borrower will not qualify
for the dividends-received deduction. Such loans will be terminable at any time
upon specified notice. A Fund or Portfolio might experience risk of loss if the
institutions with which it has engaged in portfolio loan transactions breach
their agreements with such Fund or Portfolio. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delays in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower experience
financial difficulty. Loans will be made only to firms deemed by the advisers to
be of good standing and will not be made unless, in the judgment of the
advisers, the consideration to be earned from such loans justifies the risk.
Other Investment Companies. Apart from being able to invest all of their
investable assets in another investment company having substantially the same
investment objectives and policies, each Fund may invest up to 10% of its total
assets in shares of other investment companies when consistent with its
investment objective and policies, subject to applicable regulatory limitations.
For purposes of this restriction, a Mauritius Company will not be considered an
investment company. Additional fees may be charged by other investment
companies.
Unique Characteristics of Master/Feeder Fund Structure. Unlike other mutual
funds which directly acquire and manage their own portfolio securities, the
International Equity Fund invests all of its investable assets in the Portfolio,
a separate registered investment company. Therefore, a shareholder's interest in
the Portfolio's securities is indirect. In addition to selling a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, other investors investing in the Portfolio
are not be required to sell their shares at the same public offering prices as
the Fund, and may bear different levels of ongoing expenses than the Fund.
Shareholders of the Fund should be aware that these differences may result in
differences in returns experienced in the different funds that invest in the
Portfolio. Such differences in return are also present in other mutual fund
structures.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
were to withdraw from the Portfolio, the remaining funds might experience higher
pro rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
However, the possibility also exists for traditionally structured funds which
have large or institutional investors. Funds with a greater pro rata ownership
in the Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Shares of the Fund for which no voting instructions have been received will be
voted in the same proportion as those shares for which voting instructions have
been received. Certain changes in the Portfolio's objective, policies or
restrictions may require the Trust to withdraw the Fund's interest in such the
Portfolio. Any withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution from the Portfolio). The Fund
could incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind may result in a less
diversified portfolio of investments or adversely affect the liquidity of the
Fund.
The same individuals who are disinterested Trustees of the Trust serve as
Trustees of the Portfolio. The Trustees of the Trust, including a majority of
the disinterested Trustees, have adopted procedures they believe are reasonably
appropriate to deal with any conflict of interest up to and including creating a
separate Board of Trustees.
Investors in the Fund may obtain information about whether an investment in
the Portfolio may be available through other funds by calling the Chase Vista
Service Center at 1-800-34-VISTA.
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Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Funds and the Portfolio
may employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of other instruments or assets, interest or currency exchange rates,
or indexes. For instance, derivatives include futures, options, forward
contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways: First,
to reduce risk by hedging (offsetting) an investment position. Second, to
substitute for another security particularly where it is quicker, easier and
less expensive to invest in derivatives. Lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction costs,
quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for a Fund or Portfolio.
Each Fund and Portfolio may invest its assets in derivative and related
instruments subject only to the Fund's or Portfolio's investment objective and
policies and the requirement that the Fund or Portfolio maintain segregated
accounts consisting of liquid assets, such as cash, U.S. Government securities,
or other high-grade debt obligations (or, as permitted by applicable regulation,
enter into certain offsetting positions) to cover its obligations under such
instruments with respect to positions where there is no underlying portfolio
asset so as to avoid leveraging the Fund or Portfolio.
The value of some derivative or similar instruments in which the Funds and
the Portfolio may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Funds and the Portfolio--the ability of a Fund or Portfolio to successfully
utilize these instruments may depend in part upon the ability of the advisers to
forecast interest rates and other economic factors correctly. If the advisers
inaccurately forecasts such factors and has taken positions in derivative or
similar instruments contrary to prevailing market trends, the Funds and the
Portfolio could be exposed to the risk of a loss. The Funds and/or the Portfolio
may not employ any or all of the strategies described herein, and no assurance
can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies and
related instruments the Funds and the Portfolio may employ along with risks or
special attributes associated with them. This discussion is intended to
supplement the Funds' current prospectuses as well as provide useful information
to prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments: There can be no guarantee
that there will be a correlation between price movements in a hedging vehicle
and in the portfolio assets being hedged. An incorrect correlation could result
in a loss on both the hedged assets in a Fund or Portfolio and the hedging
vehicle so that the portfolio return might have been greater had hedging not
been attempted. This risk is particularly acute in the case of "cross-hedges"
between currencies. The advisers may inaccurately forecast interest rates,
market values or other economic factors in utilizing a derivatives strategy. In
such a case, a Fund or Portfolio may have been in a better position had it not
entered into such strategy. Hedging strategies, while reducing risk of loss, can
also reduce the opportunity for gain. In other words, hedging usually limits
both potential losses as well as potential gains. The Funds and Portfolio are
not required to use any hedging strategies and strategies not involving hedging
involve leverage and may increase the risk to a Fund or Portfolio. Certain
strategies, such as yield enhancement, can have speculative characteristics and
may result in more risk to a Fund or Portfolio than hedging strategies using the
same instruments.
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There can be no assurance that a liquid market will exist at a time when a
Fund or Portfolio seeks to close out an option, futures contract or other
derivative or related position. Many exchanges and boards of trade limit the
amount of fluctuation permitted in option or futures contract prices during a
single day; once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition, certain
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. Finally, over-the-counter instruments typically do not have a
liquid market. Lack of a liquid market for any reason may prevent a Fund or
Portfolio from liquidating an unfavorable position. Activities of large traders
in the futures and securities markets involving arbitrage, "program trading,"
and other investment strategies may cause price distortions in these markets. In
certain instances, particularly those involving over-the-counter transactions,
forward contracts, foreign exchanges or foreign boards of trade, there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a default, a Fund or Portfolio
may experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of various
strategies involving derivatives and related instruments which may be used by a
Fund or Portfolio.
Options on Securities, Securities Indexes, Currencies and Debt Instruments.
A Fund or Portfolio may PURCHASE, SELL or EXERCISE call and put options on:
securities; securities indexes; currencies; or debt instruments. Specifically,
each Fund and Portfolio may (i) purchase, write and exercise call and put
options on securities and securities indexes (including using options in
combination with securities, other options or derivative instruments), (ii)
enter into swaps, futures contracts and options on futures contracts, (iii)
employ forward currency and interest rate contracts and (iv) purchase and sell
structured products, which are instruments designed to restructure or reflect
the characteristics of certain other investments.
Although in most cases these options will be exchange-traded, the Funds and
the Portfolio may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities a Fund or Portfolio intends to purchase
pending its ability to invest in such securities in an orderly manner. A Fund or
Portfolio may also use combinations of options to minimize costs, gain exposure
to markets or take advantage of price disparities or market movements. For
example, a Fund or Portfolio may sell put or call options it has previously
purchased or purchase put or call options it has previously sold. These
transactions may result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. A Fund or Portfolio may
write a call or put option in order to earn the related premium from such
transactions. Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of a similar option. The Funds will not write
uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, a
Fund or Portfolio writing a covered call (i.e., where the underlying securities
are held by the Fund or Portfolio) has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but has retained the risk of loss should
the price of the underlying securities decline. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities at the
exercise price.
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If a put or call option purchased by a Fund or Portfolio is not sold when
it has remaining value, and if the market price of the underlying security, in
the case of a put, remains equal to or greater than the exercise price or, in
the case of a call, remains less than or equal to the exercise price, such Fund
or Portfolio will lose its entire investment in the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund or Portfolio seeks to close out an
option position. Furthermore, if trading restrictions or suspensions are imposed
on the options markets, a Fund or Portfolio may be unable to close out a
position.
Futures Contracts and Options on Futures Contracts. A Fund on Portfolio may
purchase or sell: interest-rate futures contracts; stock index futures
contracts; foreign currency futures contracts; futures contracts on specified
instruments or indices; and options on these futures contracts ("futures
options").
The futures contracts and futures options may be based on various
instruments or indices in which the Funds and the Portfolio may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
a Fund or Portfolio may sell a futures contract--or buy a futures option--to
protect against a decline in value, or reduce the duration, of portfolio
holdings. Likewise, these instruments may be used where a Fund or Portfolio
intends to acquire an instrument or enter into a position. For example, a Fund
or Portfolio may purchase a futures contract--or buy a futures option--to gain
immediate exposure in a market or otherwise offset increases in the purchase
price of securities or currencies to be acquired in the future. Futures options
may also be written to earn the related premiums.
When writing or purchasing options, the Funds and the Portfolio may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may entail
additional risks in certain instances. The Funds and the Portfolio may engage in
cross-hedging by purchasing or selling futures or options on a security or
currency different from the security or currency position being hedged to take
advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds and the
Portfolio will only enter into futures contracts or options or futures contracts
which are traded on a U.S. or foreign exchange or board of trade, or similar
entity, or quoted on an automated quotation system.
Forward Contracts. Each Fund and Portfolio may enter into forward
contracts. A Fund or Portfolio may use foreign currency and interest-rate
forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. The Funds and the
Portfolio may invest in securities denominated in foreign currencies and may, in
addition to buying and selling foreign currency futures contracts and options on
foreign currencies and foreign currency futures, enter into forward foreign
currency exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be a fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, a Fund or Portfolio
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"locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, a Fund
or Portfolio reduces its exposure to changes in the value of the currency it
will deliver and increases its exposure to changes in the value of the currency
it will exchange into. The effect on the value of a Fund or Portfolio is similar
to selling securities denominated in one currency and purchasing securities
denominated in another. Transactions that use two foreign currencies are
sometimes referred to as "cross-hedges."
A Fund or Portfolio may enter into these contracts for the purpose of
hedging against foreign exchange risk arising from investments or anticipated
investments in securities denominated in foreign currencies. A Fund or Portfolio
may also enter into these contracts for purposes of increasing exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from one
country to another.
A Fund or Portfolio may also use forward contracts to hedge against changes
in interest-rates, increase exposure to a market or otherwise take advantage of
such changes. An interest-rate forward contract involves the obligation to
purchase or sell a specific debt instrument at a fixed price at a future date.
Interest Rate and Currency Transactions. A Fund or Portfolio may employ
currency and interest rate management techniques, including transactions in
options (including yield curve options), futures, options on futures, forward
foreign currency exchange contracts, currency options and futures and currency
and interest rate swaps. The aggregate amount of a Fund's or Portfolio's net
currency exposure will not exceed the total net asset value of its portfolio.
However, to the extent that a Fund or Portfolio is fully invested while also
maintaining currency positions, it may be exposed to greater combined risk.
The Funds and the Portfolio will only enter into interest rate and currency
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund or Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. Interest rate and currency swaps do not involve the
delivery of securities, the underlying currency, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate and
currency swaps is limited to the net amount of interest or currency payments
that a Fund or Portfolio is contractually obligated to make. If the other party
to an interest rate or currency swap defaults, a Fund's or Portfolio's risk of
loss consists of the net amount of interest or currency payments that the Fund
or Portfolio is contractually entitled to receive. Since interest rate and
currency swaps are individually negotiated, the Funds and the Portfolio expect
to achieve an acceptable degree of correlation between their portfolio
investments and their interest rate or currency swap positions.
A Fund or Portfolio may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate.
A Fund or Portfolio may purchase or sell without limitation as to a
percentage of its assets forward foreign currency exchange contracts when the
advisers anticipate that the foreign currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not held by such Fund or Portfolio. In
addition, a Fund or Portfolio may enter into forward foreign currency exchange
contracts in order to protect against adverse changes in future foreign currency
exchange rates. A Fund or Portfolio may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if its advisers believe that
there is a pattern of correlation between the two currencies. Forward contracts
may reduce the potential gain from a positive change in the relationship between
the U.S. Dollar and foreign currencies. Unanticipated changes in currency prices
may result in poorer overall performance for a Fund or Portfolio than if it had
not entered into such contracts. The use of foreign currency forward contracts
will not eliminate fluctuations in the underlying U.S. dollar equivalent value
of the prices of or rates of return on a Fund's or Portfolio's foreign currency
denominated portfolio securities and the use of such techniques will subject the
Fund or Portfolio to certain risks.
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The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Fund or Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices, and this will limit a Fund's or Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to a Fund's or Portfolio's use of cross-hedges, there can be no assurance
that historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying a Fund's or Portfolio's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's or Portfolio's
assets that are the subject of such cross-hedges are denominated.
A Fund or Portfolio may enter into interest rate and currency swaps to the
maximum allowed limits under applicable law. A Fund or Portfolio will typically
use interest rate swaps to shorten the effective duration of its portfolio.
Interest rate swaps involve the exchange by a Fund or Portfolio with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of their respective rights to make or receive payments in
specified currencies.
Structured Products. Each Fund and Portfolio may invest in structured
products. Structured products are interests in entities organized and operated
solely for the purpose of restructuring the investment characteristics of
certain other investments. This type of restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that entity of
one or more classes of securities ("structured products") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
products to create securities with different investment characteristics such as
varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured products is dependent on
the extent of the cash flow on the underlying instruments. A Fund or Portfolio
may invest in structured products which represent derived investment positions
based on relationships among different markets or asset classes.
