As filed via EDGAR with the Securities and Exchange Commission on April 22, 1996
File No. 811-8358
Registration No. 33-75250
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 6 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 6 |X|
------------------------------
MUTUAL FUND TRUST
(Exact Name of Registrant as Specified in Charter)
101 Park Avenue,
New York, New York 10178
--------------------------------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (212) 492-1600
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Copies to:
George Martinez, Esq. Carl Frischling, Esq. Molly Sheehan, Esq Gary S. Schpero, Esq.
Mutual Fund Trust Kramer, Levin, et. al. Chemical Bank Simpson Thacher & Bartlett
125 West 55th Street 919 Third Avenue 270 Park Avenue 425 Lexington Avenue
New York, New York 10019 New York, New York 10022 New York, New York 10017 New York, New York 10017
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
|_| immediately upon filing pursuant to |X| on May 6, 1996 pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(2) paragraph (a)(2) rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------
The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its three series of shares under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940 on July 18,
1994 and the Rule 24f-2 Notice for the Registrant's fiscal year ended August 31,
1995 was filed on October 21, 1995.
<PAGE>
MUTUAL FUND TRUST
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) under the Securities Act of 1933
VISTA(SM) SHARES
VISTA(SM) PREMIER SHARES
VISTA(SM) INSTITUTIONAL SHARES
VISTA(SM) NEW YORK TAX FREE INCOME FUND
VISTA(SM) CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
VISTA(SM) TAX FREE INCOME FUND
VISTA(SM) PRIME MONEY MARKET FUND CLASS B SHARES
<TABLE>
<CAPTION>
Item Number Statement of
Form N-1A, Additional
Part A Prospectus Caption Information Caption
----------- ------------------ -------------------
<S> <C> <C>
Captions in parenthesis indicate Income Fund
Prospectus captions which do not exist in the
Money Market Fund Prospectuses.
1 Front Cover Page *
2(a) Expense Summary *
(b) Not Applicable *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance Information *
4(a)(b) Fund Objectives and Investment Approach; *
(Fund Objective; Investment Policies)
Other Information Concerning the Fund(s)
(c) Fund Objectives and Investment Approach; *
Common Investment Policies (Money Market
Funds Only); (Fund Objectives; Investment
Policies)
5(a) Management *
(b) Management *
(c) Management *
(d) Other Information Concerning the Fund(s) *
(e) Back Covers *
(f) Financial Highlights; Other Information *
Concerning the Fund(s)
5A.(a-b) Not Applicable *
6(a) Other Information Concerning the Fund(s) *
(b) Not Applicable *
(c) Not Applicable *
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Item Number Statement of
Form N-1A, Additional
Part A Prospectus Caption Information Caption
----------- ------------------ -------------------
<S> <C> <C>
(d) Not Applicable *
(e) How to Buy, Sell and Exchange Shares; (About
Your Investment); Other Information Concerning
the Fund(s) *
(f) How Dividends and Distributions are Made; *
Tax Information; (How Distributions are Made;
Tax Information)
(g) How Dividends and Distributions are Made; Tax Matters
Tax Information; (How Distributions are Made;
Tax Information)
(h) How to Buy, Sell and Exchange Shares; (About Your
Investment); Other Information Concerning the Fund(s) *
7(a) How to Buy, Sell and Exchange Shares; Other *
Information Concerning the Fund(s)
(b) How the Fund(s) Value Their (its) Shares; *
How to Buy, Sell and Exchange Shares;
Other Information Concerning the Fund(s)
(c) How to Buy, Sell and Exchange Shares *
(d) How to Buy, Sell and Exchange Shares *
(e) Management; Other Information Concerning *
the Fund(s)
(f) Other Information Concerning the Fund(s) Management of the
Trust and Funds
8(a) How to Buy, Sell and Exchange Shares *
(b) How to Buy, Sell and Exchange Shares *
(c) How to Buy, Sell and Exchange Shares *
(d) How to Buy, Sell and Exchange Shares *
9 Not Applicable *
</TABLE>
-ii-
<PAGE>
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<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13 Fund Objectives and Investment Approach Investment Policies and
(Fund Objectives; Investment Policies) Restrictions
14 * Management of the Trust and Funds
15(a) * Not Applicable
(b) * Principal Holders
(c) * Principal Holders
16(a) Management Management of the Trust and Funds
</TABLE>
-iii-
<PAGE>
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<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(b) Management Management of the Trust and Funds
(c) Other Information Concerning Management of the Trust and Funds
the Fund(s)
(d) Management Management of the Trust and Funds
(e) * Not Applicable
(f) How to Buy, Sell and Exchange Shares; Management of the Trust and Funds
Other Information Concerning the Fund(s)
(g) * Not Applicable
(h) * Management of the Trust and Funds;
Independent Accountants
(i) * Not Applicable
17 Fund Objectives and Investment Approach; Investment Policies and
(Fund Objective; Investment Policies) Restrictions
18 Other Information Concerning the Fund(s) General Information
19(a) How to Buy, Sell and Exchange Shares *
(b) How the Fund(s) Value Their (its) Shares Determination of Net Asset
Value
</TABLE>
-iv-
<PAGE>
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<CAPTION>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
- ----------- ------------------ -----------------------
<S> <C> <C>
(c) * Purchases, Redemptions
and Exchanges
20 How Dividends and Distributions Are Made; Tax Matters
Tax Information; (How Distributions are
Made; Tax Information)
21(a) * Management of the Trust and Funds
(b) * Management of the Trust and Funds
(c) * Not Applicable
22 * Performance Information
23 * Not Applicable
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-v-
<PAGE>
PART A
<PAGE>
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
VISTA[SM] NEW YORK TAX FREE MONEY MARKET FUND
VISTA[SM] CALIFORNIA TAX FREE MONEY MARKET FUND
Vista[SM] Shares
May 6, 1996
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES AND
ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary.................................................................
The expenses you pay on your Fund investment, including examples
Financial Highlights............................................................
The Funds' financial history
Fund Objectives and Investment Approach.........................................
Vista 100% U.S. Treasury Securities Money Market Fund
Vista Treasury Plus Money Market Fund
Vista Federal Money Market Fund
Vista U.S. Government Money Market Fund
Vista Cash Management Fund
Vista Tax Free Money Market Fund
Vista New York Tax Free Money Market Fund
Vista California Tax Free Money Market Fund
Common Investment Policies......................................................
Management .....................................................................
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management
and Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares............................................
How the Funds Value their Shares................................................
How Dividends and Distributions Are Made; Tax Information.......................
How the Funds distribute their earnings, and
tax treatment related to those earnings
Other Information Concerning the Funds..........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information.........................................................
How performance is determined, stated and/or advertised
- 2 -
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on expenses
incurred in the most recent fiscal year by each Fund, other than the Vista 100%
U.S. Treasury Securities Money Market Fund, and based on estimated expenses for
the current fiscal year for the Vista 100% U.S. Treasury Securities Money Market
Fund. The examples show the cumulative expenses attributable to a hypothetical
$1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista Vista Vista
100% U.S. Vista Vista Vista U.S. Vista New York California
Treasury Treasury Federal Government Vista Tax Free Tax Free Tax Free
Securities Plus Money Money Money Cash Money Money Money
Money Market Market Market Management Market Market Market
Market Fund Fund Fund Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------------------
Vista Vista Vista Vista Vista Vista Vista Vista
Shares Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses
(as a percentage of
average net assets)
Investment Advisory Fee
(after estimated waiver
of fees, where indicated) 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.00%(*)
12b-1 Fee (**) 0.10% 0.10% 0.10% 0.10% n/a 0.10% 0.10% 0.10%
Shareholder Servicing Fee
(after estimated waivers
of fees, where indicated) + 0.18%(*) 0.20%(*) 0.35% 0.23%(*) 0.33%(*) 0.21%(*) 0.20%(*) 0.10%(*)
Other Expenses 0.21% 0.19% 0.15% 0.16% 0.16% 0.18% 0.19% 0.35%
- -------------------------
Total Fund Operating Expenses
(after waivers of fees,
where indicated) 0.59%(*) 0.59%(*) 0.70% 0.59%(*) 0.59%(*) 0.59%(*) 0.59%(*) 0.55%(*)
</TABLE>
Examples
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 6 $ 6 $ 7 $ 6 $ 6 $ 6 $ 6 $ 6
3 years 19 19 22 19 19 19 19 18
5 years -- 33 39 33 33 33 33 31
10 years -- 74 87 74 74 74 74 69
</TABLE>
- ----------------
* Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Investment Advisory Fee and Shareholder Servicing Fee would be 0.10%
and 0.35%, respectively, for each such Fund, and Total Fund Operating
Expenses for Vista 100% U.S. Treasury Securities Money Market Fund, Vista
Treasury Plus Money Market Fund, Vista U.S. Government Money Market Fund,
Vista Cash Management Fund, Vista Tax Free Money Market Fund, Vista New
York Tax Free Money Market Fund and Vista California Tax Free Money Market
Fund would be 0.76%, 0.74%, 0.71%, 0.61%, 0.73%, 0.74%, and 0.90%,
respectively. Total Fund Operating Expenses reflect the agreement by Chase
voluntarily to waive fees payable to it and/or reimburse expenses for a
period of at least one year to the extent necessary to prevent Total Fund
Operating Expenses of Vista Shares of each Fund other than Vista Federal
Money Market Fund and Vista California Tax Free Money Market Fund from
exceeding the
- 3 -
<PAGE>
amounts indicated in the table. In addition, Chase has agreed to waive fees
payable to it and/or reimburse expenses for a two year period to the extent
necessary to prevent Total Fund Operating Expenses for Vista Shares of the
Vista Treasury Plus Money Market Fund, Vista U.S. Government Money Market
Fund, Vista Cash Management Money Market Fund, Vista Tax Free Money Market
Fund and the Vista New York Tax Free Money Market Fund from exceeding
0.73%, 0.76%, 0.72% 0.74% and 0.71%, respectively, of average net assets
during such period.
** Long-term shareholders in mutual funds with 12b-1 fees, such as holders of
Vista Shares of all Funds except Vista Cash Management Fund, may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers, Inc.
The table is provided to help you understand the expenses of investing in
the Funds and your share of the operating expenses that a Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES OR
RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with an
investment in a Fund. The Funds understand that Shareholder Servicing Agents
may credit the accounts of their customers from whom they are already receiving
other fees amounts not exceeding such other fees or the fees received by the
Shareholder Servicing Agent from a Fund with respect to those accounts. See
"Other Information Concerning the Funds."
- 4 -
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover 100% U.S. Treasury Securities Money Market Fund
("Hanover 100% Treasury Fund") merged into Vista 100% U.S. Treasury Securities
Money Market Fund, which was created to be the successor to the Hanover 100%
Treasury Fund. The table set forth below provides selected per share data and
ratios for one Hanover 100% Treasury Fund share outstanding throughout each
period shown. This information is supplemented by financial statements and
accompanying notes appearing in the Hanover 100% Treasury Fund's Annual Report
to Shareholders for the fiscal year ended November 30, 1995, which is
incorporated by reference into the SAI. Shareholders can obtain a copy of this
report by contacting the Fund or their Shareholder Servicing Agent. The
financial statements and notes, as well as the financial information set forth
in the table below, unless otherwise indicated, have been audited by KPMG Peat
Marwick LLP independent accountants whose report thereon is included in
the Hanover 100% Treasury Fund's Annual Report to shareholders.
VISTA 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
-----------------------------------------------------
<TABLE>
<CAPTION>
VISTA SHARES
YEAR ENDED
--------------------------------------------------------------
11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income 0.050 0.033 0.026 0.033 0.021
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income 0.050 0.033 0.026 0.033 0.021
------ ------ ------ ------ ------
Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total Return 5.15% 3.32% 2.62% 3.33% 2.58%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $1,337,549 $1,024,125 $873,631 $383,688 $141,875
Ratio of Expenses to Average Net Assets # 0.58% 0.59% 0.58% 0.55% 0.45%
Ratio of Net Investment Income to
Average Net Assets # 4.99% 3.26% 2.58% 3.28% 5.02%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets # 0.61% 0.62% 0.61% 0.67% 0.74
Ratio of Net Investment Income without
waivers and assumption of expenses
to Average Net Assets (unaudited)# 4.96% 3.23% 2.55% 3.16% 4.73%
</TABLE>
- --------------------------
# Short periods have been annualized.
* Fund commenced operations on July 1, 1991.
- 5 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for a
Vista share outstanding throughout the periods shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is also included in the Annual
Report to Shareholders.
VISTA FEDERAL MONEY MARKET FUND
-------------------------------
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<CAPTION>
Vista Shares
------------
Year 5/9/94**
ended through
8/31/95 8/31/94
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.......................................... $ 1.00 $ 1.00
-------- -------
Income from Investment Operations:
Net Investment Income..................................................... 0.051 0.013
-------- -------
Total from Investment Operations.......................................... 0.051 0.013
Less Distributions:
Dividends from net investment income...................................... 0.051 0.013
-------- -------
Net Asset Value, End of Period................................................ $ 1.00 $ 1.00
======== =======
Total Return.................................................................. 5.20% 1.26%
Ratios/Supplemental Data
Net assets, End of Period (000 omitted).................................... $203,399 $19,955
Ratio of Expenses to Average Net Assets#................................... 0.69% 0.40%
Ratio of Net Investment Income to Average Net Assets#...................... 5.16% 4.36%
Ratio of Expenses without waivers and assumption of expenses to Average Net
Assets#.................................................................. 0.93% 1.02%
Ratio of Net Investment Income without waivers and Assumptions of Expenses
to Average Net Assets#................................................... 4.92% 3.74%
</TABLE>
- ---------------------------
# Periods less than one year have been annualized.
** Commencement of offering shares.
- 6 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders can obtain a copy
of this report by contacting the Fund or their Shareholder Servicing Agent. The
financial statements and notes, as well as the financial information set forth
in the table below, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the Annual Report to
shareholders.
VISTA U.S. GOVERNMENT MONEY MARKET FUND
------------------------------------------
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VISTA SHARES
---------------------------------------
Year 11/1/93 1/1/93
ended through through
8/31/95 8/31/94+ 10/31/1993*
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period....................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment Operations:
Net Investment Income............................................ 0.049 0.025 0.019
-------- -------- --------
Less Distributions:
Dividends from net investment income............................. 0.049 0.025 0.019
-------- -------- --------
Net Asset Value, End of Period............................................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return............................................................... 5.05% 2.48% 2.02%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).............................. $341,336 $335,365 $323,498
Ratio of Expenses to Average Net Assets#............................. 0.80% 0.80% 0.82%
Ratio of Net Investment Income to Average Net Assets#................ 4.93% 2.94% 2.39%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets+#............................................. 0.80% 0.80% 0.82%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets#.................................. 4.93% 2.94% 2.39%
</TABLE>
# Periods less than one year have been annualized.
* Commencement of offering of shares.
+ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
- 7 -
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash Management
Fund") merged with Vista Cash Management Fund. The table set forth below
provides selected per share data and ratios for one Hanover Cash Management Fund
(the accounting survivor of the merger) share outstanding throughout each period
shown. This information is supplemented by financial statements and accompanying
notes appearing in the Hanover Cash Management Fund's Annual Report to
Shareholders for the fiscal year ended November 30, 1995, which is incorporated
by reference into the SAI. Shareholders can obtain a copy of this report by
contacting the Fund or their Shareholder Servicing Agent. The financial
statements and notes, as well as the financial information set forth in the
table below, unless otherwise indicated, have been audited by KPMG Peat Marwick
LLP independent accountants whose report thereon is included in the Hanover
Cash Management Fund's Annual Report to shareholders.
VISTA CASH MANAGEMENT FUND
--------------------------
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<CAPTION>
VISTA SHARES
-------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------------------------------------------
11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90 11/30/89*
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period ........ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income ............... 0.054 0.036 0.027 0.035 0.059 0.077 0.076
------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income .......................... 0.054 0.036 0.027 0.035 0.059 0.077 0.076
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ======
Total Return 5.49% 3.62% 2.74% 3.51% 6.01% 7.94% 7.83%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)$1,634,493 $990,045 $861,025 $560,173 $343,166 $196,103 $134,503
Ratio of Expenses to Average
Net Assets # ........................ 0.58% 0.58% 0.61% 0.67% 0.67% 0.67% 0.67%
Ratio of Net Investment Income
to Average Net Assets # ............. 5.35% 3.62% 2.70% 3.41% 5.84% 7.65% 8.62%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets # ........................ 0.62% 0.62% 0.64% 0.72% 0.73% 0.73% 0.74%
Ratio of Net Investment Income
without waivers and assumption
of expenses to Average Net
Assets (unaudited)# ................. 5.31% 3.58% 2.67% 3.36% 5.78% 7.59% 8.55%
</TABLE>
- -----------------------------
# Short periods have been annualized.
* Fund commenced operations January 17, 1989.
- 8 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders can obtain a copy
of this report by contacting the Fund or their Shareholder Servicing Agent. The
financial statements and notes, as well as the financial information set forth
in the table below for each of the five years in the period ended August 31,
1995, have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon is included in the Annual Report to Shareholders.
VISTA TAX FREE MONEY MARKET FUND
--------------------------------
<TABLE>
<CAPTION>
VISTA SHARES
------------------------------------------------------------------
Year 11/1/93 Year ended
ended through ----------------------------------------
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91 10/31/90
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income..................... 0.029 0.015 0.019 0.028 0.043 0.054
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income...... 0.029 0.015 0.019 0.028 0.043 0.054
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total Return....................................... 2.99% 1.54% 1.90% 2.79% 4.37% 5.47%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted).............................. $166,915 $121,710 $160,497 $145,241 $115,770 112,770
Ratio of Expenses to Average
Net Assets#................................ 0.86% 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of Net Investment Income to
Average Net Assets#........................ 2.96% 1.82% 1.88% 2.70% 4.27% 5.33%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets#................................ 0.94% 0.85% 0.91% 0.98% 0.99% 0.97%
Ratio of Net Investment Income without
waivers and assumption of expenses
to Average Net Assets#..................... 2.87% 1.82% 1.83% 2.57% 4.13% 5.21%
</TABLE>
<TABLE>
<CAPTION>
VISTA SHARES
---------------------------------
Year ended
9/4/87*
through
10/31/89 10/31/88 10/31/92
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............... $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income..................... 0.056 0.045 0.007
------ ------ ------
Less Distributions:
Dividends from net investment income...... 0.056 0.045 0.007
------ ------ ------
Net Asset Value, End of Period..................... $1.00 $1.00 $1.00
===== ===== =====
Total Return....................................... 5.76% 4.61% 4.50%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted).............................. $107,534 $116,260 $133,177
Ratio of Expenses to Average
Net Assets#................................ 0.85% 0.85% 0.85%
Ratio of Net Investment Income to
Average Net Assets#........................ 5.59% 4.47% 4.47%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets#................................ 1.01% 1.02% 1.18%
Ratio of Net Investment Income without
waivers and assumption of expenses
to Average Net Assets#..................... 5.43% 4.30% 4.15%
</TABLE>
* Commencement of offering of Shares.
+ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
# Periods less than one year have been annualized.
- 9 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders can obtain a copy
of this report by contacting the Fund or their Shareholder Servicing Agent. The
financial statements and notes, as well as the financial information set forth
in the table below for each of the five years in the period ended August 31,
1995, have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon is included in the Annual Report to shareholders.
VISTA NEW YORK TAX FREE MONEY MARKET FUND
-----------------------------------------
<TABLE>
<CAPTION>
Year 11/1/93 Year Ended
ended through -------------------------------------
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91 10/31/90
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income..................... 0.028 0.015 0.017 0.025 0.038 0.050
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income...... 0.028 0.015 0.017 0.025 0.038 0.050
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total Return....................................... 2.88% 1.48% 1.75% 2.53% 3.87% 5.02%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted).............................. $378,400 $365,669 $300,425 $285,889 $230,855 251,897
Ratio of Expenses to Average
Net Assets#................................ 0.86% 0.85% 0.85% 0.85% 0.85% 0.83%
Ratio of Net Investment Income to
Average Net Assets#........................ 2.84% 1.77% 1.72% 2.48% 3.83% 4.91%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets#................................ 0.95% 0.85% 0.89% 0.92% 0.92% 0.91%
Ratio of Net Investment Income without
waivers and assumption of expenses
to Average Net Assets#..................... 2.75% 1.77% 1.68% 2.41% 3.76% 4.83%
</TABLE>
<TABLE>
<CAPTION>
Year ended 9/4/87*
------------------- through
10/31/89 10/31/88 10/31/87
-------- -------- ---------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............... $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income..................... 0.051 0.043 0.009
------ ------ ------
Less Distributions:
Dividends from net investment income...... 0.051 0.043 0.009
------ ------ ------
Net Asset Value, End of Period..................... $1.00 $1.00 $1.00
===== ===== =====
Total Return....................................... 5.28% 4.50% 4.71%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted).............................. $252,201 $230,639 $ 2,385
Ratio of Expenses to Average
Net Assets#................................ 0.81% 0.78% 0.25%
Ratio of Net Investment Income to
Average Net Assets#........................ 5.15% 4.26% 4.71%
Ratio of Expenses without waivers and
assumption of expenses to Average
Net Assets#................................ 0.95% 1.10% 1.50%
Ratio of Net Investment Income without
waivers and assumption of expenses
to Average Net Assets#..................... 5.01% 3.94% 3.46%
</TABLE>
- -----------------
# Periods less than one year have been annualized.
* Commencement of operations.
+ In 1994 the New York Tax Free Money Market Fund changed its fiscal year-end
from October 31 to August 31.
- 10 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. The financial statements and
notes, as well as the financial information set forth in the table set forth
below, have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon is also included in the Annual Report to Shareholders.
Shareholders can obtain a copy of this report by contacting the Fund or their
Shareholder Servicing Agent.
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND
-------------------------------------------
<TABLE>
<CAPTION>
Year 11/1/93 Year 3/4/92*
ended through ended through
8/31/95 8/31/94+ 10/31/93 10/31/92
------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.......................... $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------
Income from Investment Operations:
Net Investment Income................................ 0.033 0.018 0.023 0.019
------ ------ ------ ------
Less Distributions:
Dividends from net investment income................. 0.033 0.018 0.023 0.019
------ ------ ------ ------
Net Asset Value, End of Period................................ $1.00 $1.00 $1.00 $1.00
===== ===== ===== =====
Total Return.................................................. 3.32% 1.82% 2.30% 2.89%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted)......................................... $58,315 $64,423 $45,346 $44,643
Ratio of Expenses to Average Net Assets#................. 0.48% 0.46% 0.42% 0.06%
Ratio of Net Investment Income to Average Net Assets# 3.25% 2.17% 2.26% 2.86%
Ratio of Expenses without waivers and assumption of
expenses to Average Net Assets#....................... 1.07% 0.94% 1.02% 1.23%
Ratio of Net Investment Income without waivers and
assumption of expenses to Average Net Assets#......... 2.66% 1.69% 1.66% 1.69%
</TABLE>
- ------------------
# Periods less than one year have been annualized.
* Commencement of operations.
+ In 1994 the California Tax Free Money Market Fund changed its fiscal
year-end from October 31 to August 31.
- 11 -
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent with
maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their interest
rates, maturities and dates of issuance. The Fund does not purchase securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government,
and does not enter into repurchase agreements. Income on direct investments in
U.S. Treasury securities is generally not subject to state and local income
taxes by reason of federal law. The dollar weighted average maturity of the
Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their interest
rates, maturities and dates of issuance. In addition, the Fund will seek to
enhance its yield by investing in repurchase agreements which are fully
collateralized by U.S. Treasury obligations. The dollar weighted average
maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, and obligations issued or guaranteed
as to principal and interest by certain agencies or instrumentalities of the
U.S. Government. Income on direct investments in U.S. Treasury securities and
obligations of the agencies and instrumentalities in which the Fund invests is
generally not subject to state and local income taxes by reason of federal law.
The dollar weighted average maturity of the Fund will be 90 days or less. Due
to state income tax considerations, the Fund will not enter into repurchase
agreements.
-------------
Shareholders of the above Funds that reside in a state that imposes an
income tax should determine through consultation with their own tax advisors
whether such interest income, when distributed by the Fund, will be considered
by the state to have retained exempt status, and whether the Fund's capital
gains and other income, if any, when distributed will be subject to the state's
income tax. See "How Distributions are Made; Tax Information."
-------------
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Treasury, or agencies or instrumentalities of the U.S.
Government, and in repurchase agreements collateralized by these
obligations. The dollar weighted average maturity of the Fund will be 60 days
or less.
- 12 -
<PAGE>
Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and the maintenance of liquidity.
The Fund invests in high-quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality commercial
paper and other short-term obligations, including floating and variable rate
master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational agencies
(e.g., the International Bank for Reconstruction and Development); (iii)
obligations issued or guaranteed by U.S. banks with total assets exceeding $1
billion (including obligations of foreign branches of such banks) and by foreign
banks with total assets exceeding $10 billion (or the equivalent in other
currencies) which have branches or agencies in the U.S. (including U.S. branches
of such banks), or such other U.S. or foreign commercial banks which are judged
by the Fund's advisers to meet comparable credit standing criteria; (iv)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (v) repurchase agreements. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes as is consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations (as defined under "Certain Investment
Policies of the Tax Free Funds"). As a fundamental policy, under normal market
conditions the Fund will have at least 80% of its assets invested in Municipal
Obligations the interest on which, in the opinion of bond counsel, is excluded
from gross income for federal income tax purposes and does not constitute a
preference item which would be subject to the federal alternative minimum tax on
individuals (these preference items are referred to as "AMT Items"). Although
the Fund will seek to invest 100% of its assets in such Municipal Obligations,
it reserves the right under normal market conditions to invest up to 20% of its
total assets in AMT Items or securities the interest on which is subject to
federal income tax. For temporary defensive purposes, the Fund may exceed this
limitation. The dollar weighted average maturity of the Fund will be 90 days or
less.
Vista New York Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes and from New York
State and New York City personal income taxes as is consistent with the
preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations. Except when the Fund's advisers
determine that acceptable securities are unavailable for investment, at least
65% of the assets of the Fund will be invested in New York Municipal Obligations
(as defined under "Certain Investment Policies of the Tax Free Funds"), although
the exact amount of its assets invested in such securities will vary from time
to time. To the extent suitable New York Municipal Obligations are not available
for investment, the Fund may purchase Municipal Obligations issued by other
states, their agencies and instrumentalities. The portion of the Fund's assets
invested in such other Municipal Obligations would generally be subject to New
York State and New York City personal income taxes.
As a fundamental policy, under normal market conditions the Fund will have
at least 80% of its assets invested in Municipal Obligations the interest on
which, in the opinion of bond counsel, is excluded from gross
- 13 -
<PAGE>
income for federal income tax purposes and which are not AMT Items. Although the
Fund will seek to invest 100% of its assets in such Municipal Obligations, it
reserves the right under normal market conditions to invest up to 20% of its
total assets in AMT Items or securities the interest on which is subject to
federal income tax. For temporary defensive purposes, the Fund may exceed this
limitation. The dollar weighted average maturity of the Fund will be 90 days or
less.
Vista California Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income exempt
from federal and State of California income taxes as is consistent with the
preservation of capital and maintenance of liquidity.
The Fund invests primarily in a non-diversified portfolio of California
Municipal Obligations (as defined under "Certain Investment Policies of the Tax
Free Funds"). As a fundamental policy, the Fund will invest at least at least
65% of the value of its total assets in California Municipal Obligations, except
when the Fund is maintaining a temporary defensive position. To the extent
suitable California Municipal Obligations are not available for investment, the
Fund may purchase Municipal Obligations issued by other states, their agencies
and instrumentalities. The portion of the Fund's assets invested in such other
Municipal Obligations would generally be subject to California state personal
income tax.
As a fundamental policy, the Fund will invest at least 80% of the value of
its net assets in Municipal Obligations, except when the Fund is maintaining a
temporary defensive position. Although the Fund will seek to invest 100% of its
assets in Municipal Obligations, it reserves the right under normal market
conditions to invest up to 20% of its total assets in AMT Items or securities
the interest on which is subject to federal income tax. For temporary defensive
purposes, the Fund may exceed this limitation. The dollar weighted average
maturity of the Fund will be 90 days or less.
COMMON INVESTMENT POLICIES
As a matter of fundamental policy, each Fund is authorized to seek to
achieve its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as the
applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high quality obligations
which are determined to present minimal credit risks. This credit determination
must be made in accordance with procedures established by the Board of Trustees.
Each investment must be rated in the highest short-term rating category (the two
highest short-term rating categories in the case of Vista New York Tax Free
Money Market Fund and Vista California Tax Free Money Market Fund) by at least
two national rating organizations ("NROs") (or one NRO if the instrument was
rated only by one such organization) or, if unrated, must be determined to be of
comparable quality in accordance with the procedures of the Trustees. If a
security has an unconditional guarantee or similar enhancement, the issuer of
the guarantee or enhancement may be relied upon in meeting these ratings
requirements rather than the issuer of the security. Securities in which the
Funds invest may not earn as high a level of current income as long-term or
lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal regulations.
Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund, Vista New York Tax Free Money Market Fund
and Vista California Tax Free Money Market Fund (together, the "Tax Free Funds")
are classified as "non-diversified" funds under
- 14 -
<PAGE>
federal securities law. These Funds' assets may be more concentrated in the
securities of any single issuer or group of issuers than if the Funds were
diversified. Each Fund other than the Tax Free Funds is classified as a
"diversified" fund under federal securities law.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices, when
consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct obligations of
the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury Securities
Money Market Fund and Vista Treasury Plus Money Market Fund may also invest in
other obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (collectively, "U.S. Government Obligations"). Certain U.S.
Government Obligations, such as U.S. Treasury securities and direct pass-through
certificates of the Government National Mortgage Association (GNMA), are backed
by the "full faith and credit" of the U.S. Government. Other U.S. Government
Obligations, such as obligations of Federal Home Loan Banks and the Federal Home
Loan Mortgage Corporation, are not backed by the "full faith and credit" of 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.
Repurchase Agreements, Securities Loans and Forward Commitments. Each Fund
other than Vista 100% U.S. Treasury Securities Money Market Fund and Vista
Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other than the Tax Free
Funds also has the ability to lend portfolio securities in an amount equal to
not more than 30% of its total assets to generate additional income. These
transactions must be fully collateralized at all times. Each Fund may purchase
securities for delivery at a future date, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date. These transactions involve some risk to a
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it will
establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). A Fund would be required to pay interest on amounts obtained
through reverse repurchase agreements, which are considered borrowings under
federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, a Fund would acquire the
right to sell a security at an agreed upon price within a specified period prior
to its maturity date. These transactions involve some risk to a Fund if the
other party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
- 15 -
<PAGE>
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 20% of its total assets
in separately traded principal and interest components of securities backed by
the full faith and credit of the U.S. Government, including instruments known as
"STRIPS". Vista Cash Management Fund and each Tax Free Fund may also invest in
zero coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the value
of ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. Each
Fund 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 Tax Free Funds and the Vista Cash
Management Fund may invest include participation certificates and, in the case
of Vista Cash Management Fund, certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by others;
certificates of indebtedness or safekeeping are documentary receipts for such
original securities held in custody by others. As a result of the floating or
variable rate nature of these investments, a Fund's yield may decline and it may
forego the opportunity for capital appreciation during periods when interest
rates decline; however, during periods when interest rates increase, a Fund's
yield may increase and it may have reduced risk of capital depreciation. Demand
features on certain floating or variable rate securities may obligate a Fund to
pay a "tender fee" to a third party. Demand features provided by foreign banks
involve certain risks associated with foreign investments. The Internal Revenue
Service has not ruled on whether participations in variable rate municipal
obligations are tax exempt, and the Tax Free Funds would purchase such
instruments based on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund may invest up to 10% of its total assets in shares
of other money market funds, subject to applicable regulatory limitations.
Portfolio Turnover. It is intended that the Funds will be fully managed by
buying and selling securities, as well as holding securities to maturity. The
frequency of the Funds' portfolio transactions will vary from year to year. In
managing a Fund, the Fund's advisers will seek to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund
Vista Cash Management Fund may invest in the following instruments, when
consistent with its overall objective and policies. These instruments, and
certain associated risks, are more fully described in the SAI.
Bank Obligations. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by U.S. banks (including
their foreign branches) and foreign banks (including their U.S. branches).
These obligations may be general obligations of the parent bank or may be
limited to the issuing branch by the terms of the specific obligation or by
government regulation. Foreign bank obligations involve certain risks associated
with foreign investing.
Asset-Backed Securities. Asset-backed securities 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.
Municipal Obligations. The Fund may invest in high-quality, short-term
municipal obligations that carry yields that are competitive with those of other
types of money market instruments in which it may invest. Dividends paid by this
Fund that are derived from interest on municipal obligations will be taxable to
shareholders for federal income tax purposes.
- 16 -
<PAGE>
Securities of Foreign Governments and Supranational Agencies. The Fund
intends to invest a substantial portion of its assets from time to time in
securities of foreign governments and supranational agencies. The Fund will
limit its investments in foreign government obligations to commercial paper and
other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of supranational
agencies, such as the International Bank for Reconstruction and Development
(also known as the World Bank) are supported by subscribed, but unpaid,
commitments of its 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.
Custodial Receipts. The Fund may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. These are not deemed U.S.
Government securities. These notes and bonds are held in custody by a bank on
behalf of the owners of the receipts.
Additional Investment Policies of the Tax Free Funds
The following provides additional information regarding the permitted
investments of the Tax Free Funds. These investments, and certain associated
risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations issued by or
on behalf of states, territories and possessions of the United States, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel, is excluded from gross income
for federal income tax purposes (without regard to whether the interest thereon
is also exempt from the personal income taxes of any state or whether the
interest thereon constitutes a preference item for purposes of the federal
alternative minimum tax). "New York Municipal Obligations" are Municipal
Obligations of the State of New York and its political subdivisions and of
Puerto Rico, other U.S. territories and their political subdivisions, the
interest on which, in the opinion of bond counsel, is exempt from New York State
and New York City personal income taxes. "California Municipal Obligations" are
Municipal Obligations of the State of California, its political subdivisions,
authorities and corporations, the interest on which, in the opinion of bond
counsel, is exempt from State of California personal income taxes.
Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses or the refunding of outstanding debts. They may also be
issued to finance various private activities, including the lending of funds to
public or private institutions for the construction of housing, educational or
medical facilities, and may include certain types of industrial development
bonds, private activity bonds or notes issued by public authorities to finance
privately owned or operated facilities, or to fund short-term cash requirements.
Short-term Municipal Obligations may be issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. The Municipal Obligations in which the Tax Free Funds
invest may consist of municipal notes, municipal commercial paper and municipal
bonds maturing or deemed to mature in 397 days or less.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The characteristics
and methods of enforcement of general obligation securities vary according to
the law applicable to the particular issuer. Revenue obligation securities are
payable only from the revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not payable from the
unrestricted revenues of the issuer. Industrial development bonds and private
activity bonds are in most cases revenue obligation securities, the credit
quality of which is directly related to the private user of the facilities.
- 17 -
<PAGE>
From time to time, each Tax Free Fund may invest more than 25% of the
value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the assets
and revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that a Tax Free Fund may not invest more than 25% of the
value of its total assets in such bonds if the issuers are in the same
industry.
Municipal Lease Obligations. The Tax Free Funds may invest in
municipal lease obligations. These are participations in a lease obligation or
installment purchase contract obligation and typically provide a premium
interest rate. Municipal lease obligations do not constitute general obligations
of the municipality. Certain municipal lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment payments in future years unless money is
later appropriated for such purpose. Each Tax Free Fund will limit investments
in non-appropriation leases to 10% of its assets. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. Certain investments
in municipal lease obligations may be illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market
Fund invests must satisfy the following ratings criteria: Municipal bonds must
be rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another NRO,
municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's or SP-1
by Standard & Poor's or F-1 by Fitch, or have a comparable rating from another
NRO, and municipal commercial paper must be rated in the category Prime-1 by
Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, or, if any of the foregoing is unrated, it must be of
comparable quality. Municipal Obligations in which Vista New York Tax Free Money
Market Fund and Vista California Tax Free Money Market Fund invest must satisfy
the following ratings criteria: Municipal bonds must be rated in the categories
Aaa or Aa by Moody's or AAA or AA by Standard & Poor's or AAA or AA by Fitch, or
have a comparable rating from another NRO, municipal notes must be rated in the
categories MIG-1 or VMIG-1 or MIG-2 or VMIG-2 by Moody's or SP-1 or SP-2 by
Standard & Poor's or F-1 or F-2 by Fitch, or have a comparable rating from
another NRO, and municipal commercial paper must be rated in the categories
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard & Poor's or F-1 or F-2
by Fitch, or have a comparable rating from another NRO, or, if any of the
foregoing is unrated, it must be of comparable quality. Municipal Obligations
which satisfy the foregoing short-term ratings criteria need not also satisfy
the long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds limit
investment risks for their shareholders. These regulations and restrictions
prohibit each Fund from: (a) with certain limited exceptions, investing more
than 5% of its total assets in the securities of any one issuer (this limitation
does not apply to the Tax Free Funds or to U.S. Government Obligations held by
the other Funds); (b) investing 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 procedures established by
the Board of Trustees); or (c) investing more than 25% of its total assets in
any one industry (excluding U.S. Government Obligations, bank obligations and,
for the Tax Free Funds, obligations of states, cities, municipalities or other
public authorities, as well as municipal obligations secured by bank letters of
credit or guarantees). A complete description of these and other investment
policies is included in the SAI. Except for each Fund's investment objective,
restriction (c) above and investment policies designated as fundamental above or
in the SAI, the Funds' investment policies are not fundamental. The Trustees may
change any non-fundamental investment policy without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to maintain a
stable net asset value. Changes in interest rates may affect the value of the
obligations held by the Funds. The value of fixed income securities varies
inversely with changes in prevailing interest rates, although money market
instruments are generally less sensitive to changes in interest rates than are
longer-term securities. For a discussion of certain other risks associated with
the Funds' additional investment activities, see "Other Investment
Practices,"Additional Investment Policies of Vista Cash Management Fund" and
"Additional Investment Policies of the Tax Free Funds."
Vista Cash Management Fund. This Fund is permitted to invest any portion
of its assets in obligations of domestic banks (including their foreign
branches), and in obligations of foreign issuers. The ability to concentrate in
the banking industry may involve certain credit risks, such as defaults or
downgrades, if at some future date adverse economic conditions prevail in such
industries. U.S. banks are subject to extensive governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition to
those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable
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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. In addition,
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.
The Tax Free Funds. Each Tax Free Fund may invest without limitation in
Municipal Obligations secured by letters of credit or guarantees from U.S. banks
(including their foreign branches), and may also invest in Municipal Obligations
backed by foreign institutions. These investments are subject to the
considerations discussed in the preceding paragraphs relating to Vista Cash
Management Fund.
Each of the Tax Free Funds is "non-diversified," which may make the value
of their shares more susceptible to developments affecting issuers in which
these Funds invest. In addition, more than 25% of the assets of each Tax Free
Fund may be invested in securities to be paid from revenue of similar projects,
which may cause these Funds to be more susceptible to similar economic,
political, or regulatory developments (particularly with respect to Vista New
York Tax Free Money Market Fund and Vista California Tax Free Money Market Fund,
since the issuers in which these Funds invest will generally be located in a
single state).
Because the Tax Free Funds will invest primarily in obligations issued by
states, cities, public authorities and other municipal issuers, the Tax Free
Funds are susceptible to factors affecting such states and their municipal
issuers. The New York and California Tax Free Money Market Funds will be
particularly susceptible to factors affecting the State of New York, the State
of California, and their respective municipal issuers. A number of municipal
issuers, including the State of New York, New York City, the State of California
and certain California counties, have a recent history of significant financial
and fiscal difficulties. California's Orange County recently defaulted on
certain of its indebtedness. If a municipal issuer is unable to meet its
financial obligations, the income derived by the related Fund and that Fund's
ability to preserve capital and liquidity could be adversely affected. See the
SAI for further information.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference item
for the purpose of the alternative minimum tax. Where a mutual fund receives
such interest, a proportionate share of any exempt-interest dividend paid by the
mutual fund may be treated as such a preference item to shareholders. Federal
tax legislation enacted over the past few years has limited the types and volume
of bonds which are not AMT Items and the interest on which is not subject to
federal income tax. This legislation may affect the availability of Municipal
Obligations for investment by the Tax Free Funds.
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to each of
the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its predecessors
have over 100 years of money management experience. For its investment advisory
services to each of the Funds, Chase is entitled to receive an annual fee
computed daily and paid monthly at an annual rate equal to 0.10% of each
Fund's average daily net assets. Chase is located at 270 Park Avenue, New York,
New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to each Fund other than the Vista Cash Management
Fund and the Vista Tax Free Money Market Fund, pursuant to a Sub-Investment
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Advisory Agreement between CAM and Chase. CAM is a wholly-owned
operating subsidiary of Chase. CAM makes investment decisions for each of these
Funds on a day-to-day basis. For these services, CAM is entitled to receive a
fee, payable by Chase from its advisory fee, at an annual rate equal to 0.03%
of each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to institutional
clients and to consolidate Chase's investment management function. The same
individuals who serve as portfolio managers for Chase also serve as portfolio
managers for CAM. CAM is located at 1211 Avenue of the Americas, New York, New
York 10036.
Texas Commerce Bank, National Association ("TCB") is the
sub-investment adviser to the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund pursuant to a Sub-Investment Advisory Agreement between Chase
and TCB. TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund on a day-to-day basis. For these services, TCB is entitled to
receive a fee, payable by Chase from its advisory fee, at an annual rate equal
to 0.03% of each such Fund's average daily net assets. TCB is located at 600
Travis, Houston, Texas 77002.
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HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs,
SEP-IRAs and the Systematic Investment Plan) and make additional investments at
any time with as little as $100. You can buy Fund shares three ways- through an
investment representative or shareholder servicing agent, through the Funds'
distributor (at 1-800-34-VISTA), or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be accepted.