A Fund or Portfolio may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by a
formula to the price of an underlying instrument. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities where the value of
the investment position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective securities. When
a Fund or Portfolio invests in notes linked to the price of an underlying
instrument, the price of the underlying security is determined by a multiple
(based on a formula) of the price of such underlying security. A structured
product may be considered to be leveraged to the extent its interest rate varies
by a magnitude that exceeds the magnitude of the change in the index rate of
interest. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Because certain structured
products of the type in which a Fund or Portfolio may invest may involve no
credit enhancement, the credit risk of those structured products generally would
be equivalent to that of the underlying instruments. A Fund or Portfolio may
invest in a class of structured products that
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is either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured products typically have higher yields and present
greater risks than unsubordinated structured products. Although a Fund's or
Portfolio's purchase of subordinated structured products would have similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of a Fund's or
Portfolio's fundamental investment limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, an investment in these
structured products may be limited by the restrictions contained in the 1940
Act. Structured products are typically sold in private placement transactions,
and there currently is no active trading market for structured products. As a
result, certain structured products in which a Fund or Portfolio invests may be
deemed illiquid and subject to its limitation on illiquid investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions on the Use of Futures and Option Contracts. None of
the Funds is a "commodity pool" (i.e., a pooled investment vehicle which trades
in commodity futures contracts and options thereon and the operator of which is
registered with the CFTC) and futures contracts and futures options will be
purchased, sold or entered into only for bona fide hedging purposes, provided
that a Fund may enter into such transactions for purposes other than bona fide
hedging if, immediately thereafter, the sum of the amount of its initial margin
and premiums on open contracts and options would not exceed 5% of the
liquidation value of the Fund's portfolio, provided, further, that, in the case
of an option that is in-the-money, the in-the-money amount may be excluded in
calculating the 5% limitation.
When a Fund or Portfolio purchases a futures contract, an amount of cash or
cash equivalents or high quality debt securities will be deposited in a
segregated account with such Fund's or Portfolio's custodian or sub-custodian so
that the amount so segregated, plus the initial deposit and variation margin
held in the account of its broker, will at all times equal the value of the
futures contract, thereby insuring that the use of such futures is unleveraged.
Investment Restrictions
The Funds and the Portfolio have adopted the following investment
restrictions which may not be changed without approval by a "majority of the
outstanding shares" of a Fund or Portfolio which, as used in this Statement of
Additional Information, means the vote of the lesser of (i) 67% or more of the
shares of a Fund or total beneficial interests of a Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of a Fund or
total beneficial interests of the Portfolio are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of a Fund or total beneficial
interests of the Portfolio.
Whenever the Trust is requested to vote on a fundamental policy of the
Portfolio, the Trust will hold a meeting of shareholders of the International
Equity Fund and will cast its votes as instructed by the shareholders of such
Fund.
With respect to the International Equity Fund, it is a fundamental policy
that when the Fund holds no portfolio securities except interests in the
Portfolio, the Fund's investment objective and policies shall be identical to
the Portfolio's investment objective and policies, except for the following: the
Fund (1) may invest more than 10% of its net assets in the securities of a
registered investment company, (2) may hold more than 10% of the voting
securities of a registered investment company, and (3) will concentrate its
investments in the investment company. It is a fundamental investment policy of
the Fund that when the Fund holds only
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portfolio securities other than interests in the Portfolio, the Fund's
investment objective and policies shall be identical to the investment objective
and policies of the Portfolio at the time the assets of the Fund were withdrawn
from the Portfolio.
Each Fund and Portfolio may not:
(1) borrow money, except that each Fund and the Portfolio may borrow
money for temporary or emergency purposes, or by engaging in reverse
repurchase transactions, in an amount not exceeding 33-1/3% of the value of
its total assets at the time when the loan is made and may pledge, mortgage
or hypothecate no more than 1/3 of its net assets to secure such
borrowings. Any borrowings representing more than 5% of total assets must
be repaid before the Fund or Portfolio may make additional investments;
(2) make loans, except that each Fund and the Portfolio may: (i)
purchase and hold debt instruments (including without limitation, bonds,
notes, debentures or other obligations and certificates of deposit,
bankers' acceptances and fixed time deposits) in accordance with its
investment objectives and policies; (ii) enter into repurchase agreements
with respect to portfolio securities; and (iii) lend portfolio securities
with a value not in excess of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's or Portfolio's total assets would be
invested in the securities of companies whose principal business activities
are in the same industry. Notwithstanding the foregoing, with respect to a
Fund's or Portfolio's permissible futures and options transactions in U.S.
Government securities, positions in such options and futures shall not be
subject to this restriction;
(4) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments but this shall not prevent
a Fund or Portfolio from (i) purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities or (ii) engaging in forward purchases or sales of
foreign currencies or securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Fund or Portfolio from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real estate
business). Investments by a Fund or Portfolio in securities backed by
mortgages on real estate or in marketable securities of companies engaged
in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund or Portfolio may engage in transactions that may result in
the issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order; (b)
a Fund or Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and (c)
subject to the restrictions set forth above, a Fund or Portfolio may borrow
money as authorized by the 1940 Act. For purposes of this restriction,
collateral arrangements with respect to permissible options and futures
transactions, including deposits of initial and variation margin, are not
considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as a
Fund or Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, each of the Southeast Asian
Fund, Japan Fund and European Fund may not:
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(8) make or guarantee loans to any person or otherwise become liable
for or in connection with any obligation or indebtedness of any person
without the prior written consent of the Trustees, provided that for
purposes of this restriction the acquisition of bonds, debentures, or other
corporate debt securities and investments in government bonds, short-term
commercial paper, certificates of deposit and bankers' acceptances shall
not be deemed to be the making of a loan;
(9) invest in securities which are not traded or have not sought a
listing on a stock exchange, over-the-counter market or other organized
securities market that is open to the international public and on which
securities are regularly traded if, regarding all such securities, more
than 10% of its total net assets would be invested in such securities
immediately after and as a result of such transaction;
(10) deal in put options, write or purchase call options, including
warrants, unless such options or warrants are covered and are quoted on a
stock exchange or dealt in on a recognized market, and, at the date of the
relevant transaction: (i) call options written do not involve more than
25%, calculated at the exercise price, of the market value of the
securities within the Fund's portfolio excluding the value of any
outstanding call options purchased, and (ii) the cost of call options or
warrants purchased does not exceed, in terms of premium, 2% of the value of
the net assets of the Fund; or
(11) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer
to be held by the Fund.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, each Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (2) above, loan participations are
considered to be debt instruments. For purposes of investment restriction (5)
above, real estate includes Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry." Investment restriction (3) above, however, is not applicable to
investments by a Fund or Portfolio in municipal obligations where the issuer is
regarded as a state, city, municipality or other public authority since such
entities are not members of an "industry." Supranational organizations are
collectively considered to be members of a single "industry" for purposes of
restriction (3) above.
In addition, each Fund and the Portfolio is subject to the following
nonfundamental restrictions which may be changed without shareholder approval:
(1) The International Equity Fund and the Portfolio may not, with
respect to 50% of its assets, hold more than 10% of the outstanding voting
securities of an issuer.
(2) Each Fund and the Portfolio may not make short sales of
securities, other than short sales "against the box," or purchase
securities on margin except for short-term credits necessary for clearance
of portfolio transactions, provided that this restriction will not be
applied to limit the use of options, futures contracts and related options,
in the manner otherwise permitted by the investment restrictions, policies
and investment program of a Fund or Portfolio. No Fund or Portfolio has the
current intention of making short sales against the box.
(3) Each Fund and the Portfolio may not purchase or sell interests in
oil, gas or mineral leases.
(4) Each Fund and the Portfolio may not invest more than 15% of its
net assets in illiquid securities.
(5) Each Fund and the Portfolio may not write, purchase or sell any
put or call option or any combination thereof, provided that this shall not
prevent (i) the writing, purchasing or selling of puts,
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calls or combinations thereof with respect to portfolio securities or (ii)
with respect to a Fund's or Portfolio's permissible futures and options
transactions, the writing, purchasing, ownership, holding or selling of
futures and options positions or of puts, calls or combinations thereof
with respect to futures.
(6) Except as specified above, each Fund and the Portfolio may invest
in the securities of other investment companies to the extent permitted by
applicable Federal securities law; provided, however, that a Mauritius
holding company (a "Mauritius Portfolio Company") will not be considered an
investment company for this purpose.
In addition, each of the Southeast Asian Fund, Japan Fund and European Fund
is subject to the following nonfundamental restrictions which may be changed
without shareholder approval:
(7) The value of a Fund's investments in holdings of options and
warrants (other than those held for hedging purposes) may not exceed 15% of
the total net asset value of the Fund.
(8) Each Fund may not make any investment in assets that involve
assumption of any liability that is unlimited, or acquire any investments
that are for the time being nil paid or partly paid, unless according to
the terms of the issue thereof any call to be made thereon could be met in
full out of cash by the Fund's portfolio.
(9) Each Fund may not sell, purchase or loan securities (excluding
shares in the Fund) or grant or receive a loan or loans to or from the
adviser, corporate and domicillary agent, or paying agent, the distributors
and the authorized agents or any of their directors, officers or employees
or any of their major shareholders (meaning a shareholder who holds, in his
own or other name (as well as a nominee's name), more than 10% of the total
issued and outstanding shares of stock of such company) acting as
principal, or for their own account, unless the transaction is made within
the other restrictions set forth above and either (i) at a price determined
by current publicly available quotations, or (ii) at competitive prices or
interest rates prevailing from time to time on internationally recognized
securities markets or internationally recognized money markets.
For purposes of the Funds' and Portfolio's investment restrictions,
the issuer of a tax-exempt security is deemed to be the entity (public or
private) ultimately responsible for the payment of the principal of and
interest on the security.
With respect to each of the Funds, as a matter of nonfundamental
policy, to the extent permitted under applicable law, the above
restrictions do not apply to the following investments ("OECD
investments"): (i) any security issued by or the payment of principal and
interest on which is guaranteed by the government of any member state of
the Organization for Economic Cooperation and Development ("OECD country");
(ii) any fixed income security issued in any OECD country by any public or
local authority or nationalized industry or undertaking of any OECD country
or anywhere in the world by the International Bank for Reconstruction and
Development, European Investment Bank, Asian Development Bank or any body
which is, in the Trustees' opinion, of similar standing. However, no
investment may be made in any OECD investment of any one issue if that
would result in the value of a Fund's holding of that issue exceeding 30%
of the net asset value of the Fund and, if the Fund's portfolio consists
only of OECD investments, those OECD investments shall be of at least six
different issues.
In order to permit the sale of its shares in certain states, a Fund or
Portfolio may make commitments more restrictive than the investment
policies and limitations described above and in its Prospectus. Should a
Fund or Portfolio determine that any such commitment is no longer in its
best interests, it will revoke the commitment by terminating sales of its
shares in the state involved. In order to comply with certain regulatory
policies, as a matter of operating policy, each Fund and the Portfolio will
not: (i) invest more
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than 5% of its assets in companies which, including predecessors, have a
record of less than three years' continuous operation; provided that this
restriction shall not apply to investments in a Mauritius Portfolio
Company, (ii) invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets, and no more than 2% of such
value may be warrants which are not listed on the New York or American
Stock Exchanges, or (iii) purchase or retain in its portfolio any
securities issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Trust or Portfolio, or
is an officer or director of the adviser, if after the purchase of the
securities of such issuer by the Fund or Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities,
or both, all taken at market value, of such issuer, and such persons owning
more than 1/2 of 1% of such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all taken at market
value; provided, however, that this restriction shall not apply to
investments in a Mauritius Portfolio Company.
If a percentage or rating restriction on investment or use of assets
set forth herein or in a Prospectus is adhered to at the time a transaction
is effected, later changes in percentage resulting from any cause other
than actions by a Fund or Portfolio will not be considered a violation. If
the value of a Fund's or Portfolio's holdings of illiquid securities at any
time exceeds the percentage limitation applicable at the time of
acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
Special Considerations
Investing in Southeast Asia. Investing in securities of Southeast Asian
countries entails risks of nationalization, expropriation or confiscatory
taxation, political changes, government regulation, social instability or
diplomatic developments that could adversely impact a Southeast Asian country or
the Fund's investment in that country.
Southeast Asian Fund. Southeast Asian economies and financial markets have
experienced significant volatility in recent years. Many of the countries of
Southeast Asia are developing both economically and politically. Southeast Asian
countries may have relatively unstable governments, economies based on only a
few commodities or industries, and securities markets trading infrequently or in
low volumes. Securities of issuers located in some Southeast Asian countries
tend to have volatile prices and such may offer significant potential for loss
as well as gain. Further, certain companies in Southeast Asia may not have
firmly established product markets, may lack depth of management, or may be more
vulnerable to political or economic developments such as nationalization of
their own industries.
The Fund is susceptible to political and economic factors affecting issuers
in Southeast Asian countries. In addition, although this Fund will not invest in
Japanese companies, some Southeast Asian economies are directly affected by
Japanese capital investment in the region, by Japanese consumer demands and by
the state of the Japanese economy.
Southeast Asian securities are normally denominated and traded in the
currencies of Southeast Asian countries. Accordingly, changes in the values of
these currencies against the U.S. dollar will result in corresponding changes in
the U.S. dollar value of the Fund's assets denominated in those currencies. Many
of the currencies of Southeast Asian countries have recently experienced extreme
volatility relative to the United States dollar. In particular, Thailand,
Indonesia, the Philippines and South Korea have experienced currency crises of a
magnitude warranting assistance from the International Monetary Fund.
Devaluations in the currencies in which the Fund's portfolio securities are
denominated will adversely affect the Fund's net asset value.
Trading volumes on Southeast Asian stock exchanges, although increasing,
are substantially less than in the U.S. stock market, and the stock markets of
Southeast Asian countries have exhibited extreme volatility. Further, securities
of some Southeast Asian companies are less liquid and more volatile than secu-
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rities of comparable U.S. companies. Fixed commissions on Southeast Asian stock
exchanges are generally higher than negotiated commissions in U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transaction and me be able to purchase securities in which the Fund
may invest on other stock exchanges where commissions are negotiable.
These considerations are more of a concern in developing countries. For
example, the possibility of revolution and the dependence on foreign economic
assistance may be greater in these countries than in developed countries. The
management of the Fund seeks to mitigate the risks associated with the foregoing
considerations through continuous professional management.
Investing in Japan. Japan currently has the second largest GDP in the
world. The Japanese economy has grown substantially in the last three decades.
During the last seven years, however, despite small rallies and market gains,
Japan has been plagued with economic sluggishness. Economic conditions have
weakened considerably in Japan since October 1992. The boom in Japan's equity
and property markets during the expansion of the late 1980s supported high rates
of investment and consumer spending on durable goods, but both of these
components of demand have retreated sharply following the decline in asset
prices. It is suffering through its worst recession in two decades. Profits have
fallen sharply, unemployment has reached a historical high of 3.2% and consumer
confidence is low. The banking sector continues to suffer from non-performing
loans. Nine discount rate cuts since its 6% peak in 1991, a succession of fiscal
stimulus packages, support plans for a debt-burdened financial system and
spending for reconstruction following the Kobe earthquake should help contain
the recessionary forces, but substantial uncertainties remain. The general
government position has deteriorated as a result of weakening economic growth,
as well as stimulative measures taken recently to support economic activity and
to restore financial stability.
In addition to a cyclical downturn, Japan is suffering through structural
adjustments. The Japanese have seen a deterioration of their competitiveness due
to high wages, a string currency and structural rigidities. Japan has also
become a mature industrial economy and, as a result, will see its long-term
growth rate slow down over the next ten years. Finally, Japan is reforming its
political process and deregulating its economy. This has brought about turmoil,
uncertainty and a crisis of confidence.
Japan is heavily dependent upon international trade and, accordingly, has
been and may continue to be adversely affected by trade barriers and other
protectionist or retaliatory measures of, as well as economic conditions in the
U.S. and other countries with which it trades. Industry, the most important
sector of the economy, is heavily dependent on imported raw materials and fuels.
Japan's major industries are in the engineering, electrical, textile, chemical,
automobile, fishing and telecommunication fields. Japan imports iron ore,
copper, and many forest products. Only 19% of its land is suitable for
cultivation. Japan's agricultural economy is subsidized and protected. It is
about 50% self-sufficient in food production. Even though Japan produces a
minute rice surplus, it is dependent upon large imports of wheat, sorghum and
soybeans from other countries. Japan's high volume of exports such as
automobiles, machine tools and semiconductors have caused trade tensions with
other countries, particularly the United States. Some trading agreements between
the countries have reduced the friction caused by the current trade imbalance.
The relaxing of official and de facto barriers to imports, or hardships
created by any pressure brought by trading partners, could adversely affect
Japan's economy. A substantial rise in world oil or commodity prices could also
have a negative effect on the country's economy. The strength of the yen itself
may prove an impediment to string continued exports, because of the high prices
its means for Japanese goods sold in other countries. Because the Japanese
economy is so dependent on exports, any fall-off in exports may be seen as a
sign of economic weakness, which may adversely affect the market and the Fund.
Japanese securities are normally denominated and traded in the Japanese
yen. Accordingly, changes in the value of the yen, or other the currencies of
other securities in which the Fund has invested, against the U.S. dollar will
result in corresponding changes in the U.S. dollar value of the Fund's assets
denominated
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in the yen, or such other currency. Historically, over a number of years, the
yen has generally appreciated in relation to the dollar. Nonetheless, the yen
has recently experienced increasing volatility relative to the U.S. dollar,
including periods of devaluation. The Japanese yen may also be adversely
affected by currency difficulties of other countries in the Southeast Asian
region. Devaluations in the yen, and any other currencies in which the Fund's
portfolio securities are denominated, will adversely affect the Fund's net asset
value.
In 1990, the Japanese stock market, as measured by the Tokyo Stock Price
Index (TOPIX), began a spectacular decline which continued through 1992. Since
then, the market has failed to rebound and continues to exhibit substantial
volatility. The decline in the Japanese securities markets has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those of the United States, even
after recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
While the Japanese governmental system seems stable, the country's politics
have been unpredictable in recent years. The economic crisis of 1990-92 brought
the downfall of the conservative Liberal Democratic Party, which had ruled since
1955. Since then, the country has seen a series of unstable multi-party
coalitions and several prime ministers come and go, because of politics as well
as personal scandals. While there appears to be no reason for anticipating civil
unrest, its is impossible to know when the political instability will end and
what trade and fiscal policies might be pursued by the government that emerges.
A seven-year decline of the Tokyo stock market has made the country's banks
and financial institutions vulnerable because of their large share portfolios,
and has left Japanese banks holding large numbers of non-performing loans. In
addition, the Japanese economy labors under a heavy government budget deficit
and historically low interest rates. As a result of these factors, several
high-profile bankruptcies of Japanese banks, brokerage firms and insurance
companies have occurred, and there can be no assurance that the number of such
bankruptcies will not increase. The economic difficulties of other countries in
the Southeast Asian region have adversely affected and may continue to adversely
affect the Japan's economy as many Japanese banks and companies have exposure to
the region and as the region's demand for Japanese exports fluctuates.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.
As in the United States and other markets, small company stocks are
typically more volatile than large company stocks, reacting more extremely to
good or bad news. Since Japan's market is dominated by large stocks (the average
company size in Japan is the largest anywhere in the world), the behavior of the
Japanese market in general and of the small-stock segment in particular may be
affected by the trading activity on a relatively small number of large-company
stocks to a much greater degree than is typically seen in the United States.
Further, during periods of economic difficulty, small companies can find it
harder to compete or survive. Since August 1990, the shares of smaller Japanese
companies have underperformed those of larger companies, as they tend to do in
periods of declining industrial production. However, the reverse trend tends to
apply in periods of economic recovery.
Investing in Europe. Investment in the securities of European countries may
entail risks relating to restrictions on foreign investment and on repatriation
of capital invested as well as risks relating to economic conditions of the
region.
The securities markets of many European countries are relatively small,
with the majority of market capitalization and trading volume concentrated in a
limited number of companies representing a small number of industries.
Consequently, the Fund's investment portfolio may experience greater price
volatility and
22
<PAGE>
significantly lower liquidity than a portfolio invested in equity securities of
U.S. companies. These markets may be subject to a greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the U.S. Securities
settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign investment in the securities markets of certain European countries
is restricted or controlled to varying degrees. These restrictions or controls
may at times limit or preclude investment in certain securities and may increase
the cost and expenses of the Fund, As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a particular company, or limit the
investment by foreign persons to only a specific class of securities of a
company which may have less advantageous terms than securities of the company
available for purchase by nationals. In addition, the repatriation of both
investment income and capital from certain of the countries is controlled under
regulations, including in some case the need for certain advance government
notification or authority. The Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation.
The economies of individual European countries may differ favorably or
unfavorably from the U.S economy in such respects as growth of gross domestic
product or gross national product, as the case may be, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. In addition, securities traded in certain emerging European securities
trading markets may be subject to risks due to inexperience of financial
intermediaries, the lack of modern technology, the lack of sufficient capital
base to expand business operations and the possibility of permanent or temporary
termination of trading and greater spreads between bid and asked prices for
securities in such markets.
Investing in Latin America. Investing in securities of Latin American
Issuers may entail risks relating to the potential political and economic
instability of certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities market of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the Unites States. Disclosure and regulatory standards are in many
respects less stringent that Unites States standards. Furthermore, there is a
lower level of monitoring and regulation of the markets and the activities of
investors in such markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of Unites States issuer could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The Latin American Equity Fund invests insecurities denominated in
currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the Unites States dollar will result in corresponding
changes in the United States dollar value of the Fund's assets denominated in
those currencies.
Some Latin American countries also may have managed currencies, which are
not free floating against the Unites States dollar. In addition, there is risk
that certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the Unites States dollar. Amy devaluations in the
currencies win which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
23
<PAGE>
The economies of individual Latin American countries may differ favorably
or unfavorably from the United States economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Fund at a higher rate
than those imposed by other foreign countries. this may reduce the Fund's
investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain Latin American counties have declared moratoria on the payment
of principal and/or interest on outstanding debt. Investment in sovereign debt
can involve a high degree of risk. The governmental entity that controls the
repayment of sovereign debt may not be able to willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entities
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and the extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt say be collected in whole or in part.
Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron, ore, forestry, fishing, livestock and agriculture. The region
has a large population (roughly 300 million) representing a large domestic
market. economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in sumo was negative ) in the 1980's as a result of poor
economic policies, higher international interest rates, and the denial of access
to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in gross domestic product than the have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly rescheduled. Someway turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as he North American Free Trade Agreement ("NFTA"),
privatization, trade reform and fiscal and monetary reform are among the recent
steps taken to renew economic growth. External debt is being restructured and
flight capital (domestic
24
<PAGE>
capital that has left home country) has begun to return. Inflation control
efforts have also been implemented. Latin American equity markets can be
extremely volatile and in the past have shown little correlation with the United
States market. Currencies are typically weak, but most are now relatively free
floating, and it is not unusual for the currencies to undergo wide fluctuations
in value over short periods of time.
Lower Rated Securities. Each Fund and the Portfolio is permitted to invest
in non-investment grade securities. Such securities, though higher yielding, are
characterized by risk. Each Fund may invest in debt securities rated as low as
B- by Moody's or S&P or, if not rated, are determined to be of comparable
quality. Lower rated securities are securities such as those rated Ba by Moody's
or BB by S&P or as low as the lowest rating assigned by Moody's or S&P. They
generally are not meant for short-term investing and may be subject to certain
risks with respect to the issuing entity and to greater market fluctuation than
certain lower yielding, higher rated fixed income securities. Obligations rated
Ba by Moody's are judged to have speculative elements; their future cannot be
considered well assured and often the protection of interest and principal
payments may be very moderate. Obligations rated BB by S&P are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to default than other speculative grade debt,
they face major ongoing uncertainties or exposure to adverse business, financial
or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. Obligations rated C by Moody's are regarded as
having extremely poor prospects of ever attaining any real investment standing.
Obligations rated D by S&P are in default and the payment of interest and/or
repayments of principal is in arrears. Such obligations, though high yielding,
are characterized by great risk. See "Appendix B" herein for a general
description of Moody's and S&P ratings.
The ratings of Moody's and S&P represent their opinions as to the quality
of the securities which they undertake to rate. The ratings are relative and
subjective and, although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market risk of these
securities. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, the Investment Adviser will also evaluate
these securities and the ability of the issuers of such securities to pay
interest and principal. Each Fund or the Portfolio will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer. In this evaluation, the Investment Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund's or
Portfolio's ability to achieve its investment objective may be more dependent on
the Investment Adviser's credit analysis than might be the case for funds that
invested in higher rated securities. Once the rating of a security in the Fund's
or Portfolio's portfolio has been changed, the Investment Adviser will consider
all circumstances deemed relevant in determining whether the Fund or Portfolio
should continue to hold the security.
The market price and yield of debt securities rated Ba or lower by Moody's
and BB or lower by S&P are more volatile that those of higher rated securities.
Factors adversely affecting the market price and yield of these securities will
adversely affect a Fund's net asset value. It is likely that any economic
recession could disrupt severely the market for such securities and may have an
adverse impact on the value of such securities. In addition, it is likely that
any such economic downturn could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon and increase the
incidence for default for such securities.
The market values of certain lower rated debt securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates, and tend to be more sensitive to economic conditions than are
higher rated securities. Companies that issue such securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of these securities may experience financial
stress. During such periods, such issuers may not have sufficient revenues to
meet their interest
25
<PAGE>
payment obligations. The issuer's ability to service its debt obligations also
may be affected adversely by specific corporate developments or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss because of default by the issuer is
significantly greater for the holders of these securities because such
securities generally are unsecured and often are subordinated to other creditors
of the issuer.
Because there is no established retail secondary market for many of these
securities, the Investment Adviser anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it generally
is not as liquid as the secondary market for higher rated securities. The lack
of a liquid secondary market may have an adverse impact on market price and
yield and a Fund's ability to dispose of particular issues when necessary to
meet that Fund's liquidity needs or in response to a specific economic event
such as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for a Fund or Portfolio to obtain accurate market quotations for purposes of
valuing that Fund's or Portfolio's portfolio and calculating its net asset
value. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of these securities.
In such cases, judgment may play a greater role in valuation because less
reliable, objective data may be available.
A Fund or Portfolio may acquire these securities during an initial
offering. Such securities may involve special risks because they are new issues.
The Funds and Portfolio have no arrangement with any persons concerning the
acquisition of such securities, and the Investment Adviser will review carefully
the credit and other characteristics pertinent to such new issues.