When purchases are made by check, redemptions will not be allowed until
clearance of the purchase check, which may take 15 calendar days or longer. In
addition, redemption of shares purchased through ACH will not be allowed until
clearance of your payment which may take 7 business days or longer. In the event
a check used to pay for shares is not honored by a bank, the purchase order will
be cancelled and the shareholder will be liable for any losses or expenses
incurred by a Fund.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening an account.
Buying shares through the Funds' distributor. Complete and return the
enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through the Systematic Investment Plan. You can make regular
investments of $100 or more per transaction through automatic periodic deduction
from your bank savings or checking account. Shareholders electing to start this
Systematic Investment Plan when opening an account should complete Section 8 of
the account application. Current shareholders may begin the Plan at any time by
sending a signed letter with signature guarantee and a deposit slip or voided
check to the Vista Service Center. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Buying shares through an investment representative or shareholder servicing
agent. Vista Shares of the Funds may be purchased through a shareholder
servicing agent (i.e., a financial institution, such as a bank, trust company or
savings and loan association that has entered into a shareholder servicing
agreement with the Funds) or by customers of brokers or certain financial
institutions which have entered into Selected Dealer Agreements with the Funds'
distributor. An investor may purchase Vista Shares by authorizing his
shareholder servicing agent or investment representative to purchase shares on
his behalf through the Funds' distributor. Shareholder servicing agents may
offer additional services to their customers, including customized procedures
for the purchase and redemption of Vista Shares, such as pre-authorized or
systematic purchase and withdrawal programs and "sweep" checking programs. For
further information, see "Other Information Concerning the Funds" in this
prospectus and the SAI.
Shares are sold without a sales load at the net asset value next
determined after the Vista Service Center receives your order in proper form on
any business day during which the Federal Reserve Bank of New York and the New
York Stock Exchange are open for business ("Fund Business Day"). To receive that
day's price, the Vista Service Center or your investment representative or
shareholder servicing agent must generally receive your order prior to the
Funds' Cut-off Time. The Funds' Cut-off Times (Eastern time) are as follows:
Vista 100% U.S. Treasury Securities Money Market Fund......... Noon
Tax Free Funds................................................ Noon
Vista Federal Money Market Fund............................... 2:00 p.m.
Vista U.S. Government Money Market Fund....................... 2:00 p.m.
Vista Cash Management Fund.................................... 2:00 p.m.
Vista Treasury Plus Money Market Fund......................... 4:00 p.m.
Orders for shares received and accepted prior to the Cut-off Times will be
entitled to all dividends declared on that day. Orders received for shares
after a Fund's Cut-off Time and prior to 4:00 p.m., Eastern time on any Fund
Business Day will not be accepted and executed on the same day except at the
Funds' discretion. Orders received and not accepted after a Fund's Cut-off Time
will be considered received prior to the Fund's Cut-off Time on the following
Fund Business Day and processed accordingly. Orders for shares are accepted by
each Fund after funds are converted to federal funds. Orders paid by check and
received before a Fund's Cut-off Time will generally be available for the
purchase of shares the following Fund Business Day. The Funds reserve the right
to reject any purchase order.
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How to Sell Shares
You can sell your shares to a Fund on any Fund Business Day either
directly or through your investment representative or shareholder servicing
agent. A Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to a Fund. Send a signed letter of instruction to
the Vista Service Center. The price you receive is the next net asset value
calculated after your request is received in proper form.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required. A
Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
A Fund generally sends you payment for your shares the Fund Business Day
after your request is received, provided your request is received by the Vista
Service Center prior to the Fund's Cut-off Time, and assuming the Fund has
collected payment of hte purchase price of your shares. Under unusual
circumstances, the Funds may suspend redemptions, or postpone payment for more
than seven business days, as permitted by federal securities laws.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess of
$25,000 will only be made by wire to a bank account on record with the Funds.
Unless an investor indicates otherwise on the account application, the Funds
will be authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide the Funds with his or her account registration
and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it fails
to employ reasonable procedures, a Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither a Fund nor its agents will be
liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In this
event, you may wish to submit a written redemption request, or contact your
investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Systematic Withdrawal Plan. You can make regular withdrawals of $50 or more
monthly, quarterly or semiannually. A minimum account balance of $5,000 is
required to establish a Systematic Withdrawal Plan. Call the Vista Service
Center at 1-800-34-VISTA for complete instructions.
Selling shares through your investment representative or your shareholder
servicing agent. Your investment representative or your shareholder servicing
agent must receive your request before the Cut-off Time for your Fund to receive
that day's net asset value. Your representative will be responsible for
furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntary redeem your
shares if the aggregate net asset value of the shares in your account is less
than $500 or if you purchase through the Systematic Investment Plan and fail to
meet that Fund's investment minimum within a twelve month period. In the event
of any such redemption, you will receive at least 60 days' notice prior to the
redemption.
How to Exchange Your Shares
You can exchange your shares for Vista Shares of certain other Vista money
market funds at net asset value and for certain classes of shares of the Vista
non-money market funds at net asset value plus any applicable sales
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charge, subject to any minimum investment requirement. Not all Vista funds
offer all classes of shares. The prospectus of the other Vista fund into which
shares are being exchanged should be read carefully and retained for future
reference.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. Ask your investment
representative or the Vista Service Center for prospectuses of other Vista
funds. Please read the prospectus carefully before investing and keep it for
future reference. Shares of certain Vista funds are not available to residents
of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Funds, the Funds reserve
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving a Fund in a year or three in a
calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is currently
determined daily as of 12:00 noon and 4:00 p.m., Eastern time on each Fund
Business Day by dividing the net assets of a Fund attributable to such class by
the number of shares of such class outstanding at the time the determination is
made. Effective with the anticipated introduction of certain automated share
purchase programs, the net asset value of shares of each class of Funds
available through the programs will also be determined as of 6:00 p.m., Eastern
time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized cost in
accordance with federal securities laws, certain requirements of which are
summarized under "Common Investment Policies." This method increases stability
in valuation, but may result in periods during which the stated value of a
portfolio security is higher or lower than the price a Fund would receive if the
instrument were sold. It is anticipated that the net asset value of each share
of each Fund will remain constant at $1.00 and the Funds will employ specific
investment policies and procedures to accomplish this result, although no
assurance can be given that they will be able to do so on a continuing basis.
The Board of Trustees will review the holdings of each Fund at intervals it
deems appropriate to determine whether that Fund's net asset value calculated by
using available market quotations (or an appropriate substitute which reflects
current market conditions) deviates from $1.00 per share based upon amortized
cost. In the event the Trustees determine that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Trustees will take such corrective action as they regard as
necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is declared
as a dividend to the shareholders each Fund Business Day. Dividends are declared
as of the time of day which corresponds to the latest time on that day that a
Fund's net asset value is determined. Shares begin accruing dividends on the day
they are purchased. Dividends are distributed monthly. Unless a shareholder
arranges to receive dividends in cash or by ACH to a pre-established bank
account, dividends are distributed in the form of additional shares. Dividends
that are otherwise taxable are still taxable to you whether received in cash or
additional shares. Net realized short-term capital gains, if any, will be
distributed at least annually. The Funds do not expect to realize net long-term
capital gains.
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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.
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund does
not qualify as a regulated investment company for any taxable year or does not
make distributions as it intends, the Fund will be subject to tax on all of its
income and gains.
Distributions by a Fund of its ordinary income and short-term capital gains
are generally taxable to you as ordinary income. Distributions by the Tax Free
Funds of their tax-exempt interest income will not be subject to federal income
tax. Such distributions will generally be subject to state and local taxes, but
may be exempt if paid out of interest on municipal obligations of the state or
locality in which you reside. Distributions by a Fund of net long-term capital
gains will be taxable as such, regardless of the length of time you have held
your shares. Distributions will be taxable in the same manner for federal income
tax purposes whether received in cash or in shares through the reinvestment of
distributions.
To the extent distributions are attributable to interest from obligations
of the U.S. Government and certain of its agencies and instrumentalities, such
distributions may be exempt from certain types of state and local taxes.
Early in each calendar year the Funds will notify you of the amount and tax
status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Funds. You should consult your tax adviser to determine the
precise effect of an investment in the Funds on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Distribution Plans
The Funds' distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. Each Fund
other than the Vista Cash Management Fund has adopted a Rule 12b-1 distribution
plan which provides that such Fund will pay distribution fees at annual rates of
up to 0.10% of the average daily net assets attributable to its Vista Shares.
There is no distribution plan for the Vista Cash Management Fund. Payments under
the distribution plan shall be used to compensate or reimburse the Funds'
distributor and broker-dealers for services provided and expenses incurred in
connection with the sale of Vista Shares, and are not tied to the amount of
actual expenses incurred. Some activities intended to promote the sale of Vista
Shares will be conducted generally by the Vista Family of Funds, and activities
intended to promote a Fund's Vista Shares may also benefit the Fund's other
shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater or entertainment for broker-dealers and their guests;
and payment or reimbursement
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for travel expenses, including lodging and meals, in connection with attendance
at training and educational meetings within and outside the U.S.
Shareholder Servicing Agents
Each Fund has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers, including assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.35% of the average
daily net assets of the Vista Shares of each Fund held by investors for whom the
shareholder servicing agent maintains a servicing relationship. Shareholder
servicing agents may subcontract with other parties for the provision of
shareholder support services. The Board of Trustees has determined that the
amount payable in respect of "service fees" (as defined in the NASD Rules of
Fair Practice) does not exceed 0.25% of the average annual net assets
attributable to the Vista Shares of each Fund.
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.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers 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 0.10% annually
of the average net assets of a Fund attributable to shares of such Fund held by
customers of such selected dealers. Such compensation does not represent an
additional expense to a Fund or its shareholders, since it will be paid by
Chase.
Administrator and Sub-Administrator
Chase acts as the Funds' administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.05% of each Fund's
average daily net assets.
VFD provides certain sub-administrative services to each Fund pursuant to a
distribution and sub-administration agreement and is entitled to receive a fee
for these services from each Fund at an annual rate equal to 0.05% of the Fund's
average daily net assets. VFD has agreed to use a portion of this fee to pay for
certain expenses incurred in connection with organizing new series of the Trust
and certain other ongoing expenses of the Trust. VFD is located at 101 Park
Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for each Fund and receives
compensation under an agreement with the Funds. Securities and cash of each Fund
may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
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
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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
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.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was known as the
Vista Global Money Market Fund. The Trust has reserved the right to create and
issue additional series and classes. Each share of a series or class represents
an equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Shares
have no preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted. Shares of each class of a Fund generally vote
together except when required under federal securities laws to vote separately
on matters that only affect a particular class, such as the approval of
distribution plans for a particular class. Fund shares will be maintained in
book entry form, and no certificates representing shares owned will be issued to
shareholders.
Each Fund may issue multiple classes of shares. This Prospectus relates
only to Vista Shares of the Funds. Certain Funds offer other classes of shares
in addition to these classes. The categories of investors that are eligible to
purchase shares and minimum investment requirements may differ for each class of
Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service fee
levels, and levels of certain other expenses, which would affect the relative
performance of the different classes. Investors may call 1-800-34-VISTA to
obtain additional information about other classes of shares of the Funds that
are offered. Any person entitled to receive compensation for selling or
servicing shares of a Fund may receive different levels of compensation with
respect to one class of shares over another.
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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and generally
prohibit banks from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks or their affiliates from acting as investment
adviser, administrator or custodian to mutual funds or from purchasing mutual
fund shares as agent for a customer. Chase and the Trust believe that Chase
(including its affiliates) may perform the services to be performed by it as
described in this Prospectus without violating such laws. If future changes in
these laws or interpretations required Chase to alter or discontinue any of
these services, it is expected that the Board of Trustees would recommend
alternative arrangements and that investors would not suffer adverse
- 26 -
<PAGE>
financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of any
of the Funds, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Funds' distributor or affiliates of the distributor. Chase will
not invest any Fund assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate, although
under certain circumstances such securities may be purchased from other members
of an underwriting syndicate in which Chase or an affiliate is a non-principal
member. This restriction may 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
decisions, it does not obtain or use material inside information in the
possession of any other division or department of such Chase or in the
possession of any affiliate of Chase, including the division that performs
services for the Trust as custodian. 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
shareholders and their accounts. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective yield".
Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will continue
to be generated each week over a 52-week period. It is shown as a percentage of
such investment. "Effective yield" is the annualized "yield" calculated assuming
the reinvestment of the income earned during each week of the 52-week period.
The "effective yield" will be slightly higher than the "yield" due to the
compounding effect of this assumed reinvestment.
The Tax Free Funds may also quote a "tax equivalent yield", the yield that
a taxable money market fund would have to generate in order to produce an
after-tax yield equivalent to a Tax Free Fund's yield. The tax equivalent yield
of a Tax Free Fund can then be compared to the yield of a taxable money market
fund. Tax equivalent yields can be quoted on either a "yield" or "effective
yield" basis.
Investment performance may from time to time be included in advertisements
about the Funds. Performance is calculated separately for each class of shares.
Because this performance information is based on historical earnings, it should
not be considered as an indication or representation of future performance.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of each Fund's portfolio, each Fund's
operating expenses and which class of shares you purchase. Investment
performance also reflects the risks associated with each Fund's investment
objective and policies. These factors should be considered when comparing each
Fund's investment results to those of other mutual funds and investment
vehicles. Quotations of investment performance for any period when an expense
limitation was in effect will be greater if the limitation had not been in
effect. Each Fund's performance may be compared to other mutual funds, relevant
indices and rankings prepared by independent services. See the SAI.
- 27 -
<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
- 28 -
<PAGE>
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
Premier[SM] Shares
May 6, 1996
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-622-4273. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES AND
ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary................................................................
The expenses you pay on your Fund investment, including examples
Financial Highlights...........................................................
The Funds' financial history
Fund Objectives and Investment Approach.........................................
Vista 100% U.S. Treasury Securities Money Market Fund
Vista Treasury Plus Money Market Fund
Vista Federal Money Market Fund
Vista U.S. Government Money Market Fund
Vista Cash Management Fund
Vista Prime Money Market Fund
Vista Tax Free Money Market Fund
Common Investment Policies.....................................................
Management ....................................................................
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management
and Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares...........................................
How the Funds Value Their Shares...............................................
How Dividends and Distributions Are Made; Tax Information......................
How the Funds distribute their earnings, and
tax treatment related to those earnings
Other Information Concerning the Funds..........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information.........................................................
How performance is determined, stated and/or advertised
-2-
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on expenses
incurred in the most recent fiscal year by each Fund other than the Vista 100%
U.S. Treasury Securities Money Market Fund, and based on estimated expenses for
the current fiscal year for the Vista 100% U.S. Treasury Securities Money Market
Fund. The examples show the cumulative expenses attributable to a hypothetical
$1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista
100% U.S. Vista Vista Vista U.S. Vista Vista
Treasury Treasury Federal Government Prime Tax Free
Securities Plus Money Money Money Vista Cash Money Money
Money Market Market Market Management Market Market
Market Fund Fund Fund Fund Fund Fund Fund
-------------------------------------------------------------------------------------
Premier Premier Premier Premier Premier Premier Premier
Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses
(as a percentage
of average net assets)
Investment Advisory Fee 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
12b-1 Fee(*) n/a n/a n/a 0.10% n/a n/a n/a
Shareholder Servicing Fee
(after estimated waivers
of fees, where indicated) 0.25% 0.25% 0.20%(**) 0.19%(**) 0.23%(**) 0.20%(**) 0.25%
Other Expenses 0.20% 0.20% 0.20% 0.16% 0.17% 0.15% 0.20%
- -------------------------
Total Fund Operating Expenses
(after waiver of fee, where 0.55% 0.55% 0.50%(**) 0.55%(**) 0.50%(**) 0.45%(**) 0.55%
indicated)
Examples
Your investment of $1,000 would incur the following expenses, assuming 5% annual return:
1 Year $ 6 $ 6 $ 5 $ 6 $ 5 $ 5 $ 6
3 years 18 18 16 18 16 14 18
5 years - 31 28 31 28 25 31
10 years - 69 63 69 63 57 69
</TABLE>
- -------------------
* Long-term shareholders in mutual funds with 12b-1 fees, such as holders of
Premier Shares of Vista U.S. Government Money Market Fund, may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers, Inc.
** Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Shareholder Servicing Fee would be 0.25% for each such Fund, and Total
Fund Operating Expenses for Vista Federal Money Market Fund, Vista U.S.
Government Money Market Fund, Vista Cash Management Fund and Vista Prime
Money Market Fund would be 0.55%, 0.61%, 0.52% and 0.50%, respectively.
-3-
<PAGE>
The table is provided to help you understand the expenses of
investing in the Funds and your share of the operating expenses that a Fund
incurs. THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR
LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may
be incurred directly by customers of financial institutions in connection with
an investment in a Fund. The Funds understand that Shareholder Servicing Agents
may credit to the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees received
by the Shareholder Servicing Agent from a Fund with respect to those accounts.
See "Other Information Concerning the Funds."
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, has been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA TREASURY PLUS MONEY MARKET FUND
-------------------------------------
<TABLE>
<CAPTION>
Premier Shares
------------------
Year 4/22/94**
ended through
8/31/95 8/31/94
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.................................. $1.00 $1.00
------ ------
Income from Investment Operations:
Net Investment Income....................................... 0.050 0.014
------ ------
Less Distributions:
Dividends from Net Investment Income........................ 0.050 0.014
------ ------
Net Asset Value, End of Period........................................ $1.00 $1.00
====== ======
Total Return.......................................................... 5.17% 1.37%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)......................... $18,572 $ 36
Ratio of Expenses to Average Net Assets#........................ 0.50% 0.49%
Ratio of Net Investment Income to Average Net Assets#........... 5.23% 3.85%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets#......................................... 1.57% 0.89%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets#............................. 4.16% 3.46%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
** Commencement of offering shares.
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, has been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA FEDERAL MONEY MARKET FUND
-------------------------------
<TABLE>
<CAPTION>
Premier Shares
------------------------------
Year 4/22/94**
ended through
8/31/95 8/31/94
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period................................... $1.00 $1.00
------- ------
Income From Investment Operations:
Net Investment Income........................................ 0.053 0.015
------- ------
Less Distributions:
Dividends from Net Investment Income......................... 0.053 0.015
------- ------
Net Asset Value, End of Period......................................... $1.00 $1.00
======= ======
Total Return........................................................... 5.40% 1.47%
Ratios/Supplemental Data
Net Assets, end of Period (000 omitted).......................... $148,512 $55,768
Ratio of Expenses to Average Net Assets#......................... 0.49% 0.35%
Ratio of Net Investment Income to Average Net Assets#............ 5.32% 4.38%
Ratio of Expenses without waivers and assumption to expenses to
Average Net Assets#.......................................... 0.59% 0.74%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets#.............................. 5.22% 4.00%
</TABLE>
- ----------------
# Periods less than one year have been annualized.
** Commencement of offering shares.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for one Premier Share outstanding throughout each period shown. This
information is supplemented by financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1995, which is incorporated by reference into the SAI. Shareholders
can obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below for each of the periods commencing
subsequent to June 30, 1992, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the annual report
to Shareholders. Periods ended prior to July 1, 1993 were audited by other
independent accountants.
<TABLE>
<CAPTION>
VISTA U.S. GOVERNMENT MONEY MARKET FUND(1)
PREMIER SHARES
-----------------------------------------------------------------------------------------------
Year 11/1/93 7/1/92 Year Ended
Ended through Year ended through ---------------------------
8/31/95 8/31/94++ 10/31/93 10/31/92* 6/30/92 6/30/91 6/30/90(2)
------- --------- -------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
- -------------------
PERFORMANCE
-----------
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- -----
Income from Investment
Operations:
Net Investment Income......... 0.052 0.027 0.027 0.010 0.041(3) 0.068 0.075
----- ----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from Net
Investment Income.......... 0.052 0.027 0.027 0.010 0.041(3) 0.068 0.075
----- ----- ----- ----- ----- ----- -----
Net Asset Value, End
of Period....................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total Return........................ 5.31% 2.70% 2.70% 0.98% 4.68% 6.91% 8.13%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)....... $763,609 $545,999 $1,609,704 $108,505 $ 78,795 $193,308 $63,774
Ratio of Expenses to
Average Net Assets+........ 0.55% 0.55% 0.55% 0.58% 0.57% 0.57% 0.72%
Ratio of Net Income to
Average Net Assets+........ 5.22% 3.13% 2.66% 2.87% 4.10% 6.76% 7.46%
Ratio of Expenses without
waivers and
assumption of expenses
to Average Net
Assets+.................... 0.59% 0.61% 0.67% 0.70% 0.64% 0.65% --
Ratio of Net Investment
Income without waivers
and assumption of
expenses to Average
Net Assets+................ 5.18% 3.07% 2.54% 2.75% 4.03% 6.68% --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VISTA U.S. GOVERNMENT MONEY MARKET FUND(1)
PREMIER SHARES
----------------------------------------------------
Year Ended
----------------------------------------------------
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85 9/30/84
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- -----
Income from Investment
Operations:
Net Investment Income......... 0.083 0.065 0.058 0.062 0.072 0.083
----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from Net
Investment Income.......... 0.083 0.065 0.058 0.062 0.072 0.083
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total Return........................ 6.34% 6.54% 5.78% 6.24% 7.13% 6.25%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)....... $84,752 $79,541 $82,068 $86,475 $14,523 $ 3,991
Ratio of Expenses to
Average Net Assets+........ 0.70% 0.67% 0.64% 0.68% 1.03% 1.54%
Ratio of Net Income to
Average Net Assets+........ 8.31% 6.54% 5.78% 6.24% 7.16% 8.25%
Ratio of Expenses without
waivers and
assumption of expenses
to Average Net
Assets+.................... -- -- -- -- 1.10% 2.23%
Ratio of Net Investment
Income without waivers
and assumption of
expenses to Average
Net Assets+................ -- -- -- -- 7.09% 7.56%
</TABLE>
+ Periods less than one year have been annualized.
++ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
* In 1992 the Trinity Government Fund, the predecessor to the Vista U.S.
Government Money Market Fund, changed its fiscal year-end from June 30 to
October 31.
(1) Trinity Government Fund and Vista U.S. Government Money Market Fund each
reorganized as a new portfolio of Mutual Fund Group effective January 1,
1993 in a tax-free reorganization, and subsequently were reorganized into
the Trust on October 28, 1994. The new portfolio was named Vista U.S.
Government Money Market Fund.
(2) On January 31, 1990, the Trinity Government Fund was reorganized into a
series of Trinity Assets Trust. Prior to the reorganization, the Trinity
Government Fund had been incorporated under the laws of the State of
Florida since July 10, 1980 as Pinnacle Government Fund, Inc. with a fiscal
year ended September 30. Actual per share income and capital changes for
the nine-month period ended June 30, 1990 have been annualized in order to
provide a comparison to prior years' results.
(3) Include $0.001 short-term capital gain per share.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash
Management Fund") merged into the Cash Management Fund; therefore, commencing
with the fiscal year ending August 31, 1996, selected per share data and ratios
for one Hanover Cash Management share outstanding will be provided.
Accordingly, no information is presented below.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, has been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA PRIME MONEY MARKET FUND
-----------------------------
<TABLE>
<CAPTION>
Premier
Shares
-----------------------------
Year 11/15/93*
ended through
8/31/95 8/31/94+
------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.................................. $1.00 $1.00
------ ------
Income from Investment Operations:
Net Investment Income....................................... 0.053 0.027
Net Realized Loss on Securities............................. (0.003) -
------ ------
Total Income from Investment Operations..................... 0.050 0.027
Voluntary Capital Contribution.................................. 0.003 -
------ ------
Less Distributions:
Dividends from Net Investment Income........................ 0.053 0.027
------ ------
Net Asset Value, End of Period........................................ $1.00 $1.00
===== =====
Total Return(1)....................................................... 5.44% 2.75%
Ratios/Supplemental Data
Net Assets, end of Period (000 omitted)......................... $62,737 $73,253
Ratio of Expenses to Average Net Assets#........................ 0.45% 0.45%
Ratio of Net Investment Income to Average Net Assets#........... 5.24% 3.15%
Ratio of Expenses without waivers and assumption to expenses to
Average Net Assets#......................................... 0.65% 0.56%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets#............................. 5.04% 3.04%
</TABLE>
- -------------
# Periods less than one year have been annualized.
* Commencement of operations.
+ In 1994 Prime Money Market Fund changed its fiscal year-end from October 31
to August 31.
-9-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for one Premier Share outstanding throughout each period shown. This
information is supplemented by financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1995, which is incorporated by reference into the SAI. Shareholders
can obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the tables set forth below, for each of the five years
ended August 31, 1995, have been audited by Price Waterhouse LLP, independent
accountants, whos report thereon is inclucded in the Annual Report to
shareholders.
VISTA TAX FREE MONEY MARKET FUND
--------------------------------
<TABLE>
<CAPTION>
PREMIER SHARES
---------------------------------------------------------------
Year 11/1/93 Year ended 7/18/90*
Ended through ----------------------------- through
8/31/95 8/31/94++ 10/31/93 10/31/92 10/31/91 10/31/90
------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income................................ 0.032 0.018 0.022 0.031 0.046 0.002
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income................. 0.032 0.018 0.022 0.031 0.046 0.002
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total Return.................................................. 3.29% 1.79% 2.21% 3.09% 4.68% 6.82%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted)........................................ $148,436 $229,306 $225,791 $ 87,027 $19,174 $11,320
Ratio of Expenses to Average Net Assets+................. 0.56% 0.55% 0.55% 0.55% 0.55% 0.55%
Ratio of Net Investment Income to Average Net Assets+ 3.21% 2.11% 2.16% 2.92% 4.39% 6.82%
Ratio of Expenses without waivers and assumption of
expenses to Average Net Assets+....................... 0.84% 0.78% 0.79% 0.76% 0.82% 0.71%
Ratio of Net Investment Income without waivers and
assumption of expenses to Average Net Assets+............ 2.93% 1.89% 1.92% 2.71% 4.12% 6.66%
</TABLE>
- -------------
+ Periods less than one year have been annualized.
++ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of operations.
-10-
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent
with maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, which differ principally only in
their interest rates, maturities and dates of issuance. The Fund does not
purchase securities issued or guaranteed by agencies or instrumentalities of the
U.S. Government, and does not enter into repurchase agreements. Income on direct
investments in U.S. Treasury securities is generally not subject to state and
local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, which differ principally only in
their interest rates, maturities and dates of issuance. In addition, the Fund
will seek to enhance its yield by investing in repurchase agreements which are
fully collateralized by U.S. Treasury obligations. The dollar weighted average
maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S.
Treasury, including Treasury bills, bonds and notes, and obligations issued or
guaranteed as to principal and interest by certain agencies or instrumentalities
of the U.S. Government. Income on direct investments in U.S. Treasury securities
and obligations of the agencies and instrumentalities in which the Fund invests
is generally not subject to state and local income taxes by reason of federal
law. The dollar weighted average maturity of the Fund will be 90 days or less.
Due to state income tax considerations, the Fund will not enter into repurchase
agreements.
===============
Shareholders of the above Funds that reside in a state that
imposes an income tax should determine through consultation with their own tax
advisors whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status, and whether the Fund's
capital gains and other income, if any, when distributed will be subject to the
state's income tax. See "How Distributions are Made; Tax Information."
===============
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income
as is consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in obligations
issued or guaranteed by the U.S. Treasury or agencies or instrumentalities of
the U.S. Government, and in repurchase agreements collateralized by these
obligations. The dollar weighted average maturity of the Fund will be 60 days
or less.
Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and the maintenance of liquidity.
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The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational agencies
(e.g., the International Bank for Reconstruction and Development); (iii)
obligations issued or guaranteed by U.S. banks with total assets exceeding $1
billion (including obligations of foreign branches of such banks) and by foreign
banks with total assets exceeding $10 billion (or the equivalent in other
currencies) which have branches or agencies in the U.S. (including U.S. branches
of such banks), or such other U.S. or foreign commercial banks which are judged
by the Fund's advisers to meet comparable credit standing criteria; (iv)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (v) repurchase agreements. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Prime Money Market Fund
The Fund's objective is to provide maximum current income
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in high-quality, short-term U.S.
dollar-denominated money market instruments. The Fund invests principally in (i)
high quality commercial paper and other short-term obligations, including
floating and variable rate master demand notes of U.S. and foreign corporations;
(ii) U.S. dollar-denominated obligations of foreign governments and
supranational agencies (e.g., the International Bank for Reconstruction and
Development); (iii) obligations issued or guaranteed by U.S. banks with total
assets exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 60 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income
which is excluded from gross income for federal income tax purposes as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed
rate and variable rate Municipal Obligations (as defined under "Certain
Investment Policies of the Tax Free Fund"). As a fundamental policy, under
normal market conditions the Fund will have at least 80% of its assets invested
in Municipal Obligations the interest on which, in the opinion of bond counsel,
is excluded from gross income for federal income tax purposes and does not
constitute a preference item which would be subject to the federal alternative
minimum tax on individuals (these preference items are referred to as "AMT
Items"). Although the Fund will seek to invest 100% of its assets in such
Municipal Obligations, it reserves the right under normal market conditions to
invest up to 20% of its total assets in AMT Items or securities the interest on
which is subject to federal income tax. For temporary defensive purposes, the
Fund may exceed this limitation. The dollar weighted average maturity of the
Fund will be 90 days or less.
COMMON INVESTMENT POLICIES
As a matter of fundamental policy, each Fund is authorized to seek
to achieve its objective by investing all of its investable assets in an
investment company having substantially the same investment objective and
policies as the applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high-quality
obligations which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating
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organizations ("NROs") (or one NRO if the instrument was rated only by one such
organization) or, if unrated, must be determined to be of comparable
quality in accordance with the procedures of the Trustees. If a security
has an unconditional guarantee or similar enhancement, the issuer of the
guarantee or enhancement may be relied upon in meeting these ratings
requirements rather than the issuer of the security. Securities in which
the Funds invest may not earn as high a level of current income as
long-term or lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal regulations.
Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund is classified as a
"non-diversified" fund under federal securities law. This Fund's assets may be
more concentrated in the securities of any single issuer or group of issuers
than if the Fund were diversified. Each Fund other than the Vista Tax Free
Money Market Fund is classified as a "diversified" fund under federal
securities laws.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices,
when consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct
obligations of the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund and Vista Treasury Plus Money Market Fund may also
invest in other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Certain U.S. Government Obligations, such as U.S. Treasury securities and direct
pass-through certificates of the Government National Mortgage Association
(GNMA), are backed by the "full faith and credit" of the U.S. Government. Other
U.S. Government Obligations, such as obligations of Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are not backed by the "full faith
and credit" of 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.
Repurchase Agreements, Securities Loans and Forward Commitments.
Each Fund other than Vista 100% U.S. Treasury Securities Money Market Fund and
Vista Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other than the Vista Tax
Free Money Market Fund also has the ability to lend portfolio securities in an
amount equal to not more than 30% of its total assets to generate additional
income. These transactions must be fully collateralized at all times. Each Fund
may purchase securities for delivery at a future date, which may increase its
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. These transactions involve
some risk to a Fund if the other party should default on its obligation and the
Fund is delayed or prevented from recovering the collateral or completing the
transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it will
establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). A Fund would be required to pay interest on amounts obtained
through reverse repurchase agreements, which are considered borrowings under
federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, a Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to a
Fund if the other party should default on its obligation and the
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Fund is delayed or prevented from recovering the collateral or completing the
transaction. Acquisition of puts will have the effect of increasing the
cost of the securities subject to the put and thereby reducing the yields
otherwise available from such securities.
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100%
U.S. Treasury Securities Money Market Fund may invest up to 20% of its total
assets in separately traded principal and interest components of securities
backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". Vista Cash Management Fund, Vista Prime Money
Market Fund and Vista Tax Free Money Market Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
Each Fund 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 Vista Tax Free Money Market Fund, Vista
Cash Management Fund and Vista Prime Money Market Fund may invest include
participation certificates and, in the case of Vista Cash Management Fund and
Vista Prime Money Market Fund, certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by others;
certificates of indebtedness or safekeeping are documentary receipts for such
original securities held in custody by others. As a result of the floating or
variable rate nature of these investments, a Fund's yield may decline and it may
forego the opportunity for capital appreciation during periods when interest
rates decline; however, during periods when interest rates increase, a Fund's
yield may increase and it may have reduced risk of capital depreciation. Demand
features on certain floating or variable rate securities may obligate a Fund to
pay a "tender fee" to a third party. Demand features provided by foreign banks
involve certain risks associated with foreign investments. The Internal Revenue
Service has not ruled on whether participations in variable rate municipal
obligations is tax exempt, and the Tax Free Fund would purchase such instruments
based on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 10% of its total assets
in shares of other money market funds, subject to applicable regulatory
limitations.
Portfolio Turnover. It is intended that the Funds will be fully
managed by buying and selling securities, as well as holding securities to
maturity. The frequency of the Funds' portfolio transactions will vary from year
to year. In managing a Fund, the Fund's advisers will seek to take advantage of
market developments, yield disparties and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund
and Vista Prime Money Market Fund
Vista Cash Management Fund and Vista Prime Money Market Fund may
invest in the following instruments, when consistent with their overall
objectives and policies. These instruments, and certain associated risks, are
more fully described in the SAI.
Bank Obligations. Bank obligations include certificates of deposit,
time deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation or
by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities 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.
Municipal Obligations. The Funds may invest in high-quality,
short-term municipal obligations that carry yields that are competitive with
those of other types of money market instruments in which it may invest.
Dividends paid by these Funds that are derived from interest on municipal
obligations will be taxable to shareholders for federal income tax purposes.
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Securities of Foreign Governments and Supranational Agencies. The
Funds intend to invest a substantial portion of their assets from time to time
in securities of foreign governments and supranational agencies. The Funds will
limit their investments in foreign government obligations to commercial paper
and other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of supranational
agencies, such as the International Bank for Reconstruction and Development
(also known as the World Bank) are supported by subscribed, but unpaid,
commitments of its 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.
Custodial Receipts. The Funds may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. These are not deemed U.S.
Government securities. These notes and bonds are held in custody by a bank on
behalf of the owners of the receipts.
Additional Investment Policies of Vista Tax Free Money Market Fund
The following provides additional information regarding the
permitted investments of Vista Tax Free Money Market Fund. These investments,
and certain associated risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations
issued by or on behalf of states, territories and possessions of the United
States, and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel, is excluded
from gross income for federal income tax purposes (without regard to whether the
interest thereon is also exempt from the personal income taxes of any state or
whether the interest thereon constitutes a preference item for purposes of the
federal alternative minimum tax).
Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses or the refunding of outstanding debts. They may also be
issued to finance various private activities, including the lending of funds to
public or private institutions for the construction of housing, educational or
medical facilities, and may include certain types of industrial development
bonds, private activity bonds or notes issued by public authorities to finance
privately owned or operated facilities, or to fund short-term cash requirements.
Short-term Municipal Obligations may be issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. The Municipal Obligations in which the Fund invest may
consist of municipal notes, municipal commercial paper and municipal bonds
maturing or deemed to mature in 397 days or less.
The two principal classifications of Municipal Obligations are
general obligation and revenue obligation securities. General obligation
securities involve a pledge of the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Revenue obligation
securities are payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial development
bonds and private activity bonds are in most cases revenue obligation
securities, the credit quality of which is directly related to the private user
of the facilities.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no
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obligation to make lease or installment payments in future years unless money is
later appropriated for such purpose. The Fund will limit its investments in
non-appropriation leases to 10% of its assets. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. Certain investments
in municipal lease obligations may be illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market
Fund invests must satisfy the following ratings criteria: Municipal bonds must
be rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another NRO,
municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's or SP-1
by Standard & Poor's or F-1 by Fitch, or have a comparable rating from another
NRO, and municipal commercial paper must be rated in the category Prime-1 by
Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, or, if any of the foregoing is unrated, it must be of
comparable quality. Municipal Obligations which satisfy the foregoing short-term
ratings criteria need not also satisfy the long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds
limit in vestment risks for their shareholders. These regulations and
restrictions prohibit each Fund from: (a) with certain limited exceptions,
investing more than 5% of its total assets in the securities of any one issuer
(this limitation does not apply to the Tax Free Fund or to U.S. Government
Obligations held by the other Funds); (b) investing 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
procedures established by the Board of Trustees); or (c) investing more than 25%
of its total assets in any one industry (excluding U.S. Government Obligations,
bank obligations and, for the Tax Free Money Market Fund, obligations of states,
cities, municipalities or other public authorities, as well as municipal
obligations secured by bank letters of credit or guarantees). A complete
description of these and other investment policies is included in the SAI.
Except for each Fund's investment objective, restriction (c) above and
investment policies designated as fundamental above or in the SAI, the Funds'
investment policies are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to
maintain a stable net asset value. Changes in interest rates may affect the
value of the obligations held by the Funds. The value of fixed income securities
varies inversely with changes in prevailing interest rates, although money
market instruments are generally less sensitive to changes in interest rates
than are longer-term securities. For a discussion of certain other risks
associated with the Funds' additional investment activities, see "Other
Investment Practices," "Additional Investment Policies of Vista Cash Management
Fund and Vista Prime Money Market Fund" and "Additional Investment Policies of
Vista Tax Free Money Market Fund."
Vista Cash Management Fund and Vista Prime Money Market Fund. These
Funds are permitted to invest any portion of their assets in obligations of
domestic banks (including their foreign branches), and in obligations of other
foreign issuers. The ability to concentrate in the banking industry may involve
certain credit risks, such as defaults or downgrades, if at some future date
adverse economic conditions prevail in such industries. U.S. banks are subject
to extensive governmental regulations which may limit both the amount and types
of loans which may be made and interest rates which may be charged. In addition,
the profitability of the banking industry is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of obligations of domestic issuers, including 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. In addition, 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.
Vista Tax Free Money Market Fund. This Fund may invest without
limitation in Municipal Obligations secured by letters of credit or guarantees
from U.S. banks (including their foreign branches), and may also invest in
Municipal Obligations backed by foreign institutions. These investments are
subject to the considerations discussed in the preceding paragraphs relating to
Vista Cash Management Fund and Vista Prime Money Market Fund.
This Fund is "non-diversified," which may make the value of its
shares more susceptible to developments affecting issuers in which the Fund
invest. In addition, more than 25% of the assets of the Fund
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may be invested in securities to be paid from revenue of similar projects, which
may cause these Funds to be more susceptible to similar economic, political, or
regulatory developments.
Because this Fund will invest primarily in obligations issued by
states, cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial and
fiscal difficulties. If a municipal issuer is unable to meet its financial
obligations, the income derived by the Fund and the Fund's ability to preserve
capital and liquidity could be adversely affected.
Interest on certain Municipal Obligations (including certain
industrial development bonds), while exempt from federal income tax, is a
preference item for the purpose of the alternative minimum tax. Where a mutual
fund receives such interest, a proportionate share of any exempt-interest
dividend paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the interest
on which is not subject to federal income tax. This legislation may affect the
availability of Municipal Obligations for investment by the Fund.
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to
each of the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its predecessors
have over 100 years of money management experience. For its investment advisory
services to each of the Funds, Chase is entitled to receive an annual fee
computed daily and paid monthly at an annual rate equal to 0.10% of each
Fund's average daily net assets. Chase is located at 270 Park Avenue, New York,
New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to each Fund other than the Vista Cash
Management Fund and the Vista Tax Free Money Market Fund, pursuant to a
Sub-Investment Advisory Agreement between CAM and Chase. CAM is a wholly-owned
operating subsidiary of Chase. CAM makes investment decisions for each of these
Funds on a day-to-day basis. For these services, CAM is entitled to receive a
fee, payable by Chase from its advisory fee, at an annual rate equal to 0.03% of
each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to institutional
clients and to consolidate Chase's investment management function. The same
individuals who serve as portfolio managers for Chase also serve as portfolio
managers for CAM. CAM is located at 1211 Avenue of the Americas, New York, New
York 10036.
Texas Commerce Bank, National Association ("TCB") is the
sub-investment adviser to the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund pursuant to a Sub-Investment Advisory Agreement between Chase
and TCB. TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund on a day-to-day basis. For these services, TCB is entitled to
receive a fee, payable by Chase from its advisory fee, at an annual rate equal
to 0.03% of each such Fund's average daily net assets. TCB is located at 600
Travis, Houston, Texas 77002.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Premier Shares may be purchased through certain investment
representatives or shareholder servicing agents. Qualified investors are defined
to be institutions, trusts, partnerships, corporations, qualified and other
retirement plans and fiduciary accounts opened by a bank, trust company or
thrift institution which exercises investment authority over such accounts.
All purchases made by check should be in U.S. dollars and made
payable to the Vista Funds. Third party checks, credit cards and cash will not
be accepted. When purchases are made by check, redemptions will not be allowed
until clearance of the purchase check, which may take 15 calendar
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days or longer. In addition, redemption of shares purchased through ACH will not
be allowed until clearance of your payment which may take 7 business days or
longer. In the event a check used to pay for shares is not honored by a bank,
the purchase order will be cancelled and the shareholder will be liable for any
losses or expenses incurred by a Fund.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening an account.
Buying shares through the Systematic Investment Plan. You can make
regular investments of $100 or more per transaction through
automatic periodic deduction from your bank savings or checking account.
Shareholders electing to start this Systematic Investment Plan when opening an
account should complete Section 8 of the account application. Current
shareholders may begin the Plan at any time by sending a signed letter with
signature guarantee and a deposit slip or voided check to the Vista
Service Center. Call the Vista Service Center at 1-800-622-4273 for complete
instructions.
Buying shares through an investment representative or shareholder
servicing agent. Premier Shares of the Funds may be purchased through a
shareholder servicing agent (i.e., a financial institution, such as a bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Funds) or by customers of brokers or
certain financial institutions which have entered into Selected Dealer
Agreements with the Funds' distributor. An investor may purchase Premier Shares
by authorizing his shareholder servicing agent or investment representative to
purchase shares on his behalf through the Funds' distributor. Shareholder
servicing agents may offer additional services to their customers, including
customized procedures for the purchase and redemption of Premier Shares, such as
pre-authorized or systematic purchase and withdrawal programs and "sweep"
checking programs. For further information, see "Other Information Concerning
the Funds" in this prospectus and the SAI.
Shares are sold without a sales load at the net asset value next
determined after the Vista Service Center receives your order in proper form on
any business day during which the Federal Reserve Bank of New York and the New
York Stock Exchange are open for business ("Fund Business Day"). To receive that
day's price, the Vista Service Center or your investment representative or
shareholder servicing agent must generally receive your order prior to the
Funds' Cut-off Time. The Funds' Cut-off Times (Eastern time) are as follows:
Vista 100% U.S. Treasury Securities Money Market Fund.......Noon
Vista Tax Free Money Market Fund............................Noon
Vista Federal Money Market Fund.............................2:00 p.m.
Vista U.S. Government Money Market Fund.....................2:00 p.m.
Vista Cash Management Fund..................................2:00 p.m.
Vista Prime Money Market Fund...............................2:00 p.m.
Vista Treasury Plus Money Market Fund.......................4:00 p.m.
Orders for shares received and accepted prior to the Cut-off Times
will be entitled to all dividends declared on that day. Orders received for
shares after a Fund's Cut-off Time and prior to 4:00 p.m., Eastern time on any
Fund Business Day will not be accepted and executed on the same day except at
the Funds' discretion. Orders received and not accepted after a Fund's Cut-off
Time will be considered received prior to the Fund's Cut-off Time on the
following Fund Business Day and processed accordingly. Orders for shares are
accepted by each Fund after funds are converted to federal funds. Orders paid by
check and received before a Fund's Cut-off Time will generally be available for
the purchase of shares the following Fund Business Day. The Funds reserve the
right to reject any purchase order.
Minimum Investments
Each Fund has established a minimum initial investment amount of
$100,000 for the purchase of Premier Shares. Shareholders must maintain an
average account balance of $100,000 in the Premier Shares of a Fund at all
times. There is no minimum for subsequent investments.
How to Sell Shares
You can sell your shares to the Fund on any Fund Business Day either
directly or through your investment representative or shareholder servicing
agent. A Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to a Fund. Send a signed letter of
instruction to the Vista Service Center. The price you receive is the next net
asset value calculated after your request is received in proper form. In order
to allow the advisers to most effectively manage the Funds, investors are urged
to make redemption requests as early in the day as possible.
If you want your redemption proceeds sent to an address other than
your address as it appears on Vista's records, a signature guarantee
is required. A Fund may require additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Vista Service Center for details.
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A Fund generally sends you payment for your shares the Fund
Business Day after your request is received, provided your request is received
by the Vista Service Center prior to the Fund's Cut-off Time, and assuming the
Fund has collected payment of the purchase price of your shares. Under unusual
circumstances, the Funds may suspend redemptions, or postpone payment for more
than seven business days, as permitted by federal securities laws.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Funds. Unless an investor indicates otherwise on the account application, the
Funds will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Funds with his or her account
registration and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, a Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither a Fund nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, or contact
your investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Selling shares through your investment representative or your
shareholder servicing agent. Your investment representative or your shareholder
servicing agent must receive your request before the Cut-off Time for your Fund
to receive that day's net asset value. Your representative will be responsible
for furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntary
redeem your shares if the aggregate net asset value of the shares in
your account is less than $100,000 or if you purchase through the Systematic
Investment Plan and fail to meet that Fund's investment minimum within a twelve
month period. In the event of any such redemption, you will receive at least 60
days' notice prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for Premier Shares of certain other
Vista money market funds at net asset value and for certain classes
of shares of the Vista non-money market funds at net asset value plus any
applicable sales charge, subject to any minimum investment requirement. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained for
future reference.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. Ask
your investment representative or the Vista Service Center for prospectuses of
other Vista funds. Please read the prospectus carefully before investing and
keep it for future reference. Shares of certain Vista funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Funds, the Funds reserve
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving a Fund in a year or three in a
calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action
-19-
<PAGE>
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is
currently determined daily as of 12:00 noon and 4:00 p.m., Eastern time on each
Fund Business Day by dividing the net assets of a Fund attributable to such
class by the number of shares of such class outstanding at the time the
determination is made. Effective with the anticipated introduction of certain
automated share purchase programs, the net asset value of shares of each class
of Funds available through the programs will also be determined as of 6:00 p.m.,
Eastern time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized
cost in accordance with federal securities laws, certain requirements of which
are summarized under "Common Investment Policies." This method increases
stability in valuation, but may result in periods during which the stated value
of a portfolio security is higher or lower than the price a Fund would receive
if the instrument were sold. It is anticipated that the net asset value of each
share of each Fund will remain constant at $1.00 and the Funds will employ
specific investment policies and procedures to accomplish this result, although
no assurance can be given that they will be able to do so on a continuing basis.
The Board of Trustees will review the holdings of each Fund at intervals it
deems appropriate to determine whether that Fund's net asset value calculated by
using available market quotations (or an appropriate substitute which reflects
current market conditions) deviates from $1.00 per share based upon amortized
cost. In the event the Trustees determine that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Trustees will take such corrective action as they regard as
necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is
declared as a dividend to the shareholders each Fund Business Day. Dividends are
declared as of the time of day which corresponds to the latest time on that day
that a Fund's net asset value is determined. Shares begin accruing dividends on
the day they are purchased. Dividends are distributed monthly. Unless a
shareholder arranges to receive dividends in cash or by ACH to a pre-established
bank account, dividends are distributed in the form of additional shares.
Dividends that are otherwise taxable are still taxable to you whether received
in cash or additional shares. Net realized short-term capital gains, if any,
will be distributed at least annually. The Funds do not expect to realize net
long-term capital gains.
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
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund does
not qualify as a regulated investment company for any taxable year or does not
make distributions as it intends, the Fund will be subject to tax on all of its
income and gains.
Distributions by a Fund of its ordinary income and short-term
capital gains are generally taxable to you as ordinary income. Distributions by
Vista Tax Free Money Market Fund of its tax-exempt interest income will not be
subject to federal income tax. Such distributions will generally be subject to
state and local taxes, but may be exempt if paid out of interest on municipal
obligations of the state or locality in which you reside. Distributions by a
Fund of net long-term capital gains will be taxable as such, regardless of the
length of time you have held your shares. Distributions will be taxable in the
same manner for federal income tax purposes whether received in cash or in
shares through the reinvestment of distributions.
To the extent distributions are attributable to interest from
obligations of the U.S. Government and certain of its agencies and
instrumentalities, such distributions may be exempt from certain types of state
and local taxes.
-20-
<PAGE>
Early in each calendar year the Funds will notify you of the amount
and tax status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Funds. You should consult your tax adviser to
determine the precise effect of an investment in the Funds on your particular
tax situation (including possible liability for state and local taxes and, for
foreign shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Distribution Arrangements
The Funds' distributor is Vista Fund Distributors, Inc. ("VFD").
VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase.
Vista U.S. Government Money Market Fund has adopted a Rule 12b-1 distribution
plan which provides that it will pay distribution fees at annual rates of up to
0.10% of the average daily net assets attributable to its Premier Shares. There
is no distribution plan for Premier Shares of the other Funds. Payments under
the distribution plan shall be used to compensate or reimburse the Funds'
distributor and broker-dealers for services provided and expenses incurred in
connection with the sale of Premier Shares of Vista U.S. Government Money Market
Fund, and are not tied to the amount of actual expenses incurred. Some
activities intended to promote the sale of Premier Shares of Vista U.S.
Government Money Market Fund will be conducted generally by the Vista Family of
Funds, and activities intended to promote the Fund's Premier Shares may also
benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater or entertainment for broker-dealers and their guests;
and payment or reimbursement for travel expenses, including lodging and meals,
in connection with attendance at training and educational meetings within and
outside the U.S.
Shareholder Servicing Agents
Each Fund has entered into shareholder servicing agreements with
certain shareholder servicing agents (including Chase) under which
the shareholder servicing agents have agreed to provide certain support services
to their customers, including assisting with purchase and redemption
transactions, maintaining shareholder accounts and records, furnishing customer
statements, transmitting shareholder reports and communications to customers and
other similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of the Premier Shares of each Fund held by investors for whom
the shareholder servicing agent maintains a servicing relationship. Shareholder
servicing agents may subcontract with other parties for the provision of
shareholder support services.
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.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of a Fund attributable to shares of such Fund
held by customers of such selected dealers. Such compensation does not represent
an additional expense to a Fund or its shareholders, since it will be paid by
Chase.
Administrator and Sub-Administrator
Chase acts as the Funds' administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.05% of each
Fund's average daily net assets.
-21-
<PAGE>
VFD provides certain sub-administrative services to each Fund
pursuant to a distribution and sub-administration agreement and is entitled to
receive a fee for these services from each Fund at an annual rate equal to 0.05%
of the Fund's average daily net assets. VFD has agreed to use a portion of this
fee to pay for certain expenses incurred in connection with organizing new
series of the Trust and certain other ongoing expenses of the Trust. VFD is
located at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for each Fund and
receives compensation under an agreement with the Funds. Securities and cash of
each Fund may be held by sub-custodian banks if such arrangements are reviewed
and approved by the Trustees.
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 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.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end
management investment company organized as a Massachusetts business trust in
1994 (the "Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was
known as the Vista Global Market Fund. The Trust has reserved the right to
create and issue additional series and classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of each class of a Fund generally vote together except when required under
federal securities laws to vote separately on matters that only affect a
particular class, such as the approval of distribution plans for a particular
class. Fund shares will be maintained in book entry form, and no certificates
representing shares owned will be issued to shareholders.
Each Fund issues multiple classes of shares. This Prospectus relates
only to Premier Shares of the Funds. Premier Shares may be purchased only by
qualified investors. See "How to Buy, Sell and Exchange Shares." The Funds offer
other classes of shares in addition to these classes. The categories of
investors that are eligible to purchase shares and minimum investment
requirements may differ for each class of Fund shares. In addition, other
classes of Fund shares may be subject to differences in sales charge
arrangements, ongoing distribution and service fee levels, and levels of certain
other expenses, which will affect the relative performance of the different
classes. Investors may call 1-800-622-4273 to obtain additional information
about other classes of shares of the Funds that are offered. Any person entitled
to receive compensation for selling or servicing shares of a Fund may receive
different levels of compensation with respect to one class of shares over
another.
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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
-22-
<PAGE>
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of 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 may 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
decisions, it does not obtain or use material inside information in the
possession of any other division or department of such Chase or in the
possession of any affiliate of Chase, including the division that performs
services for the Trust as custodian. 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
shareholders and their accounts. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective
yield". Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will continue
to be generated each week over a 52-week period. It is shown as a percentage of
such investment. "Effective yield" is the annualized "yield" calculated assuming
the reinvestment of the income earned during each week of the 52-week period.
The "effective yield" will be slightly higher than the "yield" due to the
compounding effect of this assumed reinvestment.
The Vista Tax Free Money Market Fund may also quote a "tax
equivalent yield", the yield that a taxable money market fund would have to
generate in order to produce an after-tax yield equivalent to a tax free fund's
yield. The tax equivalent yield of the Vista Tax Free Money Market Fund can then
be compared to the yield of a taxable money market fund. Tax equivalent yields
can be quoted on either a "yield" or "effective yield" basis.
Investment performance may from time to time be included in
advertisements about the Funds. Performance is calculated separately for each
class of shares. Because this performance information is based on historical
earnings, it should not be considered as an indication or representation of
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's portfolio,
each Fund's operating expenses and which class of shares you purchase.
Investment performance also reflects the risks associated with each Fund's
investment objective and policies. These factors should be considered when
comparing each Fund's investment results to those of other mutual funds and
investment vehicles.
-23-
<PAGE>
Quotations of investment performance for any period when an expense limitation
was in effect will be greater if the limitation had not been in effect. Each
Fund's performance may be compared to other mutual funds, relevant indices and
rankings prepared by independent services. See the SAI.
-24-
<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
-25-
<PAGE>
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
Institutional[SM] Shares
May 6, 1996
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-622-4273. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES AND
ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary................................................................
The expenses you pay on your Fund investment, including examples
Financial Highlights...........................................................
The Funds' financial history
Fund Objectives and Investment Approach........................................
Vista 100% U.S. Treasury Securities Money Market Fund
Vista Treasury Plus Money Market Fund
Vista Federal Money Market Fund
Vista U.S. Government Money Market Fund
Vista Cash Management Fund
Vista Prime Money Market Fund
Vista Tax Free Money Market Fund
Common Investment Policies.....................................................
Management......................................................................
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management
and Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares...........................................
How the Funds Value their Shares...............................................
How Dividends and Distributions Are Made; Tax Information......................
How the Funds distribute their earnings, and
tax treatment related to those earnings
Other Information Concerning the Funds.........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information........................................................
How performance is determined, stated and/or advertised
-2-
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on expenses
incurred in the most recent fiscal year by each Fund other than the Vista 100%
U.S. Treasury Securities Money Market Fund, and based on estimated expenses for
the current fiscal year for the Vista 100% U.S. Treasury Securities Money Market
Fund. The examples show the cumulative expenses attributable to a hypothetical
$1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista
100% U.S.
Treasury Vista Vista Vista U.S. Vista Vista Vista
Securities Treasury Plus Federal Government Cash Prime Tax Free
Money Market Money Market Money Market Money Market Management Money Market Money Market
Fund Fund Fund Fund Fund Fund Fund
------------- ------------- ------------- ------------- ------------- ------------- -------------
Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Shares Shares Shares Shares Shares Shares Shares
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average
net assets)
Investment Advisory Fee ......... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
12b-1 Fee ....................... n/a n/a n/a n/a n/a n/a n/a
Shareholder Servicing Fee ....... n/a n/a n/a n/a n/a n/a n/a
Other Expenses................... 0.17% 0.17% 0.20% 0.15% 0.15% 0.16% 0.20%
Total Fund Operating Expenses.... 0.27% 0.27% 0.30% 0.25% 0.25% 0.26% 0.30%
Examples
Your investment of $1,000 would incur the following expenses, assuming
5% annual return:
1 year........................... 3 3 3 3 3 3 3
3 years.......................... 9 9 10 8 8 8 10
5 years.......................... -- 15 17 14 14 15 17
10 years......................... -- 34 38 32 32 33 38
</TABLE>
- -----------------
The table is provided to help you understand the expenses of
investing in the Funds and your share of the operating expenses that a Fund
incurs. THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN
SHOWN.
Charges or credits, not reflected in the expense table above, may
be incurred directly by customers of financial institutions in connection with
an investment in a Fund.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA TREASURY PLUS MONEY MARKET FUND
-------------------------------------
<TABLE>
<CAPTION>
Institutional
Shares
-------------------------
Year 4/20/94*
ended through
8/31/95 8/31/95
------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.................................. $1.00 $1.00
------- -------
Income From Investment Operations:
Net Investment Income..................................... 0.053 0.014
------- -------
Less Distributions:
Dividends from Net Investment Income...................... 0.053 0.014
------- -------
Net Asset Value, End of Period........................................ $1.00 $1.00
======= =======
Total Return.......................................................... 5.36% 1.45%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted)......................... $17,636 $14,976
Ratio of Expenses to Average Net Assets#........................ 0.32% 0.32%
Ratio of Net Investment Income to Average Net Assets#........... 5.21% 3.93%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets#........................................... 0.89% 0.53%
Ratio of Net Investment Income without waivers and assumption
of Expenses to Average Net Assets#............................ 4.64% 3.72%
</TABLE>
- -------------------
# Periods less than one year have been annualized.
* Commencement of operations.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA FEDERAL MONEY MARKET FUND
-------------------------------
<TABLE>
<CAPTION>
Institutional
Shares
--------------------------
Year 4/20/94*
ended through
8/31/95 8/31/94
-------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.................................. $1.00 $1.00
-------- --------
Income From Investment Operations:
Net Investment Income..................................... 0.054 0.015
-------- --------
Less Distributions:
Dividends from Net Investment Income...................... 0.054 0.015
-------- --------
Net Asset Value, End of Period........................................ $1.00 $1.00
======== ========
Total Return.......................................................... 5.57% 1.54%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted)......................... $113,591 $117,364
Ratio of Expenses to Average Net Assets#........................ 0.31% 0.30%
Ratio of Net Investment Income to Average Net Assets#........... 5.45% 4.26%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets#........................................... 0.37% 0.49%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets#............................... 5.39% 4.06%
</TABLE>
- ---------------------
# Periods less than one year have been annualized.
* Commencement of operations.
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
The information on selected per share data and ratios with respect
to each of the two fiscal periods ended August 31, 1995, and the related
financial statements, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the SAI. The following
information should be read in conjunction with the financial statements and
notes thereto which are included in the Statement of Additional Information.
VISTA U.S. GOVERNMENT MONEY MARKET FUND
------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
--------------------------
Year 12/10/93*
ended through
8/31/95 8/31/94+
-------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............................. $1.00 $1.00
-------- --------
Income from Investment Operations:
Net Investment Income................................. 0.055 0.026
-------- --------
Less Distributions:
Dividends from net investment income.................. 0.055 0.026
-------- --------
Net Asset Value, End of Period................................... $1.00 $1.00
======== ========
Total Return..................................................... 5.60% 2.61%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted).................... $466,083 $212,810
Ratio of Expenses to Average Net Assets.................... 0.27% 0.27%#
Ratio of Net Investment Income to Average Net Assets....... 5.58% 3.81%#
Ratio of Expenses without variance and assumption of
expenses to Average Net Assets........................ 0.28% 0.27%#
Ratio of Net Investment Income without variance and
assumption of Expenses to Average Net Assets.......... 5.57% 3.81%#
</TABLE>
- -----------------------
# Short periods have been annualized.
* Commencement of offering of shares.
+ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash
Management Fund") merged into the Vista Cash Management Fund; therefore,
commencing with the fiscal year ending August 31, 1996, selected per share data
and ratios for one Hanover Cash Management share outstanding will be provided.
Accordingly, no information is presented below.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout the period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this annual report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to Shareholders.
VISTA PRIME MONEY MARKET FUND
-----------------------------
<TABLE>
<CAPTION>
Institutional
Shares
--------------------------
Year 4/26/94*
ended through
8/31/95 8/31/94+
-------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period.............................................. $1.00 $1.00
-------- -------
Income From Investment Operations:
Net Investment Income.................................................. 0.055 0.014
Net Gains or (Losses) in Securities (both realized and unrealized)..... (0.003) --
-------- -------
Total from Investment Operations....................................... 0.052 0.014
-------- -------
Voluntary Capital Contribution.............................................. 0.003 --
-------- -------
Less Distributions:
Dividends from Net Investment Income................................... 0.055 0.014
-------- -------
Net Asset Value, End of Period.................................................... $1.00 $1.00
======== =======
Total Return...................................................................... 5.62% 1.50%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted)..................................... $185,640 $57,961
Ratio of Expenses to Average Net Assets#.................................... 0.27% 0.27%
Ratio of Net Investment Income to Average Net Assets#....................... 5.57% 4.21%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets#.................................................... 0.35% 0.37%
Ratio of Net Investment Income without waivers and assumption of expenses
to Average Net Assets#.................................................... 5.49% 4.11%
</TABLE>
- ------------------------
# Periods less than one year have been annualized.
+ In 1994 the Prime Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering shares.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for one Institutional Share outstanding throughout each period shown.
This information is supplemented by financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1995, which is incorporated by reference into the SAI. Shareholders
can obtain a copy of this report by contacting the Fund. The financial
statements and notes, as well as the financial information set forth in the
table below for each of the periods have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual Report
to shareholders.
VISTA TAX FREE MONEY MARKET FUND
--------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
--------------------------
11/1/93*
Year ended through
8/31/95 8/31/94++
---------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period............................... $1.00 $1.00
-------- --------
Income from Investment Operations:
Net Investment Income.................................... 0.035 0.019
-------- --------
Less Distributions:
Dividends from Net Investment Income..................... 0.035 0.019
-------- --------
Net Asset Value, End of Period..................................... $1.00 $1.00
======== ========
Total Return....................................................... 3.53% 1.95%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted)...................... $108,494 $110,332
Ratio of Expenses to Average Net Assets+..................... 0.33% 0.34%
Ratio of Net Investment Income to Average Net Assets+........ 3.46% 2.38%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets+ 0.34% 0.34%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets+........................ 3.45% 2.38%
</TABLE>
- --------------------
+ Short periods have been annualized.
++ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering of shares.
-9-
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent
with maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, which differ principally only in
their interest rates, maturities and dates of issuance. The Fund does not
purchase securities issued or guaranteed by agencies or instrumentalities of the
U.S. Government, and does not enter into repurchase agreements. Income on direct
investments in U.S. Treasury securities is generally not subject to state and
local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, which differ principally only in
their interest rates, maturities and dates of issuance. In addition, the Fund
will seek to enhance its yield by investing in repurchase agreements which are
fully collateralized by U.S. Treasury obligations. The dollar weighted average
maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S.
Treasury, including Treasury bills, bonds and notes, and obligations issued or
guaranteed as to principal and interest by certain agencies or instrumentalities
of the U.S. Government. Income on direct investments in U.S. Treasury securities
and obligations of the agencies and instrumentalities in which the Fund invests
is generally not subject to state and local income taxes by reason of federal
law. The dollar weighted average maturity of the Fund will be 90 days or less.
Due to state income tax considerations, the Fund will not enter into repurchase
agreements.
-----------
Shareholders of the above Funds that reside in a state that imposes
an income tax should determine through consultation with their own tax advisors
whether such interest income, when distributed by the Fund, will be considered
by the state to have retained exempt status, and whether the Fund's capital
gains and other income, if any, when distributed will be subject to the state's
income tax. See "How Distributions are Made; Tax Information."
-----------
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income
as is consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in obligations
issued or guaranteed by the U.S. Treasury, or agencies or instrumentalities of
the U.S. Government, and in repurchase agreements collateralized by these
obligations. The dollar weighted average maturity of the Fund will be 60 days or
less.
-10-
<PAGE>
Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and the maintenance of liquidity.
The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational agencies
(e.g., the International Bank for Reconstruction and Development); (iii)
obligations issued or guaranteed by U.S. banks with total assets exceeding $1
billion (including obligations of foreign branches of such banks) and by foreign
banks with total assets exceeding $10 billion (or the equivalent in other
currencies) which have branches or agencies in the U.S. (including U.S. branches
of such banks), or such other U.S. or foreign commercial banks which are judged
by the Fund's advisers to meet comparable credit standing criteria; (iv)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (v) repurchase agreements. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Prime Money Market Fund
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational agencies
(e.g., the International Bank for Reconstruction and Development); (iii)
obligations issued or guaranteed by U.S. banks with total assets exceeding $1
billion (including obligations of foreign branches of such banks) and by foreign
banks with total assets exceeding $10 billion (or the equivalent in other
currencies) which have branches or agencies in the U.S. (including U.S. branches
of such banks), or such other U.S. or foreign commercial banks which are judged
by the Fund's advisers to meet comparable credit standing criteria; (iv)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (v) repurchase agreements. The dollar weighted average
maturity of the Fund will be 60 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income
which is excluded from gross income for federal income tax purposes as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed
rate and variable rate Municipal Obligations (as defined under "Certain
Investment Policies of the Tax Free Fund"). As a fundamental policy, under
normal market conditions the Fund will have at least 80% of its assets invested
in Municipal Obligations the interest on which, in the opinion of bond counsel,
is excluded from gross income for federal income tax purposes and does not
constitute a preference item which would be subject to the federal alternative
minimum tax on individuals (these preference items are referred to as "AMT
Items"). Although the Fund will seek to invest 100% of its assets in such
Municipal Obligations, it reserves the right under normal market conditions to
invest up to 20% of its total assets in AMT Items or securities the interest on
which is subject to federal income tax. For temporary defensive purposes, the
Fund may exceed this limitation. The dollar weighted average maturity of the
Fund will be 90 days or less.
-11-
<PAGE>
COMMON INVESTMENT POLICIES
As a matter of fundamental policy, each Fund is authorized to seek
to achieve its objective by investing all of its investable assets in an
investment company having substantially the same investment objective and
policies as the applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high quality
obligations which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating organizations ("NROs") (or one
NRO if the instrument was rated only by one such organization) or, if unrated,
must be determined to be of comparable quality in accordance with the procedures
of the Trustees. If a security has an unconditional guarantee or similar
enhancement, the issuer of the guarantee or enhancement may be relied upon in
meeting these ratings requirements rather than the issuer of the security.
Securities in which the Funds invest may not earn as high a level of current
income as long-term or lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal regulations.
Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund is classified as a
"non-diversified" fund under federal securities law. This Fund's assets may be
more concentrated in the securities of any single issuer or group of issuers
than if the Fund were diversified. Each Fund other than the Vista Tax Free Money
Market Fund is classified as a "diversified" fund under federal securities laws.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices,
when consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct
obligations of the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund and Vista Treasury Plus Money Market Fund may also
invest in other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Certain U.S. Government Obligations, such as U.S. Treasury securities and direct
pass-through certificates of the Government National Mortgage Association
(GNMA), are backed by the "full faith and credit" of the U.S. Government. Other
U.S. Government Obligations, such as obligations of Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are not backed by the "full faith
and credit" of 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.
Repurchase Agreements, Securities Loans and Forward Commitments.
Each Fund other than Vista 100% U.S. Treasury Securities Money Market Fund and
Vista Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other than the Vista Tax
Free Money Market Fund also has the ability to lend portfolio securities in an
amount equal to not more than 30% of its total assets to generate additional
income. These transactions must be fully collateralized at all times. Each Fund
may purchase securities for delivery at a future date, which may increase its
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. These transactions involve
-12-
<PAGE>
some risk to a Fund if the other party should default on its obligation and the
Fund is delayed or prevented from recovering the collateral or completing the
transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it will
establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). A Fund would be required to pay interest on amounts obtained
through reverse repurchase agreements, which are considered borrowings under
federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, a Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to a
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100%
U.S. Treasury Securities Money Market Fund may invest up to 20% of its total
assets in separately traded principal and interest components of securities
backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". Vista Cash Management Fund, Vista Prime Money
Market Fund and Vista Tax Free Money Market Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
Each Fund 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 Vista Tax Free Money Market Fund, Vista
Cash Management Fund and Vista Prime Money Market Fund may invest include
participation certificates and, in the case of Vista Cash Management Fund and
Vista Prime Money Market Fund, certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by others;
certificates of indebtedness or safekeeping are documentary receipts for such
original securities held in custody by others. As a result of the floating or
variable rate nature of these investments, a Fund's yield may decline and it may
forego the opportunity for capital appreciation during periods when interest
rates decline; however, during periods when interest rates increase, a Fund's
yield may increase and it may have reduced risk of capital depreciation. Demand
features on certain floating or variable rate securities may obligate a Fund to
pay a "tender fee" to a third party. Demand features provided by foreign banks
involve certain risks associated with foreign investments. The Internal Revenue
Service has not ruled on whether participations in variable rate municipal
obligations is tax exempt, and the Tax Free Fund would purchase such instruments
based on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 10% of its total assets
in shares of other money market funds, subject to applicable regulatory
limitations.
Portfolio Turnover. It is intended that the Funds will be fully
managed by buying and selling securities, as well as holding securities to
maturity. The frequency of the Funds' portfolio transactions will vary from year
to year. In managing a Fund, the Fund's advisers will seek to take advantage of
market developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund
-13-
<PAGE>
and Vista Prime Money Market Fund
Vista Cash Management Fund and Vista Prime Money Market Fund may
invest in the following instruments, when consistent with their overall
objectives and policies. These instruments, and certain associated risks, are
more fully described in the SAI.
Bank Obligations. Bank obligations include certificates of deposit,
time deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation or
by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities 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.
Municipal Obligations. The Funds may invest in high-quality,
short-term municipal obligations that carry yields that are competitive with
those of other types of money market instruments in which it may invest.
Dividends paid by these Funds that are derived from interest on municipal
obligations will be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The
Funds intend to invest a substantial portion of their assets from time to time
in securities of foreign governments and supranational agencies. The Funds will
limit their investments in foreign government obligations to commercial paper
and other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of supranational
agencies, such as the International Bank for Reconstruction and Development
(also known as the World Bank) are supported by subscribed, but unpaid,
commitments of its 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.
Custodial Receipts. The Funds may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. These are not deemed U.S.
Government securities. These notes and bonds are held in custody by a bank on
behalf of the owners of the receipts.
Additional Investment Policies of Vista Tax Free Money Market Fund
The following provides additional information regarding the
permitted investments of Vista Tax Free Money Market Fund. These investments,
and certain associated risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations
issued by or on behalf of states, territories and possessions of the United
States, and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel, is excluded
from gross income for federal income tax purposes (without regard to whether the
interest thereon is also exempt from the personal income taxes of any state or
whether the interest thereon constitutes a preference item for purposes of the
federal alternative minimum tax).
Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses or the refunding of outstanding debts. They may also be
issued to finance various private activities, including the lending of funds to
public or private institutions for the construction of housing, educational or
medical facilities, and may include certain types of industrial development
bonds, private activity bonds or notes issued by public authorities to finance
privately owned or operated facilities,
-14-
<PAGE>
or to fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue receipts
or bond sales to finance various public purposes. The Municipal Obligations in
which the Fund invest may consist of municipal notes, municipal commercial paper
and municipal bonds maturing or deemed to mature in 397 days or less.
The two principal classifications of Municipal Obligations are
general obligation and revenue obligation securities. General obligation
securities involve a pledge of the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Revenue obligation
securities are payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial development
bonds and private activity bonds are in most cases revenue obligation
securities, the credit quality of which is directly related to the private user
of the facilities.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment payments in future years unless money is later appropriated for such
purpose. The Fund will limit its investments in non-appropriation leases to 10%
of its assets. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Certain investments in municipal lease obligations may be
illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market
Fund invests must satisfy the following ratings criteria: Municipal bonds must
be rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another NRO,
municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's or SP-1
by Standard & Poor's or F-1 by Fitch, or have a comparable rating from another
NRO, and municipal commercial paper must be rated in the category Prime-1 by
Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, or, if any of the foregoing is unrated, it must be of
comparable quality. Municipal Obligations which satisfy the foregoing short-term
ratings criteria need not also satisfy the long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds
limit investment risks for their shareholders. These regulations and
restrictions prohibit each Fund from: (a) with certain limited exceptions,
investing more than 5% of its total assets in the securities of any one issuer
(this limitation does not apply to the Vista Tax Free Money Market Fund or to
U.S. Government Obligations held by the other Funds); (b) investing 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 procedures established by the Board of Trustees); or (c)
investing more than 25% of its total assets in any one industry (excluding U.S.
Government Obligations, bank obligations and, for the Vista Tax Free Money
Market Fund, obligations of states, cities, municipalities or other public
authorities, as well as municipal obligations secured by bank letters of credit
or guarantees). A complete description of these and other investment policies is
included in the SAI. Except for each Fund's investment objective, restriction
(c) above and investment policies designated as fundamental above or in the SAI,
the Funds' investment policies are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to
maintain a stable net asset value. Changes in interest rates may affect the
value of the obligations held by the Funds. The value of fixed income securities
varies inversely with changes in prevailing interest rates, although money
market instruments are generally less sensitive to changes in interest rates
than are longer-term securities. For a discussion of certain other risks
associated with the Funds' additional investment activities, see "Other
Investment Practices," "Additional Investment Policies of Vista Cash Management
Fund and Vista Prime Money Market Fund" and "Additional Investment Policies of
Vista Tax Free Money Market Fund."
-15-
<PAGE>
Vista Cash Management Fund and Vista Prime Money Market Fund. These
Funds are permitted to invest any portion of their assets in obligations of
domestic banks (including their foreign branches), and in obligations of foreign
issuers. The ability to concentrate in the banking industry may involve certain
credit risks, such as defaults or downgrades, if at some future date adverse
economic conditions prevail in such industries. U.S. banks are subject to
extensive governmental regulations which may limit both the amount and types of
loans which may be made and interest rates which may be charged. In addition,
the profitability of the banking industry is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of obligations of domestic issuers, including 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. In addition, 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.
Vista Tax Free Money Market Fund. This Fund may invest without
limitation in Municipal Obligations secured by letters of credit or guarantees
from U.S. banks (including their foreign branches), and may also invest in
Municipal Obligations backed by foreign institutions. These investments are
subject to the considerations discussed in the preceding paragraphs relating to
Vista Cash Management Fund and Vista Prime Money Market Fund.
This Fund is "non-diversified," which may make the value of its
shares more susceptible to developments affecting issuers in which the Fund
invest. In addition, more than 25% of the assets of the Fund may be invested in
securities to be paid from revenue of similar projects, which may cause these
Funds to be more susceptible to similar economic, political, or regulatory
developments.
Because this Fund will invest primarily in obligations issued by
states, cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial and
fiscal difficulties. If a municipal issuer is unable to meet its financial
obligations, the income derived by the Fund and the Fund's ability to preserve
capital and liquidity could be adversely affected.
Interest on certain Municipal Obligations (including certain
industrial development bonds), while exempt from federal income tax, is a
preference item for the purpose of the alternative minimum tax. Where a mutual
fund receives such interest, a proportionate share of any exempt-interest
dividend paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the interest
on which is not subject to federal income tax. This legislation may affect the
availability of Municipal Obligations for investment by the Fund.
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<PAGE>
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to
each of the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its predecessors
have over 100 years of money management experience. For its investment advisory
services to each of the Funds, Chase is entitled to receive an annual fee
computed daily and paid monthly at an annual rate equal to 0.10% of each
Fund's average daily net assets. Chase is located at 270 Park Avenue, New York,
New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to each Fund other than the Vista Cash
Management Fund and the Vista Tax Free Money Market Fund, pursuant to a
Sub-Investment Advisory Agreement between CAM and Chase. CAM is a wholly-owned
operating subsidiary of Chase. CAM makes investment decisions for each of these
Funds on a day-to-day basis. For these services, CAM is entitled to receive a
fee, payable by Chase from its advisory fee, at an annual rate equal to 0.03% of
each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to institutional
clients and to consolidate Chase's investment management function. The same
individuals who serve as portfolio managers for Chase also serve as portfolio
managers for CAM. CAM is located at 1211 Avenue of the Americas, New York, New
York 10036.
Texas Commerce Bank, National Association ("TCB") is the
sub-investment adviser to the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund pursuant to a Sub-Investment Advisory Agreement between Chase
and TCB. TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax Free
Money Market Fund on a day-to-day basis. For these services, TCB is entitled to
receive a fee, payable by Chase from its advisory fee, at an annual rate equal
to 0.03% of each such Fund's average daily net assets. TCB is located at 600
Travis, Houston, Texas 77002.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Institutional Shares may be purchased through selected financial
service firms, such as broker-dealer firms and banks ("Dealers") who have
entered into a selected dealer agreement with the Funds' distributor on each
business day during which the Federal Reserve Bank of New York and the New York
Stock Exchange are open for business ("Fund Business Day"). Qualified investors
are defined as institutions, trusts, partnerships, corporations, qualified and
other retirement plans and fiduciary accounts opened by a bank, trust company or
thrift institution which exercises investment authority over such accounts.
Institutional Shares are sold without a sales load at the net asset
value next determined after the Vista Service Center receives your order in
proper form on any Fund Business Day. To receive that day's price,
the Vista Service Center or your investment representative or shareholder
servicing agent must generally receive your order prior to the Funds' Cut-off
Time. The Funds' Cut-off Times (Eastern time) are as follows:
Vista 100% U.S. Treasury Securities Money Market Fund.......Noon
Vista Tax Free Money Market Fund............................Noon
Vista Federal Money Market Fund.............................2:00 p.m.
Vista U.S. Government Money Market Fund.....................2:00 p.m.
Vista Cash Management Fund..................................2:00 p.m.
Vista Prime Money Market Fund...............................2:00 p.m.
Vista Treasury Plus Money Market Fund.......................4:00 p.m.
Orders received for shares after a Fund's Cut-off Time and prior
to 4:00 p.m., Eastern time on any Fund Business Day will not be accepted and
executed on the same day at the Funds' discretion. Orders received and not
accepted after a Fund's Cut-off Time will be considered received prior to the
Fund's Cut-off Time on the following Fund Business Day and processed
accordingly. Orders for shares received and accepted prior to the Cut-off Times
will be entitled to all dividends declared on that day. The Funds reserve the
right to reject any purchase order.
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<PAGE>
All purchases of Institutional Shares must be paid for by federal
funds wire. If federal funds are not available with respect to any such order by
the close of business on the day the order is received by the Vista Service
Center, the order will be cancelled. Any order received after the Cut-off Times
noted above will not be accepted. Any funds received in connection with late
orders will be invested on the next Fund Business Day.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening an account.
Dealers may offer additional services to their customers, including
customized procedures for the purchase and redemption of Institutional Shares,
such as pre-authorized or systematic purchase and withdrawal programs, "sweep"
checking programs, cash advances, automated access and direct demand deposit
debit.
Minimum Investments
Each Fund has established a minimum initial investment amount of
$1,000,000 for the purchase of Institutional Shares. Shareholders must maintain
an average account balance of $1,000,000 in the Institutional Shares of a Fund
at all times. There is no minimum for subsequent investments.
How to Sell Shares
You may redeem all or any portion of the shares in your account on
any Fund Business Day at the net asset value next determined after a redemption
required in proper form is furnished by you to your Dealer and transmitted to
and received by the Vista Service Center. A wire redemption may be requested by
telephone or wire to the Vista Service Center. For telephone redemptions, call
the Vista Service Center at 1-800-622-4273.
In making redemption requests, the names of the registered
shareholders on your account and your account number must be supplied. The price
you receive is the next net asset value calculated after your request is
received in proper form. In order to allow the advisers to most effectively
manage the Funds, investors are urged to make redemption requests as early in
the day as possible.
Payment for redemption requests received prior to a Fund's Cut-off
Time is normally made in federal funds wired to the redeeming shareholder on
the same Fund Business Day. Payment for redemption requests received after the
Cut-off Time is normally made in federal funds wired to the redeeming
shareholder on the next Fund Business Day. Under unusual circumstances, the
Funds may suspend redemptions, or postpone payment for more than seven business
days, as permitted by federal securities laws.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Funds. Unless an investor indicates otherwise on the account application, the
Funds will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Funds with his or her account
registration and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, a Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither a Fund nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, or contact
your Dealer. The Telephone Redemption Privilege may be modified or terminated
without notice.
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<PAGE>
Selling shares through your Dealer. Your Dealer must receive your
request before the Cut-off Time for your Fund to receive that day's net asset
value. Your representative will be responsible for furnishing all necessary
documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntarily
redeem your shares if the aggregate net asset value of the shares of that Fund
in your account is less than $1,000,000. In the event of any such redemption,
you will receive at least 60 days' notice prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for Institutional Shares of certain
other Vista money market funds at net asset value and for certain classes of
shares of the Vista non-money market funds at net asset value plus any
applicable sales charge, subject to any minimum investment requirement. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained for
future reference.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. Ask your
investment representative or the Vista Service Center for prospectuses of other
Vista funds. Please read the prospectus carefully before investing and keep it
for future reference. Shares of certain Vista funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Funds, the Funds reserve
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving a Fund in a year or three in a
calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is
currently determined daily as of 12:00 noon and 4:00 p.m., Eastern time on each
Fund Business Day by dividing the net assets of a Fund attributable to such
class by the number of shares of such class outstanding at the time the
determination is made. Effective with the anticipated introduction of a new
automated share purchase program by certain Dealers, the net asset value of
shares of each class of Funds available through the program will also be
determined as of 6:00 p.m., Eastern time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized
cost in accordance with federal securities laws, certain requirements of which
are summarized under "Common Investment Policies." This method increases
stability in valuation, but may result in periods during which the stated value
of a portfolio security is higher or lower than the price a Fund would receive
if the instrument were sold. It is anticipated that the net asset value of each
share of each Fund will remain constant at $1.00 and the Funds will employ
specific investment policies and procedures to accomplish this result, although
no assurance can be given that they will be able to do so on a continuing basis.
The Board of Trustees will review the holdings of each Fund at intervals it
deems appropriate to determine whether that Fund's net asset value calculated by
using available market quotations (or an appropriate substitute which reflects
current market conditions) deviates from $1.00 per share based upon amortized
cost. In the event the
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<PAGE>
Trustees determine that a deviation exists that may result in material dilution
or other unfair results to investors or existing shareholders, the Trustees will
take such corrective action as they regard as necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is
declared as a dividend to the shareholders each Fund Business Day. Dividends are
declared as of the time of day which corresponds to the latest time on that day
that a Fund's net asset value is determined. Shares begin accruing dividends on
the day they are purchased. Dividends are distributed monthly. Unless a
shareholder arranges to receive dividends in cash or by ACH to a pre-established
bank account, dividends are distributed in the form of additional shares.
Dividends that are otherwise taxable are still taxable to you whether received
in cash or additional shares. Net realized short-term capital gains, if any,
will be distributed at least annually. The Funds do not expect to realize net
long-term capital gains.
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.
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund does
not qualify as a regulated investment company for any taxable year or does not
make distributions as it intends, the Fund will be subject to tax on all of its
income and gains.
Distributions by a Fund of its ordinary income and short-term
capital gains are generally taxable to you as ordinary income. Distributions by
Vista Tax Free Money Market Fund of its tax-exempt interest income will not be
subject to federal income tax. Such distributions will generally be subject to
state and local taxes, but may be exempt if paid out of interest on municipal
obligations of the state or locality in which you reside. Distributions by a
Fund of net long-term capital gains will be taxable as such, regardless of the
length of time you have held your shares. Distributions will be taxable in the
same manner for federal income tax purposes whether received in cash or in
shares through the reinvestment of distributions.