Each Fund and Portfolio may invest in lower rated zero coupon securities
and pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds), which involve special considerations. These securities may be
subject to greater fluctuations in value due to changes in interest rates that
interest-bearing securities. These securities carry an additional risk in that,
unlike bonds which may interest throughout the period to maturity, the Funds
will realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Funds or Portfolio may
obtain no return at all on their investment. See "Tax Matters."
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund or Portfolio
are made by a portfolio manager who is an employee of the adviser or sub-adviser
to such Fund or Portfolio and who is appointed and supervised by senior officers
of such adviser or sub-adviser. Changes in a Fund's or Portfolio's investments
are reviewed by the Board of Trustees of the Trust or Portfolios. The portfolio
managers may serve other clients of the advisers in a similar capacity.
The frequency of a Fund's or Portfolio's portfolio transactions--the
portfolio turnover rate--will vary from year to year depending upon market
conditions. Because a high turnover rate may increase a Fund's or Portfolio's
transaction costs and the possibility of taxable short-term gains, as well as
make it more difficult for the Fund to qualify as a registered investment
company under federal tax law. Therefore, the advisers will weigh the added
costs of short-term investment against anticipated gains. Each Fund or Portfolio
will engage in portfolio trading if its advisers believe a transaction, net of
costs (including custodian charges), will help it achieve its investment
objective.
The portfolio turnover rates for the Funds for the fiscal years ended
October 31, 1997, 1998 and 1999 were as follows:
26
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
------ -------- --------
<S> <C> <C> <C>
European Fund 170% 183% 149%
Japan Fund 217% 212% 133%
Latin American Equity Fund* N/A 90% 80%
Southeast Asian Fund 234% 316% 248%
</TABLE>
----------
*Portfolio turnover for 1998 is computed from December 1, 1997 (commencement of
operations) through October 31, 1998.
The portfolio turnover rates for the International Equity Portfolio for the
fiscal years ended October 31, 1997, 1998 and 1999 were 199%, 182% and 153%,
respectively. The International Equity Fund invests all of its investable assets
in the Portfolio and does not invest directly in a portfolio of assets, and
therefore does not have reportable turnover rates.
Under the advisory agreement and the sub-advisory agreements, the adviser
and sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds and Portfolios. In assessing the
best overall terms available for any transaction, the adviser and sub-advisers
consider all factors they deem relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the adviser or
sub-advisers, and the reasonableness of the commissions, if any, both for the
specific transaction and on a continuing basis. The adviser and sub-advisers are
not required to obtain the lowest commission or the best net price for any Fund
or Portfolio on any particular transaction, and are not required to execute any
order in a fashion either preferential to any Fund or Portfolio relative to
other accounts they manage or otherwise materially adverse to such other
accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the adviser or
sub-adviser to a Fund or Portfolio normally seeks to deal directly with the
primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
adviser or sub-adviser on the tender of a Fund's or Portfolio's portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Funds and Portfolio by the adviser and
sub-advisers. At present, no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds and Portfolio to pay a broker-dealer which provides brokerage
and research services to the adviser or sub-advisers, the Funds or Portfolio
and/or other accounts for which they exercise investment discretion an amount of
commission for effecting a securities transaction for a Fund or Portfolio in
excess of the amount other broker-dealers would have charged for the transaction
if they determine in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
their overall responsibilities to accounts over which they exercise investment
discretion. Not all of such services are useful or of value in advising the
Funds and Portfolio. The adviser and sub-advisers report to the Board of
Trustees regarding overall commissions paid by the Funds and Portfolio and their
reasonableness in relation to the benefits to the Funds and Portfolio. The term
"brokerage and research services" includes advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, and the
availability of securities or of purchasers or sellers of securities, furnishing
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts, and effecting
securities transactions and performing functions incidental thereto such as
clearance and settlement.
The management fees that the Funds and Portfolio pay to the adviser will
not be reduced as a consequence of the adviser's or sub-advisers' receipt of
brokerage and research services. To the extent the Funds' or Portfolio's
portfolio transactions are used to obtain such services, the brokerage
commissions paid
27
<PAGE>
by the Funds or Portfolio will exceed those that might otherwise be paid by an
amount which cannot be presently determined. Such services generally would be
useful and of value to the adviser or sub-advisers in serving one or more of
their other clients and, conversely, such services obtained by the placement of
brokerage business of other clients generally would be useful to the adviser and
sub-advisers in carrying out their obligations to the Funds and Portfolio. While
such services are not expected to reduce the expenses of the adviser or
sub-advisers, they would, through use of the services, avoid the additional
expenses which would be incurred if they should attempt to develop comparable
information through their own staffs.
In certain instances, there may be securities that are suitable for one or
more of the Funds and Portfolio as well as one or more of the adviser's or
sub-adviser's, other clients. Investment decisions for the Funds and Portfolio
and for other clients are made with a view to achieving their respective
investment objectives. It may develop that the same investment decision is made
for more than one client or that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more Funds or
Portfolio or other clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Funds or Portfolio are concerned. However, it is believed that the
ability of the Funds and Portfolio to participate in volume transactions will
generally produce better executions for the Funds and Portfolio.
The International Equity Portfolio and the Funds paid brokerage commissions
as detailed below:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
10/31/97 10/31/98 10/31/99
-------- -------- --------
<S> <C> <C> <C>
International Equity Portfolio $222,212 $280,471 $204,705
European Fund 109,903 315,450 432,341
Japan Fund 78,861 54,469 31,083
Southeast Asian Fund 241,480 133,365 110,415
Latin American Equity Fund* N/A 59,858 28,645
</TABLE>
----------
*Brokerage commissions for 1998 are from December 1, 1997 (commencement of
operations) through October 31, 1998.
No portfolio transactions are executed with the advisers or a Shareholder
Servicing Agent, or with any affiliate of the advisers or a Shareholder
Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Performance is calculated separately for each
class of shares. Because such performance information is based on past
investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall
28
<PAGE>
Street Journal and The New York Times, or in local or regional publications, may
also be used in comparing the performance and yield of a Fund or its classes. A
Fund's performance may be compared with indices such as the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government Bond Index, the
Lehman Government Bond 1-3 Year Index and the Lehman Aggregate Bond Index; the
Morgan Stanley Capital International Europe Index (Europe Fund); the Tokyo Stock
Exchange (TOPIX) First Section Index (Japan Fund); the Morgan Stanley Capital
International (All Countries) Asia Pacific ex Japan Free Index (Southeast Asian
Fund); the Morgan Stanley Capital International Europe, Australia and Far East
Index (International Equity Portfolio); the S&P 500 Index, the Dow Jones
Industrial Average or any other commonly quoted index of common stock prices;
and the Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund
may, with proper authorization, reprint articles written about such Fund and
provide them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in a
Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class B
and Class C shares, the average annual total rate of return figures will assume
deduction of the applicable contingent deferred sales charge imposed on a total
redemption of shares held for the period. One-, five-, and ten-year periods will
be shown, unless the class has been in existence for a shorter-period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values of the classes of
shares of a Fund will vary based on market conditions, the current market value
of the securities held by a Fund and changes in the Fund's expenses. The
advisers, Shareholder Servicing Agents, the Administrator, the Distributor and
other service providers may voluntarily waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of a
Fund's operating expenses on a month-to-month basis. These actions would have
the effect of increasing the net income (and therefore the yield and total rate
of return) of the classes of shares of a Fund during the period such waivers are
in effect. These factors and possible differences in the methods used to
calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of the classes of shares of a Fund
to yields and total rates of return published for other investment companies and
other investment vehicles (including different classes of shares). The Trust is
advised that certain Shareholder Servicing Agents may credit to the accounts of
their customers from whom they are already receiving other fees amounts not
exceeding the Shareholder Servicing Agent fees received, which will have the
effect of increasing the net return on the investment of customers of those
Shareholder Servicing Agents. Such customers may be able to obtain through their
Shareholder Servicing Agents quotations reflecting such increased return.
Each Fund presents performance information for each class thereof since the
commencement of operations of that Fund rather than the date such class was
introduced. Performance information for each class introduced after the
commencement of operations of the related Fund is therefore based on the
performance history of a predecessor class. Performance information is restated
to reflect the current maximum front-end sales charge (in the case of Class A
Shares) or the maximum contingent deferred sales charge (in the case of Class B
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 a Fund.
29
<PAGE>
Advertisements for the Chase Vista Funds may include references to the
asset size of other financial products made available by Chase, such as the
offshore assets of other funds.
Total Rate of Return
A Fund's or class' total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share on the first day of such period, and (b)
subtracting 1 from the result. Any annualized total rate of return quotation
will be calculated by (x) adding 1 to the period total rate of return quotation
as calculated above, (y) raising such sum to a power which is equal to 365
divided by the number of days in such period, and (z) subtracting 1 from the
result.
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of
the Funds with other measures of investment return.
Average Annual Total Returns*
(excluding sales charges)
The average annual total rates of return for the following Funds,
reflecting the initial investment and assuming the reinvestment of all
distributions (but excluding the effects of any applicable sales charges), for
the one year period ended October 31, 1999 and for the period from commencement
of business operations of each such Fund to October 31, 1999, were as follows:
<TABLE>
<CAPTION>
Date of Date of
One Five Since Fund Class
Year Years Inception Inception Introduction
----------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
European Fund 11/2/95
A Shares 15.60% N/A 20.73% 11/2/95
B Shares 14.66% N/A 19.86% 11/3/95
C Shares 14.73% N/A 19.88% 11/9/98
Japan Fund 11/2/95
A Shares 53.51% N/A 1.54% 11/2/95
B Shares 52.69% N/A 0.82% 11/3/95
Southeast Asian Fund 11/2/95
A Shares 44.33% N/A (1.64%) 11/2/95
B Shares 43.14% N/A (2.42%) 11/3/95
International Equity Fund 12/31/92
A Shares 19.09% 5.11% 6.99% 12/31/92
B Shares** 18.49% 4.62% 6.52% 11/4/93
Latin American Equity Fund 12/1/97
A Shares 6.58% N/A (23.16%) 12/1/97
B Shares** 5.99% N/A (23.59%) 3/24/98
</TABLE>
----------
*The ongoing fees and expenses borne by Class B and Class C Shares are greater
than those borne by Class A Shares. As indicated above, the performance
information for each class introduced after the commencement of operations of
the related Fund is based on the performance history of a predecessor class
and historical expenses have not been restated, for periods during which the
performance information
30
<PAGE>
for a particular class is based upon the performance history of a predecessor
class, to reflect the ongoing expenses currently borne by the particular
class. Accordingly, the performance information presented in the table above
and in each table that follows may be used in assessing each Fund's
performance history but does not reflect how the distinct classes would have
performed on a relative basis prior to the introduction of those classes,
which would require an adjustment to the ongoing expenses.
The performance quoted reflects fee waivers that subsidize and reduce the
total operating expenses of certain Funds (or classes thereof). Returns on
these Funds (or classes) would have been lower if there were not such waivers.
With respect to certain Funds, Chase and/or other service providers are
obligated to waive certain fees and/or reimburse certain expenses for a stated
period of time. In other instances, there is no obligation to waive fees or to
reimburse expenses. Each Fund's Prospectus discloses the extent of any
agreements to waive fees and/or reimburse expenses.
**Performance information presented in the table above and in each table that
follows for this class of this Fund prior to the date the class was introduced
does not reflect distribution fees and certain other expenses borne by this
class which, if reflected, would reduce the performance quoted.
Average Annual Total Returns*
(including sales charges)
With the current maximum respective sales charges of 5.75% for Class A
shares, and the currently applicable CDSC for Class B and Class C shares for
each period length, reflected, the total rates of return would be as follows:
<TABLE>
<CAPTION>
One Five Since
Year Years Inception
---------- ---------- ------------
<S> <C> <C> <C>
European Fund
A Shares 8.95% N/A 18.96%
B Shares 9.66% N/A 19.42%
C Shares 13.73% N/A 19.88%
Japan Fund
A Shares 44.68% N/A 0.04%
B Shares 47.69% N/A 0.11%
Southeast Asian Fund
A Shares 36.04% N/A (3.09%)
B Shares 38.14% N/A (3.12%)
International Equity Fund
A Shares 12.25% 3.87% 6.06%
B Shares 13.49% 4.28% 6.52%
Latin American Equity Fund
A Shares 0.45% N/A (25.50%)
B Shares 0.99% N/A (25.17%)
</TABLE>
----------
*See the notes to the preceding table.
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of a
Fund with other measures of investment return.
31
<PAGE>
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.
The yields of all share classes of the International Equity Fund, European
Fund, Japan Fund and Southeast Asian Fund for the thirty-day period ended
October 31, 1999 were 0.00%. The yields for Latin American Equity Fund Class A
and Class B shares for the thirty-day period ended October 31, 1999 were 1.12%
and 0.32%, respectively.
Non-Standardized Performance Results*
(excluding sales charges)
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in the following Funds (excluding the effects of any
applicable sales charges) for the period from the commencement date of business
for each Fund, with values reflecting an assumption that capital gain
distributions and income dividends, if any, have been invested in additional
shares of the same class. From time to time, the Funds may provide these
performance results in addition to the total rate of return quotations required
by the Securities and Exchange Commission. As discussed more fully in the
Prospectuses, neither these performance results, nor total rate of return
quotations, should be considered as representative of the performance of the
Funds in the future. These factors and the possible differences in the methods
used to calculate performance results and total rates of return should be
considered when comparing such performance results and total rate of return
quotations of the Funds with those published for other investment companies and
other investment vehicles.