To the extent distributions are attributable to interest from
obligations of the U.S. Government and certain of its agencies and
instrumentalities, such distributions may be exempt from certain types of state
and local taxes.
Early in each calendar year the Funds will notify you of the amount
and tax status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Funds. You should consult your tax adviser to
determine the precise effect of an investment in the Funds on your particular
tax situation (including possible liability for state and local taxes and, for
foreign shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Administrator
Chase acts as the Funds' administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.05% of each
Fund's average daily net assets.
Sub-Administrator and Distributor
Vista Fund Distributors, Inc. ("VFD") acts as the Funds'
sub-administrator and distributor. VFD is a subsidiary of The BISYS Group, Inc.
and is unaffiliated with Chase. For the sub-administrative services it performs,
VFD is entitled to receive a fee from each Fund at an annual rate equal to 0.05%
of the Fund's average
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<PAGE>
daily net assets. VFD has agreed to use a portion of this fee to pay for
certain expenses incurred in connection with organizing new series of the
Trust and certain other ongoing expenses of the Trust. VFD is located at 101
Park Avenue, New York, New York 10178.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of a Fund attributable to shares of such Fund
held by customers of such selected dealers. Such compensation does not represent
an additional expense to a Fund or its shareholders, since it will be paid by
Chase.
Custodian
Chase acts as custodian and fund accountant for each Fund and
receives compensation under an agreement with the Funds. Securities and cash of
each Fund may be held by sub-custodian banks if such arrangements are reviewed
and approved by the Trustees.
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 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.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end
management investment company organized as a Massachusetts business trust in
1994 (the "Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was
known as the Vista Global Money Market Fund. The Trust has reserved the right to
create and issue additional series and classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of each class of a Fund generally vote together except when required under
federal securities laws to vote separately on matters that only affect a
particular class, such as the approval of distribution plans for a particular
class. Fund shares will be maintained in book entry form, and no certificates
representing shares owned will be issued to shareholders.
Each Fund issues multiple classes of shares. This Prospectus relates
only to Institutional Shares of the Funds. Institutional Shares may be purchased
only by qualified investors. See "How to Buy, Sell and Exchange Shares." The
Funds offer other classes of shares in addition to these classes. The categories
of investors that are eligible to purchase shares and minimum investment
requirements may differ for each class of Fund shares. In addition, other
classes of Fund shares may be subject to differences in sales charge
arrangements, ongoing distribution and service fee levels, and levels of certain
other expenses, which will affect the relative performance of the different
classes. Investors may call 1-800-622-4273 to obtain additional information
about other classes of shares of the Funds that are offered. Any person entitled
to receive compensation for selling or servicing shares of a Fund may receive
different levels of compensation with respect to one class of shares over
another.
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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit
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<PAGE>
matters for a shareholder vote. The Trustees will promptly call a meeting of
shareholders to remove a trustee(s) when requested to do so in writing by record
holders of not less than 10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of 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 may 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
decisions, it does not obtain or use material inside information in the
possession of any other division or department of such Chase or in the
possession of any affiliate of Chase, including the division that performs
services for the Trust as custodian. 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
shareholders and their accounts. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective
yield". Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will continue
to be generated each week over a 52-week period. It is shown as a percentage of
such investment. "Effective yield" is the annualized "yield" calculated assuming
the reinvestment of the income earned during each week of the 52-week period.
The "effective yield" will be slightly higher than the "yield" due to the
compounding effect of this assumed reinvestment.
Vista Tax Free Money Market Fund may also quote a "tax equivalent
yield", the yield that a taxable money market fund would have to generate in
order to produce an after-tax yield equivalent to the tax free fund's
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<PAGE>
yield. The tax equivalent yield of the Vista Tax Free Money Market Fund can then
be compared to the yield of a taxable money market fund. Tax equivalent yields
can be quoted on either a "yield" or "effective yield" basis.
Investment performance may from time to time be included in
advertisements about the Funds. Performance is calculated separately for each
class of shares. Because this performance information is based on historical
earnings, it should not be considered as an indication or representation of
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's portfolio,
each Fund's operating expenses and which class of shares you purchase.
Investment performance also reflects the risks associated with each Fund's
investment objective and policies. These factors should be considered when
comparing each Fund's investment results to those of other mutual funds and
investment vehicles. Quotations of investment performance for any period when an
expense limitation was in effect will be greater if the limitation had not been
in effect. Each Fund's performance may be compared to other mutual funds,
relevant indices and rankings prepared by independent services. See the SAI.
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<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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<PAGE>
PROSPECTUS
VISTA[SM] NEW YORK TAX FREE INCOME FUND
Class A and B Shares
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS
OF PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary................................................................
The expenses you might pay on your Fund investment, including examples
Financial Highlights...........................................................
How the Fund has performed
Fund Objectives................................................................
Investment Policies............................................................
The kinds of securities in which the Fund invests,
investment policies and techniques, ans risks
Management.....................................................................
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment..........................................................
Alternative sales arrangements
How to Buy, Sell and Exchange Shares...........................................
How the Fund Values its Shares.................................................
How Distributions are Made; Tax Information....................................
How the Fund distributes its earnings, and
tax treatment related to those earnings
Other Information Concerning the Fund..........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information........................................................
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges.........................................
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EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs and estimated annual expenses from
investing in the Fund based on expenses incurred in the most recent fiscal year.
The examples show the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.
<TABLE>
<CAPTION>
Class A Class B
Shareholder Transaction Expenses Shares Shares
- -------------------------------- ------ ------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................... 4.50% None
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)(*)..................... None 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee (after estimated waiver) (**)......... 0.20% 0.20%
12b-1 Fee(***)................................................ 0.25% 0.75%
Shareholder Servicing Fee (after estimated waiver,
where indicated)............................................. 0.00%(**) 0.25%
Other Expenses ............................................... 0.45% 0.45%
Total Fund Operating Expenses (after waiver of fee) (**)...... 0.90% 1.65%
</TABLE>
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares(+)................... $54 $72 $93 $151
Class B Shares:
Assuming complete
redemption at the
end of the
period(++)(+++).................. $68 $85 $113 $175
Assuming no
redemptions (+++)................ $17 $52 $90 $175
- -----------------------
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* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge
generally declines by 1% annually thereafter (except in the fourth
year), reaching zero after six years. See "How to Buy, Sell and
Exchange Shares."
** Reflects current waiver arrangements to maintain Total Fund
Operating Expenses at the levels indicated in the table above.
Absent such waivers, the Investment Advisory Fee would be 0.30% for
Class A and Class B shares, the Shareholder Servicing Fee would be
0.25% for Class A shares, and Total Fund Operating Expenses would be
1.25% and 1.75% for Class A and Class B shares, respectively.
*** Long-term shareholders in mutual funds with 12b-1 fees, such as
Class A and Class B shareholders of the Fund, may pay more than the
economic equivalent of the maximum front-end sales charge permitted
by rules of the National Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales
charge.
++ Assumes deduction at the time of redemption of the maximum
applicable deferred sales charge.
+++ Ten-year figures assume conversion of Class B shares to Class A
shares at the beginning of the ninth year after purchase. See "How
to Buy, Sell and Exchange Shares."
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses that the Fund
incurs. THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN
SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with an
investment in the Fund. The Fund understands that Shareholder Servicing Agents
may credit to the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees received
by the Shareholder Servicing Agent from the Fund with respect to those accounts.
See "Other Information Concerning the Fund."
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for both Class A and Class B shares. The information for each of the five
years in the period ended October 31, 1995 has been audited by Price Waterhouse
LLP, the Fund's independent accountants, whose report on the financial
statements which includes this information and the financial statements are
incorporated by reference into the SAI. The Fund's Annual Report for the
fiscal year ended October 31, 1995 includes these financial statements and is
available without charge upon request.
VISTA NEW YORK TAX FREE INCOME FUND
-----------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year
ended 11/1/93 Year ended
------- through ---------------------------------
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period........... $11.30 $12.27 $11.18 $11.24 $10.48
------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income..................... 0.570 0.473 0.592 0.473 0.635
Net Gains or (Losses) in Securities (both
realized and unrealized)................ 0.167 (0.688) 1.281 0.274 0.762
------- ------- ------- ------- -------
Total from Investment Operations.......... 0.737 (0.215) 1.873 0.747 1.397
Less Distributions:
Dividends from Net Investment Income...... 0.567 0.472 0.591 0.473 0.635
Distributions from Capital Gains.......... - 0.283 0.194 0.334 0.000
------- ------- ------- ------- -------
Total Distributions....................... 0.567 0.755 0.785 0.807 0.635
------- ------- ------- ------- -------
Net Asset Value, End of Period................. $11.47 $11.30 $12.27 $11.18 $11.24
======= ======= ======= ======= =======
Total Return(1)................................ 6.82% (1.81%) 17.31% 8.57% 13.68%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)... $104,168 $103,113 $120,809 $48,420 $24,062
Ratio of Expenses to Average Net Assets... 0.85% 0.76%# 0.75% 0.75% 0.76%
Ratio of Net Investment Income to Average 5.11% 4.89%# 4.86% 5.74% 5.85%
Net Assets..............................
Ratio of Expenses without waivers and
assumption of expenses to Average Net
Assets.................................. 1.37% 1.25%# 1.11% 1.41% 1.71%
Ratio of Net Investment Income without
waivers and assumption of expenses to
Average Net Assets...................... 4.59% 4.40%# 4.50% 5.08% 4.90%
Portfolio Turnover Rate........................ 122% 162% 150% 280% 353%
</TABLE>
<TABLE>
<CAPTION>
Class B
Class A ------------------
---------------------------- Year
Year Ended 9/4/87* ended 11/4/93**
---------------------------- to ------- through
10/31/90 10/31/89 10/31/88 10/31/87 8/31/95 8/31/94+
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------
Net Asset Value, Beginning of Period........... $10.60 $10.62 $10.08 $10.00 $11.27 $12.11
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income..................... 0.671 0.739 0.701 0.053 0.485 0.419
Net Gains or (Losses) in Securities (both
realized and unrealized)................ (0.100) 0.045 0.590 0.027 0.162 (0.543)
------- ------- ------- ------- ------- -------
Total from Investment Operations.......... 0.571 0.784 1.291 0.080 0.647 (0.124)
Less Distributions:
Dividends from Net Investment Income...... 0.672 0.741 0.751 0.000 0.507 0.433
Distributions from Capital Gains.......... 0.020 0.063 0.000 0.000 - 0.283
------- ------- ------- ------- ------- -------
Total Distributions....................... 0.692 0.804 0.751 0.000 0.507 0.716
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period................. $10.48 $10.60 $10.62 $10.08 $11.41 $11.27
======= ======= ======= ======= ======= =======
Total Return(1)................................ 5.56% 7.69% 13.24% 5.41% 5.99% (1.11%)
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $20,413 $17,545 $5,557 $101 $10,633 $7,234
Ratio of Expenses to Average Net Assets...... 0.71% 0.20% 0.00% 0.00%# 1.61% 1.51%#
Ratio of Net Investment Income to Average 6.34% 6.90% 7.16% 7.49%# 4.35% 4.28%#
Net Assets.................................
Ratio of Expenses without waivers and
assumption of expenses to Average Net
Assets..................................... 1.68% 2.30% 1.50% 1.50%# 1.87% 1.76%#
Ratio of Net Investment Income without
waivers and assumption of expenses to
Average Net Assets......................... 5.38% 4.81% 5.66% 5.99%# 4.09% 4.03%#
Portfolio Turnover Rate........................ 143% 286% 362% 90% 122% 162%
</TABLE>
- ---------------
# Annualized.
* Commencement of operations.
** Commencement of offering of shares.
(1) Total return figures are calculated before taking into account effect of
4.50% sales charge.
+ In 1994 the New York Tax Free Income Fund changed its fiscal year-end from
October 31 to August 31.
-5-
<PAGE>
FUND OBJECTIVES
Vista New York Tax Free Income Fund seeks to provide monthly
dividends which are excluded from gross income for federal tax purposes and
exempt from New York State and New York City personal income taxes, as well as
to protect the value of its shareholders' investment. The Fund is not intended
to be a complete investment program, and there is no assurance it will achieve
its objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in New York Municipal Obligations (as
defined under "Municipal Obligations"). As a fundamental policy, under normal
market conditions, the Fund will have at least 80% of its assets in New York
Municipal Obligations the interest on which, in the opinion of bond counsel,
does not constitute a preference item which would be subject to the federal
alternative minimum tax on individuals (these preference items are referred to
as "AMT Items"). The Fund reserves the right under normal market conditions to
invest up to 20% of its total assets in AMT Items or securities the interest on
which is subject to federal income tax and New York State and New York City
personal income taxes. For temporary defensive purposes, the Fund may exceed
this limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at least in the category Baa, MIG-3 or
VMIG-3 by Moody's Investors Service, Inc. ("Moody's"), or BBB or SP-2 by
Standard & Poor's Corporation ("S&P") or BBB or FIN-3 by Fitch Investors
Service, Inc. ("Fitch") or comparably rated by another national rating
organization, or, if unrated, considered by the Fund's advisers to be of
comparable quality.
There is no restriction on the maturity of the Fund's portfolio or
any individual portfolio security. The Fund's advisers may adjust the average
maturity of the Fund's portfolio based upon their assessment of the relative
yields available on securities of different maturities and their expectations of
future changes in interest rates.
The Fund is classified as a "non-diversified" fund under federal
securities law. The Fund's assets may be more concentrated in the securities of
any single issuer or group of issuers than if the Fund were diversified.
For temporary defensive purposes, the Fund may invest without
limitation in high quality money market instruments and repurchase agreements,
the interest income from which may be taxable to shareholders as ordinary income
for federal income tax purposes.
In lieu of investing directly, the Fund is authorized to seek to
achieve its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which,
in the opinion of bond counsel, is excluded from gross income for federal income
tax purposes (without regard to whether the interest thereon is also exempt from
the personal income taxes of any state or whether the interest thereon
constitutes a preference item for purposes of the federal alternative minimum
tax). "New York Municipal Obligations" are Municipal Obligations of the State of
New York and its political subdivisions and of Puerto Rico, other U.S.
territories and their political subdivisions, the interest on which, in the
opinion of bond counsel, is exempt from New York State and New York City
personal income taxes. Municipal Obligations are issued to obtain funds for
various public purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of outstanding debts.
They may also be issued to finance various private
-6-
<PAGE>
activities, including the lending of funds to public or private institutions for
the construction of housing, educational or medical facilities, and may include
certain types of industrial development bonds, private activity bonds or notes
issued by public authorities to finance privately owned or operated facilities,
or to fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue receipts
or bond sales to finance various public purposes.
The two principal classifications of Municipal Obligations are
general obligation and revenue obligation securities. General obligation
securities involve a pledge of the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Revenue obligation
securities are payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial development
bonds and private activity bonds are in most cases revenue obligation
securities, the credit quality of which is directly related to the private user
of the facilities.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment payments in future years unless money is later appropriated for such
purpose. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Certain investments in municipal lease obligations may be
illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices, and
certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or
high-quality, short-term money market instruments. Such instruments 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.
U.S. Government Obligations. The Fund may invest in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter
into agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future date, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse
-7-
<PAGE>
repurchase agreement, it will establish a segregated account in which it will
maintain liquid assets on a daily basis in an amount at least equal to the
repurchase price (including accrued interest). The Fund would be required to pay
interest on amounts obtained through reverse repurchase agreements, which are
considered borrowings under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, the Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of
its total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". The Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
The Fund 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 Fund 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 variable rate nature of
these investments, the Fund's yield may decline and it may forego the
opportunity for capital appreciation during periods when interest rates decline;
however, during periods when interest rates increase, the Fund's yield may
increase and it may have reduced risk of capital depreciation. Demand features
on certain floating or variable rate securities may obligate the Fund to pay a
"tender fee" to a third party. Demand features provided by foreign banks involve
certain risks associated with foreign investments. The Internal Revenue Service
has not ruled on whether interest on participations in variable rate municipal
obligations is tax exempt, and the Fund would purchase such instruments based on
opinions of bond counsel.
Inverse Floaters and Interest Rate Caps. The 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, and their price may be
considerably more volatile than a fixed-rate security. 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 municipal securities which do not include such a
structure.
Other Investment Companies. The Fund may invest up to 10% of its
total assets in shares of other investment companies, subject to applicable
regulatory limitations.
Derivatives and Related Instruments. The Fund may invest its assets
in derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject to
asset segregation requirements to cover the Fund's obligations. The Fund may (i)
purchase, write
-8-
<PAGE>
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 interest rate contracts; and (iv)
purchase and sell structured products, which are instruments designed to
restructure or reflect the characteristics of certain other investments.
There are a number of risks associated with the use of derivatives
and related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers to
forecast these factors correctly. Inaccurate forecasts could expose the Fund to
a risk of loss. There can be no guarantee that there will be a correlation
between price movements in a hedging instrument and in the portfolio assets
being hedged. The Fund is not required to use any hedging strategies. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. Derivatives transactions not involving hedging may have speculative
characteristics, involve leverage and result in more risk to the Fund than
hedging strategies using the same instruments. There can be no assurance that a
liquid market will exist at a time when the Fund seeks to close out a
derivatives position. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price distortions in derivatives markets. In certain instances,
particularly those involving over-the-counter transactions or forward contracts,
there is a greater potential that a counterparty or broker may default. In the
event of a default, the Fund may experience a loss. For additional information
concerning derivatives, related instruments and the associated risks, see the
SAI.
Portfolio Turnover. The frequency of the Fund's portfolio
transactions will vary from year to year. The Fund's investment policies may
lead to frequent changes in investments, particularly in periods of rapidly
changing market conditions. High portfolio turnover rates would generally result
in higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made; Tax
Information" and "Other Information Concerning the Fund--Certain Regulatory
Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment
risks for its shareholders. These restrictions prohibit the Fund from: (a)
investing more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures established by the Board of Trustees);
or (b) investing more than 25% of its total assets in any one industry (this
would apply to municipal obligations backed only by the assets and revenues of
nongovernmental users, but excludes obligations of states, cities,
municipalities or other public authorities). A complete description of these and
other investment policies is included in the SAI. Except for restriction (b)
above and investment policies designated as fundamental above or in the SAI, the
Fund's investment policies (including its objective) are not fundamental. The
Trustees may change any non-fundamental investment policy without shareholder
approval.
Risk Factors
Changes in interest rates may affect the value of the obligations
held by the Fund. The value of fixed income securities varies inversely with
changes in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by the
State of New York and its cities, public authorities and other municipal
issuers, the Fund is susceptible to factors affecting the State of New York and
its municipal issuers. The State of New York and New York City have a recent
history of significant financial and fiscal difficulties. If the State of New
York or any of its local government entities is unable to meet its financial
obligations, the income derived by the Fund and the Fund's ability to preserve
capital and liquidity could be adversely affected. See the SAI for further
information.
Interest on certain Municipal Obligations (including certain
industrial development bonds), while exempt from federal income tax, is a
preference item for the purpose of the alternative minimum tax. Where a mutual
fund receives such interest, a proportionate share of any exempt-interest
dividend paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the
-9-
<PAGE>
types and volume of bonds which are not AMT Items and the interest on which is
not subject to federal income tax. This legislation may affect the availability
of Municipal Obligations for investment by the Fund.
The Fund may invest up to 25% of its total assets in Municipal
Obligations secured by letters of credit or guarantees from U.S. and foreign
banks, and other foreign institutions. The dependence on banking institutions
may involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industries. U.S. banks
are subject to extensive governmental regulations wich may limit both the amount
and types of loans which may be made and interest rates which may be charged. In
addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
Obligations backed by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of obligations of domestic issuers, including 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. In addition, 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.
Because the Fund is "non-diversified," the value of its shares is
more susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to be
paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments,
particularly in light of the fact that the issuers in which the Fund invest will
generally be located in the State of New York.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the
Fund pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board of
Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan Corporation,
a bank holding company. Chase and its predecessors have over 100 years of money
management experience. For its investment advisory services to the Fund, Chase
is entitled to receive an annual fee computed daily and paid monthly at an
annual rate equal to 0.30% of the Fund's average daily net assets. Chase is
located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to the Fund pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly-owned operating
subsidiary Chase. CAM makes investment decisions for the Fund on a day-to-day
basis. For these services, CAM is entitled to receive a fee, payable by Chase
from its advisory fee, at an annual rate equal to 0.15% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for CAM.
CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
-10-
<PAGE>
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1987. Ms. Hunter is
part of a team providing fixed income strategy and product development. Prior to
joining Chemical in May 1996, Ms. Hunter was previously employed at Chase since
1980.
ABOUT YOUR INVESTMENT
Alternative Sales Arrangements
Class A shares. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares are not
subject to any sales charges when they are redeemed. Certain purchases of Class
A shares qualify for reduced sales charges. Class A shares have lower combined
12b-1 and service fees than Class B shares. See "How to Buy, Sell and Exchange
Shares" and "Other Information Concerning the Fund."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge ("CDSC") if
redeemed within a specified period after purchase. Class B shares also have
higher combined 12b-1 and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year after purchase. For
more information about the conversion of Class B shares, see the SAI. This
discussion will include information about how shares acquired through
reinvestment of distributions are treated for conversion purposes. Class B
shares provide an investor the benefit of putting all of the investor's dollars
to work from the time the investment is made. Until conversion, Class B shares
will have a higher expense ratio and pay lower dividends than Class A shares
because of the higher combined 12b-1 and service fees. See "How to Buy, Sell and
Exchange Shares" and "Other Information Concerning the Fund."
Which arrangement is best for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. In almost all cases, investors planning to
purchase $250,000 or more of the Fund's shares will pay lower aggregate charges
and expenses by purchasing Class A shares.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for
IRAs, SEP-IRAs and the Systematic Investment Plan) and make additional
investments at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor buy
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made
payable to the Vista Funds. Third party checks, credit cards and cash will not
be accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which may
take 15 calendar days or longer. In addition, the redemption of shares purchased
through ACH will not be allowed until clearance of your payment which may take 7
business days or longer.
Buying shares through the Fund's distributor. Complete and return
the enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
-11-
<PAGE>
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic deduction
from your bank checking or savings account. Shareholders electing to start this
Systematic Investment Plan when opening an account should complete Section 8 of
the account application. Current shareholders may begin such a plan at any time
by sending a signed letter with signature guarantee and a deposit slip or voided
check to the Vista Service Center. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Shares are sold at the public offering price based on the net asset
value next determined after the Vista Service Center receives your order in
proper form. In most cases, in order to receive that day's public offering
price, the Vista Service Center must receive your order before the close of
regular trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the New York Stock Exchange to receive that day's
public offering price. Orders for shares are accepted by the Fund after funds
are converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you should pay for
those shares with a certified check to avoid any delay in redemption, exchange
or transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not issue certificates for your Class A shares unless you request
them. Due to the conversion feature of Class B shares, certificates for Class B
shares will not be issued and all Class B shares will be held in book entry
form.
Class A Shares
The public offering price of Class A shares is the net asset value
plus a sales charge that varies depending on the size of your purchase. The Fund
receives the net asset value. The sales charge is allocated between your
broker-dealer and the Fund's distributor as shown in the following table, except
when the Fund's distributor, in its discretion, allocates the entire amount to
your broker-dealer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Sales charge as a
percentage of:
--------------
Amount of sales charge
Amount of transaction at Offering Net amount reallowed to dealers as a
offering price($) price invested percentage of 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.
Class B Shares
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Class B shares are sold without an initial sales charge, although a
CDSC will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may be
redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a percentage
of the lesser of the current market value or the purchase price of shares being
redeemed.
Year 1 2 3 4 5 6 7 8+
- ----------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund
will first redeem shares not subject to any charge, and then shares held longest
during the CDSC period. When a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial purchase price.
For information on how sales charges are calculated if you exchange your shares,
see "How to Exchange Your Shares." The Fund's distributor pays broker-dealers a
commission of 4.00% of the offering price on sales of Class B shares, and the
distributor receives the entire amount of any CDSC you pay.
General
You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment representative or the Vista Service Center for details
about Vista's combined purchase privilege, cumulative quantity discount,
statement of intention, group sales plan, employee benefit plans, and other
plans. Descriptions are also included in the enclosed application and in the
SAI. In addition, sales charges will not apply to shares purchased with
redemption proceeds received within the prior ninety days from non-Vista mutual
funds on which the investor paid a front-end or contingent deferred sales
charge.
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes of
determining whether the plan may purchase Class A shares at net asset value.
These investments will also be included for purposes of the discount privileges
and programs described above.
The Fund may sell Class A shares at net asset value without an
initial sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Fund's distributor and transfer agent or any affiliates or
subsidiaries thereof, registered representatives and other employees (and their
immediate families) of broker-dealers having selected dealer agreements with the
Fund's distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor (or
otherwise having an arrangement with a broker-dealer or financial institution
with respect to sales of Vista fund shares) financial institution trust
departments investing an aggregate of $1 million or more in the Vista Family of
Funds and clients of certain administrators of tax-qualified plans when proceeds
from repayments of loans to participants are invested (or reinvested) in the
Vista Family of Funds.
No initial sales charge will apply to the purchase of Class A shares
of the Fund by an investor seeking to invest the proceeds of a qualified
retirement plan where a portion of the plan was invested in the Vista Family of
Funds, any qualified retirement plan with 50 or more participants, or an
individual participant in a tax-qualified plan making a tax-free rollover or
transfer of assets from the plan in which Chase or an affiliate serves as
trustee or custodian of the plan or manages some portion of the plan's assets.
Purchases of Class A shares of the Fund may be made with no initial
sales charge through an investment adviser or financial planner that charges a
fee for its services. Purchases of Class A shares of the Fund 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
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<PAGE>
master account of such investment adviser or financial planner on the books and
records of the broker or agent. Such purchases may be made for retirement and
deferred compensation plans and trusts used to fund those plans.
Purchases of Class A shares of the Fund 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 decision, 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 Vista Service
Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase Class A shares of the Fund with no
initial sales charge for as long as they continue to own Class A shares of any
Vista fund, provided there is no change in account registration. Shareholders of
record of any portfolio of The Hanover Funds, Inc. or The Hanover Investment
Funds, Inc. as of May 3, 1996 and certain related investors may purchase Class A
shares of the Fund with no initial sales charge for as long as they continue to
own shares of any Vista fund following this date, provided there is no change in
account registration.
The Fund may sell Class A shares at net asset value without an
initial sales charge or a CDSC in connection with the acquisition by the Fund of
assets of an investment company or personal holding company. The CDSC will be
waived on redemption of Class B shares arising out of death or disability or in
connection with certain withdrawals from IRA or other retirement plans. Up to
12% of the value of Class B shares subject to a systematic withdrawal plan may
also be redeemed each year without a CDSC, provided that the Class B account had
a minimum balance of $20,000 at the time the systematic withdrawal plan was
established. The SAI contains additional information about purchasing the Fund's
shares at reduced sales charges.
The Fund reserves the right to change any of these policies on
purchases without an initial sales charge at any time and may reject any such
purchase request.
Shareholders of other Vista funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of the Fund at
net asset value.
How to Sell Shares
You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your investment
representative. The Fund will only forward redemption payments on shares for
which it has collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of
instruction to the Vista Service Center, along with any certificates that
represent shares you want to sell. The price you will receive is the next net
asset value calculated after the Fund receives your request in proper form, less
any applicable CDSC. In order to receive that day's net asset value, the Vista
Service Center must receive your request before the close of regular trading on
the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions. See
the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than
your address as it appears on Vista's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
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<PAGE>
The Fund generally sends you payment for your shares the business
day after your request is received, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. An investor agrees,
however, that to the extent permitted by applicable law, neither the Fund nor
its agents will be liable for any loss, liability, cost or expense arising out
of any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or
more ($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a systematic
withdrawal plan for Class A accounts. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Selling shares through your investment representative. Your
investment representative must receive your request before the close of regular
trading on the New York Stock Exchange to receive that day's net asset value.
Your investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
Involuntary Redemption of Accounts. The Fund may involuntarily
redeem your shares if at such time the aggregate net asset value of the shares
in your account is less than $500, or if you purchase through the Systematic
Investment Plan and fail to meet the Fund's investment minimum within a twelve
month period. In the event of any such redemption, you will receive at least 60
days notice prior to the redemption. In the event the Fund redeems Class B
shares pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain
other Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained for
future reference. If you exchange shares subject to a CDSC, the transaction will
not be subject to the CDSC. However, when you redeem the shares acquired through
the exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using the schedule of
any fund into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares. In computing
the CDSC, the length of time you have owned your shares will be measured from
the date of original purchase and will not be affected by any exchange.
An exchange of Class B shares into any of the Vista money market
funds other than the Class B shares of the Vista Prime Money Market Fund will be
treated as a redemption -- and therefore subject to the conditions of the CDSC
- -- and a subsequent purchase. Class B shares of any Vista non-money market fund
may be exchanged into the Class B shares of the Vista Prime Money Market Fund in
order to continue the aging of the initial purchase of such shares.
-15-
<PAGE>
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for shares
that remain outstanding. Ask your investment representative or the Vista Service
Center for prospectuses of other Vista funds. Shares of certain Vista funds are
not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Fund, the Fund reserves
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving the Fund in a year or three in
a calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
Reinstatement privilege. Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset value next
determined subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption). Class B
shareholders who have redeemed their shares and paid a CDSC with such redemption
may purchase Class A shares with no initial sales charge (in an amount not in
excess of their redemption proceeds) if the purchase occurs within 90 days of
the redemption of the Class B shares.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined
once daily based upon prices determined as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund attributable to that class by the total
number of outstanding shares of that class. Values of assets held by the Fund
are determined on the basis of their market or other fair value, as described in
the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains at
least annually. Distributions from capital gains are made after applying any
available capital loss carryovers. Distributions paid by the Fund with respect
to Class A shares will generally be greater than those paid with respect to
Class B shares because expenses attributable to Class B shares will generally be
higher.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a pre-established
bank account while reinvesting capital gains distributions in additional shares
without a sales charge; or (3) receive all distributions in cash or by ACH. You
can change your distribution option by notifying the Vista Service Center in
writing. If you do not select an option when you open your account, all
distributions will be reinvested. All distributions not paid in cash or by ACH
will be reinvested in shares of the class on which the distributions are paid.
You will receive a statement confirming reinvestment of distributions in
additional Fund shares promptly following the quarter in which the reinvestment
occurs.
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<PAGE>
If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the Fund
or in another Vista fund. If the Vista Service Center does not receive your
election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all of
its ordinary income and gains on a current basis. If the Fund does not qualify
as a regulated investment company for any taxable year or does not make such
distributions, the Fund will be subject to tax on all of its income and gains.
Distributions by the Fund of its tax-exempt interest income will not
be subject to federal income tax, but generally will be subject to state and
local taxes. However, to the extent paid out interest on New York Municipal
Obligations, such distributions will also be exempt from New York State and New
York City personal income taxes for a New York individual resident shareholder.
All other Fund distributions will be taxable as ordinary income,
except that any distributions of net long-term capital gains will be taxable as
such, regardless of how long you have held the shares. Distributions will be
treated in the same manner for federal income tax purposes whether received in
cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next distribution date. Those investors
purchasing shares just prior to a distribution will be taxed on the entire
amount of the taxable distribution received, even though the net asset value per
share on the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount
and tax status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your tax adviser to
determine the precise effect of an investment in the Fund on your particular tax
situation (including possible liability for state and local taxes and, for
foreign shareholders, U.S. withholding taxes).
-17-
<PAGE>
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD").
VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The
Trust has adopted a Rule 12b-1 distribution plans for Class A and Class B shares
which provide that the Fund will pay distribution fees at annual rates of up to
0.25% and 0.75% of the average daily net assets attributable to Class A and
Class B shares of the Fund, respectively. Payments under the distribution plans
shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class A and Class B shares, and are not tied to the amount of actual
expenses incurred. Payments may be used to compensate broker-dealers with trail
or maintenance commissions at an annual rate of up to 0.25% of the average daily
net asset value of Class A or Class B shares maintained 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. Some activities intended to promote the sale of Class A and
Class B shares will be conducted generally by the Vista Family of Funds, and
activities intended to promote the Fund's Class A or Class B shares may also
benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; and occasional meal, ticket to
a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging and
meals, in connection with attendance at training and educational meetings within
and outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with
certain shareholder servicing agents (including Chase) under which the
shareholder servicing agents have agreed to provide certain support services to
their customers who beneficially own Class A or Class B shares of the Fund.
These services include assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to .25% of the average
daily net assets of Class A and Class B shares of the Fund held by investors for
whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund shares, such as pre-authorized or systematic purchase and redemption plans.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain shareholder servicing agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding such other
fees or the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund
pursuant to a distribution and sub-administration agreement and is entitled
to receive a fee for these services from the Fund at an annual rate equal to
0.05% of the Fund's average daily net assets. VFD has agreed to use a portion
of this fee to pay for certain
-18-
<PAGE>
expenses incurred in connection with organizing new series of the Trust and
certain other ongoing expenses of the Trust. VFD is located at 101 Park Avenue,
New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and
receives compensation under an agreement with the Trust. Fund securities and
cash may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its
pro rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees; registration
fees; interest charges; taxes; expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Fund's
custodian for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government offices and commissions;
expenses of meetings of investors; fees and expenses of independent accountants,
of legal counsel and of any transfer agent, registrar or dividend disbursing
agent of the Trust; insurance premiums; and expenses of calculating the net
asset value of, and the net income on, shares of the Fund. Shareholder servicing
and distribution fees are allocated to specific classes of the Fund. In
addition, the Fund may allocate transfer agency and certain other expenses by
class. Service providers to the Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional series
and classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Shares have no
preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted. Shares of each class of the Fund generally vote
together except when required under federal securities laws to vote separately
on matters that only affect a particular class, such as the approval of
distribution plans for a particular class.
The Fund issues multiple classes of shares. This Prospectus relates
to Class A and Class B shares of the Fund. The Fund may offer other classes of
shares in addition to these classes. The categories of investors that are
eligible to purchase shares and minimum investment requirements may differ for
each class of Fund shares. In addition, other classes of Fund shares may be
subject to differences in sales charge arrangements, ongoing distribution and
service fee levels, and levels of certain other expenses, which would affect the
relative performance of the different classes. Investors may call 1-800-34-VISTA
to obtain additional information about other classes of shares of the Fund that
are offered. Any person entitled to receive compensation for selling or
servicing shares of the Fund may receive different levels of compensation with
respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of 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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
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<PAGE>
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Fund's distributor or affiliates of the distributor. Chase will
not invest the Fund's assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate, although
under certain circumstances such securities may be purchased from other members
of an underwriting syndicate in which Chase or an affiliate is a non-principal
member. This restriction may limit the amount or type of U.S. Government
obligations, municipal obligations or commercial paper available to be purchased
by the Fund. Chase has informed the Fund that in making its investment
decisions, it does not obtain or use material inside information in the
possession of any other division or department of Chase, including the division
that performs services for the Fund as custodian, or in the possession of any
affiliate of Chase. Shareholders of the Fund should be aware that, subject to
applicable legal or regulatory restrictions, Chase and its affiliates may
exchange among themselves certain information about the shareholder and his
account. Transactions with affiliated broker-dealers will only be executed on an
agency basis in accordance with applicable federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included
in advertisements about the Fund. Performance is calculated separately for each
class of shares. "Yield" for each class of shares is calculated by dividing the
annualized net investment income calculated pursuant to federal rules per share
during a recent 30- day period by the maximum public offering price per share of
such class on the last day of that period. "Effective yield" is the "yield"
calculated assuming the reinvestment of income earned, and will be slightly
higher than the "yield" due to the compounding effect of this assumed
reinvestment. "Tax equivalent yield "is the yield that a taxable fund would have
to generate in order to produce an after-tax yield equivalent to the Fund's
yield. The tax equivalent yield of the Fund can then be compared to the
yield of a taxable Fund. Tax equivalent yields can be quoted on either a "yield"
or "effective yield" basis.
"Total return" for the one-, five- and ten-year periods (or for the
life of a class, if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in the
Fund invested at the maximum public offering price (in the case of Class A
shares) or reflecting the deduction of any applicable contingent deferred sales
charge (in the case of Class B shares). Total return reflects the deduction
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of the maximum initial sales charge in the case of Class A shares, but does not
reflect the deduction of any contingent deferred sales charge in the case of
Class B shares. Total return may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of investment
performance not reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales charges were used.
All performance data is based on the Fund's past investment results
and does not predict future performance. Investment performance, which will
vary, is based on many factors, including market conditions, the composition of
the Fund's portfolio, the Fund's operating expenses and which class of shares
you purchase. Investment performance also often reflects the risks associated
with the Fund's investment objectives and policies. These factors should be
considered when comparing the Fund's investment results to those of other mutual
funds and other investment vehicles. Quotation of investment performance for any
period when a fee waiver or expense limitation was in effect will be greater
than if the waiver or limitation had not been in effect. The Fund's performance
may be compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
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<PAGE>
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund shareholder.
o SYSTEMATIC INVESTMENT PLAN - Invest as much as you wish ($100 or
more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
o SYSTEMATIC WITHDRAWAL - Make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or
semiannually. A minimum account balance of $5,000 is required to
establish a systematic withdrawal plan for Class A accounts.
o SYSTEMATIC EXCHANGE - Transfer assets automatically from one Vista
account to another on a regular, prearranged basis. There is no
additional charge for this service.
o FREE EXCHANGE PRIVILEGE - Exchange money between Vista funds in the
same class of shares without charge. The exchange privilege allows
you to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
o REINSTATEMENT PRIVILEGE - Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset
value next determined subject to written request within 90 calendar
days of the redemption, accompanied by payment for the shares (not
in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC
with such redemption may purchase Class A shares with no initial
sales charge (in an amount not in excess of their redemption
proceeds) if the purchase occurs within 90 days of the redemption of
the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or termination.
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<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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<PAGE>
PROSPECTUS
VISTA[SM] CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS
OF PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary...............................................................
The expenses you might pay on your Fund investment, including examples
Financial Highlights..........................................................
How the Fund has performed
Fund Objective................................................................
Investment Policies...........................................................
The kinds of securities in which the Fund invests,
investment policies and techniques, and risks
Management....................................................................
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment.........................................................
Alternative sales arrangements
How to Buy, Sell and Exchange Shares..........................................
How the Fund Values its Shares................................................
How Distributions Are Made; Tax Information...................................
How the Fund distributes its earnings, and
tax treatment related to those earnings
Other Information Concerning the Fund.........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information.......................................................
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges........................................
-2-
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs and estimated annual expenses from
investing in shares of the Fund based on expenses incurred in the most recent
fiscal year. The examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...................................... 4.50%
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee (after estimated waiver)(*)...................... 0.00%
12b-1 Fee (after estimated waiver) (*)(**)............................... 0.00%
Shareholder Servicing Fee (after estimated waiver)(*).................... 0.00%
Other Expenses (after estimated waiver)(*)............................... 0.60%
Total Fund Operating Expenses (after waivers of fees)(*)................. 0.60%
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares(+).............. $51 $63 $77 $117
- -----------------------
* Reflects current waiver arrangements to maintain Total Fund
Operating Expenses at the level indicated in the table above. Absent
such waivers, the Investment Advisory Fee, 12b-1 Fee, Shareholder
Servicing Fee and Other Expenses would be 0.30%, 0.25%, 0.25% and
0.70%, respectively, and Total Fund Operating Expenses would be
1.50%.
** Long-term shareholders in mutual funds with 12b-1 fees, such as
shareholders of the Fund, may pay more than the economic equivalent
of the maximum front-end sales charge permitted by rules of the
National Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales
charge.
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses that the Fund
incurs. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN
SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with an
investment in the Fund. The Fund understands that Shareholder
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<PAGE>
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect to
those accounts. See "Other Information Concerning the Fund."
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<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for shares. This information has been audited by Price Waterhouse LLP,
the Fund's independent accountants, whose report on the financial statements
which includes this information and the financial statements are incorporated by
reference into the SAI. The Fund's Annual Report for the fiscal year ended
October 31, 1995 includes these financial statements and is available without
charge upon request.
VISTA CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
--------------------------------------------------
<TABLE>
<CAPTION>
9/1/94 11/1/93 7/15/93*
through through through
8/31/95 8/31/94+ 10/31/93
------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................. $ 9.69 $ 10.30 $ 10.22
-------- -------- -------
Income From Investment Operations:
Net Investment Income................................ 0.505 0.320 0.166
Net Gains or (Losses) in Securities (both realized and
unrealized)........................................ 0.200 (0.408) 0.081
-------- -------- -------
Total from Investment Operations..................... 0.705 (0.088) 0.247
-------- -------- -------
Less Distributions
Dividends from Net Investment Income................. 0.505 0.404 0.165
Distributions from Capital Gains..................... -- 0.118 --
-------- -------- -------
Total distributions.................................. 0.505 0.522 0.165
-------- -------- -------
Net Asset Value, End of Period................................... $ 9.89 $ 9.69 $ 10.30
======== ======== =======
Total Return(1).................................................. 7.55% (0.86%) 2.42%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........................ $32,746 $36,264 $41,728
Ratio of Expenses to Average Net Assets#....................... 0.52% 0.52% 0.52%
Ratio of Net Investment Income to
Average Net Assets#.......................................... 5.24% 4.88% 4.83%
Ratio of Expenses without waivers and assumption of
expenses to Average Net Assets.#............................. 1.40% 1.37% 1.33%
Ratio of Net Investment Income without waivers
and assumption of expenses to Average Net
Assets#...................................................... 4.36% 4.03% 4.02%
Portfolio Turnover Rate.......................................... 94% 93% 40%
</TABLE>
- ---------------
(1) Total return figure does not include the effect of any front-end
sales load.
# Periods less than one year have been annualized.
* Commencement of offering shares.
+ In 1994 the California Intermediate Tax Free Income Fund changed
its fiscal year-end from October 31 to August 31.
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<PAGE>
FUND OBJECTIVE
Vista California Intermediate Tax Free Income Fund seeks to provide
current income exempt from federal and California personal income taxes. The
Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in California Municipal Obligations (as
defined under "Municipal Obligations"). As a fundamental policy, under normal
market conditions, the Fund will have at least 80% of its assets in California
Municipal Obligations or in securities of territories and political subdivisions
of the U.S. Government the interest on which is deemed to be exempt from
federal, state and local income taxes. The Fund reserves the right under normal
market conditions to invest up to 20% of its total assets in securities which
constitute a preference item which would be subject to the alternative minimum
tax for noncorporate investors ("AMT Items") or securities the interest on which
is subject to federal and California personal income taxes. For temporary
defensive purposes, the Fund may exceed this limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at time of purchase at least in the category
Baa, MIG-3 or VMIG-3 by Moody's Investor's Services, Inc. ("Moody's"), BBB or
SP-3 by Standard & Poor's Corporation ("S&P"), or BBB or FIN-3 by Fitch
Investor's Services, Inc. ("Fitch") or comparably rated by another national
rating organization, or, if unrated, considered by the Fund's advisers to be of
comparable quality.
The Fund's investments have an average maturity of 10 years or less.
The Fund's advisers may adjust the average maturity of the Fund's portfolio
based upon their assessment of the relative yields available on securities of
different maturities and their expectations of future changes in interest rates.
The Fund is classified as a "non-diversified" fund under federal
securities law. The Fund's assets may be more concentrated in the securities of
any single issuer or group of issuers than if the Fund were diversified.
In lieu of investing directly, the Fund is authorized to seek to
achieve its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which,
in the opinion of bond counsel, is exempt from federal income taxes (without
regard to whether the interest thereon is also exempt from the personal income
taxes of any state or whether the interest thereon constitutes a preference item
for purposes of the federal alternative minimum tax). "California Municipal
Obligations" are obligations of the State of California, its local governments
and political subdivisions, the interest on which, in the opinion of bond
counsel, is exempt from federal income taxes and California personal income
taxes and is not subject to the alternative minimum tax for noncorporate
investors. Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses or the refunding of outstanding debts. They may also be
issued to finance various private activities, including the lending of funds to
public or private institutions for the construction of housing, educational or
medical facilities, and may include certain types of industrial development
bonds, private activity bonds or notes issued by public authorities to finance
privately owned or operated facilities, or to fund short-term cash requirements.
Short-term Municipal Obligations may be issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes.
The two principal classifications of Municipal Obligations are
general obligation and revenue obligation securities. General obligation
securities involve a pledge of the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may
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<PAGE>
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Revenue obligation
securities are payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial development
bonds and private activity bonds are in most cases revenue obligation
securities, the credit quality of which is directly related to the private user
of the facilities.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment payments in future years unless money is later appropriated for such
purpose. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Certain investments in municipal lease obligations may be
illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices, and
certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or
high-quality, short-term money market instruments. Such instruments 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.
U.S. Government Obligations. The Fund may invest in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter
into agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future date, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). The Fund would be required to pay interest on amounts
obtained through reverse repurchase agreements, which are considered borrowings
under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, the Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
-7-
<PAGE>
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of
its total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". The Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
The Fund 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 Fund 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 variable rate nature of
these investments, the Fund's yield may decline and it may forego the
opportunity for capital appreciation during periods when interest rates decline;
however, during periods when interest rates increase, the Fund's yield may
increase and it may have reduced risk of capital depreciation. Demand features
on certain floating or variable rate securities may obligate the Fund to pay a
"tender fee" to a third party. Demand features provided by foreign banks involve
certain risks associated with foreign investments. The Internal Revenue Service
has not ruled on whether interest on participations in variable rate municipal
obligations is tax exempt and the Fund would purchase such instruments based on
opinions of bond counsel.
Inverse Floaters and Interest Rate Caps. The 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, and their price may be
considerably more volatile than a fixed-rate security. 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 municipal bonds which do not include such a structure.
Other Investment Companies. The Fund may invest up to 10% of its
total assets in shares of other investment companies, subject to applicable
regulatory limitations.
Derivatives and Related Instruments. The Fund may invest its assets
in derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject to
asset segregation requirements to cover the Fund's obligations. The Fund may (i)
purchase, write and exercise call and put options on securities and securities
indexes (including using options in combination with securities, other options
or derivative instruments); (ii) enter into swaps, futures contracts and options
on futures contracts; (iii) employ forward interest rate contracts; and (iv)
purchase and sell structured products, which are instruments designed to
restructure or reflect the characteristics of certain other investments.
There are a number of risks associated with the use of derivatives
and related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers to
forecast these factors correctly. Inaccurate forecasts could expose the Fund to
a risk of loss. There can be no guarantee that there will be a correlation
between price movements in a hedging instrument and in the portfolio assets
being hedged. The Fund is not required to use any hedging strategies. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. Derivatives transactions not involving hedging may have speculative
characteristics, involve leverage and result in more risk to the Fund than
hedging strategies using the same instruments. There can be no assurance that a
liquid market will exist at a time when the Fund seeks to close out a
derivatives position. Activities of large traders in the futures and securities
markets involving arbitrage,
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<PAGE>
"program trading," and other investment strategies may cause price distortions
in derivatives markets. In certain instances, particularly those involving
over-the-counter transactions or forward contracts, there is a greater potential
that a counterparty or broker may default. In the event of a default, the Fund
may experience a loss. For additional information concerning derivatives,
related instruments and the associated risks, see the SAI.
Portfolio Turnover. The frequency of the Fund's portfolio
transactions will vary from year to year. The Fund's investment policies may
lead to frequent changes in investments, particularly in periods of rapidly
changing market conditions. High portfolio turnover rates would generally result
in higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made; Tax
Information" and "Other Information Concerning the Fund--Certain Regulatory
Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment
risks for its shareholders. These restrictions prohibit the Fund from: (a)
investing more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures established by the Board of Trustees);
or (b) investing more than 25% of its total assets in any one industry (this
would apply to municipal obligations backed only by the assets and revenues of
nongovernmental users, but excludes obligations of states, cities,
municipalities or other public authorities). A complete description of these and
other investment policies is included in the SAI. Except for restriction (b)
above and investment policies designated as fundamental above or in the SAI, the
Fund's investment policies (including its objective) are not fundamental. The
Trustees may change any non-fundamental investment policy without shareholder
approval.
Risk Factors
Changes in interest rates may affect the value of the obligations
held by the Fund. The value of fixed income securities varies inversely with
changes in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by the
State of California and its cities, public authorities and other municipal
issuers, the Fund is susceptible to factors affecting the State of California
and its municipal issuers. The State of California and certain California
counties have a recent history of significant financial and fiscal difficulties.
California's Orange County recently defaulted on certain of its indebtedness. If
the State of California or any of its local government entities is unable to
meet its financial obligations, the income derived by the Fund and the Fund's
ability to preserve capital and liquidity could be adversely affected. See
the SAI for further information.
Interest on certain Municipal Obligations (including certain
industrial development bonds), while exempt from federal income tax, is a
preference item for the purpose of the alternative minimum tax. Where a mutual
fund receives such interest, a proportionate share of any exempt-interest
dividend paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the interest
on which is not subject to federal income tax. This legislation may affect the
availability of Municipal Obligations for investment by the Fund.
The Fund may invest up to 25% of its total assets in Municipal
Obligations secured by letters of credit or guarantees from U.S. and foreign
banks, and other foreign institutions. The dependence on banking institutions
may involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industries. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
Obligations backed by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of obligations of domestic issuers, including 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. In
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<PAGE>
addition, 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.
Because the Fund is "non-diversified," the value of its shares is
more susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to be
paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments,
particularly in light of the fact that of the issuers in which the Fund invest
will generally are likely to be located in the State of California.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the
Fund pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board of
Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan Corporation,
a bank holding company. Chase and its predecessors have over 100 years of money
management experience. For its investment advisory services to the Fund, Chase
is entitled to receive an annual fee computed daily and paid monthly at an
annual rate equal to 0.30% of the Fund's average daily net assets. Chase is
located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to the Fund pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly-owned operating
subsidiary of Chase. CAM makes investment decisions for the Fund on a day-to-day
basis. For these services, CAM is entitled to receive a fee, payable by Chase
from its advisory fee, at an annual rate equal to 0.15% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for CAM.
CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1993. Ms. Hunter is
part of a team providing fixed income strategy and product development. Ms.
Hunter has been employed at Chase (including its predecessors) since 1980.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for
IRAs, SEP-IRAs and the Systematic Investment Plan) and make additional
investments at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor by
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made
payable to the Vista Funds. Third party checks, credit cards and cash will not
be accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which may
take 15 calendar days or longer. In addition, the redemption of shares purchased
through ACH will not be allowed until clearance of your payment which may take 7
business days or longer.
Buying shares through the Fund's distributor. Complete and return
the enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
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<PAGE>
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic deduction
from your bank checking or savings account. Shareholders electing to start this
Systematic Investment Plan when opening an account should complete Section 8 of
the account application. Current shareholders may begin such a plan at any time
by sending a signed letter with signature guarantee and a deposit slip or voided
check to the Vista Service Center. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Shares are sold at the public offering price based on the net asset
value next determined after the Vista Service Center receives your order in
proper form. In most cases, in order to receive that day's public offering
price, the Vista Service Center must receive your order before the close of
regular trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the New York Stock Exchange to receive that day's
public offering price. Orders for shares are accepted by the Fund after funds
are converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you should pay for
those shares with a certified check to avoid any delay in redemption, exchange
or transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not issue certificates for your shares unless you request them.
An investor who purchases shares pays a sales charge at the time of
purchase. As a result, shares are not subject to any sales charges when they are
redeemed. Certain purchases of shares qualify for reduced sales charges. See
"How to Buy, Sell and Exchange Shares" and "Other Information Concerning the
Fund."
The public offering price of 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>
- ---------------------------------------------------------------------------------------------
Sales charge as a
percentage of:
Amount of sales charge
Amount of transaction at Offering Net amount reallowed to dealers as a
offering price($) price invested percentage of 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 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.
-11-
<PAGE>
General
You may be eligible to buy shares at reduced sales charges. Consult
your investment representative or the Vista Service Center for details about
Vista's combined purchase privilege, cumulative quantity discount, statement of
intention, group sales plan, employee benefit plans, and other plans.
Descriptions are also included in the enclosed application and in the SAI. In
addition, sales charges will not apply to shares purchased with redemption
proceeds received within the prior ninety days from non-Vista mutual funds on
which the investor paid a front-end or contingent deferred sales charge.
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes of
determining whether the plan may purchase shares at net asset value. These
investments will also be included for purposes of the discount privileges and
programs described above.
The Fund may sell shares at net asset value without an initial sales
charge to the current and retired Trustees (and their immediate families),
current and retired employees (and their immediate families) of Chase, the
Fund's distributor and transfer agent or any affiliates or subsidiaries thereof,
registered representatives and other employees (and their immediate families) of
broker-dealers having selected dealer agreements with the Fund's distributor,
employees (and their immediate families) of financial institutions having
selected dealer agreements with the Fund's distributor (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to sales
of Vista fund shares) financial institution trust departments investing an
aggregate of $1 million or more in the Vista Family of Funds and clients of
certain administrators of tax-qualified plans when proceeds from repayments of
loans to participants are invested (or reinvested) in the Vista Family of Funds.
No initial sales charge will apply to the purchase of shares of the
Fund by an investor seeking to invest the proceeds of a qualified retirement
plan where a portion of the plan was invested in the Vista Family of Funds, any
qualified retirement plan with 50 or more participants, or an individual
participant in a tax-qualified plan making a tax-free rollover or transfer of
assets from the plan in which Chase or an affiliate serves as trustee or
custodian of the plan or manages some portion of the plan's assets.
Purchases of shares of the Fund may be made with no initial sales
charge through an investment adviser or financial planner who charges a fee for
their services. Purchases of shares of the Fund 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 be made for retirement and deferred
compensation plans and trusts used to fund those plans.
Purchases of shares of the Fund 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 Vista Service
Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase shares of the Fund with no initial
sales charge for as long as they continue to own Class A shares of any Vista
fund, provided there is no change in account registration. Shareholders of
record of any portfolio of The Hanover Funds, Inc. or The Hanover Investment
Funds, Inc. as of May 3, 1996 and certain related investors may purchase shares
of the Fund with no initial sales charge for as long as they continue to own
shares of any Vista fund following this date, provided there is no change in
account registration.
The Fund may sell shares at net asset value without an initial sales
charge in connection with the acquisition by the Fund of assets of an investment
company or personal holding company. The SAI contains additional information
about purchasing the Fund's shares at reduced sales charges.
The Fund reserves the right to change any of these policies on
purchases without an initial sales charge at any time and may reject any such
purchase request.
-12-
<PAGE>
Shareholders of other Vista funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of the Fund at
net asset value.
How to Sell Shares
You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your investment
representative. The Fund will only forward redemption payments on shares for
which it has collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of
instruction to the Vista Service Center, along with any certificates that
represent shares you want to sell. The price you will receive is the next net
asset value calculated after the Fund receives your request in proper form. In
order to receive that day's net asset value, the Vista Service Center must
receive your request before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions. See
the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than
your address as it appears on Vista's records, a signature guarantee is
required. The Fund usually requires additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the business
day after your request is received, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 15 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. An investor agrees,
however, that to the extent permitted by applicable law, neither the Fund nor
its agents will be liable for any loss, liability, cost or expense arising out
of any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or
more monthly, quarterly or semiannually. A minimum account balance of $5,000 is
required to establish a systematic withdrawal plan. Call the Vista Service
Center at 1-800-34-VISTA for complete instructions.
Selling shares through your investment representative. Your
investment representative must receive your request before the close of regular
trading on the New York Stock Exchange to receive that day's net asset value.
Your investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
-13-
<PAGE>
Involuntary Redemption of Accounts. The Fund may involuntarily
redeem your shares if at such time the aggregate net asset value of the shares
in your account is less than $500 or if you purchase through the Systematic
Investment Plan and fail to meet the Fund's investment minimum within a twelve
month period. In the event of any such redemption, you will receive at least 60
days notice prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain
other Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained for
future reference.
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for shares
that remain outstanding. Ask your investment representative or the Vista Service
Center for prospectuses of other Vista funds. Shares of certain Vista funds are
not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Fund, the Fund reserves
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving the Fund in a year or three in
a calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
Reinstatement privilege. Shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined
once daily based upon prices determined as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund by the total number of outstanding shares.
Values of assets held by the Fund are determined on the basis of their market or
other fair value, as described in the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains at
lease annually. Distributions from capital gains are made after applying any
available capital loss carryovers.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a pre-established
bank account while reinvesting capital gains distributions in additional shares
without a sales charge; or (3) receive all distributions in cash or by ACH. You
can change your distribution option by notifying the Vista Service Center in
writing. If you do not select an option when you open your account, all
distributions will be reinvested. All distributions not paid in cash or by ACH
will be reinvested in shares of the Fund. You will receive a statement
confirming reinvestment of distributions in additional Fund shares promptly
following the quarter in which the reinvestment occurs.
-14-
<PAGE>
If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the Fund
or in another Vista fund. If the Vista Service Center does not receive your
election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all of
its income and gains on a current basis. If the Fund does not qualify as a
regulated investment company for any taxable year or does not make such
distributions, the Fund will be subject to tax on all of its income and gains.
Distributions by the Fund of its tax-exempt interest income will not
be subject to federal income tax, but generally will be subject to state and
local taxes. However, to the extent paid out of interest on California Municipal
Obligations, such distributions will also be exempt from California personal
income taxes for a California individual resident shareholder.
All other Fund distributions will be taxable to you as ordinary
income, except that any distributions of net long-term capital gains will be
taxable as such, regardless of how long you have held the shares. Distributions
will be treated in the same manner for federal income tax purposes whether
received in cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next distribution date. Those investors
purchasing shares just prior to a distribution will be taxed on the entire
amount of the taxable distribution received, even though the net asset value per
share on the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount
and tax status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your tax adviser to
determine the precise effect of an investment in the Fund on your particular tax
situation (including possible liability for state and local taxes and, for
foreign shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plan
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD").
VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The
Trust has adopted a Rule 12b-1 distribution plan which provides that the Fund
will pay distribution fees at annual rates of up to 0.25% of the average daily
net assets attributable to shares of the Fund. Payments under the distribution
plan shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of shares, and are not tied to the amount of actual expenses incurred.
Payments may be used to compensate broker-dealers with trail or maintenance
commissions at an annual rate of up to 0.25% of the average daily net asset
value of shares maintained 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. Some activities
intended to promote the sale of shares will be conducted generally by the Vista
Family of Funds, and activities intended to promote the Fund's shares may also
benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater or entertainment for broker-dealers and their guests;
and payment or reimbursement
-15-
<PAGE>
for travel expenses, including lodging and meals, in connection with attendance
at training and education meetings within and outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with
certain shareholder servicing agents (including Chase) under which the
shareholder servicing agents have agreed to provide certain support services to
their customers who beneficially own shares of the Fund. These services include
assisting with purchase and redemption transactions, maintaining shareholder
accounts and records, furnishing customer statements, transmitting shareholder
reports and communications to customers and other similar shareholder liaison
services. For performing these services, each shareholder servicing agent
receives an annual fee of up to 0.25% of the average daily net assets of shares
of the Fund held by investors for whom the shareholder servicing agent maintains
a servicing relationship. Shareholder servicing agents may subcontract with
other parties for the provision of shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund shares, such as pre-authorized or systematic purchase and redemption plans.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain shareholder servicing agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding the fees for
their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund
pursuant to a distribution and sub-administration agreement and is entitled to
receive a fee for these services from the Fund at an annual rate equal to 0.05%
of the Fund's average daily net assets. VFD has agreed to use a portion of this
fee to pay for certain expenses incurred in connection with organizing new
series of the Trust and certain other ongoing expenses of the Trust. VFD is
located at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and
receives compensation under an agreement with the Trust. Fund securities and
cash may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including
its pro rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees; registration
fees; interest charges; taxes; expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Fund's
custodian for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government offices and commissions;
expenses of meetings of investors; fees and expenses of independent accountants,
of legal counsel and of any transfer agent, registrar or dividend disbursing
agent of the Trust; insurance premiums; and expenses of calculating the net
asset value of, and the net income on, shares of the Fund. Service providers to
the Fund may, from time to time, voluntarily waive all or a portion of any fees
to which they are entitled.
-16-
<PAGE>
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional series
and classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Shares have no
preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted.
This Prospectus relates to shares of the Fund. The Fund may offer
other classes of shares in addition to this class. The categories of investors
that are eligible to purchase shares and minimum investment requirements may
differ for each class of Fund shares. In addition, other classes of Fund shares
may be subject to differences in sales charge arrangements, ongoing distribution
and service fee levels, and levels of certain other expenses, which would affect
the relative performance of the different classes. Investors may call
1-800-34-VISTA to obtain additional information about other classes of shares of
the Fund that are offered. Any person entitled to receive compensation for
selling or servicing shares of the Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of 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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Fund's distributor or affiliates of the distributor. Chase will
not invest the Fund's assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate, although
under certain circumstances such securities may be purchased from other members
of an
-17-
<PAGE>
underwriting syndicate in which Chase or an affiliate is a non-principal member.
This restriction may limit the amount or type of U.S. Government obligations,
municipal obligations or commercial paper available to be purchased by the Fund.
Chase has informed the Fund that in making its investment decisions, it does not
obtain or use material inside information in the possession of any other
division or department of Chase, including the division that performs services
for the Fund as custodian, or in the possession of any affiliate of Chase.
Shareholders of the Fund should be aware that, subject to applicable legal or
regulatory restrictions, Chase and its affiliates may exchange among themselves
certain information about the shareholder and his account. Transactions with
affiliated broker-dealers will only be executed on an agency basis in accordance
with applicable federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included
in advertisements about the Fund. "Yield" is calculated by dividing the
annualized net investment income calculated pursuant to federal rules per share
during a recent 30-day period by the maximum public offering price per share of
such class on the last day of that period. "Effective yield" is the "yield"
calculated assuming the reinvestment of income earned, and will be slightly
higher than the "yield" due to the compounding effect of this assumed
reinvestment. "Tax equivalent yield "is the yield that a taxable fund would have
to generate in order to produce an after-tax yield equivalent to the Fund's
yield. The tax equivalent yield of the Fund can then be compared to the yield of
a taxable fund. Tax equivalent yields can be quoted on either a "yield" or
"effective yield" basis.
"Total return" for the one-, five- and ten-year periods (or for the
life of a class, if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in the
Fund invested at the maximum public offering price. Total return may also be
presented for other periods or without reflecting sales charges. Any quotation
of investment performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if such sales charges were
used.
All performance data is based on the Fund's past investment results
and does not predict future performance. Investment performance, which will
vary, is based on many factors, including market conditions, the composition of
the Fund's portfolio and the Fund's operating expenses. Investment performance
also often reflects the risks associated with the Fund's investment objectives
and policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment vehicles.
Quotation of investment performance for any period when a fee waiver or expense
limitation was in effect will be greater than if the waiver or limitation had
not been in effect. The Fund's performance may be compared to other mutual
funds, relevant indices and rankings prepared by independent services. See the
SAI.
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<PAGE>
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund shareholder.
o SYSTEMATIC INVESTMENT PLAN - Invest as much as you wish ($100 or
more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
o SYSTEMATIC WITHDRAWAL - Make regular withdrawals of $50 or more
monthly, quarterly or semiannually. A minimum account balance of
$5,000 is required to establish a systematic withdrawal plan.
o SYSTEMATIC EXCHANGE Transfer - assets automatically from one Vista
account to another on a regular, prearranged basis. There is no
additional charge for this service.
o FREE EXCHANGE PRIVILEGE - Exchange money between Vista funds in the
same class of shares without charge. The exchange privilege allows
you to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
o REINSTATEMENT PRIVILEGE - Shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next
determined subject to written request within 90 calendar days of the
redemption, accompanied by payment for the shares (not in excess of
the redemption).
For more information about any of these services and privileges,
call your shareholder servicing agent, investment representative or the Vista
Service Center at 1-800-34-VISTA. These privileges are subject to change or
termination.
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<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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<PAGE>
PROSPECTUS
VISTA[SM] TAX FREE INCOME FUND
Class A and B Shares
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS
OF PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary...............................................................
The expenses you might pay on your Fund investment, including examples
Financial Highlights..........................................................
How the Fund has performed
Fund Objective................................................................
Investment Policies...........................................................
The kinds of securities in which the Fund invests,
investment policies and techniques, and risks
Management....................................................................
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment.........................................................
Alternative sales arrangements
How to Buy, Sell and Exchange Shares..........................................
How the Fund Values its Shares................................................
How Distributions Are Made; Tax Information...................................
How the Fund distributes its earnings, and
tax treatment related to those earnings
Other Information Concerning the Fund.........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information.......................................................
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges........................................
-2-
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs and estimated annual expenses from
investing in the Fund based on expenses incurred in the most recent fiscal year.
The examples show the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.
Class A Class B
Shareholder Transaction Expenses Shares Shares
------ ------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......................... 4.50% None
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)(*).................... None 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee (after estimated waiver) (**)........ 0.15% 0.15%
12b-1 Fee(***)............................................... 0.25% 0.75%
Shareholder Servicing Fee (after estimated waiver,
where indicated) ............................................ 0.00%(**) 0.25%
Other Expenses .............................................. 0.50% 0.50%
Total Fund Operating Expenses (after waiver of fee) (**)..... 0.90% 1.65%
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares(+)................ $54 $72 $93 $151
Class B Shares:
Assuming complete
redemption at the
end of the
period(++)(+++)............... $68 $85 $113 $175
Assuming no
redemptions (+++)............. $17 $52 $90 $175
- -----------------------
-3-
<PAGE>
* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge
generally declines by 1% annually thereafter (except in the fourth
year), reaching zero after six years. See "How to Buy, Sell
and Exchange Shares."
** Reflects current waiver arrangements to maintain Total Fund
Operating Expenses at the levels indicated in the table above.
Absent such waivers, the Investment Advisory Fee would be 0.30% for
Class A and Class B shares, the Shareholder Servicing Fee would be
0.25% for Class A shares, and Total Fund Operating Expenses would be
1.30% and 1.80% for Class A and Class B shares, respectively.
*** Long-term shareholders in mutual funds with 12b-1 fees, such as
Class A and Class B shareholders of the Fund, may pay more than the
economic equivalent of the maximum front-end sales charge permitted
by rules of the National Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales
charge.
++ Assumes deduction at the time of redemption of the maximum
applicable deferred sales charge.
+++ Ten-year figures assume conversion of Class B shares to Class A
shares at the beginning of the ninth year after purchase. See "How
to Buy, Sell and Exchange Shares".
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses that the Fund
incurs. THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN
SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with an
investment in the Fund. The Fund understands that Shareholder Servicing Agents
may credit to the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees received
by the Shareholder Servicing Agent from the Fund with respect to those accounts.
See "Other Information Concerning the Fund."
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for both Class A and Class B shares. The information for each of the five
years in the period ended October 31, 1995 has been audited by Price Waterhouse
LLP, the Fund's independent accountants, whose report on the financial
statements which includes this information and the financial statements are
incorporated by reference into the SAI. The Fund's Annual Report for the
fiscal year ended October 31, 1995 includes these financial statements and is
available without charge upon request.
VISTA TAX FREE INCOME FUND
--------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year 11/1/93 Year ended
ended through
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91 10/31/90
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........... $11.70 $12.70 $11.52 $11.12 $10.43 $10.58
----- ------ ----- ----- ----- ------
Income from Investment Operations:
Net Investment Income..................... 0.585 0.475 0.662 0.731 0.727 0.723
Net Gains or Losses in Securities (both
realized and unrealized)................ 0.147 (0.847) 1.412 0.556 0.693 (0.094)
----- ------ ----- ----- ----- ------
Total from Investment Operations.......... 0.732 (0.372) 2.074 1.287 1.420 0.629
----- ------ ----- ----- ----- ------
Less Distributions:
Dividends from net investment income...... 0.582 0.475 0.662 0.731 0.726 0.726
Distributions from capital gains.......... - 0.153 0.237 0.156 - 0.055
------- ------ ------- ------- ------- -------
Total Distributions....................... 0.582 0.628 0.899 0.887 0.726 0.781
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period................. $11.85 $11.70 $12.70 $11.52 $11.12 $10.43
====== ====== ====== ====== ====== ======
Total Return(1)................................ 6.53% (2.99%) 18.72% 11.99% 13.98% 6.18%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)...... $88,783 $98,054 $83,672 $17,548 $5,425 $3,973
Ratio of Expenses to Average Net Assets...... 0.85% 0.58%# 0.23% 0.00% 0.04% 0.12%
Ratio of Net Income to Average Net Assets.... 5.07% 4.75%# 5.25% 6.26% 6.71% 6.86%
Ratio of Expenses without waivers and
assumption of expenses to Average Net
Assets..................................... 1.47% 1.29%# 1.20% 2.34% 4.04% 2.50%
Ratio of Net Investments Income without
waivers and assumption of expenses to
Average Net Assets......................... 4.45% 4.03%# 4.28% 3.92% 2.71% 4.48%
Portfolio Turnover Rate....................... 233% 258% 149% 266% 211% 89%
</TABLE>
<PAGE>
VISTA TAX FREE INCOME FUND
--------------------------
<TABLE>
<CAPTION>
Class A Class B
---------------------------- ------------------
Year ended 9/4/87* Year 11/4/93**
to ended through
10/31/89 10/31/88 10/31/87 8/31/95 8/31/94+
------------------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.......................... $10.63 $10.08 $10.00 $11.65 $12.51
----- ----- ----- ------ ------
Income from Investment Operations:
Net Investment Income.................................... 0.756 0.738 0.059 0.498 0.423
Net Gains or Losses in Securities (both
realized and unrealized)............................... 0.006 0.603 0.021 0.140 (0.707)
----- ----- ----- ------ ------
Total from Investment Operations......................... 0.762 1.341 0.080 0.638 (0.284)
----- ----- ----- ------ ------
Less Distributions:
Dividends from net investment income..................... 0.759 0.791 - 0.518 0.423
Distributions from capital gains......................... 0.053 - - - 0.153
------ ------ ------ ------ ------
Total Distributions...................................... 0.812 0.791 - 0.518 0.576
----- ----- ------ ----- -----
Net Asset Value, End of Period................................ $10.58 $10.63 $10.08 $11.77 $11.65
====== ====== ====== ====== ======
Total Return(1)............................................... 7.48% 13.83% 5.41% 5.70% (2.35%)
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)..................... $3,196 $1,197 $101 $14,265 $11,652
Ratio of Expenses to Average Net Assets..................... 0.00% 0.00% 0.00%# 1.61% 1.47%#
Ratio of Net Income to Average Net Assets................... 7.06% 7.50% 7.35%# 4.31% 3.95%#
Ratio of Expenses without waivers and
assumption of expenses to Average Net
Assets.................................................... 2.50% 2.00% 2.00%# 1.97% 1.81%#
Ratio of Net Investments Income without
waivers and assumption of expenses to
Average Net Assets........................................ 4.56% 5.50% 5.35%# 3.95% 3.61%#
Portfolio Turnover Rate....................................... 257% 422% 94% 233% 258%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
** Commencement of offering of shares.
+ In 1994 the Tax Free Income Fund changed ifs fiscal year-end from October 31
to August 31.
-5-
<PAGE>
FUND OBJECTIVES
Vista Tax Free Income Fund seeks to provide monthly dividends which
are excluded from gross income for federal tax purposes, as well as to protect
the value of its shareholders' investment, by investing primarily (i.e., at
least 80% of its assets under normal conditions) in Municipal Obligations. The
Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in Municipal Obligations (as defined
under "Municipal Obligations"). As a fundamental policy, under normal market
conditions, the Fund will have at least 80% of its assets in Municipal
Obligations the interest on which, in the opinion of bond counsel, is excluded
from gross income for federal income tax purposes and does not constitute a
preference item which would be subject to the federal alternative minimum tax on
individuals (these preference items are referred to as "AMT Items"). The Fund
reserves the right under normal market conditions to invest up to 20% of its
total assets in AMT Items or securities the interest on which is subject to
federal income tax. For temporary defensive purposes, the Fund may exceed this
limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at time of purchase at least in the category
Baa, MIG-3 or VMIG-3 by Moody's Investors Service, Inc. ("Moody's"), or BBB or
SP-2 by Standard & Poor's Corporation ("S&P"), or BBB or FIN-3 by Fitch
Investors Service, Inc. ("Fitch") or comparably rated by another national rating
organization, or, if unrated, considered by the Fund's advisers to be of
comparable quality.
There is no restriction on the maturity of the Fund's portfolio or
any individual portfolio security. The Fund's advisers may adjust the average
maturity of the Fund's portfolio based upon their assessment of the relative
yields available on securities of different maturities and their expectations of
future changes in interest rates.
The Fund is classified as a "non-diversified" fund under federal
securities law. The Fund's assets may be more concentrated in the securities of
any single issuer or group of issuers than if the Fund were diversified.
For temporary defensive purposes, the Fund may invest without
limitation in high quality money market instruments and repurchase agreements,
the interest income from which may be taxable to shareholders as ordinary income
for federal income tax purposes.
In lieu of investing directly, the Fund is authorized to seek to
achieve its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which,
in the opinion of bond counsel, is excluded from gross income for federal income
tax purposes (without regard to whether the interest thereon is also exempt from
the personal income taxes of any state or whether the interest thereon
constitutes a preference item for purposes of the federal alternative minimum
tax). These securities are issued to obtain funds for various public purposes,
such as the construction of public facilities, the payment of general operating
expenses or the refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of funds to public or
private institutions for the construction of housing, educational or medical
facilities, and may include certain types of industrial development bonds,
private activity bonds or notes issued by public authorities to finance
privately owned or operated facilities, or to fund short-term cash requirements.
Short-term Municipal Obligations may be issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes.
-6-
<PAGE>
The two principal classifications of Municipal Obligations are
general obligation and revenue obligation securities. General obligation
securities involve a pledge of the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities vary
according to the law applicable to the particular issuer. Revenue obligation
securities are payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial development
bonds and private activity bonds are in most cases revenue obligation
securities, the credit quality of which is directly related to the private user
of the facilities.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment payments in future years unless money is later appropriated for such
purpose. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Certain investments in municipal lease obligations may be
illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices, and
certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or
high-quality, short-term money market instruments. Such instruments 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.
U.S. Government Obligations. The Fund may invest in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter
into agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future date, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). The Fund would be required to pay interest on amounts
obtained through reverse repurchase agreements, which are considered borrowings
under federal securities laws.
-7-
<PAGE>
Stand-By Commitments. The Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, the Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of
its total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". The Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
The Fund 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 Fund 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 variable rate nature of
these investments, the Fund's yield may decline and it may forego the
opportunity for capital appreciation during periods when interest rates decline;
however, during periods when interest rates increase, the Fund's yield may
increase and it may have reduced risk of capital depreciation. Demand features
on certain floating or variable rate securities may obligate the Fund to pay a
"tender fee" to a third party. Demand features provided by foreign banks involve
certain risks associated with foreign investments. The Internal Revenue Service
has not ruled on whether interest on participations in variable rate municipal
obligations is tax exempt, and the Fund would purchase such instruments based on
opinions of bond counsel.
Inverse Floaters and Interest Rate Caps. The 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, and their price may be
considerably more volatile than a fixed-rate security. 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 municipal securities which do not include such a
structure.
Other Investment Companies. The Fund may invest up to 10% of its
total assets in shares of other investment companies, subject to applicable
regulatory limitations.
Derivatives and Related Instruments. The Fund may invest its assets
in derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject to
asset segregation requirements to cover the Fund's obligations. The Fund may (i)
purchase, write and exercise call and put options on securities and securities
indexes (including using options in combination with securities, other options
or derivative instruments); (ii) enter into swaps, futures contracts and options
on futures contracts; (iii) employ forward interest rate contracts; and (iv)
purchase and sell structured products, which are instruments designed to
restructure or reflect the characteristics of certain other investments.
-8-
<PAGE>
There are a number of risks associated with the use of derivatives
and related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers to
forecast these factors correctly. Inaccurate forecasts could expose the Fund to
a risk of loss. There can be no guarantee that there will be a correlation
between price movements in a hedging instrument and in the portfolio assets
being hedged. The Fund is not required to use any hedging strategies. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. Derivatives transactions not involving hedging may have speculative
characteristics, involve leverage and result in more risk to the Fund than
hedging strategies using the same instruments. There can be no assurance that a
liquid market will exist at a time when the Fund seeks to close out a
derivatives position. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price distortions in derivatives markets. In certain instances,
particularly those involving over-the-counter transactions or forward contracts,
there is a greater potential that a counterparty or broker may default. In the
event of a default, the Fund may experience a loss. For additional information
concerning derivatives, related instruments and the associated risks, see the
SAI.
Portfolio Turnover. The frequency of the Fund's portfolio
transactions will vary from year to year. The Fund's investment policies may
lead to frequent changes in investments, particularly in periods of rapidly
changing market conditions. High portfolio turnover rates would generally result
in higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made; Tax
Information" and "Other Information Concerning the Fund -- Certain Regulatory
Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment
risks for its shareholders. These restrictions prohibit the Fund from: (a)
investing more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures established by the Board of Trustees);
or (b) investing more than 25% of its total assets in any one industry (this
would apply to municipal obligations backed only by the assets and revenues of
nongovernmental users, but excludes obligations of states, cities,
municipalities or other public authorities). A complete description of
these and other investment policies is included in the SAI. Except for the
Fund's investment objective, restriction (b) above and investment policies
designated as fundamental above or in the SAI, the Fund's investment policies
are not fundamental. The Trustees may change any non-fundamental investment
policy without shareholder approval.
Risk Factors
Changes in interest rates may affect the value of the obligations
held by the Fund. The value of fixed income securities varies inversely with
changes in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by
states, cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial and
fiscal difficulties. If an issuer in which the Fund invests is unable to meet
its financial obligations, the income derived by the Fund and the Fund's ability
to preserve capital and liquidity could be adversely affected. See the SAI for
further information.
Interest on certain Municipal Obligations (including certain
industrial development bonds), while exempt from federal income tax, is a
preference item for the purpose of the alternative minimum tax. Where a mutual
fund receives such interest, a proportionate share of any exempt-interest
dividend paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the interest
on which is not subject to federal income tax. This legislation may affect the
availability of Municipal Obligations for investment by the Fund.
-9-
<PAGE>
The Fund may invest up to 25% of its total assets in Municipal
Obligations secured by letters of credit or guarantees from U.S. and foreign
banks, and other foreign institutions. The dependence on banking institutions
may involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industries. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
Obligations backed by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of obligations of domestic issuers, including 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. In addition, 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.
Because the Fund is "non-diversified," the value of its shares is
more susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to be
paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the
Fund pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board of
Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan Corporation,
a bank holding company. Chase and its predecessors have over 100 years of money
management experience. For its investment advisory services to the Fund, Chase
is entitled to receive an annual fee computed daily and paid monthly at an
annual rate equal to 0.30% of the Fund's average daily net assets. Chase is
located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to the Fund pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly-owned operating
subsidiary of Chase. CAM makes investment decisions for the Fund on a day-to-day
basis. For these services, CAM is entitled to receive a fee, payable by Chase
from its advisory fee, at an annual rate equal to 0.15% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for CAM.
CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1987. Ms. Hunter is
part of a team providing fixed income strategy and product development. Ms.
Hunter has been employed at Chase (including its predecessors) since 1980.
-10-
<PAGE>
ABOUT YOUR INVESTMENT
Alternative Sales Arrangements
Class A shares. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares are not
subject to any sales charges when they are redeemed. Certain purchases of Class
A shares qualify for reduced sales charges. Class A shares have lower combined
12b-1 and service fees than Class B shares. See "How to Buy, Sell and Exchange
Shares" and "Other Information Concerning the Fund."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge ("CDSC") if
redeemed within a specified period after purchase. Class B shares also have
higher combined 12b-1 and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year after purchase. For
more information about the conversion of Class B shares, see the SAI. This
discussion will include information about how shares acquired through
reinvestment of distributions are treated for conversion purposes. Class B
shares provide an investor the benefit of putting all of the investor's dollars
to work from the time the investment is made. Until conversion, Class B shares
will have a higher expense ratio and pay lower dividends than Class A shares
because of the higher combined 12b-1 and service fees. See "How to Buy, Sell and
Exchange Shares" and "Other Information Concerning the Fund."
Which arrangement is best for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. In almost all cases, investors planning to
purchase $250,000 or more of the Fund's shares will pay lower aggregate charges
and expenses by purchasing Class A shares.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for
IRAs, SEP-IRAs and the Systematic Investment Plan) and make additional
investments at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor by
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made
payable to the Vista Funds. Third party checks, credit cards and cash will not
be accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which may
take 15 calendar days or longer. In addition, the redemption of shares purchased
through ACH will not be allowed until clearance of your payment which may take 7
business days or longer.
Buying shares through the Fund's distributor. Complete and return
the enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic deduction
from your bank checking or savings account. Shareholders electing to start this
Systematic Investment Plan when opening an account should complete Section 8 of
the account application. Current
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shareholders may begin such a plan at any time by sending a signed letter with
signature guarantee and a deposit slip or voided check to the Vista Service
Center. Call the Vista Service Center at 1-800-34-VISTA for complete
instructions.
Shares are sold at the public offering price based on the net asset
value next determined after the Vista Service Center receives your order in
proper form. In most cases, in order to receive that day's public offering
price, the Vista Service Center must receive your order before the close of
regular trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the New York Stock Exchange to receive that day's
public offering price. Orders for shares are accepted by the Fund after funds
are converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you should pay for
those shares with a certified check to avoid any delay in redemption, exchange
or transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not issue certificates for your Class A shares unless you request
them. Due to the conversion feature of Class B shares, certificates for Class B
shares will not be issued and all Class B shares will be held in book entry
form.
Class A Shares
The public offering price of Class A shares is the net asset value
plus a sales charge that varies depending on the size of your purchase. The Fund
receives the net asset value. The sales charge is allocated between your
broker-dealer and the Fund's distributor as shown in the following table, except
when the Fund's distributor, in its discretion, allocates the entire amount to
your broker-dealer.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Sales charge as a
percentage of:
-------------- Amount of sales charge
Amount of transaction at offering Offering Net amount reallowed to dealers as a
price($) Price price percentage of 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.
Class B Shares
Class B shares are sold without an initial sales charge, although a
CDSC will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may
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be redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a percentage
of the purchase of the current market value or the cost of shares being
redeemed.
Year 1 2 3 4 5 6 7 8+
- ----------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then shares held
longest during the CDSC period. When a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. For information on how sales charges are calculated if you exchange your
shares, see "How to Exchange Your Shares." The Fund's distributor pays
broker-dealers a commission of 4.00% of the offering price on sales of Class B
shares, and the distributor receives the entire amount of any CDSC you pay.
General
You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment representative or the Vista Service Center for details
about Vista's combined purchase privilege, cumulative quantity discount,
statement of intention, group sales plan, employee benefit plans, and other
plans. Descriptions are also included in the enclosed application and in the
SAI. In addition, sales charges will not apply to shares purchased with
redemption proceeds received within the prior ninety days from non-Vista mutual
funds on which the investor paid a front-end or contingent deferred sales
charge.
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes of
determining whether the plan may purchase Class A shares at net asset value.
These investments will also be included for purposes of the discount privileges
and programs described above.