<TABLE>
<CAPTION>
Total
Value
----------
<S> <C>
International Equity Fund
A Shares $15,864
B Shares 15,397
European Fund
A Shares 21,247
B Shares 20,638
C Shares 20,651
Japan Fund
A Shares 10,629
B Shares 10,334
Southeast Asian Fund
A Shares 9,359
B Shares 9,067
Latin American Equity Fund
A Shares 6,039
B Shares 5,973
</TABLE>
----------
*See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of $10,000
in a particular class of a Fund for the period from the Fund's commencement of
operations, although the particular class may have been introduced at a
subsequent date. As indicated above, performance information for each class
introduced after the commencement of operations of the related Fund is based on
the performance history of a predecessor class,
32
<PAGE>
and historical expenses have not been restated, for periods during which the
performance information for a particular class is based upon the peformance
history of a predecessor class, to reflect the ongoing expenses currently borne
by the particular class.
Non-Standardized Performance Results*
(including sales charges)
With the current maximum sales charge of 5.75% for Class A Shares and the
currently applicable CDSC for Class B and Class C Shares for each period length,
the performance periods for the same periods would be as follows:
<TABLE>
<CAPTION>
Total
Value
----------
<S> <C>
International Equity Fund
A Shares $14,952
B Shares 15,397
European Fund
A Shares 20,025
B Shares 20,338
C Shares 20,651
Japan Fund
A Shares 10,017
B Shares 10,045
Southeast Asian Fund
A Shares 8,821
B Shares 8,811
Latin American Equity Fund
A Shares 5,691
B Shares 5,739
</TABLE>
----------
*See the notes to the table captioned "Average Annual Total Return (excluding
sales charges)" above. The table above assumes an initial investment of $10,000
in a particular class of a Fund for the period from the Fund's commencement of
operations, although the particular class may have been introduced at a
subsequent date. As indicated above, performance information for each class
introduced after the commencement of operations of the related Fund is based on
the performance history of a predecessor class, and historical expenses have not
been restated, for periods during which the performance information for a
particular class is based upon the peformance history of a predecessor class, to
reflect the ongoing expenses currently borne by the particular class.
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Martin Luther King, Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Since the Funds and the Portfolio invest in securities primarily
listed on foreign exchanges which trade on Saturdays or other customary United
States national business holidays on which the Funds and the Portfolio do not
price, the Funds' and the Portfolio's portfolios will trade and the net asset
value of the Funds' shares may be significantly affected on days on which the
investor has no access to the Fund.
Each 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
33
<PAGE>
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 Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received by
the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application. The Telephone Exchange
Privilege is not available if you were issued certificates for shares that
remain outstanding.
An investor can buy Fund shares three ways: (i) through an investment
representative; (ii) through the Fund's distributor by calling the Chase Vista
Service Center or (iii) through the Systematic Investment Plan. Upon receipt of
any instructions or inquiries by telephone from a shareholder or, if held in a
joint account, from either party, or from any person claiming to be the
shareholder, a Fund or its agent is authorized, without notifying the
shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest account application or
other written request for services, including purchasing, exchanging, or
redeeming shares of such Fund and depositing and withdrawing monies from the
bank account specified in the Bank Account Registration section of the
shareholder's latest account application or as otherwise properly specified to
such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
With respect to the International Equity Fund, the Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the
corresponding Portfolio and therefore shareholders of the Fund that receive
redemptions in kind will receive portfolio securities of such Portfolio and in
no case will they receive a security issued by the Portfolio. The Portfolio has
advised the Trust that the Portfolio will not redeem in kind except in
circumstances in which the corresponding Fund is permitted to redeem in kind or
unless requested by the corresponding Fund.
34
<PAGE>
Each investor in a Portfolio, including the corresponding Fund, may add to
or reduce its investment in the Portfolio on each day that the New York Stock
Exchange is open for business. Once on each such day, based upon prices
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time, however, options are priced at 4:15 p.m.
Eastern time) the value of each investor's interest in a Portfolio will be
determined by multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions which are to be effected on that day will
then be effected. The investor's percentage of the aggregate beneficial
interests in a Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of such time on such day plus or minus, as the case may be,
the amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of such time on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of such time on the following day the
New York Stock Exchange is open for trading.
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
35
<PAGE>
specified in the Statement will be held in escrow by the Transfer Agent in Class
A shares (or if a Fund has only one class and is subject to an initial sales
charge, shares of such Fund) registered in the shareholder's name in order to
assure payment of the proper sales charge. If total purchases pursuant to the
Statement (less any dispositions and exclusive of any distributions on such
shares automatically reinvested) are less than the amount specified, the
investor will be requested to remit to the Transfer Agent an amount equal to the
difference between the sales charge paid and the sales charge applicable to the
aggregate purchases actually made. If not remitted within 20 days after written
request, an appropriate number of escrowed shares will be redeemed in order to
realize the difference. This privilege is subject to modification or
discontinuance at any time with respect to all shares purchased thereunder.
Reinvested dividend and capital gain distributions are not counted toward
satisfying the Statement.
Class A shares of a Fund may also be purchased by any person at a reduced
initial sales charge which is determined by (a) aggregating the dollar amount of
the new purchase and the greater of the purchaser's total (i) net asset value or
(ii) cost of any shares acquired and still held in the Fund, or any other Chase
Vista fund excluding any Chase Vista money market fund, and (b) applying the
initial sales charge applicable to such aggregate dollar value (the "Cumulative
Quantity Discount"). The privilege of the Cumulative Quality Discount is subject
to modification or discontinuance at any time with respect to all Class A shares
(or if a Fund has only one class and is subject to an initial sales charge,
shares of such Fund) purchased thereafter.
An individual who is a member of a qualified group (as hereinafter defined)
may also purchase Class A shares of a Fund (or if a Fund has only one class and
is subject to an initial sales charge, shares of such Fund) at the reduced sales
charge applicable to the group taken as a whole. The reduced initial sales
charge is based upon the aggregate dollar value of Class A shares (or if a Fund
has only one class and is subject to an initial sales charge, shares of such
Fund) previously purchased and still owned by the group plus the securities
currently being purchased and is determined as stated in the preceding
paragraph. In order to obtain such discount, the purchaser or investment dealer
must provide the Transfer Agent with sufficient information, including the
purchaser's total cost, at the time of purchase to permit verification that the
purchaser qualifies for a cumulative quantity discount, and confirmation of the
order is subject to such verification. Information concerning the current
initial sales charge applicable to a group may be obtained by contacting the
Transfer Agent.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Class A shares (or if a Fund
has only one class and is subject to an initial sales charge, shares of such
Fund) at a discount and (iii) satisfies uniform criteria which enables the
Distributor to realize economies of scale in its costs of distributing Class A
shares (or if a Fund has only one class and is subject to an initial sales
charge, shares of such Fund). A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Fund and the members, must agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced or no cost to
the Distributor, and must seek to arrange for payroll deduction or other bulk
transmission of investments in the Fund. This privilege is subject to
modification or discontinuance at any time with respect to all Class A shares
(or if a Fund has only one class and is subject to an initial sales charge,
shares of such Fund) purchased thereafter.
Some participant-directed employee benefit plans participate in a
"multi-fund" program which offers both Chase Vista and non-Chase Vista mutual
funds. With Board of Trustee approval, the money that is invested in Chase Vista
Funds may be combined with the other mutual funds in the same program when
determining the plan's eligibility to buy Class A shares without a sales charge.
These investments will also be included for purposes of the discount privileges
and programs described above.
No initial sales charge will apply to the purchase of a Fund's Class A
shares if (i) one is investing proceeds from a qualified retirement plan where a
portion of the plan was invested in the Chase Vista Funds, (ii) one is investing
through any qualified retirement plan with 50 or more participants or (iii) the
investor is a participant in certain qualified retirement plans and is investing
(or reinvesting) the proceeds from the repayment of a plan loan made to him or
her.
36
<PAGE>
The Funds may sell Class A shares at net asset value without an initial
sales charge to the current and retired Trustees (and their immediate families),
current and retired employees (and their immediate families) of Chase, the
Funds' distributor and transfer agent or any affiliates or subsidiaries thereof,
registered representatives and other employees (and their immediate families) of
broker-dealers having selected dealer agreements with the Funds' distributor,
employees (and their immediate families) of financial institutions having
selected dealer agreements with the Funds' distributor (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to sales
of Chase Vista Fund shares), financial institutions 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 be made with no initial
sales charge (i) by an investment adviser, broker or financial planner, provided
arrangements are pre-approved and purchases are placed through an omnibus
account with the Fund or (ii) by clients of such investment adviser or financial
planner who place trades for their own accounts, if such accounts are linked to
a master account of such investment adviser or financial planner on the books
and records of the broker or agent. Such purchases may also be made for
retirement and deferred compensation plans and trusts used to fund those plans.
Investors may incur a fee if they effect transactions through a broker or
agent.
Purchases of a Fund's Class A shares may be made with no initial sales
charge in accounts opened by a bank, trust company or thrift institution which
is acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at the time
of the investment to the Fund, the Fund's distributor or the Chase Vista Funds
Service Center.
Shareholders of record of any Chase Vista fund as of November 30, 1990 and
certain immediate family members may purchase a Fund's Class A shares with no
initial sales charge for as long as they continue to own Class A shares of any
Chase Vista fund, provided there is no change in account registration.
Each Fund may sell Class A shares at net asset value without an initial
sales charge in connection with the acquisition by the Fund of assets of an
investment company or personal holding company.
Shareholders of other Chase Vista Funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of a Fund at
net asset value.
The Funds reserve the right to change any of these policies at any time and
may reject any request to purchase shares at a reduced sales charge.
Reinstatement Privilege. Upon written request, Class A shareholders of each
Fund and Portfolio have a one time privilege of reinstating their investment in
the Fund at net asset value next determined subject to written request within 90
calendar days of the redemption. The reinstatement request must be accompanied
by payment for the shares (not in excess of the redemption), and shares will be
purchased at the next determined net asset value. Class B (or C) shareholders
who have redeemed their shares and paid a CDSC with such redemption may purchase
Class A shares with no initial sales charge (in an amount not in excess of their
redemption proceeds) if the purchase occurs within 90 days of the redemption of
the Class B (or C) shares.
Under the Exchange Privilege, shares may be exchanged for shares of another
fund only if shares of the fund exchanged into are registered in the state where
the exchange is to be made. Shares of a Fund may only be exchanged into another
fund if the account registrations are identical. With respect to exchanges from
any Vista money market fund, shareholders must have acquired their shares in
such money market fund by exchange from one of the Vista non-money market funds
or the exchange will be done at relative net asset value plus the appropriate
sales charge. Any such exchange may create a gain or loss to be recognized for
federal income tax purposes. Normally, shares of the fund to be acquired are
purchased on the
37
<PAGE>
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 Funds' 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 a Fund's
systematic withdrawal plan, subject to the conditions described in the
Prospectuses. In addition, subject to confirmation of a shareholder's status,
the contingent deferred sales charge will be waived for: (i) a total or partial
redemption made within one year of the shareholder's death or initial
qualification for Social Security disability payments; (ii) a redemption in
connection with a Minimum Required Distribution from an IRA, Keogh or custodial
account under section 403(b) of the Internal Revenue Code or a mandatory
distribution from a qualified plan; (iii) redemptions made from an IRA, Keogh or
custodial account under section 403(b) of the Internal Revenue Code through an
established Systematic Redemption Plan; (iv) a redemption resulting from an
over-contribution to an IRA; (v) distributions from a qualified plan upon
retirement; and, (vi) an involuntary redemption of an account balance under
$500. Up to 12% of the value of Class B shares subject to a systematic
withdrawal plan may also be redeemed each year without a CDSC, provided that the
Class B account had a minimum balance of $20,000 at the time the systematic
withdrawal plan was established.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares attributable to the
Class B shares then converting. The conversion of Class B shares purchased on or
after May 1, 1996, will be effected at the relative net asset values per share
of the two classes on the first business day of the month following the eighth
anniversary of the original purchase. The conversion of Class B shares purchased
prior to May 1, 1996, will be effected at the relative net asset values per
share of the two classes on the first business day of the month following the
seventh anniversary of the original purchase. If any exchanges of Class B shares
during the CDSC Period occurred, the holding period for the shares exchanged
will be counted toward the CDSC Period. At the time of the conversion the net
asset value per share of the Class A shares may be higher or lower than the net
asset value per share of the Class B shares; as a result, depending on the
relative net asset values per share, a shareholder may receive fewer or more
Class A shares than the number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain of the circumstances described
in the Prospectuses. A Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A signature
guarantee may be obtained from a bank, trust company, broker-dealer or other
member of a national securities exchange. Please note that a notary public
cannot provide a signature guarantee.
38
<PAGE>
DISTRIBUTIONS; TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the respective Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of each Fund or its shareholders, and the discussion here
and in the Prospectus is not intended as a substitute for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to meet all other requirements that are necessary for it to be relieved of
federal taxes on income and gains it distributes to shareholders. Net investment
income for each Fund consists of all interest accrued and discounts earned, less
amortization of any market premium on the portfolio assets of the Fund and the
accrued expenses of the Fund. As a regulated investment company, a Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
its investment company taxable income, as that term is defined in the Code,
without regard to the deduction for dividends paid) and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) that
it distributes to shareholders, provided that it distributes at least 90% of its
net investment income for the taxable year (the "Distribution Requirement"), and
satisfies certain other requirements of the Code that are described below.
Because International Equity Fund invests all of its assets in the Portfolio
which will be classified as a partnership for federal income tax purposes, the
Fund will be deemed to own a proportionate share of the income of the Portfolio
for purposes of determining whether the Fund satisfies the Distribution
Requirement and the other requirements necessary to qualify as a regulated
investment company (e.g., Income Requirement (hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales.
See "Additional Policies Regarding Derivative and Related Transactions." Such
transactions will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income of the Fund and defer recognition of certain of the Fund's
losses. These rules could therefore affect the character, amount and timing of
distributions to shareholders. In addition, these provisions (1) will require a
Fund to "mark-to-market" certain types of positions in its portfolio (that
39
<PAGE>
is, treat them as if they were closed out) and (2) may cause a Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the Distribution Requirement and avoid the 4%
excise tax (described below). Each Fund intends to monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any option, futures contract, forward
contract or hedged investment in order to mitigate the effect of these rules.
If a Fund purchases shares in a "passive foreign investment company" (a
"PFIC"), such Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders.
Additional charges in the nature of interest may be imposed on the Fund in
respect of deferred taxes arising from such distributions or gains. If a Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code (a "QEF"), in lieu of the foregoing requirements, the Fund
would be required to include in income each year a portion of the ordinary
earnings and net capital gain of the qualified electing fund, even if not
distributed to the Fund. Alternatively, under recently enacted legislation, the
Fund can elect to mark-to-market at the end of each taxable year its shares in a
PFIC; in this case, the Fund would recognize as ordinary income any increase in
the value of such shares, and as ordinary loss any decrease in such value to the
extent it did not exceed prior increases included in income. Under either
election, a Fund might be required to recognize in a year income in excess of
its distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year, and such income would nevertheless be subject to the
Distribution Requirement and would be taken into account for purposes of the 4%
excise tax (described below).
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Funds anticipate distributing substantially all of their net investment
income for each taxable year. An investor can choose from three distribution
options: (i) reinvest all distributions in additional Fund shares without a
sales charge; (ii) receive distributions from net investment income in cash or
by ACH to a pre-established bank account while reinvesting capital gains
distributions in additional shares without a sales charge; or, (3) receive all
distributions in cash or by ACH. One can change his or her distribution option
by notifying the Chase Vista service center in writing. If an investor does not
select an option when he or she opens his or her account, all distributions will
be reinvested. All distributions not paid in cash or by ACH will
40
<PAGE>
be reinvested in shares of the same share class. The investor will receive a
statement confirming reinvestment of distributions in additional Fund shares
promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a
specified period, the Chase Vista Service Center will notify the investor that
he or she has the option of requesting another check or reinvesting the
distribution in the Fund or in an established account of another Chase Vista
fund without a sales charge. If the Chase Vista Service Center does not receive
the investor's election, the distribution will be reinvested in the Fund.
Similarly, if the Fund or the Chase Vista Service Center sends you
correspondence returned as "undeliverable," distributions will automatically be
reinvested in the Fund. Such distributions will be taxable to shareholders as
ordinary income and treated as dividends for federal income tax purposes, but
they will not qualify for the 70% dividends-received deduction for corporate
shareholders of the Funds. Dividends paid on Class A and Class B shares are
calculated at the same time. In general, dividends on Class B shares are
expected to be lower than those on Class A shares due to the higher distribution
expenses borne by the Class B shares. Dividends may also differ between classes
as a result of differences in other class specific expenses.
A Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. The Funds currently intend to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Under 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 a Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If a Fund elects to retain its net capital gain,
it is expected that the Fund also will elect to have shareholders of record on
the last day of its taxable year treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Funds to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by such Fund. If a Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from a
Fund representing income derived from foreign sources. In certain circumstances,
a shareholder that (i) has held shares of a Fund for less than a specified
minimum period during which it is not protected from
41
<PAGE>
risk of loss or (ii) is obligated to make payments related to the dividends,
will not be allowed a foreign tax credit for foreign taxes deemed imposed on
dividends paid on such shares. A Fund must also meet this holding period
requirement with respect to its foreign stock and securities in order to flow
through "creditable" taxes. No deduction for foreign taxes could be claimed by
an individual shareholder who does not itemize deductions. Each shareholder
should consult his own tax advisor regarding the potential application of
foreign tax credits.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in obligations
such as certain Brady Bonds or zero coupon securities having original issue
discount or market discount if the Fund elects to accrue market discount on a
current basis. In addition, income may continue to accrue for federal income tax
purposes with respect to a non-performing investment. Any of the foregoing
income would be treated as income earned by the Fund and therefore would be
subject to the distribution requirements of the Code. Because such income may
not be matched by a corresponding cash distribution to the Fund, the Fund may be
required to dispose of other securities to be able to make distributions to its
investors.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of such Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares.
42
<PAGE>
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Furthermore, such a foreign shareholder may be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) on the gross income resulting from a
Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, and capital gain dividends and
amounts retained by the Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
State and Local Tax Matters
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding taxes.
Most states provide that a RIC may pass through (without restriction) to its
shareholders state and local income tax exemptions available to direct owners of
certain types of U.S. government securities (such as U.S. Treasury obligations).
Thus, for residents of these states, distributions derived from a Fund's
investment in certain types of U.S. government securities should be free from
state and local income taxes to the extent that the interest income from such
investments would have been exempt from state and local income taxes if such
securities had been held directly by the respective shareholders themselves.
Certain states, however, do not allow a RIC to pass through to its shareholders
the state and local income tax exemptions available to direct owners of certain
types of U.S. government securities unless the RIC holds at least a required
amount of U.S. government securities. Accordingly, for residents of these
states, distributions derived from a Fund's investment in certain types of U.S.
government securities may not be entitled to the exemptions from state and local
income taxes that would be available if the shareholders had purchased U.S.
government securities directly. Shareholders' dividends attributable to a Fund's
income from repurchase agreements generally are subject to state and local
income taxes, although states and regulations vary in their treatment of such
income. The exemption from state and local income taxes does not preclude states
from asserting other taxes on the ownership of U.S. government securities. To
the extent that a Fund invests to a substantial degree in U.S. government
securities which are subject to favorable state and local tax treatment,
shareholders of such Fund will be notified as to the extent
43
<PAGE>
to which distributions from the Fund are attributable to interest on such
securities. Rules of state and local taxation of ordinary income dividends and
capital gain dividends from RICs may differ from the rules for U.S. federal
income taxation in other respects. Shareholders are urged to consult their tax
advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
44
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUNDS OR PORTFOLIOS
Trustees and Officers
The Trustees and officers of the Trust and their principal occupations for
at least the past five years are set forth below. Their titles may have varied
during that period.
Fergus Reid, III--Chairman of the Trust. Chairman and Chief Executive
Officer, Lumelite Corporation, since September 1985; Trustee, Morgan Stanley
Funds. Age: 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. 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; 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
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.
45
<PAGE>
*Leonard M. Spalding, Jr.--Trustee. Chief Executive Officer of Chase
Mutual Funds Corp.; formerly President and Chief Executive Officer of Vista
Capital Management; Chief Investment Executive of The Chase Manhattan Bank.
Age: 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").
46
<PAGE>
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the Trustee
serves, which consists of an annual retainer component and a meeting fee
component.
47
<PAGE>
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended October 31, 1999 for each Trustee of the Trust:
<TABLE>
<CAPTION>
International Latin American Southeast
European Equity Japan Equity Asian
Fund Fund Fund Fund Fund
------------ --------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $174.95 $75.25 $9.48 $19.98 $15.70
H. Richard Vartabedian, Trustee 131.77 54.20 6.40 13.96 10.59
William J. Armstrong, Trustee 87.85 36.13 4.27 9.30 7.06
John R.H. Blum, Trustee 94.59 37.70 4.46 9.48 7.35
Stuart W. Cragin, Jr., Trustee 90.87 36.13 4.27 9.30 7.06
Ronald R. Eppley, Jr., Trustee 87.55 36.13 4.27 9.30 7.06
Joseph J. Harkins, Trustee 90.87 36.13 4.27 9.30 7.06
Sarah E. Jones, Trustee -- -- -- -- --
W.D. MacCallan, Trustee 87.85 36.13 4.27 9.30 7.06
W. Perry Neff, Trustee 87.88 35.47 4.04 9.02 6.65
Leonard M. Spalding, Jr., Trustee 87.85 36.13 4.27 9.30 7.06
Richard E. Ten Haken, Trustee 90.02 36.61 4.44 9.49 7.30
Irving L. Thode, Trustee 87.85 36.13 4.27 9.30 7.06
</TABLE>
<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, 1999.
(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 December 31, 1999, 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.
48
<PAGE>
Chase Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan
for Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not an
employee of any of the Funds, the advisers, administrator or distributor or any
of their affiliates) may be entitled to certain benefits upon retirement from
the Board of Trustees. Pursuant to the Plan, the normal retirement date is the
date on which the eligible Trustee has attained age 65 and has completed at
least five years of continuous service with one or more of the investment
companies advised by the adviser (collectively, the "Covered Funds"). Each
Eligible Trustee is entitled to receive from the Covered Funds an annual benefit
commencing on the first day of the calendar quarter coincident with or following
his date of retirement equal to the sum of (i) 8% of the highest annual
compensation received from the Covered Funds multiplied by the number of such
Trustee's years of service (not in excess of 10 years) completed with respect to
any of the Covered Funds and (ii) 4% of the highest annual compensation received
from the Covered Funds for each year of service in excess of 10 years, provided
that no Trustee's annual benefit will exceed the highest annual compensation
received by that Trustee from the Covered Funds. Such benefit is payable to each
eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of October 31, 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
</TABLE>
<TABLE>
<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
49
<PAGE>
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices or with respect to any matter unless it is
finally adjudicated that they did not act in good faith in the reasonable belief
that their actions were in the best interest of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Adviser and Sub-Adviser
Chase acts as investment adviser to the Funds or Portfolios pursuant to an
Investment Advisory Agreement, dated as of May 6, 1996 (the "Advisory
Agreement"). Subject to such policies as the Board of Trustees may determine,
Chase is responsible for investment decisions for the Funds or Portfolios.
Pursuant to the terms of the Advisory Agreement, Chase provides the Funds or
Portfolios with such investment advice and supervision as it deems necessary for
the proper supervision of the Funds' or Portfolios' investments. The advisers
continuously provide investment programs and determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the Funds'
or Portfolios' assets shall be held uninvested. The advisers to the Funds or
Portfolios furnish, at their own expense, all services, facilities and personnel
necessary in connection with managing the investments and effecting portfolio
transactions for the Funds or Portfolios. The Advisory Agreement for the Funds
or Portfolios will continue in effect from year to year only if such continuance
is specifically approved at least annually by the Board of Trustees or by vote
of a majority of a Fund's or Portfolio's outstanding voting securities and by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Under the Advisory Agreement, the adviser may utilize the specialized
portfolio skills of all its various affiliates, thereby providing the Funds with
greater opportunities and flexibility in accessing investment expertise.
Pursuant to the terms of the Advisory Agreement and the sub-advisers'
agreements with the adviser, the adviser and sub-advisers are permitted to
render services to others. Each advisory agreement is terminable without penalty
by the Trust on behalf of the Funds on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of a Fund's
shareholders or by a vote of a majority of the Board of Trustees of the Trust,
or by the adviser or sub-adviser on not more than 60 days', nor less than 30
days', written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The advisory agreements provide that
the adviser or sub-adviser under such agreement shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of portfolio transactions
for the respective Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder.
With respect to the Funds or Portfolios investing in equity securities, the
equity research team of the adviser looks for two key variables when analyzing
stocks for potential investment by equity portfolios: value and momentum. To
uncover these qualities, the team uses a combination of quantitative analysis,
fundamental research and computer technology to help identify undervalued
stocks.
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to the Funds imposed by the securities laws or regulations thereunder
of any state in which the shares of the Funds are qualified for sales, as such
limitations may be raised or lowered from time to time, the adviser
50
<PAGE>
shall reduce its advisory fee (which fee is described below) to the extent of
its share of such excess expenses. The amount of any such reduction to be borne
by the adviser shall be deducted from the monthly advisory fee otherwise payable
with respect to the Funds during such fiscal year; and if such amounts should
exceed the monthly fee, the adviser shall pay to a Fund its share of such excess
expenses no later than the last day of the first month of the next succeeding
fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement provides
that Chase may render services through its own employees or the employees of one
or more affiliated companies that are qualified to act as an investment adviser
of the Fund and are under the common control of Chase as long as all such
persons are functioning as a part of an organized group of persons, managed by
authorized officers of Chase.
Chase, on behalf of the Funds or Portfolio, has entered into an investment
sub-advisory agreement dated as of May 6, 1996 with Chase Asset Management, Inc.