The Fund may sell Class A shares at net asset value without an
initial sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Fund's distributor and transfer agent or any affiliates or
subsidiaries thereof, registered representatives and other employees (and their
immediate families) of broker-dealers having selected dealer agreements with the
Fund's distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor (or
otherwise having an arrangement with a broker-dealer or financial institution
with respect to sales of Vista fund shares) financial institution trust
departments investing an aggregate of $1 million or more in the Vista Family of
Funds and clients of certain administrators of tax-qualified plans when proceeds
from repayments of loans to participants are invested (or reinvested) in the
Vista Family of Funds.
No initial sales charge will apply to the purchase of Class A shares
of the Fund by an investor seeking to invest the proceeds of a qualified
retirement plan where a portion of the plan was invested in the Vista Family of
Funds, any qualified retirement plan with 50 or more participants, or an
individual participant in a tax-qualified plan making a tax-free rollover or
transfer of assets from the plan in which Chase or an affiliate serves as
trustee or custodian of the plan or manages some portion of the plan's assets.
Purchases of Class A shares of the Fund may be made with no initial
sales charge through an investment adviser or financial planner that charges a
fee for its services. Purchases of Class A shares of the Fund 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
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<PAGE>
master account of such investment adviser or financial planner on the books and
records of the broker or agent. Such purchases may be made for retirement and
deferred compensation plans and trusts used to fund those plans.
Purchases of Class A shares of the Fund 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 decision, 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 Vista Service
Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase Class A shares of the Fund with no
initial sales charge for as long as they continue to own Class A shares of any
Vista fund, provided there is no change in account registration. Shareholders of
record of any portfolio of The Hanover Funds, Inc. or The Hanover Investment
Funds, Inc. as of May 3, 1996 and certain related investors may purchase Class A
shares of the Fund with no initial sales charge for as long as they continue to
own shares of any Vista fund following this date, provided there is no change in
account registration.
The Fund may sell Class A shares at net asset value without an
initial sales charge in connection with the acquisition by the Fund of assets of
an investment company or personal holding company. The CDSC will be waived on
redemption of Class B shares arising out of death or disability or in connection
with certain withdrawals from IRA or other retirement plans. Up to 12% of the
value of Class B shares subject to a systematic withdrawal plan may also be
redeemed each year without a CDSC, provided that the Class B account had a
minimum balance of $20,000 at the time the systematic withdrawal plan was
established. The SAI contains additional information about purchasing the
Fund's shares at reduced sales charges.
The Fund reserves the right to change any of these policies on
purchases without an initial sales charge at any time and may reject any such
purchase request.
Shareholders of other Vista funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of the Fund at
net asset value.
How to Sell Shares
You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your investment
representative. The Fund will only forward redemption payments on shares for
which it has collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of
instruction to the Vista Service Center, along with any certificates that
represent shares you want to sell. The price you will receive is the next net
asset value calculated after the Fund receives your request in proper form, less
any applicable CDSC. In order to receive that day's net asset value, the Vista
Service Center must receive your request before the close of regular trading on
the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions. See
the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than
your address as it appears on Vista's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Vista Service Center for details.
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<PAGE>
The Fund generally sends you payment for your shares the business
day after your request is received, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. An investor agrees,
however, that to the extent permitted by applicable law, neither the Fund nor
its agents will be liable for any loss, liability, cost or expense arising out
of any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or
more ($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a systematic
withdrawal plan for Class A accounts. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Selling shares through your investment representative. Your
investment representative must receive your request before the close of regular
trading on the New York Stock Exchange to receive that day's net asset value.
Your investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem
your shares if at such time the aggregate net asset value of the shares in your
account is less than $500 or if you purchase through the Systematic Investment
Plan and fail to meet the Fund's investment minimum within a twelve month
period. In the event of any such redemption, you will receive at least 60 days
notice prior to the redemption. In the event the Fund redeems Class B shares
pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain
other Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained for
future reference. If you exchange shares subject to a CDSC, the transaction will
not be subject to the CDSC. However, when you redeem the shares acquired through
the exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using the schedule of
any fund into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares. In computing
the CDSC, the length of time you have owned your shares will be measured from
the date of original purchase and will not be affected by any exchange.
An exchange of Class B shares into any of the Vista money market
funds other than the Class B shares of the Vista Prime Money Market Fund will be
treated as a redemption -- and therefore subject to the conditions of the CDSC
- -- and a subsequent purchase. Class B shares of any Vista non-money market fund
may be exchanged into the Class B shares of the Vista Prime Money Market Fund in
order to continue the aging of the initial purchase of such shares.
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<PAGE>
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for shares
that remain outstanding. Ask your investment representative or the Vista Service
Center for prospectuses of other Vista funds. Shares of certain Vista funds are
not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Fund, the Fund reserves
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving the Fund in a year or three in
a calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
Reinstatement privilege. Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset value next
determined subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption). Class B
shareholders who have redeemed their shares and paid a CDSC with such redemption
may purchase Class A shares with no initial sales charge (in an amount not in
excess of their redemption proceeds) if the purchase occurs within 90 days of
the redemption of the Class B shares.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined
once daily based upon prices determined as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund attributable to that class by the total
number of outstanding shares of that class. Values of assets held by the Fund
are determined on the basis of their market or other fair value, as described in
the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains at
least annually. Distributions from capital gains are made after applying any
available capital loss carryovers. Distributions paid by the Fund with respect
to Class A shares will generally be greater than those paid with respect to
Class B shares because expenses attributable to Class B shares will generally be
higher.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a pre-established
bank account while reinvesting capital gains distributions in additional shares
without a sales charge; or (3) receive all distributions in cash or by ACH. You
can change your distribution option by notifying the Vista Service Center in
writing. If you do not select an option when you open your account, all
distributions will be reinvested. All distributions not paid in cash or by ACH
will be reinvested in shares of the class on which the distributions are paid.
You will receive a statement confirming reinvestment of distributions in
additional Fund shares promptly following the quarter in which the reinvestment
occurs.
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If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the Fund
or in another Vista fund. If the Vista Service Center does not receive your
election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all of
its income and gains on a current basis. If the Fund does not qualify as a
regulated investment company for any taxable year or does not make such
distributions, the Fund will be subject to tax on all of its income and gains.
Distributions by the Fund of its tax-exempt interest income will not
be subject to federal income tax. Such distributions will generally be subject
to state and local taxes, but may be exempt if paid out of interest on municipal
obligations of the state or locality in which the shareholder resides.
All other Fund distributions will be taxable as ordinary income,
except that any distributions of net long-term capital gains will be taxable as
such, regardless of how long you have held the shares. Distributions will be
treated in the same manner for Federal income tax purposes whether received in
cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next distribution date. Those investors
purchasing shares just prior to a distribution will be taxed on the entire
amount of the taxable distribution received, even though the net asset value per
share on the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount
and tax status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your tax adviser to
determine the precise effect of an investment in the Fund on your particular tax
situation (including possible liability for state and local taxes and, for
foreign shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD").
VFD is a subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The
Trust has adopted Rule 12b-1 distribution plans for Class A and Class B shares
which provide that the Fund will pay distribution fees at annual rates of up to
0.25% and 0.75% of the average daily net assets attributable to Class A and
Class B shares of the Fund, respectively. Payments under the distribution plans
shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class A and Class B shares, and are not tied to the amount of actual
expenses incurred. Payments may be used to compensate broker-dealers with trail
or maintenance commissions at an annual rate of up to 0.25% of the average daily
net asset value of Class A or Class B shares maintained 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. Some activities intended to promote the sale of Class A and
Class B shares will be conducted generally by the Vista Family of Funds, and
activities intended to promote the Fund's Class A or Class B shares may also
benefit the Fund's other shares and other Vista funds.
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VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater or entertainment for broker-dealers and their guests;
and payment or reimbursement for travel expenses, including lodging and meals,
in connection with attendance at training and educational meetings within and
outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with
certain shareholder servicing agents (including Chase) under which the
shareholder servicing agents have agreed to provide certain support services to
their customers who beneficially own Class A or Class B shares of the Fund.
These services include assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the average
daily net assets of Class A and Class B shares of the Fund held by investors for
whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Fund shares, such as pre-authorized or systematic purchase and redemption plans.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain shareholder servicing agents may (although they are not
required by the Trust to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding such other
fees or the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase act as the Fund's administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund
pursuant to a distribution and sub-administration agreement and is entitled to
receive a fee for these services from the Fund at an annual rate equal to 0.05%
of the Fund's average daily net assets. VFD has agreed to use a portion of this
fee to pay for certain expenses incurred in connection with organizing new
series of the Trust and certain other ongoing expenses of the Trust. VFD is
located at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and
receives compensation under an agreement with the Trust. Fund securities and
cash may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its
pro rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees; registration
fees; interest charges; taxes; expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Fund's
custodian for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors
-18-
<PAGE>
and to government offices and commissions; expenses of meetings of investors;
fees and expenses of independent accountants, of legal counsel and of any
transfer agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net income
on, shares of the Fund. Shareholder servicing and distribution fees are
allocated to specific classes of the Fund. In addition, the Fund may allocate
transfer agency and certain other expenses by class. Service providers to the
Fund may, from time to time, voluntarily waive all or a portion of any fees to
which they are entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional series
and classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Shares have no
preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted. Shares of each class of the Fund generally vote
together except when required under federal securities laws to vote separately
on matters that only affect a particular class, such as the approval of
distribution plans for a particular class.
The Fund issues multiple classes of shares. This Prospectus relates
to Class A and Class B shares of the Fund. The Fund may offer other classes of
shares in addition to these classes. The categories of investors that are
eligible to purchase shares and minimum investment requirements may differ for
each class of Fund shares. In addition, other classes of Fund shares may be
subject to differences in sales charge arrangements, ongoing distribution and
service fee levels, and levels of certain other expenses, which would affect the
relative performance of the different classes. Investors may call 1-800-34-VISTA
to obtain additional information about other classes of shares of the Fund that
are offered. Any person entitled to receive compensation for selling or
servicing shares of the Fund may receive different levels of compensation with
respect to one class of shares over another.
The business 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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse
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<PAGE>
financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Fund's distributor or affiliates of the distributor. Chase will
not invest the Fund's assets in any U.S. Government obligations, municipal
obligations or commercial paper purchased from itself or any affiliate, although
under certain circumstances such securities may be purchased from other members
of an underwriting syndicate in which Chase or an affiliate is a non-principal
member. This restriction may limit the amount or type of U.S. Government
obligations, municipal obligations or commercial paper available to be purchased
by the Fund. Chase has informed the Fund that in making its investment
decisions, it does not obtain or use material inside information in the
possession of any other division or department of Chase, including the division
that performs services for the Fund as custodian, or in the possession of any
affiliate of Chase. Shareholders of the Fund should be aware that, subject to
applicable legal or regulatory restrictions, Chase and its affiliates may
exchange among themselves certain information about the shareholder and his
account. Transactions with affiliated broker-dealers will only be executed on an
agency basis in accordance with applicable federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included
in advertisements about the Fund. Performance is calculated separately for each
class of shares. "Yield" for each class of shares is calculated by dividing the
annualized net investment income calculated pursuant to federal rules per share
during a recent 30-day period by the maximum public offering price per share of
such class on the last day of that period. "Effective yield" is the "yield"
calculated assuming the reinvestment of income earned, and will be slightly
higher than the "yield" due to the compounding effect of this assumed
reinvestment. "Tax equivalent yield" is the yield that a taxable fund would have
to generate in order to produce an after-tax yield equivalent to the Fund's
yield. The tax equivalent yield of the Fund can then be compared to the yield of
a taxable fund. Tax equivalent yields can be quoted on either a "yield" or
"effective yield" basis.
"Total return" for the one-, five- and ten-year periods (or for the
life of a class, if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in the
Fund invested at the maximum public offering price (in the case of Class A
shares) or reflecting the deduction of any applicable contingent deferred sales
charge (in the case of Class B shares). Total return may also be presented for
other periods or without reflecting sales charges. Any quotation of investment
performance not reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales charges were used.
All performance data is based on the Fund's past investment results
and does not predict future performance. Investment performance, which will
vary, is based on many factors, including market conditions, the composition of
the Fund's portfolio, the Fund's operating expenses and which class of shares
you purchase. Investment performance also often reflects the risks associated
with the Fund's investment objectives and policies. These factors should be
considered when comparing the Fund's investment results to those of other mutual
funds and other investment vehicles. Quotation of investment performance for any
period when a fee waiver or expense limitation was in effect will be greater
than if the waiver or limitation had not been in effect. The Fund's performance
may be compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
-20-
<PAGE>
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund shareholder.
o SYSTEMATIC INVESTMENT PLAN - Invest as much as you wish ($100 or
more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
o SYSTEMATIC WITHDRAWAL - Make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or
semiannually. A minimum account balance of $5,000 is required to
establish a systematic withdrawal plan for Class A accounts.
o SYSTEMATIC EXCHANGE - Transfer assets automatically from one Vista
account to another on a regular, prearranged basis. There is no
additional charge for this service.
o FREE EXCHANGE PRIVILEGE - Exchange money between Vista funds in
the same class of shares without charge. The exchange privilege
allows you to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
o REINSTATEMENT PRIVILEGE - Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset
value next determined subject to written request within 90 calendar
days of the redemption, accompanied by payment for the shares (not
in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC
with such redemption may purchase Class A shares with no initial
sales charge (in an amount not in excess of their redemption
proceeds) if the purchase occurs within 90 days of the redemption of
the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or termination.
-21-
<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
-22-
<PAGE>
PROSPECTUS
VISTA[SM] PRIME MONEY MARKET FUND
Class B Shares
May 6, 1996
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before
investing. Please read it carefully and keep it for future reference. You can
find more detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy of
the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
Investors should be aware that Class B shares of the Fund are made
available for exchange purposes only and that the yield on Class B shares will
be substantially lower than other classes of shares of the Fund. Class B shares
of the Fund carry the same 0.75% distribution fee as other Vista B shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES AND
ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary................................................................
The expenses you pay on your Fund investment, including examples
Financial Highlights...........................................................
The Fund's financial history
Fund Objective and Investment Approach........................................
Other Investment Practices.....................................................
Management.....................................................................
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management, the
Fund's sub-adviser
About Your Investment..........................................................
How to Buy, Sell and Exchange Shares...........................................
How the Fund Values Its Shares................................................
How Dividends and Distributions Are Made; Tax Information......................
How the Fund distributes its earnings, and
tax treatment related to those earnings
Other Information Concerning the Funds.........................................
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information........................................................
How performance is determined, stated and/or advertised
-2-
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in the Fund based on
expenses incurred in the most recent fiscal year. The examples show the
cumulative expenses attributable to a hypothetical $1,000 investment over
specified periods.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).............................. None
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)(*)........................ 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee.......................................... 0.10%
12b-1 Fee (**)................................................... 0.75%
Shareholder Servicing Fee (after estimated waiver)(***).......... 0.00%
Other Expenses (after estimated waiver and reimbursement)(***)... 0.62%
-----
Total Fund Operating Expenses (after waiver of fee and
expense reimbursement) (***)................................. 1.47%
=====
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return:
1 Year 3 Years 5 Years 10 Years
----------------------------------
Class B Shares:
Assuming complete
redemption at the
end of the
period(+)................ $67 $80 $104 $160
Assuming no
redemptions.............. $15 $46 $80 $160
- -----------------------
* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge
generally declines by 1% annually thereafter (except in the fourth
year), reaching zero after six years. See "How to Buy, Sell and
Exchange Shares"
** Long-term shareholders in mutual funds with 12b-1 fees, such as
Class B shareholders of the Fund, may pay more than the economic
equivalent of the maximum front-end sales charge permitted by rules
of the National Association of Securities Dealers, Inc.
-3-
<PAGE>
*** Reflects current fee waiver and expense subsidy arrangements to
maintain Total Fund Operating Expenses at the level indicated in
the table above. Absent such arrangements, the Shareholder Servicing
Fee and Other Expenses would be 0.25%, and 1.02%, respectively, and
Total Fund Operating Expenses would be 2.12%.
+ Assumes deduction at the time of redemption of the maximum
applicable deferred sales charge.
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses that the Fund
incurs. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN
SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with an
investment in the Fund. The Fund understands that Shareholder Servicing Agents
may credit to the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees received
by the Shareholder Servicing Agent from the Fund with respect to those accounts.
See "Other Information Concerning the Fund".
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and
ratios for a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1995,
which is incorporated by reference into the SAI. Shareholders may obtain a copy
of this Annual Report by contacting the Fund or their Shareholder Servicing
Agent. The financial statements and notes, as well as the financial information
set forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is also included in the Annual
Report to Shareholders.
VISTA PRIME MONEY MARKET FUND
-----------------------------
<TABLE>
<CAPTION>
Class B Shares
-----------------------------
Year 4/21/94*
ended through
8/31/95 8/31/94+
-----------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................ $ 1.00 $ 1.00
------ ------
Income from Investment Operations:
Net investment income .......................................... 0.043 0.011
Net Realized Loss on Securities ................................ (0.003) --
------- -----
Total Income from Investment Operations......................... 0.040 0.011
----- -----
Voluntary Capital Contribution ...................................... 0.003 --
----- -----
Less Distributions:
Dividends from Net Investment Income ................................ 0.043 0.011
----- -----
Net Asset Value, End of Period ............................................. $ 1.00 $ 1.00
====== ======
Total Return ............................................................... 4.37% 1.11%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000 omitted) ............................. $4,880 $1,452
Ratio of Expenses to Average Net Assets # ........................... 1.47% 1.47%
Ratio of Net Investment Income to Average Net Assets # .............. 4.33% 2.96%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets # ............................................ 2.53% 1.67%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets # ................................ 3.27% 2.76%
</TABLE>
- -----------------
# Short periods have been annualized.
+ In 1994 the Prime Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering of class of shares.
-5-
<PAGE>
FUND OBJECTIVE AND INVESTMENT APPROACH
The Fund's objective is to provide maximum current income consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational agencies
(e.g., the International Bank for Reconstruction and Development); (iii)
obligations issued or guaranteed by U.S. banks with total assets exceeding $1
billion (including obligations of foreign branches of such banks) and by foreign
banks with total assets exceeding $10 billion (or the equivalent in other
currencies) which have branches or agencies in the U.S. (including U.S. branches
of such banks), or such other U.S. or foreign commercial banks which are judged
by the Fund's advisers to meet comparable credit standing criteria; (iv)
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (v) repurchase agreements. The dollar weighted average
maturity of the Fund will be 60 days or less.
In addition, as a matter of fundamental policy, the Fund is
authorized to seek to achieve its objective by investing all of its investable
assets in an investment company having substantially the same investment
objective and policies as the Fund.
The Fund is classified as a "diversified" fund under federal
securities law.
OTHER INVESTMENT PRACTICES
The Fund seeks to maintain a net asset value of $1.00 per share.
The Fund invests only in U.S. dollar-denominated high quality
obligations which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating organizations ("NROs") (or one
NRO if the instrument was rated only by one such organization) or, if unrated,
must be determined to be of comparable quality in accordance with the procedures
of the Trustees. If a security has an unconditional guarantee or similar
enhancement, the issuer of the guarantee or enhancement may be relied upon in
meeting these ratings requirements rather than the issuer of the security.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities.
The Fund purchases only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal regulations.
Although the Fund seeks to be fully invested, at times it may hold uninvested
cash reserves, which would adversely affect its yield.
As a matter of fundamental policy, the Fund is permitted to seek to
achieve its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund.
There can be no assurance that the Fund will achieve its investment
objective.
The Fund may also engage in the following investment practices,
when consistent with its overall objective and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. The Fund may invest in direct
obligations of the U.S. Treasury. The Fund may also invest in other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(collectively, "U.S. Government Obligations"). Certain U.S. Government
Obligations, such as U.S. Treasury securities and direct pass-through
certificates of the Government National Mortgage Association (GNMA), are backed
by the "full faith and credit" of the U.S. Government. Other U.S. Government
Obligations, such as obligations of Federal Home Loan Banks and the Federal Home
Loan Mortgage Corporation, are not backed by the "full faith and credit" of 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.
-6-
<PAGE>
Repurchase Agreements, Securities Loans and Forward Commitments. The
Fund may enter into agreements to purchase and resell securities at an
agreed-upon price and time. The Fund also has the ability to lend portfolio
securities in an amount equal to not more than 30% of its total assets to
generate additional income. These transactions must be fully collateralized at
all times. The Fund may purchase securities for delivery at a future date, which
may increase its overall investment exposure and involve a risk of loss if the
value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow
money from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets on a
daily basis in an amount at least equal to the repurchase price (including
accrued interest). The Fund would be required to pay interest on amounts
obtained through reverse repurchase agreements, which are considered borrowings
under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions,
including transactions sometimes referred to as stand-by commitments, with
respect to securities in its portfolio. In these transactions, the Fund would
acquire the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of
its total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". The Fund may also invest in zero coupon
obligations. Zero coupon obligations are debt securities that do not pay regular
interest payments, and instead are sold at substantial discounts from their
value at maturity. The value of STRIPS and zero coupon obligations tends to
fluctuate more in response to changes in interest rates than the value of
ordinary interest-paying debt securities with similar maturities. The risk is
greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates.
The Fund 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 Fund 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 variable rate nature of
these investments, the Fund's yield may decline and it may forego the
opportunity for capital appreciation during periods when interest rates decline;
however, during periods when interest rates increase, the Fund's yield may
increase and it may have reduced risk of capital depreciation. Demand features
on certain floating or variable rate securities may obligate the Fund to pay a
"tender fee" to a third party. Demand features provided by foreign banks involve
certain risks associated with foreign investments.
Other Money Market Funds. The Fund may invest up to 10% of its total
assets in shares of other money market funds, subject to applicable regulatory
limitations.
Bank Obligations. Bank obligations include certificates of deposit,
time deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation or
by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
-7-
<PAGE>
Asset-Backed Securities. Asset-backed securities 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.
Municipal Obligations. The Fund may invest in high-quality,
short-term municipal obligations that carry yields that are competitive with
those of other types of money market instruments in which it may invest.
Dividends paid by the Fund that are derived from interest on municipal
obligations will be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The
Fund intends to invest a substantial portion of its assets from time to time in
securities of foreign governments and supranational agencies. The Fund will
limit its investments in foreign government obligations to the commercial paper
and other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of supranational
agencies, such as the International Bank for Reconstruction and Development
(also known as the World Bank) are supported by subscribed, but unpaid,
commitments of its 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.
Custodial Receipts. The Fund may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. These are not deemed U.S.
Government securities. These notes and bonds are held in custody by a bank on
behalf of the owners of the receipts.
Portfolio Turnover. It is intended that the Fund will be fully managed
by buying and selling securities, as well as holding securities to maturity. The
frequency of the Fund's portfolio transactions will vary from year to year. In
managing the Fund, the Fund's advisers will seek to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Limiting Investment Risks
Specific regulations and investment restrictions help the Fund
limit investment risks for shareholders. These regulations and restrictions
prohibit the Fund from: (a) with certain limited exceptions, investing more than
5% of its total assets in the securities of any one issuer (this limitation does
not apply to U.S. Government Obligations held by the Fund); (b) investing 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 procedures established by the Board of Trustees); or (c)
investing more than 25% of its total assets in any one industry (excluding U.S.
Government Obligations and bank obligations). A complete description of these
and other investment policies is included in the SAI. Except for the Fund's
investment objective, restriction (c) above and investment policies designated
as fundamental above or in the SAI, the Fund's investment policies are not
fundamental. The Trustees may change any non-fundamental investment policy
without shareholder approval.
Risk Factors
There can be no assurance that the Fund will be able to maintain a
stable net asset value. Changes in interest rates may affect the value of the
obligations held by the Fund. The value of fixed income securities varies
inversely with changes in prevailing interest rates, although money market
instruments are generally less sensitive to changes in interest rates than are
longer-term securities.
The Fund is permitted to invest any portion of its assets in
obligations of domestic banks (including their foreign branches), and in
obligations of foreign issuers. The ability to concentrate in the banking
industry may involve certain credit risks, such as defaults or downgrades, if at
some future date adverse economic conditions prevail in such industries. U.S.
banks are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
-8-
<PAGE>
Securities issued by foreign banks, foreign branches of U.S. banks
and foreign governmental and private issuers involve investment risks in
addition to those of domestic obligations of domestic issuers, including 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. In addition, 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.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the
Fund pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board of
Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan Corporation,
a bank holding company. Chase and its predecessors have over 100 years of money
management experience. For its investment advisory services to the Fund, Chase
is entitled to receive an annual fee computed daily and paid monthly at an
annual rate equal to 0.10% of the Fund's average daily net assets. Chase is
located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment
adviser, is the sub-investment adviser to the Fund pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly-owned operating
subsidiary of Chase. CAM makes investment decisions for the Fund on a day-to-day
basis. For these services, CAM is entitled to receive a fee, payable by Chase
from its advisory fee, at an annual rate equal to 0.03% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for CAM.
CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
ABOUT YOUR INVESTMENT
Investors should be aware that Class B shares of the Fund are made
available only for purposes of exchanges from Class B shares of other Vista
funds. These shares are subject to a contingent deferred sales charge ("CDSC")
if redeemed within a specified period after purchase. However, no contingent
deferred sales charge is imposed on the Class B shares being disposed of in
exchange into the Fund.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year. For more
information about the conversion of Class B shares, see the SAI. This discussion
will include information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. Class B shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made. Until conversion, Class B shares will have a higher
expense ratio and pay lower dividends than Class A shares because of the higher
combined 12b-1 and service fees. See "Other Information Concerning the Fund."
-9-
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Class B shares of the Fund may only be acquired via exchange from the
same class of another Vista fund and only if the account registrations are
identical. Class B shares of the Fund are sold by the Fund's distributor without
an initial sales load at the net asset value next determined after your exchange
order is received in proper form on any business day during which the Federal
Reserve Bank of New York and the New York Stock Exchange are open for business
("Fund Business Day"). To receive that day's price, the Vista Service Center or
your investment representative or shareholder servicing agent must generally
receive your order prior to the Fund's Cut-off Time, which is 2:00 p.m., Eastern
time. Orders for shares received after the Fund's Cut-off Time and prior to 4:00
p.m., Eastern time on any Fund Business Day will not be accepted and executed on
the same day except at the Fund's discretion. Orders received and not accepted
after the Fund's Cut-off Time will be considered received prior to the Fund's
Cut-off Time on the following Fund Business Day and processed accordingly. The
Fund reserves the right to reject any purchase order.
Class B shares are sold without an initial sales charge, although a
CDSC will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may be
redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a percentag
of the lesser of the current market value or purchase price of shares being
redeemed.
Year 1 2 3 4 5 6 7 8+
- ---------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund
will first redeem shares not subject to any charge, and then shares held longest
during the CDSC period. The holding period of Class B shares of the Fund will be
calculated from the date that the Class B shares were initially acquired in one
of the other Vista funds. Those Class B shares being redeemed will be considered
to represent capital appreciation or dividend and capital gain distribution
reinvestments in other funds (if applicable) and then shares held for the
longest period of time. As a result, the CDSC imposed should be the lowest
possible rate. When a share that has appreciated in value is redeemed during the
CDSC period, a CDSC is assessed only on its initial purchase price. For further
information on how sales charges are calculated if you exchange your shares, see
"How to Exchange Your Shares."
The CDSC will be waived on redemption of Class B shares arising out
of death or disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of Class B shares subject to a
systematic withdrawal plan may also be redeemed each year without a CDSC,
provided that the Class B account had a minimum balance of $20,000 at the time
the systematic withdrawal plan was established. The SAI contains additional
information about CDSC waivers.
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How to Sell Shares
You can sell your shares to the Fund on any Fund Business Day either
directly or through your investment representative or shareholder servicing
agent. The Fund will only forward redemption payments on shares for which it
has collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of
instruction to the Vista Service Center. The price you receive is the next net
asset value calculated after your request is received in proper form less any
CDSC.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required. The
Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the Fund Business
Day after your request is received, provided your request is received by the
Vista Service Center prior to the Fund's Cut-off Time, and assuming the Fund has
collected payment of the purchase price of your shares. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for more
than seven business days, as permitted by federal securities laws.
You may use Vista's Telephone Redemption Privilege to redeem shares
from your account unless you have notified the Vista Service Center of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. An investor agrees,
however, that to the extent permitted by applicable law, neither the Fund nor
its agents will be liable for any loss, liability, cost or expense arising out
of any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting the Vista Service Center by telephone.
In this event, you may wish to submit a written redemption request, or contact
your investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Systematic Withdrawal Plan. Make regular withdrawals of $100 or more
monthly, quarterly or semi-annually. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Selling shares through your investment representative or your
shareholder servicing agent. Your investment representative or your shareholder
servicing agent must receive your request before the Fund's Cut-off Time to
receive that day's net asset value. Your representative will be responsible for
furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. The Fund may involuntarily
redeem your shares if the aggregate net asset value of the shares in your
account is less than $500. In the event of any such redemption, you will
receive at least 60 days' notice prior to the redemption. In the event the Fund
redeems Class B shares pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain
other Vista funds at net asset value beginning 15 days after purchase, subject
to any minimum investment requirement. Not all Vista funds offer all classes of
shares. The prospectus of the other Vista fund into which shares are being
exchanged should be read carefully and retained for future reference. If you
exchange shares subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the exchange, the
redemption may be subject to the CDSC, depending upon when you originally
purchased the shares. The CDSC will be computed using the schedule of any fund
into or from which you have exchanged your shares that would result in your
paying the highest CDSC applicable to your class of shares. In computing the
CDSC, the length
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of time you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
A Telephone Exchange Privilege is currently available. Call the
Vista Service Center for procedures for telephone transactions. Ask your
investment representative or the Vista Service Center for prospectuses of other
Vista funds. Shares of certain Vista funds are not available to residents of
all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Vista management or the Trustees
believe doing so would be in the best interests of the Fund, the Fund reserves
the right to revise or terminate the exchange privilege, limit the amount or
number of exchanges or reject any exchange. In addition, any shareholder who
makes more than ten exchanges of shares involving the Fund in a year or three in
a calendar quarter will be charged a $5.00 administration fee for each such
exchange. Shareholders would be notified of any such action to the extent
required by law. Consult the Vista Service Center before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is currently
determined daily as of 12:00 noon and 4:00 p.m., Eastern time on each Fund
Business Day by dividing the net assets of the Fund attributable to such class
by the number of shares of such class outstanding at the time the determination
is made. Effective with the anticipated introduction of certain automated share
purchase programs, the net asset value of shares of each class of the Fund will
also be determined as of 6:00 p.m., Eastern time on each Fund Business Day if
the Fund is available through these programs.
The portfolio securities of the Fund are valued at their amortized
cost in accordance with federal securities laws, certain requirements of which
are summarized under "Other Investment Practices." This method increases
stability in valuation, but may result in periods during which the stated value
of a portfolio security is higher or lower than the price the Fund would receive
if the instrument were sold. It is anticipated that the net asset value of each
share will remain constant at $1.00 and the Fund will employ specific investment
policies and procedures to accomplish this result, although no assurance can be
given that it will be able to do so on a continuing basis. The Board of Trustees
will review the holdings of the Fund at intervals it deems appropriate to
determine whether the Fund's net asset value calculated by using available
market quotations (or an appropriate substitute which reflects current market
conditions) deviates from $1.00 per share based upon amortized cost. In the
event the Trustees determine that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, the
Trustees will take such corrective action as they regard as necessary and
appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of the Fund is
declared as a dividend to the shareholders on each Fund Business Day. Dividends
are declared as of the time of day which corresponds to the latest time on that
day that the Fund's net asset value is determined. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly.
Unless a shareholder arranges to receive dividends in cash or by ACH to a
pre-established bank account, dividends are distributed in the form of
additional shares. Dividends that are otherwise taxable are still taxable to you
whether received in cash or additional shares. Net realized short-term capital
gains, if any, will be distributed at least annually. The Fund does not expect
to realize net long-term capital gains.
Net investment income for the Fund consists of all interest accrued
and discounts earned less, amortization of any market premium on the portfolio
assets of the Fund, and the accrued expenses of the Fund.
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The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. The Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If the Fund does
not qualify as a regulated investment company for any taxable year or does not
make distributions as it intends, the Fund will be subject to tax on all of its
income and gains.
Distributions by the Fund of its ordinary income and short-term
capital gains are generally taxable to you as ordinary income. Such
distributions will generally be subject to state and local taxes, but may be
exempt if paid out of interest on municipal obligations of the state or locality
in which you reside. Distributions by the Fund of net long-term capital gains
will be taxable as such, regardless of the length of time you have held your
shares. Distributions will be taxable in the same manner for federal income tax
purposes whether received in cash or in shares through the reinvestment of
distributions.
To the extent distributions are attributable to interest from
obligations of the U.S. Government and certain of its agencies and
instrumentalities, such distributions may be exempt from certain types of state
and local taxes.
Early in each calendar year the Fund will notify you of the amount
and tax status of distributions paid to you for the preceding year. The
foregoing is a summary of certain federal income tax consequences of investing
in the Fund. You should consult your tax adviser to determine the precise
effect of an investment in the Fund on your particular tax situation (including
possible liability for state and local taxes and, for foreign shareholders, U.S.
withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD
is a subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The
Fund has adopted a Rule 12b-1 distribution plan which provides that the Fund
will pay distribution fees at annual rates of up to 0.75% of the average daily
net assets attributable to its Class B shares. Payments under the distribution
plan shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class B shares, and are not tied to the amount of actual expenses
incurred. Some activities intended to promote the sale of Class B shares will be
conducted generally by the Vista Family of Funds, and activities intended to
promote the Fund's Class B shares may also benefit the Fund's other shares and
other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista Funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater or entertainment for broker-dealers and their guests;
and payment or reimbursement for travel expenses, including lodging and meals,
in connection with attendance at training and educational meetings within and
outside the U.S.
Shareholder Servicing Agents
The Fund has entered into shareholder servicing agreements with
certain shareholder servicing agents (including Chase) under which the
shareholder servicing agents have agreed to provide certain support services to
their customers, including assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to .25% of the average
daily net assets of the Class B shares of the Fund held by investors for whom
the shareholder servicing agent maintains a servicing relationship. Shareholder
servicing agents may subcontract with other parties for the provision of
shareholder support services.
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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.
Chase may from time to time, at its own expense, provide
compensation to certain selected dealers 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 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a
fee computed daily and paid monthly at an annual rate equal to 0.05% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant
to a distribution and sub-administration agreement and is entitled to receive
a fee for these services from the Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee to
pay for certain expenses incurred in connection with organizing new series of
the Trust and certain other ongoing expenses of the Trust. VFD is located at 101
Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and
receives compensation under an agreement with the Fund. Securities and cash of
the Fund may be held by sub-custodian banks if such arrangements are reviewed
and approved by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its
pro rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees; registration
fees; interest charges; taxes; expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Fund's
custodian for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government offices and commissions;
expenses of meetings of investors; fees and expenses of independent accountants,
of legal counsel and of any transfer agent, registrar or dividend disbursing
agent of the Trust; insurance premiums; and expenses of calculating the net
asset value of, and the net income on, shares of the Fund. Shareholder servicing
and distribution fees are allocated to specific classes of the Fund. In
addition, the Fund may allocate transfer agency and certain other expenses by
class. Service providers to the Fund may, from time to time, voluntarily waive
all or a portion of any fees to which they are entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional series
and classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Shares have no
preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted. Shares of each class of the Fund generally vote
together except when required under federal securities laws to vote separately
on matters that only affect a particular class, such as the approval of
distribution plans for a particular class. Fund shares will be maintained in
book entry form, and no certificates representing shares owned will be issued to
shareholders.
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The Fund issues multiple classes of shares. This Prospectus relates
only to Class B shares of the Fund. The Fund offers other classes of shares in
addition to this class. The categories of investors that are eligible to
purchase shares and minimum investment requirements may differ for each class of
Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service fee
levels, and levels of certain other expenses, which will affect the relative
performance of the different classes. Investors may call 1-800-34-VISTA to
obtain additional information about other classes of shares of the Fund that are
offered. Any person entitled to receive compensation for selling or servicing
shares of the Fund may receive different levels of compensation with respect to
one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of 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 all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The Trustees
will promptly call a meeting of shareholders to remove a trustee(s) when
requested to do so in writing by record holders of not less than 10% of all
outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently
interpreted, prohibit bank holding companies and their affiliates from
sponsoring, organizing, controlling, or distributing shares of, mutual funds,
and generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting as
investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws. If
future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations and
municipal obligations to, and purchase them from, other investment companies
sponsored by the Fund's distributor or affiliates of the distributor. Chase will
not invest 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 may limit the amount or type of U.S. Government
obligations, municipal obligations or commercial paper available to be purchased
by the Fund. Chase has informed the Fund that in making its investment
decisions, it does not obtain or use material inside information in the
possession of any other division or department of such Chase or in the
possession of any affiliate of Chase, including the division that performs
services for the Trust as custodian. Shareholders of the Fund should be aware
that, subject to applicable legal or regulatory restrictions, Chase and its
affiliates may exchange among themselves certain information about the
shareholders and their accounts. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable federal
regulations.
PERFORMANCE INFORMATION
The Fund may advertise its annualized "yield" and its "effective
yield". Annualized "yield" is determined by assuming that income generated by an
investment in the Fund over a stated seven-day period (the "yield") will
continue
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to be generated each week over a 52-week period. It is shown as a percentage of
such investment. "Effective yield" is the annualized "yield" calculated assuming
the reinvestment of the income earned during each week of the 52-week period.
The "effective yield" will be slightly higher than the "yield" due to the
compounding effect of this assumed reinvestment.
Investment performance may from time to time be included in
advertisements about the Fund. Performance is calculated separately for each
class of shares. Because this performance information is based on historical
earnings, it should not be considered as an indication or representation of
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio,
the Fund's operating expenses and which class of shares you purchase. Investment
performance also reflects the risks associated with the Fund's investment
objective and policies. These factors should be considered when comparing the
Fund's investment results to those of other mutual funds and investment
vehicles. Quotations of investment performance for any period when an expense
limitation was in effect will be greater if the limitation had not been in
effect. The Fund's performance may be compared to other mutual funds, relevant
indices and rankings prepared by independent services. See the SAI.
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<PAGE>
VISTA FAMILY OF FUNDS
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
17
<PAGE>
PART B
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 6, 1996
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
VISTA[SM] CALIFORNIA TAX FREE MONEY MARKET FUND
VISTA[SM] NEW YORK TAX FREE MONEY MARKET FUND
VISTA[SM] TAX FREE INCOME FUND
VISTA[SM] NEW YORK TAX FREE INCOME FUND
VISTA[SM] CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
101 Park Avenue, New York, New York 10178
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering shares
of Vista Tax Free Income Fund, Vista California Intermediate Tax Free Income
Fund and Vista New York Tax Free Income Fund (collectively the "Income Funds"),
and Vista U.S. Government Money Market Fund, Vista 100% U.S. Treasury Securities
Money Market Fund, Vista Cash Management Fund, Vista Prime Money Market Fund,
Vista Federal Money Market Fund, Vista Treasury Plus Money Market, Vista Tax
Free Money Market Fund, Vista California Tax Free Money Market Fund and Vista
New York Tax Free Money Market Fund (collectively the "Money Market Funds"). Any
reference 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 Funds 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:
1-800-622-4273
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
<PAGE>
Table of Contents Page
The Funds....................................................................3
Investment Policies and Restrictions.........................................5
Performance Information.....................................................21
Determination of Net Asset Value............................................27
Purchases, Redemptions and Exchanges........................................28
Tax Matters.................................................................29
Management of the Trust and Funds...........................................36
Independent Accountants.....................................................51
General Information.........................................................52
Appendix A - Description of Certain U.S. Government Obligations............A-1
Appendix B - Description of Ratings........................................B-1
Appendix C - Special Investment Considerations Relating to
New York Municipal Obligations..............................C-1
Appendix D - Special Investment Considerations Relating to
California Municipal Obligations............................D-1
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THE FUNDS
Mutual Fund Trust (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 February 4, 1994. The Trust presently consists
of 12 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 Income Funds, Tax Free Money Market Fund, New York Tax Free Money
Market Fund and California Tax Free Money Market Fund are collectively referred
to herein as the "Tax Free Funds."
On August 25, 1994, the shareholders of each of the existing classes of
Shares of the Vista U.S. Government Money Market Fund, Vista Global Money Market
Fund, Vista Prime Money Market Fund, Vista Tax Free Money Market Fund, Vista
California Money Market Fund, Vista New York Tax Free Money Market Fund, Vista
Tax Free Income Fund, Vista New York Tax Free Income Fund and the Vista
California Intermediate Tax Free Income Fund approved the reorganization of each
of such Funds into newly-created series of Mutual Fund Trust, effective October
28, 1994. Prior to such approvals, each of such Funds were series of Mutual Fund
Group, an affiliated investment company.
On December 4, 1992, the shareholders of each of the existing classes of
Shares of Vista Global Money Market Fund and Vista U.S. Government Money Market
Fund approved the reorganization of each of such Funds into newly-created
series of Mutual Fund Group, effective January 1, 1993. Prior to such approvals,
on December 4, 1992, the shareholders of each of the five existing series of
Trinity Assets Trust (Trinity Money Market Fund, Trinity Government Fund,
Trinity Bond Fund, Trinity Short-Term Bond Fund and Trinity Equity Fund)
(collectively, the "Trinity Funds") approved the reorganization of each of the
Trinity Funds into newly-created series of the Trust,
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<PAGE>
effective January 1, 1993. Vista Global Money Market Fund and Trinity Money
Market Fund were reorganized into classes of Shares of "Vista Worldwide Money
Market Fund", which changed its name to "Vista Global Money Market Fund" as of
December 31, 1992. Vista U.S. Government Money Market Fund and Trinity
Government Fund were reorganized into classes of Shares of "Vista Government
Cash Fund", which changed its name to "Vista U.S. Government Money Market Fund"
as of December 31, 1992.