("CAM"). With respect to the day-to-day management of the Funds or Portfolio,
under the sub-advisory agreement CAM makes decisions concerning, and places all
orders for, purchases and sales of securities and helps maintain the records
relating to such purchases and sales. CAM may, in its discretion, provide such
services through its own employees or the employees of one or more affiliated
companies that are qualified to act as an investment adviser to the Company
under applicable laws and are under the common control of Chase; provided that
(i) all persons, when providing services under the sub-advisory agreement, are
functioning as part of an organized group of persons, and (ii) such organized
group of persons is managed at all times by authorized officers of the
sub-advisers. This arrangement will not result in the payment of additional fees
by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range of
banking and investment services to customers throughout the United States and
around the world. The Chase Manhattan Corporation is the entity resulting from
the merger of The Chase Manhattan Corporation into Chemical Banking Corporation
on March 31, 1996. Chemical Banking Corporation was thereupon renamed The Chase
Manhattan Corporation. Also included among Chase's accounts are commingled trust
funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives. Chase is located
at 270 Park Avenue, New York, New York 10017.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment adviser
and provides discretionary investment advisory services to institutional
clients, and the same individuals who serve as portfolio managers for CAM also
serve as portfolio managers for Chase. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund or
Portfolio an investment advisory fee computed daily and paid monthly based on a
rate equal to a percentage of such Fund's or Portfolio's average daily net
assets specified in the relevant Prospectuses. However, the adviser may
voluntarily agree to waive a portion of the fees payable to it on a
month-to-month basis. For its services under its sub-advisory agreement, CAM
will be entitled to receive, with respect to each such Fund or Portfolio, such
compensation, payable by the adviser out of its advisory fee, as is described in
the relevant Prospectuses.
CAM London, the Portfolio's sub-investment adviser, is entitled to receive
a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.50%
of the average daily net assets of the Fund or Portfolio. CAM London provides
discretionary investment services to institutional clients. The same individuals
who serve as fund or portfolio managers for Chase with respect to the Fund or
Portfolio also serve as fund or portfolio managers of CAM London. CAM London is
located at Colvile House, 32 Curzon Street, London W1Y8AL.
51
<PAGE>
For the fiscal years ended October 31, 1997, 1998 and 1999, Chase was paid
or accrued the following investment advisory fees with respect to the following
Funds and Portfolios, and voluntarily waived the amounts in parentheses
following such fees with respect to each such period:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------------------------------------------------------------------
1997 1998 1999
----------------------------- ----------------------------- -----------------------------
Fund paid/accrued waived paid/accrued waived paid/accrued waived
----------------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
International
Equity Portfolio* $325,433 $(325,433) $277,625 $(277,625) $264,592 $(264,592)
European Fund 112,618 (112,618) 279,521 (166,744) 555,370 (178,633)
Japan Fund 55,120 (55,120) 41,865 (41,865) 35,137 (35,137)
Southeast Asian Fund 125,923 (125,923) 53,521 (53,521) 60,365 (60,365)
Latin American Equity Fund# N/A N/A 60,228 (60,228) 54,445 (54,445)
</TABLE>
----------
* The International Equity Fund does not have an investment adviser because the
Trust seeks to achieve the investment objective of the Fund by investing all
of the investable assets of the Fund in the Portfolio.
# Fees and waivers for 1998 are for the period from December 1, 1997
(commencement of operations) through October 31, 1998.
Administrator
Pursuant to separate Administration Agreements (the "Administration
Agreements"), Chase is the administrator of the Funds and the administrator of
the Portfolio. Chase provides certain administrative services to the Funds and
Portfolios, including, among other responsibilities, coordinating the
negotiation of contracts and fees with, and the monitoring of performance and
billing of, the Funds' and Portfolio's independent contractors and agents;
preparation for signature by an officer of the Trust and Portfolio of all
documents required to be filed for compliance by the Trust and Portfolio with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including net
asset value and yield; responding to shareholder inquiries, and arranging for
the maintenance of books and records of the Funds and Portfolio and providing,
at its own expense, office facilities, equipment and personnel necessary to
carry out its duties. Chase in its capacity as administrator does not have any
responsibility or authority for the management of the Funds or Portfolio, the
determination of investment policy, or for any matter pertaining to the
distribution of Funds shares.
Under the Administration Agreements Chase is permitted to render
administrative services to others. The Administration Agreements will continue
in effect from year to year with respect to each Fund or Portfolio only if such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust or Portfolio or by vote of a majority of such Fund's or Portfolio's
outstanding voting securities and, in either case, by a majority of the Trustees
who are not parties to the Administration Agreements or "interested persons" (as
defined in the 1940 Act) of any such party. The Administration Agreements are
terminable without penalty by the Trust on behalf of each Fund or by a Portfolio
on 60 days' written notice when authorized either by a majority vote of such
Fund's or Portfolio's shareholders or by vote of a majority of the Board of
Trustees, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust or Portfolios, or by Chase on 60 days'
written notice, and will automatically terminate in the event of their
"assignment" (as defined in the 1940 Act). The Administration Agreements also
provide that neither Chase or its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Funds or Portfolio, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administration
Agreements.
In addition, the Administration Agreements provide that, in the event the
operating expenses of any Fund or Portfolio, including all investment advisory,
administration and sub-administration fees, but excluding
52
<PAGE>
brokerage commissions and fees, taxes, interest and extraordinary expenses such
as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for sale,
as such limitations may be raised or lowered from time to time, Chase shall
reduce its administration fee (which fee is described below) to the extent of
its share of such excess expenses. The amount of any such reduction to be borne
by Chase shall be deducted from the monthly administration fee otherwise payable
to Chase during such fiscal year, and if such amounts should exceed the monthly
fee, Chase shall pay to such Fund or Portfolio its share of such excess expenses
no later than the last day of the first month of the next succeeding fiscal
year.
In consideration of the services provided by Chase pursuant to the
Administration Agreements, Chase receives from each Fund a fee computed daily
and paid monthly at an annual rate equal to 0.10% of each of the Fund's average
daily net assets, on an annualized basis for the Fund's then-current fiscal
year, except that with respect to the International Equity Fund, Chase receives
from each of the Fund and the Portfolio a fee computed daily and paid monthly at
an annual rate equal to 0.05% of their respective average daily net assets.
Chase may voluntarily waive a portion of the fees payable to it with respect to
each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1997, 1998 and 1999, Chase was paid
or accrued administration fees and voluntarily waived the amount in parentheses
following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
--------------------------------------------------------------------------------------
1997 1998 1999
---------------------------- ---------------------------- ----------------------------
paid/accrued waived paid/accrued waived paid/accrued waived
-------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund* $16,230 $(16,230) $13,807 $(13,807) $13,176 $(13,176)
European Fund 11,266 (6,348) 27,109 (6,446) 55,537 --
Japan Fund 5,512 (5,512) 3,603 (3,603) 3,514 (3,514)
Southeast Asian Fund 12,592 (8,056) 5,362 (5,362) 6,036 (6,036)
Latin American Equity Fund# N/A N/A 6,054 (6,054) 5,445 (5,445)
</TABLE>
*Since inception, the Fund changed has utilized a Master/Feeder Structure. The
Portfolio's administrator is Chase. With respect to the International Equity
Portfolio, for the fiscal year ended October 31, 1997, October 31, 1998 and
October 31, 1999, Chase was paid or accrued administration fees of $16,272,
$13,881 and $13,230, respectively, and voluntarily waived all of such fees.
#Fees and waivers for 1998 are for the period from December 1, 1997
(commencement of operations) through October 31, 1998.
Distribution Plans
The Trust has adopted separate plans of distribution pursuant to Rule 12b-1
under the 1940 Act (a "Distribution Plan") on behalf of certain classes or
shares of certain Funds as described in the Prospectuses, which provide that
such classes of such Funds shall pay for distribution services a distribution
fee (the "Distribution Fee"), including payments to the Distributor, at annual
rates not to exceed the amounts set forth in their respective Prospectuses. The
Distributor may use all or any portion of such Class A Distribution Fee to pay
for Fund expenses of printing prospectuses and reports used for sales purposes,
expenses of the preparation and printing of sales literature and other such
distribution-related expenses. Promotional activities for the sale of each class
of shares of each Fund will be conducted generally by the Chase Vista Funds, and
activities intended to promote one class of shares of a Fund may also benefit
the Fund's other shares and other Chase Vista Funds.
Class B 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.
53
<PAGE>
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 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 a particular Fund, by vote of a majority
of the outstanding voting Shares of the class of such Fund to which it applies
(as defined in the 1940 Act). The Distribution Plans may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without a
vote of the majority of both the Trustees and the Qualified Trustees. Each of
the Funds will preserve copies of any plan, agreement or report made pursuant to
a Distribution Plan for a period of not less than six years from the date of the
Distribution Plan, and for the first two years such copies will be preserved in
an easily accessible place.
54
<PAGE>
For the fiscal years ended October 31, 1997, 1998 and 1999, the Distributor
was paid or accrued distribution fees with respect to the Funds, and voluntarily
waived the amount in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
--------------------------------------------------------------------------------------
1997 1998 1999
---------------------------- ---------------------------- ----------------------------
paid/accrued waived paid/accrued waived paid/accrued waived
-------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
A Shares-
International Equity Fund $60,160 $(40,307) $49,730 $(33,485) $47,950 $(47,950)
European Fund 25,027 -- 54,193 -- 109,680 --
Japan Fund 11,895 (7,018) 8,575 (5,042) 7,418 (7,418)
Southeast Asian Fund 27,118 (15,457) 10,912 (6,228) 11,733 (11,733)
Latin American Equity Fund** N/A N/A 15,040 (11,645) 13,456 (13,456)
B Shares-
International Equity Fund 62,911 -- 58,089 -- 53,785 --
European Fund 9,344 -- 47,038 -- 81,208 --
Japan Fund 5,656 -- 5,673 -- 4,547 --
Southeast Asian Fund 13,089 -- 7,420 -- 10,072 --
Latin American Equity Fund# N/A N/A 54 -- 468 --
C Shares-
European Fund* N/A N/A N/A N/A 6,279 --
</TABLE>
----------
*Distribution fees are from the period November 1, 1998 (commencement of
operations) through October 31, 1999.
**Fees and waivers for 1998 are for the period from December 1, 1997
(commencement of operations) through October 31, 1998.
#Fees and waivers for 1998 are for the period from March 24, 1998
(commencement of offering of class of shares) through October 31, 1998.
Expenses paid by the Distributor related to the distribution of Trust
shares during the year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
Total
Value
------------
<S> <C>
Advertising and sales literature $ 461,188
Printing, production and mailing of prospectuses
and shareholder report to other than current
shareholders 237,166
Compensation to sales personnel 6,622,881
Compensation to sales personnel 5,286,769
B share financing charges 9,305,903
Equipment, supplies and other indirect
distribution-related expenses 72,709
</TABLE>
With respect to the Class B shares of the Funds, the Distribution Fee was
paid to FEP Capital L.P. for acting as a finance agent.
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement
dated August 24, 1995 (the "Distribution Agreement") with the Distributor,
pursuant to which the Distributor acts as the Funds' exclusive underwriter,
provides certain administration services and promotes and arranges for the sale
of each class of Shares.
55
<PAGE>
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The
Distribution Agreement provides that the Distributor will bear the expenses of
printing, distributing and filing prospectuses and statements of additional
information and reports used for sales purposes, and of preparing and printing
sales literature and advertisements not paid for by the Distribution Plan. The
Trust pays for all of the expenses for qualification of the shares of each Fund
for sale in connection with the public offering of such shares, and all legal
expenses in connection therewith. In addition, pursuant to the Distribution
Agreement, the Distributor provides certain sub-administration services to the
Trust, including providing officers, clerical staff and office space. Payments
may also be used to compensate broker-dealers with trail or maintenance
commissions at an annual rate of up to 0.25% of the average daily net asset
value of Class A, 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.
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 each Fund only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of such Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf of
each Fund on 60 days' written notice when authorized either by a majority vote
of such Fund's shareholders or by vote of a majority of the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust, or by the Distributor on 60 days'
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or connected with, rendering services under
the Distribution Agreement, except for wilful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense limitation
applicable to that Fund imposed by the securities laws or regulations thereunder
of any state in which the shares of such Fund are qualified for sale, as such
limitations may be raised or lowered from time to time, the Distributor shall
reduce its sub-administration fee with respect to such Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to such Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to such Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
56
<PAGE>
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. The
Distributor may voluntarily waive a portion of the fees payable to it under the
Distribution Agreement with respect to each Fund on a month-to-month basis. For
the fiscal years ended October 31, 1997, 1998 and 1999, the Distributor was paid
or accrued sub-administration fees with respect to the Funds and voluntarily
waived the amount in parentheses following such fees:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
------------------------------------------------------------------------------------
1997 1998 1999
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund: $16,220 $(8,136) $13,864 $(13,864) $13,176 $(13,176)
European Fund 5,628 (3,184) 13,973 (3,223) 27,768 --
Japan Fund 2,755 (2,755) 1,678 (1,678) 1,756 (1,756)
Southeast Asian Fund 6,296 (4,030) 2,666 (2,666) 3,019 (3,019)
Latin American Equity Fund# N/A N/A 2,981 (2,981) 2,722 (2,722)
</TABLE>
----------
#Fees and waivers for 1998 are for the period from December 1, 1997
(commencement of operations) through October 31, 1998.