On May 3, 1996, The U.S. Treasury Money Market Fund of The Hanover Funds,
Inc. ("Hanover") merged into the Vista Shares of Treasury Plus Money Market
Fund, The Government Money Market Fund of Hanover merged into the Vista Shares
of U.S. Government Money Market Fund, The Cash Management Fund of Hanover merged
into the Vista Shares of Vista Global Money Market Fund (The Cash Management
Fund of Hanover was the accounting survivor of this merger), The Tax Free Money
Market Fund of Hanover merged into the Vista Shares of Tax Free Money Market
Fund, The New York Tax Free Money Market Fund of Hanover merged into the Vista
Shares of New York Tax Free Money Market Fund, and The 100% U.S. Treasury
Securities Money Market Fund of Hanover merged into the Vista Shares of The 100%
U.S. Treasury Securities Money Market Fund. The foregoing mergers are referred
to herein as the "Hanover Reorganization." Effective as of May 6, 1996, Vista
Global Money Market Fund changed its name to Vista Cash Management Fund.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The Chase Manhattan Bank ("Chase") is
the investment adviser for the Funds. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration of
the Trust, including the Funds. A majority of the Trustees of the Trust are not
affiliated with the investment adviser or sub-advisers.
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<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies applicable to
each Fund. The following information supplements and should be read in
conjunction with the related sections of each Prospectus. As used in this
Statement of Additional Information, with respect to those Funds and policies
for which they apply, the terms "Municipal Obligations" and "tax-exempt
securities" have the meanings given to them in the relevant Fund's 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. For a general discussion of special investment
considerations relating to investing in (i) New York and (ii) California
Municipal Obligations, see Appendices C and D, respectively.
The management style used for the Funds emphasizes several key factors.
Portfolio managers consider the security quality - that is, the ability of the
debt issuer to make timely payments of principal and interest. Also important in
the analysis is the relationship of a bond's yield and its maturity, in which
the managers evaluate the risks of investing in long-term higher-yielding
securities. Managers also use a computer model to simulate possible fluctuations
in prices and yields if interest rates change. Another step in the analysis is
comparing yields on different types of securities to determine relative
risk/reward profiles.
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to ten years) and U.S.
Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow any
amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. Agencies and instrumentalities of the U.S. Government
include but are not limited to: Federal Land Banks, Federal Financing Banks,
Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, Student Loan Marketing Association, United States
Postal Service, Chrysler Corporate Loan Guarantee Board, Small Business
Administration, Tennessee Valley Authority and any other enterprise established
or sponsored by the U.S. Government. Certain U.S. Government Securities,
including U.S. Treasury bills, notes and bonds, Government National Mortgage
Association certificates and Federal Housing Administration debentures, are
supported by the full faith and credit of the United States. Other U.S.
Government Securities are issued or guaranteed by federal agencies or government
sponsored enterprises and are not supported by the full faith and credit of the
United States. These securities include obligations that are supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations that are supported by the
creditworthiness of the particular instrumentality, such as obligations of the
Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.
Vista Federal Money Market Fund generally limits its investments in agency and
instrumentality obligations to obligations the interest on which is generally
not subject to state and local income taxes by reason of federal law. Agencies
and instrumentalities issuing such obligations include the Farm Credit System
Financial Assistance Corporation, the Federal Financing Bank, The General
Services Administration, Federal Home Loan Banks, the Tennessee Valley Authority
and the Student Loan Marketing Association. 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
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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 were
required to liquidate any of them, it might not be able to do so advantageously;
accordingly, each Fund investing in such securities intends 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 and Loan 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 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.
Commercial Paper-and Other Short-Term Obligations. The commercial paper
and other short-term obligations of U.S. and foreign corporations which may be
purchased by the Vista Prime Money Market Fund and the Vista Cash Management
Fund, other than those of bank holding companies, include obligations which are
(i) rated Prime-1 by Moody's, A-1 by S&P, or F-1 by Fitch, or comparably rated
by another NRO; or (ii) determined by the advisers to be of comparable quality
to those rated obligations which may be purchased by the Vista Prime Money
Market Fund and the Vista Cash Management Fund at the date of purchase or which
at the date of purchase have an outstanding debt issue rated in the highest
rating category by Moody's, S&P, Fitch or another NRO. The commercial paper and
other short-term obligations of U.S. banks holding companies which may be
purchased by the Vista Prime Money Market Fund and the Vista Cash Management
Fund include obligations issued or guaranteed by bank holding companies with
total assets exceeding $1 billion. For purposes of the size standards with
respect to banks and bank holding companies, "total deposits" and "total assets"
are determined on an annual basis by reference to an institution's then most
recent annual financial statements.
Repurchase Agreements. A Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and securities dealers believed
creditworthy, and only if fully collateralized by securities in which such Fund
is permitted to invest. Under the terms of a typical repurchase agreement, a
Fund would acquire an underlying debt 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 to resell the instrument at a fixed price
and time, thereby determining the yield during the Fund's holding period. This
procedure results in a fixed rate of return insulated from market fluctuations
during such period. A repurchase agreement is subject to the risk that the
seller may fail to repurchase the security. Repurchase agreements are considered
under the 1940 Act to be loans collateralized by the underlying securities. All
repurchase agreements entered into by a Fund will be fully collateralized at all
times during the period of the agreement in that the value of the underlying
security will be at least equal to the amount of the loan, including the accrued
interest thereon, and the Fund 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 a Fund, but would only
constitute collateral for the seller's obligation to pay the repurchase price.
Therefore, a Fund may suffer time delays
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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. Repurchase agreements will give rise to income which
will not qualify as tax-exempt income when distributed by a Tax Free Fund.
Repurchase agreements maturing in more than seven days are treated as illiquid
for purposes of the Funds' restrictions on purchases of illiquid securities.
Repurchase agreements are also subject to the risks described below with
respect to stand-by commitments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
sales of portfolio securities of a Fund to member banks of the Federal Reserve
System or securities dealers believed creditworthy, concurrently with an
agreement by such Fund to repurchase the same securities at a later date at a
fixed price which is generally equal to the original sales price plus interest.
A Fund retains record ownership and the right to receive interest and principal
payments on the portfolio security involved.
High Quality Municipal Obligations. Investments by the Tax Free Money
Market Funds will be made in unrated Municipal Obligations only if they are
determined to be of comparable quality to permissable rated investments on the
basis of the advisers' credit evaluation of the obligor or of the bank issuing a
participation certificate, letter of credit or guaranty, or insurance issued in
support of the obligation. High Quality instruments may produce a lower yield
than would be available from less highly rated instruments. The Board of
Trustees has determined that Municipal Obligations which are backed by the
credit of the U.S. Government will be considered to have a rating equivalent to
Moody's Aaa.
If, subsequent to purchase by a Tax Free Money Market Fund, (a) an issue
of rated Municipal Obligations ceases to be rated in the highest short-term
rating category (the two highest categories in the case of the New York and
California Tax Free Money Market Funds) by at least two rating organizations (or
one rating organization if the instrument was rated by only one such
organization) or the Board of Trustees determines that it is no longer of
comparable quality or (b) a Money Market Fund's advisers become aware that any
portfolio security not so highly rated or any unrated security has been given a
rating by any rating organization below the rating organization's second highest
rating category, the Board of Trustees will reassess promptly whether such
security presents minimal credit risk and will cause such Money Market Fund to
take such action as it determines is in its best interest and that of its
shareholders; provided that the reassessment required by clause (b) is not
required if the portfolio security is disposed of or matures within five
business days of the advisers becoming aware of the new rating and the Fund's
Board is subsequently notified of the adviser's actions.
To the extent that a rating given by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Funds will attempt to use comparable ratings as standards
for their investments in accordance with the investment policies contained in
the Prospectuses and this Statement of Additional Information. The ratings of
Moody's, S&P and Fitch represent their opinions as to the quality of the
Municipal Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings may be an initial criterion for selection of
portfolio investments, the advisers also will evaluate these securities and the
creditworthiness of the issuers of such securities.
Forward Commitments. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will normally
be purchased. Although, with respect to any Tax Free Fund, short-term
investments will normally be in tax-exempt securities or Municipal Obligations,
short-term taxable securities or obligations may be purchased if suitable
short-term tax-exempt securities or Municipal Obligations are not available.
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 assets equal
to the
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amount of the purchase be held aside or segregated to be used to pay for the
commitment, a separate account of such Fund consisting of cash, cash equivalents
or high quality debt securities equal to the amount of such Fund's commitments
will be established at such Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market value of such
securities declines, additional cash, cash equivalents or highly liquid
securities will be placed in the account daily so that the value of the account
will equal the amount of such commitments by the respective Fund.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the respective Fund's
portfolio are subject to changes in value based upon the public's perception of
the creditworthiness 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 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
payment obligations). The sale of securities to meet such obligations may result
in the realization of capital gains or losses, which, for consideration by
investors in the Tax Free Funds, are not exempt from federal, state or local
taxation.
To the extent a Fund 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.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as a Fund
who agree that they are purchasing the paper for investment and not with a view
to public distribution. Any resale of Section 4(2) paper by the purchaser must
be in an exempt transaction.
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' purchases and sales of Rule 144A securities and
Section 4(2) paper.
Stand-by Commitments. When a Fund purchases securities it may also acquire
stand-by commitments with respect to such securities. Under a stand-by
commitment, a bank, broker-dealer or other financial institution agrees to
purchase at a Fund's option a specified security at a specified price.
The amount payable to a Money Market Fund upon its exercise of a stand-by
commitment with respect to a Municipal Obligation normally would be (i) the
acquisition cost of the Municipal Obligation (excluding any accrued interest
paid by the Fund on the acquisition), less any amortized market premium or plus
any amortized market or original issue discount during the period the Fund owned
the security, plus (ii) all interest accrued on the security since the last
interest payment date during the period the security was owned by the Fund.
Absent unusual circumstances relating to a change in market value, a Money
Market Fund would value the underlying Municipal Obligation at amortized cost.
Accordingly, the amount payable by a bank or dealer during the time a stand-by
commitment is exercisable would be substantially the same as the market value of
the underlying Municipal Obligation. The Money Market Funds value stand-by
commitments at zero for purposes of computing their net asset value per share.
The stand-by commitments that may be entered into by the Funds are subject
to certain risks, which include the ability 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, and that the maturity of the
underlying security will generally be
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different from that of the commitment. Not more than 10% of the total assets of
a Money Market Fund will be invested in Municipal Obligations that are subject
to stand-by commitments from the same bank or broker-dealer.
Floating and Variable Rate Securities; Participation Certificates.
Floating and variable rate demand instruments permit the holder to demand
payment upon a specified number of days' notice of the unpaid principal balance
plus accrued interest either from the issuer or by drawing on a bank letter of
credit, a guarantee or insurance issued with respect to such instrument.
Investments by the Income Funds in floating or variable rate securities normally
will involve industrial development or revenue bonds that provide for a periodic
adjustment in the interest rate paid on the obligation and may, but need not,
permit the holder to demand payment as described above. While there is usually
no established secondary market for issues of these types of securities, the
dealer that sells an issue of such security frequently will also offer to
repurchase the securities at any time at a repurchase price which varies and may
be more or less than the amount the holder paid for them. The floating or
variable rate demand instruments in which the Money Market Funds may invest are
payable on demand on not more than seven calendar days' notice.
The terms of these types of securities provide that interest rates are
adjustable at intervals ranging from daily to up to six months and the
adjustments are based upon the prime rate of a bank or other short-term rates,
such as Treasury Bills or LIBOR (London Interbank Offered Rate), as provided in
the respective instruments. The Funds will decide which floating or variable
rate securities to purchase in accordance with procedures prescribed by Board of
Trustees of the Trust in order to minimize credit risks.
In the case of a Money Market Fund, the Board of Trustees may determine
that an unrated floating or variable rate security meets the Fund's high quality
criteria if it is backed by a letter of credit or guarantee or is insured by an
insurer that meets such quality criteria, or on the basis of a credit evaluation
of the underlying obligor. If the credit of the obligor is of "high quality", no
credit support from a bank or other financial institution will be necessary. The
Board of Trustees will re-evaluate each unrated floating or variable rate
security on a quarterly basis to determine that it continues to meet a Money
Market Fund's high quality criteria. If an instrument is ever deemed to fall
below a Money Market Fund's high quality standards, either it will be sold in
the market or the demand feature will be exercised.
The securities in which certain Funds 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 an undivided interest in the security in the proportion that the Fund'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
certificate of participation) 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.
A Fund 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 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. 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 will attempt to
have the issuer of the Participation Certificate bear the cost of any such
insurance, although the Funds retain the option to purchase insurance if deemed
appropriate. Obligations that have a demand feature permitting a Fund to tender
the obligation to a foreign bank may involve certain risks associated with
foreign investment. A Fund'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.
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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, 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 may subscribe. Although these
instruments may be sold by a Fund, it is intended that they be held until
maturity. Participation Certificates will only be purchased by a Tax Free Fund
if, in the opinion of counsel to the issuer, interest income on such instruments
will be tax-exempt when distributed as dividends to shareholders of such Fund.
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 portfolio may
contain floating or variable rate securities on which stated minimum or maximum
rates, or maximum rates set by state law, limit the degree to which interest on
such floating or variable rate securities may fluctuate; to the extent it does,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Because the adjustment of interest rates on the floating or
variable rate securities is made in relation to movements of the applicable
banks' "prime rates" or other short-term rate adjustment indices, the floating
or variable rate securities are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the floating or variable rate
securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund 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. With respect to a Money Market
Fund, the maturity of a variable rate demand instrument will be determined in
the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. With respect to the Income Funds, if variable rate
securities are not redeemed through the demand feature, they mature on a
specified date which may range up to thirty years from the date of issuance.
Tender Option Floating or Variable Rate Certificates. The Money Market
Funds may invest in tender option bonds. A tender option bond is a synthetic
floating or variable rate security issued when long term bonds are purchased in
the secondary market and are then deposited into a trust. Custodial receipts are
then issued to investors, such as the Funds, evidencing ownership interests in
the trust. The trust sets a floating or variable rate on a daily or weekly basis
which is established through a remarketing agent. These types of derivatives, to
be money market eligible under Rule 2a-7, must have a liquidity facility in
place which provides additional comfort to the investors in case the remarketing
fails. The sponsor of the trust keeps the difference between the rate on the
long term bond and the rate on the short term floating or variable rate
security.
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.
Securities Loans. To the extent specified in its Prospectus, each Fund is
permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of a Fund's total assets. In
connection with such loans, a Fund will receive collateral consisting of cash,
cash equivalents, U.S. Government securities or irrevocable letters of credit
issued by financial institutions. Such collateral will be maintained at all
times in an amount equal to at least 102% of the current market value plus
accrued interest of the securities loaned. A Fund can increase its income
through the investment of such collateral. A Fund continues to be entitled to
the interest payable or any dividend-equivalent payments received on a loaned
security and, in addition, to receive interest on the amount of the loan.
However, the receipt of any dividend-equivalent payments by a Fund on a loaned
security from the borrower will not qualify for the dividends-received
deduction. Such loans will be terminable at any time upon specified notice. A
Fund might experience risk of loss if the institutions with which it has
engaged in portfolio loan transactions breach their agreements with such Fund.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or the 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.
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Zero Coupon and Stripped Obligations. The principal and interest
components of United States Treasury bonds with remaining maturities of longer
than ten years are eligible to be traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are separately
issued by the United States Treasury at the request of depository financial
institutions, which then trade the component parts separately. The interest
component of STRIPS may be more volatile than that of United States Treasury
bills with comparable maturities.
Zero coupon obligations are sold at a substantial discount from their
value at maturity and, when held to maturity, their entire return, which
consists of the amortization of discount, comes from the difference between
their purchase price and maturity value. Because interest on a zero coupon
obligation is not distributed on a current basis, the obligation tends to be
subject to greater price fluctuations in response to changes in interest rates
than are ordinary interest-paying securities with similar maturities. The value
of zero coupon obligations appreciates more than such ordinary interest-paying
securities during periods of declining interest rates and depreciates more than
such ordinary interest-paying securities during periods of rising interest
rates. Under the stripped bond rules of the Internal Revenue Code of 1986, as
amended, investments 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.
Additional Policies Regarding Derivative and Related Transactions
Introduction
As explained more fully below, the Income Funds 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 other
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.
Each Income Fund may invest its assets in derivative and related
instruments subject only to the Fund's investment objective and policies and the
requirement that the Fund maintain segregated accounts consisting of liquid
assets, such as cash, U.S. Government securities, or other high-grade debt
obligations (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under such instruments with
respect to positions where there is no underlying portfolio asset so as to avoid
leveraging the Fund.
The value of some derivative or similar instruments in which the Income
Funds invest may be particularly sensitive to changes in prevailing interest
rates or other economic factors, and -- like other investments of the Funds --
the ability of a Fund to successfully utilize these instruments may depend in
part upon the ability of the advisers to forecast interest rates and other
economic factors correctly. If the advisers accurately forecast such factors and
has taken positions in derivative or similar instruments contrary to prevailing
market trends, the Funds could be
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exposed to the risk of a loss. The Funds 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 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 and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted. The
advisers may accurately forecast interest rates, market values or other economic
factors in utilizing a derivatives strategy. In such a case, the Fund may have
been in a better position had it not entered into such strategy. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. In other words, hedging usually limits both potential losses as well as
potential gains. Strategies not involving hedging may increase the risk to a
Fund. Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to a Fund than hedging strategies
using the same instruments. There can be no assurance that a liquid market will
exist at a time when a Fund seeks to close out an option, futures contract or
other derivative or related position. Many exchanges and boards of trade limit
the amount of fluctuation permitted in option or futures contract prices during
a single day; once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition, certain
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. Finally, over-the-counter instruments typically do not have a
liquid market. Lack of a liquid market for any reason may prevent a Fund from
liquidating an unfavorable position. Activities of large traders in the futures
and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in these markets. In certain
instances, particularly those involving over-the-counter transactions, forward
contracts there is a greater potential that a counterparty or broker may default
or be unable to perform on its commitments. In the event of such a default, a
Fund may experience a loss.
Specific Uses and Strategies
Set forth below are explanations various strategies involving derivatives
and related instruments which may be used by the Income Funds.
Options on Securities and Securities Indexes. The Funds may PURCHASE, SELL
or EXERCISE call and put options on (i) securities, (ii) securities indexes, and
(iii) debt instruments.
Although in most cases these options will be exchange-traded, the Funds
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 intends to purchase pending its ability
to invest in such securities in an orderly manner. A Fund may also use
combinations of options to minimize costs, gain exposure to markets or take
advantage of price
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disparities or market movements. For example, a Fund may sell put or call
options it has previously purchased or purchase put or call options it has
previously sold. These transactions may result in a net gain or loss depending
on whether the amount realized on the sale is more or less than the premium and
other transaction costs paid on the put or call option which is sold. A Fund may
write a call or put option in order to earn the related premium from such
transactions. Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of a similar option.
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 writing a covered call (i.e., where the underlying securities are held by
the fund) has, in return for the premium on the option, given up the opportunity
to profit from a price increase in the underlying securities above the exercise
price, but has retained the risk of loss should the price of the underlying
securities decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. The Funds will not
write uncovered options.
If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price or, in the case
of a call, remains less than or equal to the exercise price, such Fund will lose
its entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a Fund
may be unable to close out a position.
Futures Contracts and Options on Futures Contracts. The Funds 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 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 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 intends to acquire an
instrument or enter into a position. For example, a Fund may purchase a futures
contract -- or buy a futures option -- to gain immediate exposure in a market or
otherwise offset increases in the purchase price of securities or currencies to
be acquired in the future. Futures options may also be written to earn the
related premiums.
When writing or purchasing options, the Funds 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. Funds may engage in cross-hedging by purchasing or selling
futures or options on a security different from the security position being
hedged to take advantage of relationships between the two securities.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds will
only enter into futures contracts or options on futures contracts which
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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 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 Transactions. The Income Funds may employ interest rate
management techniques, including transactions in options (including yield curve
options), futures, options on futures, forward exchange contracts, and interest
rate swaps.
An Income Fund will only enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Income Fund receiving or
paying, as the case may be, only the net amount of the two payments. Interest
rate swaps do not involve the delivery of securities, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that an Income Fund is
contractually obligated to make. If the other party to and interest rate swap
defaults, an Income Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. Since interest rate
swaps are individually negotiated, each Income Fund expects to achieve an
acceptable degree of correlation between its portfolio investments and its
interest rate swap position.
An Income Fund may enter into interest rate swaps to the maximum allowed
limits under applicable law. An Income Fund will typically use interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by an Income Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments.
Structured Products. The Income Funds may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations. 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 may invest in
structured products which represent derived investment positions based on
relationships among different markets or asset classes.
The Income Funds 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
an Income Fund invests in notes linked to the price of an underlying instrument,
the price of the underlying security is determined by a multiple (based on a
formula) of the price of such underlying security. A structured product may be
considered to be leveraged to the extent its interest rate varies by
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a magnitude that exceeds the magnitude of the change in the index rate of
interest. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Because certain structured
products of the type in which the Income Fund anticipates it will invest may
involve no credit enhancement, the credit risk of those structured products
generally would be equivalent to that of the underlying instruments. An Income
Fund is permitted to 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 an Income Fund's
purchase of subordinated structured products would have similar economic effect
to that of borrowing against the underlying securities, the purchase will not be
deemed to be leverage for purposes of an Income Fund's fundamental investment
limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, an Income 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 the Income Funds
invest may be deemed illiquid and subject to their 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 an Income Fund purchases a futures contract, an amount of cash or
cash equivalents or high quality debt securities will be deposited in a
segregated account with such Fund's custodian so that the amount so segregated,
plus the initial deposit and variation margin held in the account of its broker,
will at all times equal the value of the futures contract, thereby insuring that
the use of such futures is unleveraged.
The Income Funds' ability to engage in the transactions described herein
may be limited by the current federal income tax requirement that a Fund derive
less than 30% of its gross income from the sale or other disposition of
securities held for less than three months.
In addition to the foregoing requirements, the Board of Trustees has
adopted an additional restriction on the use of futures contracts and options
thereon, requiring that the aggregate market value of the futures contracts held
by an Income Fund not exceed 50% of the market value of its total assets.
Neither this restriction nor any policy
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with respect to the above-referenced restrictions, would be changed by the Board
of Trustees without considering the policies and concerns of the various federal
and state regulatory agencies.
Investment Restrictions
The Funds have adopted the following investment restrictions which may not
be changed without approval by a "majority of the outstanding shares" of a Fund
which, as used in this Statement of Additional Information, means the vote of
the lesser of (i) 67% or more of the shares of a Fund present at a meeting, if
the holders of more than 50% of the outstanding shares of a Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of a Fund.
Each Fund may not:
(1) borrow money, except that each Fund may borrow money for
temporary or emergency purposes, or by engaging in reverse repurchase
transactions, in an amount not exceeding 33 1/3% of the value of its total
assets at the time when the loan is made and may pledge, mortgage or
hypothecate no more than 1/3 of its net assets to secure such borrowings.
Any borrowings representing more than 5% of a Fund's total assets must be
repaid before the Fund may make additional investments;
(2) make loans, except that each Fund may: (i) purchase and hold
debt instruments (including without limitation, bonds, notes, debentures
or other obligations and certificates of deposit, bankers' acceptances and
fixed time deposits) in accordance with its investment objectives and
policies; (ii) enter into repurchase agreements with respect to portfolio
securities; and (iii) lend portfolio securities with a value not in excess
of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the
same industry. Notwithstanding the foregoing, (i) with respect to a Fund's
permissible futures and options transactions in U.S. Government
securities, positions in options and futures shall not be subject to this
restriction; (ii) the Money Market Funds may invest more than 25% of their
total assets in obligations issued by banks, including U. S. banks; (iii)
New York Tax Free Money Market Fund, California Tax Free Money Market Fund
and Tax Free Money Market Fund may invest more than 25% of their
respective assets in municipal obligations secured by bank letters of
credit or guarantees, including participation certificates and (iv) more
than 25% of the assets of California Intermediate Tax Free Income Fund may
be invested in municipal obligations secured by bank letters of credit or
guarantees;
(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 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 from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
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Investments by a Fund in securities backed by mortgages on real estate or
in marketable securities of companies engaged in such activities are not
hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund 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 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 may borrow money as authorized by the
1940 Act. For purposes of this restriction, collateral arrangements with
respect to a Fund's 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 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, a 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 in municipal obligations where the
issuer is regarded as a state, city, municipality or other public authority
since such entities are not members of any "industry." Supranational
organizations are collectively considered to be members of a single "industry"
for purposes of restriction (3) above.
In addition, each Fund is subject to the following nonfundamental
investment restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Tax Free Funds 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 Tax Free 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 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.
(3) Each Fund may not purchase or sell interests in oil,
gas or mineral leases.
(4) Each Income Fund may not invest more than 15% of its net assets
in illiquid securities; each Money Market Fund may not invest more than
10% of its net assets in illiquid securities.
(5) Each Fund may not write, purchase or sell any put or call option
or any combination thereof, provided that this shall not prevent (i) the
writing, purchasing or selling of puts, calls or combinations thereof with
respect to portfolio securities or (ii) with respect to a Fund's
permissible futures and options transactions, the writing, purchasing,
ownership, holding or selling of futures and options positions or of puts,
calls or combinations thereof with respect to futures.
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(6) Each Fund may invest up to 5% of its total assets in the
securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of
its total assets in the securities of other investment companies.
It is the Trust's position that proprietary strips, such as CATS and
TIGRS, are United States Government securities. However, the Trust has been
advised that the staff of the Securities and Exchange Commission's Division of
Investment Management does not consider these to be United States Government
securities, as defined under the 1940 Act.
For purposes of the Funds' investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.
In order to permit the sale of its shares in certain states, a Fund may
make commitments more restrictive that the investment policies and limitations
described above and in its Prospectus. Should a Fund determine that any such
commitment is no longer in its best interests, it will revoke the commitment by
terminating sales of its shares in the state involved.
In order to comply with certain federal and state statutes and regulatory
policies, as a matter of operating policy, each Fund will not invest for the
purpose of exercising control or management.
As a nonfundamental operating policy, the California Intermediate Tax Free
Income Fund will limit its investments in municipal obligations secured by bank
letters of credit or guarantees to not more than 25% of its total assets. As a
nonfundamental operating policy, the Money Market Funds will not invest more
than 25% of their respective total assets in obligations issued by foreign banks
(other than foreign branches of U.S. banks), and the Tax Free Money Market Funds
will not invest more than 25% of their respective total assets in obligations
secured by letters of credit or guarantees from foreign banks (other than
foreign branches of U.S. banks).
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, later changes in
percentage or ratings resulting from any cause other than actions by a Fund will
not be considered a violation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund are made by a
portfolio manager who is an employee of the adviser or sub-adviser to such Fund
and who is appointed and supervised by senior officers of such adviser or
sub-adviser. Changes in the Funds' investments are reviewed by the Board of
Trustees. The Funds' portfolio managers may serve other clients of the advisers
in a similar capacity. Money market instruments are generally purchased in
principal transactions; thus, the Money Market Funds generally pay no brokerage
commissions.
The frequency of an Income Fund's portfolio transactions -- the portfolio
turnover rate -- will vary from year to year depending upon market conditions.
Because a high turnover rate may increase transaction costs and the possibility
of taxable short-term gains, the advisers will weigh the added costs of
short-term investment against anticipated gains. Each Income Fund will engage
in portfolio trading if its advisers believe a transaction, net of costs
(including custodian charges), will help it achieve its investment objective.
For the fiscal year ended October 31, 1993, the period from November 1,
1993 through August
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31, 1994 and the fiscal year ended August 31, 1995, the annual rates of
portfolio turnover for the following Funds were as follows:
The Tax Free Income Fund: 149%, 258% and 233%, respectively;
The New York Tax Free Income Fund: 150%, 162% and 122%, respectively;
For the period July 16, 1993 through October 31, 1993, from November 1,
1993 through August 31, 1994 and the fiscal year ended August 31, 1995, the
California Intermediate Tax Free Income Fund had portfolio turnover rates of
40%, 93% and 94%, 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. 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 on
any particular transaction, and are not required to execute any order in a
fashion either preferential to any 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 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 portfolio securities in so-called tender or exchange
offers. Such soliciting dealer fees are in effect recaptured for the Funds 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 to pay a broker-dealer which provides brokerage and research
services to the adviser or sub-advisers, the Funds and/or other accounts for
which they exercise investment discretion an amount of commission for effecting
a securities transaction for the Funds in excess of the amount other
broker-dealers would have charged for the transaction if they determine in good
faith that the total 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 that 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. The adviser and
sub-advisers report to the Board of Trustees regarding overall commissions paid
by the Funds and their reasonableness in relation to the benefits to the Funds.
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.
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The management fees that the Funds 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' portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Funds will exceed
those that might otherwise be paid by an amount which cannot be presently
determined. Such services 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 would
be useful to the adviser and sub-advisers in carrying out their obligations to
the Funds. 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 staff.
In certain instances, there may be securities that are suitable for one or
more of the Funds as well as one or more of the adviser's or sub-advisers' other
clients. Investment decisions for the Funds 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. In executing portfolio transactions for a Fund, the
adviser or sub-advisers may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be sold
or purchased with those of other Funds or their other clients if, in the
adviser's or sub-advisers' reasonable judgment, such aggregation (i) will result
in an overall economic benefit to the Fund, taking into consideration the
advantageous selling or purchase price, brokerage commission and other expenses,
and trading requirements, and (ii) is not inconsistent with the policies set
forth in the Trust's registration statement and the Fund's Prospectus and
Statement of Additional Information. In such event, the adviser or a sub-
adviser will allocate the securities so purchased or sold, and the expenses
incurred in the transaction, in an equitable manner, consistent with its
fiduciary obligations to the Fund and such other clients. 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 a Fund is concerned. However, it is believed that the
ability of the Funds to participate in volume transactions will generally
produce better executions for the Funds.
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PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
past investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future. From
time to time, the performance and yield of classes of a Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of a Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the performance
and yield of a Fund or its classes. A Fund's performance may be compared with
indices such as the Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Government Bond Index, the Lehman Government Bond 1-3 Year Index and
the Lehman Aggregate Bond Index; the S&P 500 Index, the Dow Jones Industrial
Average or any other commonly quoted index of common stock prices; and the
Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund may,
with proper authorization, reprint articles written about such Fund and provide
them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in a
Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class B
shares, the average annual total rate of return figures will assume deduction of
the applicable contingent deferred sales charge imposed on a total redemption of
shares held for the period. One-, five-, and ten-year periods will be shown,
unless the class has been in existence for a shorter-period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values (in the case of the
Income Funds) 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.
In connection with the Hanover Reorganization, the Vista 100% U.S.
Treasury Securities Money Market Fund was established to receive the assets of
The 100% U.S. Treasury Securities Money Market Fund of Hanover, and the Vista
Cash Management Fund (formerly known as the Vista Global Money Market Fund),
which received the assets of The Cash Management Fund of Hanover, adopted the
financial history of The Cash Management Fund of Hanover. Performance results
presented for each class of the Vista 100% U.S. Treasury Securities Money Market
Fund and the Vista Cash Management Fund will be based upon the performance of
The 100% U.S. Treasury Securities Money
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Market Fund and The Cash Management Fund of Hanover, respectively, for periods
prior to the consummation of the Hanover Reorganization.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as well
as legislative, regulatory and monetary developments, and may include investment
strategies and related matters believed to be of relevance to a Fund.
Advertisements for the Vista funds may include references to the asset
size of other financial products made available by Chase, such as the offshore
assets of other funds.
Total Rate of Return
A Fund's or class's total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains declared during such period
with respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share on the first day of such period, and (b)
subtracting 1 from the result. The average annual rate of return quotation will
be calculated by (x) adding 1 to the period total rate of return quotation as
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.
The average annual total rate of return figures for the Class A shares of
the following Funds, reflecting the initial investment and reinvested dividends
for the one and five year periods ended August 31, 1995, and for the period from
September 8, 1987 (commencement of business operations) to August 31, 1995, were
as follows:
The Tax Free Income Fund: 6.53%, 9.81% and 9.41%, respectively;
The New York Tax Free Income Fund: 6.82%, 9.01% and 8.86%, respectively.
Had the maximum sales charge of 4.50% been in effect, the average annual
total rate of return figures for the same periods would have been as follows:
The Tax Free Income Fund: 1.74%, 8.87% and 8.78%, respectively;
The New York Tax Free Income Fund: 2.01%, 8.01% and 8.24%, respectively.
The average rate of total return for the California Intermediate Tax Free
Income Fund for the one year period ended August 31, 1995 and from the inception
date of July 15, 1993 through August 31, 1995 was 7.55% and 4.23%, respectively.
Had the maximum sales charge of 4.50% been in effect, the average annual total
rate of return for the same periods would have been 2.71% and 2.00%,
respectively.
The average annual total rate of return figures for the Class B shares of
the following Funds, reflecting the initial investment and reinvested dividends
for the one year period ended August 31, 1995, and for the period from
commencement of business operations on November 4, 1993 to August 31, 1995 were
as follows:
The Tax Free Income Fund: 5.70% and 1.75%, respectively;
The New York Tax Free Income Fund: 5.99% and 2.61%, respectively.
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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 of an Income Fund
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.
Any current "yield" for a class of shares of a Money Market Fund which is
used in such a manner as to be subject to the provisions of Rule 482(d) under
the Securities Act of 1933, as amended, shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven calendar day period and shall be calculated by
dividing the net change in the value of an account having a balance of one Share
at the beginning of the period by the value of the account at the beginning of
the period and multiplying the quotient by 365/7. For this purpose, the net
change in account value would reflect the value of additional Shares purchased
with dividends declared on the original Share and dividends declared on both the
original Share and any such additional Shares, but would not reflect any
realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
yield quotation for a class of shares of a Money Market Fund so used shall be
calculated by compounding the current yield quotation for such period by
multiplying such quotation by 7/365, adding 1 to the product, raising the sum to
a power equal to 365/7, and subtracting 1 from the result. A portion of a Tax
Free Money Market Fund's income used in calculating such yields may be taxable.
Any taxable equivalent yield quotation of a class of shares of a Tax Free
Fund, whether or not it is a Money Market Fund, shall be calculated as follows.
If the entire current yield quotation for such period is tax-exempt, the tax
equivalent yield will be the current yield quotation (as determined in
accordance with the appropriate calculation described above) divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion
of the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates and (b) the portion of the yield which is not tax-exempt.
CURRENT EFFECTIVE COMPOUND
ANNUALIZED YIELD ANNUALIZED YIELD
---------------- ------------------
AS OF 8/31/95 AS OF 8/31/95
U. S. Government Money Market Fund
Vista Shares 5.02% 5.15%
Premier Shares 5.27% 5.41%
Institutional Shares 5.54% 5.69%
Prime Money Market Fund
B Shares 4.43% 4.53%
Premier Shares 5.46% 5.61%
Institutional Shares 5.63% 5.79%
Federal Money Market Fund
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Vista Shares 5.12% 5.25%
Premier Shares 5.32% 5.46%
Institutional Shares 5.50% 5.65%
Treasury Plus Money Market Fund
Premier Shares 5.20% 5.33%
Institutional Shares 5.38% 5.52%
100% U.S. Treasury Securities
Money Market Fund AS OF 11/30/95 AS OF 11/30/95
Vista Shares
Premier Shares
Institutional Shares
Cash Management Fund
Vista Shares
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<PAGE>
CURRENT EFFECTIVE ANNUALIZED
ANNUALIZED COMPOUND TAX EQUIVALENT
YIELD ANNUALIZED YIELD *
YIELD
Tax Free Money
Market Fund
Vista Shares 2.96% 3.01% 4.91%
Premier Shares 3.24% 3.30% 5.37%
Institutional Shares 3.52% 3.58% 5.83%
California Tax Free 3.12% 3.17% 5.80%
Money Market Fund
New York Tax Free 2.81% 2.85% 5.28%
Money Market Fund
THIRTY-DAY TAX EQUIVALENT
YIELD THIRTY-DAY YIELD*
Tax Free Income Fund:
Class A Shares 4.11% 6.80%
Class B Shares 3.56% 5.89%
New York Tax Free
Income Fund:
Class A Shares 4.41% 8.29%
Class B Shares 3.87% 7.27%
California
Intermediate Tax Free 4.63% 8.61%
Income Fund
- ---------------
* The annualized tax equivalent yields assume a federal income tax rate of
39.6% for the Tax Free Money Market Fund and Tax Free Income Fund, a combined
New York State, New York City and federal income tax rate of 46.80% for the New
York Tax Free Money Market Fund and New York Tax Free Income Fund and a combined
California State and federal income tax rate of 46.24% for the California Tax
Free Money Market Fund and California Intermediate Tax Free Income Fund.
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Non-Standardized Performance Results
The chart below reflects the net change in the value of an assumed initial
investment of $10,000 in the following Funds for the period from the
commencement date of business for each such Fund (i.e., either September 8, 1987
for the Tax Free Income and New York Tax Free Income Funds or July 16, 1993 for
the California Intermediate Tax Free Income Fund.) The values reflect an
assumption that capital gain distributions and income dividends, if any, have
been invested in additional Shares. From time to time, the Funds will provide
these performance results in addition to the total rate of return quotations
required by the Securities and Exchange Commission. As discussed more fully in
the Prospectus, neither these performance results, nor total rate of return
quotations, should be considered as representative of the performance of the
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.
Value of Value of Value of
Period Ended Initial $10,000 Capital Gains Reinvested Total
August 31, 1995 Investment Distributions Dividends Value
- -------------- --------------- ------------- --------- -----
The Tax Free Income Fund:
A Shares $11,850 $1,116 $ 7,541 $20,507
B Shares 9,424 125 827 10,376
The New York Tax Free
Income Fund:
A Shares 11,470 1,477 6,838 19,785
B Shares 9,422 242 856 10,520
The California Intermediate Tax
Free Income Fund 9,687 126 1,164 10,977
Had the maximum sales charge of 4.50% been in effect, the figures for the
same periods would have been as follows:
Value of Value of Value of
Period Ended Initial $10,000 Capital Gains Reinvested Total
August 31, 1995 Investment Distributions Dividends Value
- --------------- --------------- ------------- --------- -----
The Tax Free Income Fund:
A Shares $11,317 $1,066 $7,202 $19,585
B Shares 9,047 125 827 9,999
The New York Tax Free
Income Fund:
A Shares 10,954 1,410 6,531 18,895
B Shares 9,045 242 856 10,143
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The California Intermediate Tax
Free Income Fund 9,251 120 1,112 10,483
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Money Market Funds' portfolio securities are valued at their amortized
cost. Amortized cost valuation involves valuing an instrument at its cost and
thereafter accrediting discounts and amortizing premiums at a constant rate to
maturity. Pursuant to the rules of the Securities and Exchange Commission, the
Board of Trustees has established procedures to stabilize the net asset value of
each Money Market Fund at $1.00 per share. These procedures include a review of
the extent of any deviation of net asset value per share, based on available
market rates, from the $1.00 amortized cost price per share. If fluctuating
interest rates cause the market value of a Money Market Fund's portfolio to
approach a deviation of more than 1/2 of 1% from the value determined on the
basis of amortized cost, the Board of Trustees will consider what action, if
any, should be initiated. Such action may include redemption of shares in kind
(as described in greater detail below), selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations.
The Money Market Funds have established procedures designed to ensure that
their portfolio securities meet their high quality criteria.
Bonds and other fixed income securities (other than short-term
obligations) in a Fund'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
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<PAGE>
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in an Income Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of discount
(the difference between acquisition price and stated redemption price at
maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined on
the basis of interest and discount accrued less amortization of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received by
the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of such Fund and depositing and withdrawing
monies from the bank account specified in the Bank Account Registration section
of the shareholder's latest account application or as otherwise properly
specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of 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).
Investors in Class A shares may qualify for reduced initial sales
charges by signing a statement of intention (the "Statement"). This enables the
investor to aggregate purchases of Class A shares in the Fund with purchases of
Class A shares of any other Fund in the Trust (or if a Fund has only one class,
shares of such Fund), excluding shares of any Vista money market fund, during a
13-month period. The sales charge is based on the total amount to be invested in
Class A shares during the 13-month period. All Class A or other qualifying
shares of these funds currently owned by the investor will be credited as
purchases (at their current offering prices on the date the Statement is signed)
toward completion of the Statement. A 90-day back-dating period can be used to
include earlier purchases at the investor's cost. The 13-month period would then
begin on the date of the first purchase during the 90-day period. No retroactive
adjustment will be made if purchases exceed the amount indicated
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<PAGE>
in the Statement. A shareholder must notify the Transfer Agent or Distributor
whenever a purchase is being made pursuant to a Statement.
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 date, but such purchase may be
delayed by either fund for up to five business days if a fund determines that it
would be disadvantaged by an immediate transfer of the proceeds.
The contingent deferred sales charge for Class B shares will be waived for
certain exchanges and for redemptions in connection with a Fund's systematic
withdrawal plan, subject to the conditions described in the Prospectuses. In
addition, subject to confirmation of a shareholder's status, the contingent
deferred sales charge will be waived for: (i) a total or partial redemption made
within one year of the shareholder's death or initial qualification for Social
Security disability payments; (ii) a redemption in connection with a Minimum
Required Distribution form an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code, (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) distributions from a qualified
plan upon retirement; (v) a redemption resulting from an over-contribution to an
IRA; and (vi) an involuntary redemption of an account balance under $500.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares attributable to the
Class B shares then converting. The conversion of Class B shares purchased on or
after May 1, 1996, will be effected at the relative net asset values per share
of the two classes on the first business day of the month following the eighth
anniversary of the original purchase. The conversion of Class B shares purchased
prior to May 1, 1996, will be effected at the relative net asset values per
share of the two classes on the first business day of the month following the
seventh anniversary of the original purchase. If any exchanges of Class B shares
during the CDSC Period occurred, the holding period for the shares exchanged
will be counted toward the CDSC Period. At the time of the conversion the net
asset value per share of the Class A shares may be higher or lower than the net
asset value per share of the Class B shares; as a result, depending on the
relative net asset values per share, a shareholder may receive fewer or more
Class A shares than the number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described in
the Prospectuses. A Fund may also refuse to accept or carry out any transaction
that does not satisfy any restrictions then in effect. A signature guarantee may
be obtained from a bank, trust company, broker-dealer or other member of a
national securities exchange. Please note that a notary public cannot provide a
signature guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the respective Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their 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
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Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, each Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by a Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement. Because
certain Funds invest all of their assets in Portfolios which will be classified
as partnerships for federal income tax purposes, such Funds will be deemed to
own a proportionate share of the income of the Portfolio into which each
contributes all of its assets for purposes of determining whether such Funds
satisfy the Distribution Requirement and the other requirements necessary to
qualify as a regulated investment company (e.g., Income Requirement (hereinafter
defined), etc.).