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent to provide certain services
including but not limited to the following: answer customer inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares may be effected for the Fund as to which the Shareholder Servicing Agent
is so acting and certain other matters pertaining to the Fund; assist
shareholders in designating and changing dividend options, account designations
and addresses; provide necessary personnel and facilities to establish and
maintain shareholder accounts and records; assist in processing purchase and
redemption transactions; arrange for the wiring of funds; transmit and receive
funds in connection with customer orders to purchase or redeem shares; verify
and guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) quarterly and year-end statements and
confirmations of purchases and redemptions; transmit, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other communications
to shareholders of the Fund; receive, tabulate and transmit to the Fund proxies
executed by shareholders with respect to meetings of shareholders of the Fund;
and provide such other related services as the Fund or a shareholder may
request. Shareholder servicing agents may be required to register pursuant to
state securities law. For performing these services, each shareholder servicing
agent receives an annual fee of up to 0.25% of the average daily net assets of
the shares of the Funds held by investors for whom the shareholder servicing
agent maintains a servicing relationship. Shareholder Servicing Agents may
subcontract with other parties for the provision of shareholder support
services.
Each Shareholder Servicing Agent may voluntarily agree from time to time to
waive a portion of the fees payable to it under its Servicing Agreement with
respect to each Fund on a month-to-month basis. For the fiscal years ended
October 31, 1997, 1998 and 1999, fees payable to the Shareholder Servicing
Agents and the amounts voluntarily waived for each such period (as indicated in
parentheses) were as follows:
57
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-Ended October 31,
----------------------------------------------------------------------------------
1997 1998 1999
------------------------- --------------------------- ------------------------
payable waived payable waived payable waived
------------ ---------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund:
Class A $60,160 -- $49,814 $ -- $47,950 $ --
Class B 20,965 -- 19,363 (13,262) 17,928 (17,928)
European Fund
Class A -- -- -- -- -- --
Class B 3,107 -- 15,675 -- 27,069 --
Class C N/A N/A N/A N/A 2,093 --
Southeast Asian Fund
Class A -- -- -- -- -- --
Class B 4,363 -- 2,476 (1,559) 3,357 (3,357)
Japan Fund
Class A -- -- -- -- -- --
Class B 1,886 -- 1,891 (902) 1,618 (1,618)
Latin American Equity Fund
Class A** N/A N/A 15,040 (15,040) 13,456 (13,456)
Class B# N/A N/A 18 (18) 156 (156)
</TABLE>
----------
**Fees and waivers for 1998 are for the period from December 1, 1997
(commencement of operations) through October 31, 1998.
# Fees and waivers for 1998 are for the period from March 24, 1998
(commencement of offering of class of shares) through October 31, 1998.
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.
58
<PAGE>
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund and receives such compensation as is from time to time
agreed upon by the Trust and Chase. As custodian, Chase provides oversight and
record keeping for the assets held in the portfolios of each Fund. Chase also
provides fund accounting services for the income, expenses and shares
outstanding for such Funds. Chase is located at 3 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
The financial statements incorporated herein by reference from the Trust's
Annual Reports to Shareholders for the fiscal year ended October 31, 1999, and
the related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses in reliance on the reports
of PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants of the Funds, given on the authority of said firm
as experts in accounting and auditing. PricewaterhouseCoopers LLP provides the
Funds with audit services, tax return preparation and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
CERTAIN REGULATORY MATTERS
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of any
of the Funds, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Funds' distributor or affiliates of the distributor. Chase will
not invest any Fund assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate, although
under certain circumstances such securities may be purchased from other members
of an underwriting syndicate in which Chase or an affiliate is a non-principal
member. This restriction my limit the amount or type of U.S. Government
obligations, municipal obligations or commercial paper available to be purchased
by any Fund. Chase has informed the Funds that in making its investment
decision, it does not obtain or use material inside information in the
possession of any other division or department of Chase, including the division
that performs services for the Trust as custodian, or in the possession of any
affiliate of Chase. Shareholders of the Funds should be aware that, subject to
applicable legal or regulatory restrictions, Chase and its affiliates may
exchange among themselves certain information about the shareholder and his
account. Transactions with affiliated broker-dealers will only be executed on an
agency basis in accordance with applicable federal regulations.
GENERAL INFORMATION
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Funds' custodian
for all services to the funds, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to government offices and commissions; expenses of
meetings of investors; fees and expenses of independent accountants, of legal
counsel and of any transfer agent, registrar or dividend disbursing agent of the
Trust; insurance premiums; and expenses of calculating the net asset value of,
and the net income on, shares of the Funds. Shareholder servicing and
distribution fees are all allocated to specific classes of the Funds. In
addition, the Funds may allocate transfer agency and certain other expenses by
class. Service providers to a Fund may, from time to time, voluntarily waive all
or a portion of any fees to which they are entitled.
59
<PAGE>
Description of Shares, Voting Rights and Liabilities
Mutual Fund Group is an open-end, non-diversified management investment
company organized as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts in 1987. Because the Trust is "non-diversified",
more than 5% of the assets of certain Funds may be invested in the obligations
of any single issuer, which may make the value of the shares in such a Fund more
susceptible to certain risks than shares of a diversified mutual fund.
The Trust currently consists of 21 series of shares of beneficial interest,
par value $.001 per share. With respect to certain Funds, the Trust may offer
more than one class of shares. The Trust has reserved the right to create and
issue additional series or classes. Each share of a series or class represents
an equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Expenses
of the Trust which are not attributable to a specific series or class are
allocated among all the series in a manner believed by management of the Trust
to be fair and equitable. Shares have no preemptive or conversion rights. Shares
when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportional fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of class generally vote together except when required under federal securities
laws to vote separately on matters that only affect a particular class, such as
the approval of distribution plans for a particular class. With respect to
shares purchased through a Shareholder Servicing Agent and, in the event written
proxy instructions are not received by a Fund or its designated agent prior to a
shareholder meeting at which a proxy is to be voted and the shareholder does not
attend the meeting in person, the Shareholder Servicing Agent for such
shareholder will be authorized pursuant to an applicable agreement with the
shareholder to vote the shareholder's outstanding shares in the same proportion
as the votes cast by other Fund shareholders represented at the meeting in
person or by proxy.
Certain Funds offer Class A, Class B and Class C shares. The classes of
shares have several different attributes relating to sales charges and expenses,
as described herein and in the Prospectuses. In addition to such differences,
expenses borne by each class of a Fund may differ slightly because of the
allocation of other class-specific expenses. For example, a higher transfer
agency fee may be imposed on Class B shares than on class A shares. The relative
impact of initial sales charges, contingent deferred sales charges, and ongoing
annual expenses will depend on the length of time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
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 rep-
60
<PAGE>
resented at the meeting for purposes of quorum requirements. Shares have no
preemptive or conversion rights. Shares, when issued, are fully paid and
non-assessable, except as set forth below. Any series or class may be terminated
(i) upon the merger or consolidation with, or the sale or disposition of all or
substantially all of its assets to, another entity, if approved by the vote of
the holders of two thirds of its outstanding shares, except that if the Board of
Trustees recommends such merger, consolidation or sale or disposition of assets,
the approval by vote of the holders of a majority of the series' or class'
outstanding shares will be sufficient, or (ii) by the vote of the holders of a
majority of its outstanding shares, or (iii) by the Board of Trustees by written
notice to the series' or class' shareholders. Unless each series and class is so
terminated, the Trust will continue indefinitely.
Stock certificates are issued only upon the written request of a
shareholder, subject to the policies of the investor's Shareholder Servicing
Agent, but the Trust will not issue a stock certificate with respect to shares
that may be redeemed through expedited or automated procedures established by a
Shareholder Servicing Agent. No certificates are issued for Class B shares due
to their conversion feature. No certificates are issued for Institutional
Shares.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Board of Trustees has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts of
interest that can arise in connection with personal trading activities of such
persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions, pre-clearance
requirements and blackout periods.
61
<PAGE>
Principal Holders
As of February 16, 2000 the following persons owned of record 5% or more of
the outstanding shares of the following classes of the following Funds:
<TABLE>
<S> <C>
EUROPEAN FUND A SHARES
Balsa & Co. 20.23%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 12.40%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 10.45%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
EUROPEAN FUND B SHARES
MLPF&S for the sole benefit 10.33%
of its customers
Attn: Fund Administration
SEC# 97HT4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
EUROPEAN FUND C SHARES
MLPF&S for the sole benefit 26.84%
of its customers
Attn: Fund Administration
SEC# 97TR4
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Everen Securities Inc. 9.82%
Account 7651-1603
Michael Regan &
Jean Regan Jtten
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
INTERNATIONAL EQUITY FUND
A SHARES
Balsa & Co. 27.01%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
</TABLE>
<TABLE>
<S> <C>
Texas Commerce Bank NA 15.36%
Attn: Avesta
PO Box 2558
Houston, TX 77252-2558
JAPAN FUND A SHARES
Balsa & Co. 46.12%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Balsa & Co. 20.28%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
JAPAN FUND B SHARES
MLPF&S for sole benefit of its 27.58%
customers
Attn: Fund Adminsitration
SEC# 97HT6
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO #CL5-545830 14.56%
Mario Siragusa
23 Rue de la Loi
Brussels, Belgium
NFSC FEBO #C1Q-008729 7.51%
Michael Marco
Antonina Campanella Marco
40 Malcolm Court
Tenafly, NJ 07670-2423
SOUTHEAST ASIAN FUND
A SHARES
Balsa & Co. 29.97%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
Balsa & Co. 20.84%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
SOUTHEAST ASIAN FUND
B SHARES
MLPF&S for the sole benefit 20.52%
of its customers
Attn: Fund Administration
SEC# 97HT3
4600 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
LATIN AMERICAN EQUITY -
A SHARES
Balsa & Co. 89.27%
PO Box 1768
Grand Central Station
New York, NY 10163-1768
Charles M. Kornberger 5.77%
Veronica S. Kornberger
JTWROS
248 Ellin Drive
Park Ridge, NJ 07656-2517
</TABLE>
<TABLE>
<S> <C>
LATIN AMERICAN EQUITY -
B SHARES
Anita Forsythe 56.86%
Kathleen Melleky JT TEN
1606 Fann Court, SW
Ocean Island Beach, NC 28469-
6717
Luis J. Perea & Vilma T. 13.89%
Sodevilla
All Digital Productions Inc.
Pension Plan
2100 Coral Way, Ste. 502
Miami, FL 33145-2657
FCS Cust 10.96
FBO Stephen A. Malcolm
S/D IRA
28 Fair Street
Cooperstown, NY 13326-1031
FCS Cust 10.60%
FBO Ellen A. Morris
S/D IRA
PO Box 742
Cooperstown, NY 13326-0742
IFTC Cust IRA R/O 7.22%
</TABLE>
<TABLE>
<S> <C>
Edwin J. Boccardo
1516 Esther Lane
Yardley, PA 19067-4732
</TABLE>
63
<PAGE>
Financial Statements
The 1999 Annual Report to Shareholders of each Fund, including the reports
of independent accountants, financial highlights and financial statements for
the fiscal year ended October 31, 1999 contained therein, are incorporated
herein by reference.
64
<PAGE>
Specimen Computations of Offering Prices Per Share
International Equity Fund (specimen computations)
<TABLE>
<S> <C>
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $13.77
Maximum Offering Price per Share ($13.77 divided by .9425)
(reduced on purchases of $100,000 or more) $14.61
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $13.51
European Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $16.52
Maximum Offering Price per Share ($16.52 divided by .9425)
(reduced on purchases of $100,000 or more) $17.53
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $16.18
C Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1999 $16.19
Japan Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $ 9.84
Maximum Offering Price per Share ($9.84 divided by .9425)
(reduced on purchases of $100,000 or more) $10.44
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $ 9.65
Southeast Asian Fund (specimen computations)
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $ 8.79
Maximum Offering Price per Share ($8.79 divided by .9425)
(reduced on purchases of $100,000 or more) $ 9.33
B Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $ 8.56
Latin American Equity Fund
A Shares:
Net Asset Value and Redemption Price per Share
of Beneficial Interest at October 31, 1999 $ 5.88
Maximum Offering Price per Share ($5.88 divided by .9425)
(reduced on purchases of $100,000 or more) $ 6.24
B Shares:
Net Asset Value and Redemption Price per Share of Beneficial Interest at
October 31, 1999 $ 5.84
</TABLE>
The European Fund, Japan Fund and Southeast Asian Fund commenced offering of
Shares on November 1, 1995. The Latin American Equity Fund commenced offering of
Shares on December 1, 1997.
66
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES
OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration,
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA and
the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures may result in the return of the greater part of principal invested
far in advance of the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee. As the prepayment
rate of individual mortgage pools will vary widely, it is not possible to
accurately predict the average life of a particular issue of GNMA Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates. Principal which is so prepaid will be reinvested although possibly
at a lower rate. In addition, prepayment of mortgages included in the mortgage
pool underlying a GNMA Certificate purchased at a premium could result in a loss
to a Fund. Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate. If agency
securities are purchased at a premium above principal, the premium is not
guaranteed by the issuing agency and a decline in the market value to par may
result in a loss of the premium, which may be particularly likely in the event
of a prepayment. When and if available, U.S. Government obligations may be
purchased at a discount from face value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued
by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
A-1
<PAGE>
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured by
the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority. Some of the bonds issued
prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with respect to
bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated "A" possess many favorable investment qualities and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree.
Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
B-1
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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.
B-2
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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.
B-3
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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