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit
the sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including a municipal obligation) purchased by
a Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation.
Further, the Code also treats as ordinary income, a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
such Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning of
Section 1092 of the Code; (3) the transaction is one that was marketed or sold
to such Fund on the basis that it would have the economic characteristics of a
loan but the interest-like return would be taxed as capital gain; or (4)
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the transaction is described as a conversion transaction in the Treasury
Regulations. The amount of the gain recharacterized generally will not exceed
the amount of the interest that would have accrued on the net investment for the
relevant period at a yield equal to 120% of the federal long-term, mid-term, or
short-term rate, depending upon the type of instrument at issue, reduced by an
amount equal to: (1) prior inclusions of ordinary income items from the
conversion transaction; and (2) the capitalized interest on acquisition
indebtedness under Code Section 263(g). Built-in losses will be preserved where
a Fund has a built-in loss with respect to property that becomes a part of a
conversion transaction. No authority exists that indicates that the converted
character of the income will not be passed to a Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if: (1) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (2) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto); or (3) the asset is stock and the Fund
grants an in-the- money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (1) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by certain of the Funds (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings that gains arising from Section 1256 contracts will be
treated for purposes of the Short-Short Gain Test as being derived from
securities held for not less than three months if the gains arise as a result of
a constructive sale under Code Section 1256.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
-31-
<PAGE>
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government Securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"))(Tax-exempt
interest on municipal obligations is not subject to the excise tax). The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate
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<PAGE>
shareholders of a Fund. Dividends paid on Class A and Class B shares are
calculated at the same time. In general, dividends on Class B shares are
expected to be lower than those on Class A shares due to the higher distribution
expenses borne by the Class B shares. Dividends may also differ between classes
as a result of differences in other class specific expenses.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If a Fund elects to retain its net capital gain,
it is expected that the Fund also will elect to have shareholders of record on
the last day of its taxable year treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
Each Tax Free Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Tax Free
Fund's taxable year at least 50% of the its total assets consists of tax-exempt
municipal obligations. Distributions from a Tax Free Fund will constitute
exempt-interest dividends to the extent of its tax-exempt interest income (net
of expenses and amortized bond premium). Exempt-interest dividends distributed
to shareholders of a Tax Free Fund are excluded from gross income for federal
income tax purposes. However, shareholders required to file a federal income tax
return will be required to report the receipt of exempt-interest dividends on
their returns. Moreover, while exempt-interest dividends are excluded from gross
income for federal income tax purposes, they may be subject to alternative
minimum tax ("AMT") in certain circumstances and may have other collateral tax
consequences as discussed below. Distributions by a Tax Free Fund of any
investment company taxable income or of any net capital gain will be taxable to
shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for noncorporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount. In
addition, under the Superfund Amendments and Reauthorization Act of 1986, a tax
is imposed for taxable years beginning after 1986 and before 1996 at the rate of
0.12% on the excess of a corporate taxpayer's AMTI (determined without regard to
the deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of a Tax Free Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Fund. Moreover, a shareholder who is (or is related to) a "substantial user"
of a facility financed by industrial development bonds held by a Tax Free Fund
will likely be subject to tax on dividends paid by the Tax Free Fund which are
derived from interest on such bonds. Receipt of
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<PAGE>
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
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,
exempt-interest 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
Each Money Market Fund seeks to maintain a stable net asset value of $1.00
per share; however, there can be no assurance that a Money Market Fund will do
this. In such a case and any case involving the Income Funds, 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
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<PAGE>
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
Long-term capital gains of noncorporate taxpayers are currently taxed at a
maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a Fund,
(2) disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Although the Funds generally retains the right to pay the redemption price
of shares in kind with securities (instead of cash) the Trust has filed an
election under Rule 18f-1 of the Investment Company Act of 1940, as amended (the
"1940 Act"), committing to pay in cash all redemptions by a shareholder of
record up to the amounts specified in the rule (approximately $250,000).
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, capital gain dividends and
exempt-interest dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
-35-
<PAGE>
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.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. 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.
MANAGEMENT OF THE TRUST AND FUNDS
Trustees and Officers of the Trust
The Trustees and officers and their principal occupations for at least the
past five years are set forth below. Their titles may have varied during that
period. Unless otherwise indicated below, the address of each officer is 125 W.
55th Street, New York, New York 10019.
Trustees
FERGUS REID, III - Chairman of the Trust. Chairman and Chief Executive Officer,
Lumelite Corporation, since September 1985; Trustee, Morgan Stanley Funds. Age:
63. Address: 202 June Road, Stamford, CT 06903.
RICHARD E. TEN HAKEN - Trustee. Former District Superintendent of Schools,
Monroe No. 2 and Orleans Counties, New York; Chairman of the Finance and the
Audit and Accounting Committees, Member of the Executive Committee; and Chairman
of the Board and President, New York State Teachers' Retirement System. Age: 61.
Address: 4 Barnfield Road, Pittsford, NY 14534.
WILLIAM J. ARMSTRONG - Trustee. Vice President and Treasurer, Ingersoll-Rand
Company (Woodcliff Lake, New Jersey). Age: 54. Address: 49 Aspen Way, Upper
Saddle River, NJ 07458.
JOHN R.H. BLUM - Trustee. Formerly a Partner in the law firm of Richards, O'Neil
& Allegaert; Commissioner of Agriculture - State of Connecticut, 1992-1995.
Age: 66. Address: 322 Main Street, Lakeville, CT 06039.
JOSEPH J. HARKINS - Trustee. Retired; formerly Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He has been employed by Chase in numerous capacities and offices since
1954. Director of Blessings Corporation, Jefferson Insurance Company of New
York, Monticello Insurance Company and Nationar. Age: 64. Address: 257
Plantation Circle South, Ponte Vedra South, Ponte Vedra Beach, FL 32082.
H. RICHARD VARTABEDIAN* - Trustee and President. Consultant, Republic Bank of
New York; formerly, Senior Investment Officer, Division Executive of the
Investment Management Division of The Chase Manhattan Bank, N.A., 1980-1991.
Age: 60. Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, ME
04576.
STUART W. CRAGIN, Jr. - Trustee. Retired; formerly President, Fairfield Testing
Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Canover Industries. Age: 63. Address: 108 Valley
Road, Cos Cob, CT 06807.
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<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: 64. Address: 80 Perkins Road, Greenwich, CT
06830.
W. PERRY NEFF* - Trustee. Independent Financial Consultant; Director of North
America Life Assurance Co., Petroleum & Resources Corp. and The Adams Express
Co.; Director, Chairman and President of The Hanover Investment Funds, Inc.;
Director and Chairman of The Hanover Funds, Inc. Age: 68. Address: RR 1 Box
102A, Weston, VT 05181.
ROLAND R. EPPLEY, JR. - Trustee. Retired; formerly President and Chief Executive
Officer, Eastern States Bankcard Association Inc. (1971-1988); Director, Janel
Hydraulics, Inc.; formerly Director of The Hanover Funds, Inc. Age: 63. Address:
105 Coventry Place, Palm Beach Gardens, FL 33418.
W.D. MACCALLAN - Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; Director of The Hanover
Funds, Inc. and The Hanover Investment Funds, Inc. Age: 68. Address: 624 East
45th Street, Savannah, GA 31405.
MARTIN R. DEAN - Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age:32. Address: 3435 Stelzer Road, Columbus, OH 43219.
ANN E. BERGIN - Secretary. First Vice President, BISYS Fund Services, Inc.;
formerly, Senior Vice President, Administration, Concord Financial Group
(1991-1995); Assistant Vice President, Dreyfus Service Corporation (1982-1991).
Age: 35. Address: 125 West 55th Street, New York, NY 10019.
- ---------------
*Asterisks indicate those Trustees that are "interested persons" (as
defined in the 1940 Act). Mr Reid is not an interested person of the Trust's
investment advisers or principal underwriter, but may be deemed an interested
person of the Trust solely by reason of being an officer of the Trust.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Blum,
Armstrong, Harkins, Reid, and Thode, Cragin, and Vartabedian. The function of
the Audit Committee is to recommend independent auditors and monitor accounting
and financial matters. The Audit Committee met two times during the fiscal
period ended August 31, 1995.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(Chairman) and Reid, as well as Leonard M. Spalding, President of Vista Capital
Management. The function of the Investment Committee is to review the investment
management process of the Trust.
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the adviser or sub-adviser 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 adviser or
sub-adviser. Each Trustee receives a fee, allocated among all investment
companies for which the Trustee serves, which consists of an annual retainer
component and a meeting fee component. Effective August 21, 1995, each Trustee
of the Vista Funds receives a quarterly retainer of $12,000 and an additional
per meeting fee of $1,500. Members of committees receive a meeting fee only if
the committee meeting is held on a day other than a day on which a regularly
scheduled meeting is held. Prior to August 21, 1995, the annual retainer was
$36,000 and the per-meeting fee was $1,000. The Chairman of the Trustees and the
Chairman of the Investment Committee each receive a 50% increment over regular
Trustee total compensation for serving in such capacities for all the investment
companies advised by the adviser.
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<PAGE>
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended August 31, 1995 for each Trustee of the Trust
(Mesrrs. Neff, Eppley and MacCallan were elected as Trustees on May 6, 1996 and
therefore received no compensation in the period):
<TABLE>
<CAPTION>
U.S. Global Tax Fee Prime New York California
Government Money Money Money Tax Free Tax Free
Money Market Market Market Money Money
Market Fund Fund Fund Market Market
Fund ---- ---- ---- Fund Fund
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, $12,789.94 $10,079.61 $4,097.69 $2,974.65 $3,453.60 $531.54
Trustee
Richard E. Ten Haken, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
William J. Armstrong, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
John R.H. Blum, 8,306.57 6,575.89 2,687.12 1,948.80 2,303.73 347.07
Trustee
Joseph J. Harkins, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
H. Richard 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Vartabedian, Trustee
Stuart W. Cragin, 8,536.29 6,521.36 2,655.31 1,942.65 2,302.01 344.80
Jr., Trustee
Irving L. Thode, 8,536.29 6,521.36 2,655.31 1,942.65 2,302.01 344.80
Trustee
W. Perry Neff, Trustee 0 0 0 0 0 0
Roland R. Eppley, 0 0 0 0 0 0
Trustee
W.D. MacCallan 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Federal Treasury New York Tax Free California
Money Plus Tax Free Income Intermediate
Market Fund Money Income Fund Fund Tax Free
----------- Market Fund ----------- ---- Fund
----------- ----
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, $3,377.47 $489.54 $1,052.32 $971.82 $314.23
Trustee
Richard E. Ten 2,251.63 326.37 701.55 647.85 209.49
Haken, Trustee
William J. 2,251.63 326.37 701.55 647.85 209.49
Armstrong, Trustee
John R.H. Blum, 2,187.37 323.30 685.48 633.77 204.80
Trustee
Joseph J. Harkins, 2,251.63 326.37 701.55 647.85 209.49
Trustee
H. Richard 2,251.63 326.37 701.55 647.85 209.49
Vartabedian, Trustee
Stuart W. Cragin, 2,243.38 323.47 683.69 629.99 209.49
Jr., Trustee
Irving L. Thode, 2,243.38 323.47 683.69 629.99 209.49
Trustee
W. Perry Neff, 0 0 0 0 0
Trustee
Roland R. Eppley, 0 0 0 0 0
Trustee
W.D. MacCallan 0 0 0 0 0
</TABLE>
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<PAGE>
Pension or Total
Retirement Compensation
Benefits Accrued from
as Fund Expenses "Fund
Complex"(1)
Fergus Reid, 0 $78,456.65
III, Trustee
Richard E. Ten 0 52,304.39
Haken, Trustee
William J. 0 52,304.39
Armstrong,
Trustee
John R.H. Blum, 0 51,304.37
Trustee
Joseph J. 0 52,304.39
Harkins, Trustee
H. Richard 0 74,804.44
Vartabedian,
Trustee
Stuart W. 0 52,304.39
Cragin, Jr.,
Trustee
Irving L. Thode, 0 52,304.39
Trustee
W. Perry Neff, 0 0
Trustee
Roland R. 0 0
Eppley, Trustee
W.D. MacCallan, 0 0
Trustee
(1) Data reflects total compensation earned during the period January 1, 1995
to December 31, 1995 for service as a Trustee to all Funds advised by the
adviser.
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 adviser or sub-adviser, 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 or sub-adviser (collectively,
the "Covered Funds"). Each Eligible Trustee is entitled to receive from the
Covered Funds an annual benefit commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 10% of the
highest annual compensation received from the Covered Funds multiplied by the
number of such Trustee's years of service (not in excess of 10 years) completed
with respect to any of the Covered Funds. Such benefit is payable to each
eligible Trustee in monthly installments for the life of the Trustee.
Set forth below in the table below are the estimated annual benefits
payable to an eligible Trustee upon retirement assuming various compensation and
years of service classifications. The estimated credited years of service for
Messrs. Reid, Ten Haken, Armstrong, Blum, Harkins, Vartabedian, Cragin, and
Thode are 11, 11, 8, 11, 5, 3, 3 and 3 respectively.
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Highest Annual Compensation Paid by All Vista Funds
---------------------------------------------------
40,000 45,000 50,000 55,000
Years of Estimated Annual Benefits Upon Retirement
Service -----------------------------------------
-------
10 40,000 45,000 50,000 55,000
9 36,000 40,500 45,000 49,500
8 32,000 36,000 40,000 44,000
7 28,000 31,500 35,000 38,500
6 24,000 27,000 30,000 33,000
5 20,000 22,500 25,000 27,500
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 Adviser,
Administrator or Distributor or any of their affiliates) may enter into
agreements with the Funds whereby payment of the Trustees' fees are deferred
until the payment date elected by the Trustee (or the Trustee's termination of
service). The deferred amounts are deemed invested in shares of the Fund on
whose Board the Trustee sits. The deferred amounts are paid out in a lump sum or
over a period of several years as elected by the Trustee at the time of
deferral. If a deferring Trustee dies prior to the distribution of amounts held
in the deferral account, the balance of the deferral account will be distributed
to the Trustee's designated beneficiary in a single lump sum payment as soon as
practicable after such deferring Trustee's death.
Messrs. Ten Haken, Thode and Vartabedian have each executed a deferred
compensation agreement for the 1996 calendar year and as of March 29, 1996 each
Eligible Trustee has contributed $4,700, $9,500 and $14,250, 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.
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As of August 31, 1995, 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 August 31, 1995, the Trust paid
to its disinterested Trustees fees and expenses for all meetings of the Board
and any committees attended in the aggregate amount of approximately $250,682
which amount is then apportioned between the Funds comprising the Trust.
Adviser and Sub-Advisers
Chase acts as investment adviser to the Funds 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. Pursuant to the terms of the Advisory
Agreement, Chase provides the Funds with such investment advice and supervision
as it deems necessary for the proper supervision of the Funds' 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' assets shall be held uninvested. The advisers to the Funds furnish,
at their own expense, all services, facilities and personnel necessary in
connection with managing the investments and effecting portfolio transactions
for the Funds. The Advisory Agreement for the Funds 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 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 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.
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.
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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 (other than the Cash Management Fund and
the Tax Free Money Market Fund), has entered into an investment sub-advisory
agreement dated as of May 6, 1996 with Chase Asset Management, Inc. ("CAM").
Texas Commerce Bank, National Association ("TCB") is the sub-investment adviser
to the Cash Management Fund and the Tax Free Money Market Fund pursuant to a
separate sub-investment advisory agreement between Chase and TCB dated as of May
6, 1996. With respect to the day to day management of the Funds, under the
sub-advisory agreements, the sub-advisers make decisions concerning, and place
all orders for, purchases and sales of securities and help 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-adviser. 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 the Chase accounts are commingled
trust funds and a broad spectrum of individual trust and investment management
portfolios. These accounts have varying investment objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment adviser
and was formed for the purpose of providing discretionary investment advisory
services to institutional clients and to consolidate Chase's investment
management function, and the same individuals who serve as portfolio managers
for CAM also serve as portfolio managers for Chase.
TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by Chase Manhattan Corporation. TCB renders
investment advice to a wide variety of corporations, pension plans, foundations,
trusts and individuals.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of such Fund's
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average daily net assets specified in the relevant Prospectuses. However, the
adviser may voluntarily agree to waive a portion of the fees payable to it on a
month-to-month basis. For its services under its sub-advisory agreement, CAM
(or TCB in the case of the Cash Management Fund and the Tax Free Money Market
Fund) will be entitled to receive with respect to each such Fund, such
compensation, payable by the adviser out of its advisory fee, as is described
in the relevent Prospectuses.
For the fiscal years ended October 31, 1993, the period from November 1,
1993 through August 31, 1994, and the year ended August 31, 1995, 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:
Tax Free Money Market Fund: $486,073 ($17,981), $371,535, and $440,282,
respectively;
New York Tax Free Money Market Fund: $454,872 ($22,825), $279,493 and
$381,647 respectively;
Tax Free Income Fund: $127,952 ($127,952), $252,244 ($219,741) and
$307,093 ($287,095) respectively;
New York Tax Free Income Fund: $267,793 ($118,398), $288,134 ($172,770)
and $333,493 ($219,772), respectively.
For the period April 18, 1994 through August 31, 1994, Chase was paid or
accrued investment advisory fees, and voluntarily waived the amounts in
parentheses, $32,325 ($31,465) and $6,249 ($5,890) for the Federal Money Market
Fund, the Treasury Plus Money Market Fund, respectively. For the year ended
August 31, 1995, Chase was paid or accrued advisory fees, and voluntarily waived
the amounts in parentheses, $389,075 ($118,975) and $22,663 for the Federal
Money Market Fund and the Treasury Money Market Fund, respectively.
For the period November 15, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees, and
voluntarily waived the amounts in parentheses, $234,255 ($76,970) and $352,679
($216,306), respectively, for the Prime Money Market Fund.
For the period October 31, 1993 through August 31, 1994, and for the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees, and
voluntarily waived the amounts in parentheses, $100,182 ($100,182) and $102,004
($102,004) for the California Intermediate Tax Free Income Fund.
For the fiscal period ended October 31, 1992, 1993, and the period from
November 1, 1993 through August 31, 1994, Chase was paid or accrued investment
advisory fees with respect to the California Tax Free Money Market Fund and
voluntarily waived the amount in parentheses following such fees: $22,640
($22,640), $74,175 ($67,313) and $47,854 ($43,069). For the year ended August
31, 1995, Chase was paid or accrued investment advisory fees, and voluntarily
waived the amounts in parentheses $55,870 ($44,112) for the California Tax Free
Money Market Fund.
For the period November 1, 1993 through August 31, 1994, and for the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees with
respect to the U.S. Government Money Market Fund: of $887,334 and $1,440,186,
respectively.
Administrator
Pursuant to an Administration Agreement, dated October 13, 1995 for each
of the Funds (the "Administration Agreement"), Chase serves as administrator of
the Trust. Chase and provide certain administrative services to the Trust,
including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Trust's independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust with applicable laws and regulations excluding those of the securities
laws of various states; arranging for the computation of
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performance data, including net asset value and yield; responding to shareholder
inquiries; and arranging for the maintenance of books and records of the Trust
and providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. The administrator does not have any
responsibility or authority for the management of the Funds the determination of
investment policy, or for any matter pertaining to the distribution of Fund
shares.
Under the administration agreements Chase render administrative services
to others. The administration agreements will continue in effect from year to
year 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 administration agreement 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 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, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust, or by the Administrator on 60 days' written notice, and
will automatically terminate in the event of its "assignment" (as defined in the
1940 Act). The administration agreements also provide that neither Chase nor
their personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration or management of the Funds, 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, 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 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, the Administrator 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. 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, 1992 and 1993, and the period from
November 1, 1993 through August 31, 1994, and the year ended August 31, 1995,
Chase was paid or accrued the following administration fees and voluntarily
waived the amounts in parentheses following such fees:
U.S. Government Money Market Fund: $564,610 ($24,783), $1,040,090,
$443,694 and $720,093;
Tax Free Money Market Fund: $197,227 ($30,601), $324,048 ($22,244),
$185,769 and $220,141;
New York Tax Free Money Market Fund: $277,855 ($24,360), $303,249
($15,216), $139,747 and $190,823;
Tax Free Income Fund: $9,919 ($9,919), $42,651 ($42,651), $84,082
($68,719) and $102,364 ($64,572);
New York Tax Free Income Fund: $34,704 ($24,262), $89,264 ($39,466),
$96,046 ($61,425) and $111,164 ($81,265);
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For the period November 15, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued administration fees, and
voluntarily waived the amounts in parentheses, $117,129 ($18,992) and $176,340
($88,982), respectively for the Prime Money Market Fund.
For the period April 18, 1994 through August 31, 1994, and the year ended
August 31, 1995, Chase was paid or accrued administration fees, and voluntarily
waived the amounts in parentheses, $16,161 ($3,123), $194,538 (61,243) for the
Federal Money Market Fund and $3,123 ($2,944), $11,331($11,331) for the Treasury
Plus Money Market Fund, respectively.
For the fiscal period ended October 31, 1992, 1993, and the period from
November 1, 1993 through August 31, 1994, and the year ended August 31, 1995,
Chase was paid or accrued the following administration fees with respect to the
California Tax Free Money Market Fund and voluntarily waived the amounts in
parentheses: $15,094 ($15,094), $49,449 ($44,875), $23,926 ($19,141), and
$27,935 ($21,527), respectively.
For the period November 1, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued administration fees, and
voluntarily waived the amounts in parentheses $33,394 ($33,394) and $34,001
($34,001) for the California Intermediate Tax Free Income Fund, respectively.
Distributor
Distribution Plan
The Trust has adopted separate plans of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") including Distribution Plans on
behalf of the Class A and Class B shares of the Tax Free Income Fund and the New
York Tax Free Income Fund, the Class B shares of the Prime Money Market Fund,
the shares of the California Intermediate Tax Free Income Fund, the Vista Shares
of the Money Market Funds (except the Cash Management Fund), and the Premier
Shares of the U.S. Government Money Market Fund, which provides that each of
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.
There is no distribution plan for the Cash Management Fund. The Distributor may
use all or any portion of such Distribution Fee to pay for Fund expenses of
printing prospectuses and reports used for sales purposes, expenses of the
preparation and printing of sales literature and other such distribution-related
expenses.
Class B shares pay a Distribution Fee of up to 0.75% of average daily net
assets. The Distributor currently expects to pay sales commissions to a dealer
at the time of sale of Class B shares of the Income Funds of up to 4.00% of the
purchase price of the shares sold by such dealer. The Distributor will use its
own funds (which may be borrowed or otherwise financed) to pay such amounts.
Because the Distributor will receive a maximum Distribution Fee of 0.75% of
average daily net assets with respect to Class B shares, it will take the
Distributor several years to recoup the sales commissions paid to dealers and
other sales expenses.
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No class of shares of a Fund will make payments or be liable for any
distribution expenses incurred by other classes of shares of such Fund.
The Institutional Shares of the Money Market Funds have no distribution
plan. There is no distribution plan for Premier Shares for any Money Market Fund
other than the U.S. Government Money Market Fund.
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, 0.25%
annualized of the average net asset value of the Class B shares, or 0.25%
annualized of the average daily net asset value of the shares of the California
Intermediate Tax Free Income Fund maintained in a Fund by such broker-dealers'
customers. Trail or maintenance commissions will be paid to broker-dealers
beginning the 13th month following the purchase of such shares. Since the
distribution fees are not directly tied to expenses, the amount of distribution
fees paid by a class of a Fund during any year may be more or less than actual
expenses incurred pursuant to the Distribution Plans. For this reason, this type
of distribution fee arrangement is characterized by the staff of the Securities
and Exchange Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements by which a distributor's payments are directly
linked to its expenses). With respect to Class B shares of the Income Funds,
because of the 0.75% annual limitation on the compensation paid to the
Distributor during a fiscal year, compensation relating to a large portion of
the commissions attributable to sales of Class B shares in any one year will be
accrued and paid by a Fund to the Distributor in fiscal years subsequent
thereto. However, the Shares are not liable for any distribution expenses
incurred in excess of the Distribution Fee paid. In determining whether to
purchase Class B shares of the Income Funds, investors should consider that
compensation payments could continue until the Distributor has been fully
reimbursed for the commissions paid on sales of Class B shares.
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
Plan 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 August 31, 1995, the Distributor was paid or
accrued the following Basic Distribution Fees and voluntarily waived the amounts
in parenthesis following such fees with respect to the Shares of each Fund:
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U.S. Government Money Market Fund - Vista Shares: $326,670;
Prime Money Market Fund - B Shares: $30,239;
Federal Fund - Vista Shares: $141,875 ($8,314);
Tax Free Money Market Fund - Vista Shares: $293,807($291,652);
New York Tax Free Money Market Fund - Vista Shares: $763,294
($333,341);
California Tax Free Money Market Fund: $139,675 ($69,435);
Tax Free Income Fund - A Shares: $223,990 ($44,798);
Tax Free Income Fund - B Shares: $95,763;
New York Tax Free Income Fund - A Shares: $256,481 ($51,296);
New York Tax Free Income Fund - B Shares: $64,290;
California Intermediate Fund:$85,003 ($78,626);
With respect to the Vista Shares of the New York Tax Free Money Market
Fund, the Basic Distribution Fee of $429,953 accrued or paid to the Distributor
was allocated as follows: printing postage and handling - $91,967; sales
compensation - $263,561; advertising and administrative filings - $74,339;
With respect to the Vista Shares of the Tax Free Money Market Fund, the
Basic Distribution Fee of $2,155 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $461; sales
compensation - $1,321; advertising & administrative filings - $373;
With respect to the Vista Shares of the Federal Money Market Fund, the
Basic Distribution Fee of $133,561 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $28,569; sales
compensation - $81,873; advertising & administrative filings - $23,093;
With respect to the Shares of the California Tax Free Money Market Fund,
the Basic Distribution Fee of $70,240 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $15,024; sales
compensation - $43,057; advertising & administrative filings - $12,144;
With respect to the A Shares of the Tax Free Income Fund, the Basic
Distribution Fee of $179,192 accrued or paid to the Distributor was allocated as
follows: printing postage and handling - $38,329; sales compensation - $109,845;
advertising & administrative filings - $30,982;
With respect to the A Shares of the New York Tax Free Income Fund, the
Basic Distribution Fee of $205,185; accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $43,889; sales
compensation - $125,778; advertising & administrative filings - $35,476;
With respect to Shares of the California Intermediate Tax Free Income
Fund, the Basic Distribution Fee of $6,377 accrued or paid to the Distributor
was allocated as follows: printing postage and handling - $1,364; sales
compensation - $3,909; advertising & administrative filings - $1,103;
With respect to the Vista Shares of the U.S. Government Money Market Fund,
the Basic Distribution Fee of $326,670 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $69,875; sales
compensation - $200,249; advertising & administrative filings - $56,481.
With respect to the B Shares of the Tax Free Income Fund, the Basic
Distribution Fee of $95,763 accrued or paid to the Distributor was allocated as
follows: printing postage and handling - $20,484; sales compensation - $58,703;
advertising & administrative filings - $16,557;
With respect to the B Shares of the New York Tax Free Income Fund, the
Basic Distribution Fee of $649,290 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $13,752; sales
compensation - $39,410; advertising & administrative filings - $11,116;
With respect to the B Shares of the Prime Money Market Fund, the Basic
Distribution Fee of $30,239 accrued or paid to the Distributor was allocated as
follows: printing postage and handling - $6,468; sales compensation - $18,537;
advertising & administrative filings - $30,239;
For the fiscal period ended August 31, 1995, the Distributor was paid or
accrued the following Basic Distribution Fees and voluntarily waived the amounts
in parenthesis following such fees with respect to the Premier Shares of the
following Fund:
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The Tax Free Money Market Fund: $258,709 ($86,321);
The U.S. Government Money Market Fund: $684,952;
With respect to the Premier Shares of the Tax Free Money Market Fund, the
Basic Distribution Fee of $172,388 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $36,874; sales
compensation - $105,674; advertising & administrative filings - $29,806
With respect to the Premier Shares of the U.S. Government Money Market
Fund, the Basic Distribution Fee of $684,952 accrued or paid to the Distributor
was allocated as follows: printing postage and handling - $146,461; sales
compensation - $419,730; advertising & administrative filings - $118,387
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration
Agreement dated August 24, 1995 (prior to such date, the Distributor served the
Trust pursuant to a contract dated August 23, 1994 (April 15, 1994 with respect
to the Treasury Plus Money Market Fund and Federal Money Market Fund)) (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
Plans. 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
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<PAGE>
fee with respect to such Fund (which fee is described below) to the extent of
its share of such excess expenses. The amount of any such reduction to be borne
by the Distributor shall be deducted from the monthly sub-administration fee
otherwise payable with respect to such Fund during such fiscal year; and if such
amounts should exceed the monthly fee, the Distributor shall pay to such Fund
its share of such excess expenses no later than the last day of the first month
of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. The
Distributor may voluntarily agree to from time to time 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, 1992, 1993,the
period November 1, 1993 through August 31, 1994 and for the year ended August
31, 1995, 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:
The Tax Free Money Market Fund: $98,614 ($15,299), $162,025 ($11,123),
$185,769 and $220,141;
The New York Tax Free Money Market Fund: $138,928 ($12,180), $151,622
($7,608), $139,747 and $190,823;
The Tax Free Income Fund - A Shares: $4,960 ($4,960), $21,325
($21,325), $42,041 ($2,137) and $44,798;
The Tax Free Income Fund - B Shares:$6,384;
The New York Tax Free Income Fund - A Shares: $17,364 ($12,131),
$44,633 ($19,733), $48,024 and $51,439;
The New York Tax Free Income Fund - B Shares: $4,286;
The California Intermediate Tax Free Income Fund: $16,096 and $17,001
($17,001).
For the fiscal period ended October 31, 1992, with respect to the
California Tax Free Money Market Fund the Distributor voluntarily waived its
entire fee of $7,547. For the fiscal year ended October 31, 1993 the Distributor
was paid or accrued $24,726 and voluntarily waived $22,438. For the fiscal
period from November 1, 1993 through August 31, 1994 the Distributor was paid or
accrued $23,926. For the year ended August 31, 1995,the Distributor was paid
$27,935.
For the fiscal period from November 15, 1993 through August 31, 1994 the
Prime Money Market Fund paid or accrued $117,129, For the year ended August 31,
1995, the Distributor was paid or accrued $176,342 of sub-administration fee
for the Prime Money Market Fund.
For the fiscal period from April 18, 1994 through August 31, 1994 the
Federal Money Market Fund and the Treasury Plus Money Market Fund paid or
accrued $16,161 and $3,123 and voluntarily waived $15,733 and $2,944,
respectively. For the year ended August 31, 1995, the Federal Money Market Fund
paid or accrued $194,538 and voluntarily waived $9,048, For the year ended
August 31, 1995, the Treasury Plus Money Market Fund paid or accrued $11,325 and
voluntarily waived $11,331.
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<PAGE>
For the fiscal year November 1, 1993 through August 31, 1994, the U.S.
Government Money Market Fund paid or accrued distribution and sub-administration
fees of $443,694. For the year ended August 31, 1995, the U.S. Government Money
Market Fund was paid or accrued $720,093.
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent to provide certain services
including but not limited to the following: answer customer inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares may be effected for the Fund as to which the Shareholder Servicing Agent
is so acting and certain other matters pertaining to the Fund; assist
shareholders in designating and changing dividend options, account designations
and addresses; provide necessary personnel and facilities to establish and
maintain shareholder accounts and records; assist in processing purchase and
redemption transactions; arrange for the wiring of funds; transmit and receive
funds in connection with customer orders to purchase or redeem shares; verify
and guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) quarterly and year-end statements and
confirmations of purchases and redemptions; transmit, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other communications
to shareholders of the Fund; receive, tabulate and transmit to the Fund proxies
executed by shareholders with respect to meetings of shareholders of the Fund;
and provide such other related services as the Fund or a shareholder may
request. Shareholder servicing agents may be required to register pursuant to
state securities law.
Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement with
respect to each Fund on a month-to-month basis. Fees payable to the Shareholder
Servicing Agents (all of which currently are related parties) and the amounts
voluntarily waived for the following periods were as follows:
11/1/92 11/1/93 9/1/94
through through through
Fund 10/31/93 8/31/94 8/31/95
payable waived payable waived payable waived
- --------------------------------------------------------------------------------
U.S. Goverment
Money Market Fund
Vista Shares n/a 713,799 -- 742,938 --
Premier Shares 745,518 -- 518,683 -- 684,715 --
Cash Management
Money Market Fund
Vista Shares n/a 559,995 50,574 348,526 106,710
Premier Shares 353,935 -- 401,859 -- 422,032 46
Treasury Plus
Money Market Fund
Premier Shares n/a n/a 17 17 2,970 2,970
Federal Money
Market Fund
Vista Shares n/a n/a 2,635 2,635 353,730 140,653
Premier Shares n/a n/a 3,571 3,571 112,976 15,780
Prime Money
Market Fund
B Shares n/a n/a 930 -- 10,108 5,488
Premier Shares n/a n/a 217,100 -- 82,694 10,159
Tax Free Money
Market Fund
Vista Shares 328,100 245,074 312,937 -- 366,838 --
Premier Shares 353,241 226,331 345,282 131,039
N.Y. Tax Free
Money Market Fund 931,475 51,107 698,735 -- 953,852 --
CA Tax Free
Money Market Fund n/a n/a 119,635 119,635 139,735 139,735
Tax Free Income
Fund
A Shares 111,375 111,375 196,918 169,386 223,990 179,192
B Shares n/a n/a 13,285 -- 31,921 --
N.Y. Tax Free Income
Fund
A Shares 240,920 107,693 233,497 179,497 257,194 205,755
B Shares n/a n/a 6,614 -- 21,430 --
CA Intermediate Tax
Free Fund n/a n/a 83,485 83,485 85,003 85,003
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<PAGE>
There is no Shareholder Servicing Agent, and thus no shareholder servicing
fees, for the Institutional Shares of the Money Market Funds.
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 for which Chase 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 the Funds. Chase is located at 3 Metrotech Center, Brooklyn, NY
11245. For additional information, see the Prospectuses.
INDEPENDENT ACCOUNTANTS
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<PAGE>
The financial statements incorporated herein by reference from the
Trust's Annual Reports to Shareholders for the fiscal year ended August 31,
1995, and the related financial highlights which appear in the Prospectuses,
have been incorporated herein and included in the Prospectuses in reliance on
the reports of Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants of the Funds, given on the authority of said
firm as experts in accounting and auditing. Price Waterhouse LLP provides the
Funds with audit services, tax return preparation and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
The financial statements incorporated herein by reference from The
Hanover Funds, Inc.'s Annual Reports to Shareholders for the fiscal year ended
November 30, 1995, 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 KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. KPMG Peat Marwick LLP has offices at 345 Park Avenue, New York, New
York 10154.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Trust is an open-end, management investment company organized
as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994. Because certain of the Funds comprising the
Trust are "non-diversified", more than 5% of any of the assets of any such Fund
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 fiscal year-end of the Funds in the Trust is
August 31.
The Trust currently consists of 12 series of shares of beneficial
interest, par value $.001 per share. With respect to the Money Market Funds and
certain of the Income Funds, the Trust may offer more than one class of shares.
The Trust has reserved the right to create and issue additional series or
classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that may 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.
Shareholders of the Vista Shares, Premier Shares and Institutional Shares
of the Money Market Funds bear the fees and expenses described herein and in the
Prospectuses. The fees paid by the Vista Shares to the Distributor and
Shareholder Servicing Agent under the distribution plans and shareholder
servicing arrangements for distribution expenses and shareholder services
provided to investors by the Distributor and Shareholder Servicing Agents,
absent waivers, generally are more than the respective fees paid under
distribution plans and shareholder servicing arrangements adopted for the
Premier Shares. The Institutional Shares pay no distribution or Shareholder
Servicing fee. As a result, absent waivers, at any given time, the net yield on
the Vista Shares will be lower than the yield on the Premier Shares and the
yield on the Premier Shares will be lower than the yield on Institutional
Shares. Standardized yield quotations will be computed separately for each class
of shares of a Fund.
The Vista Tax Free Income Fund and Vista New York Tax Free Income Fund
offer both Class A and Class B shares. The classes of shares have several
different attributes relating to sales charges and expenses, as described herein
and in the Prospectuses.
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<PAGE>
In addition to such differences, expenses borne by each class may differ
slightly because of the allocation of other class-specific expenses. For
example, a higher transfer agency fee may be imposed on Class B shares than on
Class A shares. The relative impact of initial sales charges, contingent
deferred sales charges, and ongoing annual expenses will depend on the length of
time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class when, in the judgment
of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders also
have, in certain circumstances, the right to remove one or more Trustees without
a meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such Shareholder
Servicing Agent is the agent of record. Any shares so voted by a Shareholder
Servicing Agent will be deemed represented at the meeting for purposes of quorum
requirements. Shares have no preemptive or conversion rights. Shares, when
issued, are fully paid and non-assessable, except as set forth below. Any series
or class may be terminated (i) upon the merger or consolidation with, or the
sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two-thirds of its outstanding
shares, except that if the Board of Trustees recommends such merger,
consolidation or sale or disposition of assets, the approval by vote of the
holders of a majority of the series' or class' outstanding shares will be
sufficient, or (ii) by the vote of the holders of a majority of its outstanding
shares, or (iii) by the Board of Trustees by written notice to the series' or
class' shareholders. Unless each series and class is so terminated, the Trust
will continue indefinitely.
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 shares of the Money Market Funds
or Class B shares of the Income Funds.
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
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<PAGE>
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 of Ethics substantially conforms to the
recommendations made by the Investment Company Institute ("ICI") (except where
noted) and includes such provisions as:
(bullet) Prohibitions on investment personnel acquiring securities
in initial offerings;
(bullet) A requirement that access persons obtain prior to
acquiring securities in a private placement and that the
officer granting such approval have no interest in the
issuer making the private placement;
(bullet) A restriction on access persons executing transactions
for securities on a recommended list until 14 days after
distribution of the list;
(bullet) A prohibition on access persons acquiring securities that
are pending execution by one of the Funds or Portfolios
until 7 days after the transactions of the Funds or
Portfolios are completed;
(bullet) A prohibition of any buy or sell transaction in a
particular security in a 30-day period, except as may be
permitted in certain hardship cases or exigent
circumstances where prior approval is obtained. This
provision differs slightly from the ICI recommendation;
(bullet) A requirement for pre-clearance of any buy or sell
transaction in a particular security after 30 days, but
within 60 days;
(bullet) A requirement that any gift exceeding $75.00 from a
customer must be reported to the appropriate compliance
officer;
(bullet) A requirement that access persons submit in writing any
request to serve as a director or trustee of a publicly
traded company;
(bullet) A requirement that all securities transactions in excess
of $1,000 be pre-cleared, except that if a person has
engaged in more than $10,000 of securities transactions
in a calendar quarter all securities of such person
require pre-clearance (this de minimus exception differs
slightly from ICI recommendations);
(bullet) A requirement that all access persons direct their
broker-dealer to submit duplicate confirmation and
customer statements to the appropriate compliance unit;
and
(bullet) A requirement that all access persons sign a Code of
Ethics acknowledgement, affirming that they have read and
understood the Code and submit a personal security
holdings report upon commencement of employment or status
and a personal security transaction report within 10 days
of each calendar quarter thereafter.
Principal Holders
As of March 31, 1996, the following persons owned of record, directly
or indirectly, 5% or more of the outstanding shares of the following classes or
Funds:
Vista US Government Money Market Fund - Vista Shares
Cudd & Company 68.73%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 13.71%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue-2
New Hyde Park, NY 11042-1081
Vista US Government Money Market Fund - Premier Shares
Chase Manhattan Bank N/A 28.04%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
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<PAGE>
National Financial Serv Corp 6.99%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Penlin & Co. 8.36%
Chase Lincoln First Bank
Attn: P. Whalen
PO Box 1412
Rochester, NY 14603-1412
Chase Manhattan Bank NA 31.70%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista US Government Money Market Fund - Institutional Shares
Chase Manhattan Bank N/A 13.29%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Cudd & Company 7.39%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 45.09%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Cash Management Fund - Vista Shares
Croydon Company Inc. 5.17%
7272 Morgan Road
Liverpool, NY 13090-4535
Chase Manhattan Bank NA 23.90%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue-2
New Hyde Park, NY 11042-1081
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<PAGE>
Vista Cash Management Fund - Premier Shares
Cudd & Company 5.08%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank N/A 31.44%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
National Financial Serv Corp 20.53%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Chase Manhattan Bank NA 5.82%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
2000 Marcus Avenue - 1
New Hyde Park, NY 11042-1063
Chase Manhattan Bank NA 7.44%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Cash Management Fund - Institutional Shares
Chase Manhattan Bank N/A 25.64%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
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<PAGE>
Cudd & Company 18.43%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Frenkel & Co. Inc. 9.10%
123 Williams Street
New York, NY 10038
Carriers ILA CFS Trust Fund 7.39%
c/o CCC Inc.
One Evertrust Plaza
Jersey City, NJ 07302-3051
Vista Prime Money Market Fund - Institutional Shares
Chase Manhattan Bank N/A 10.05%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Chase Manhattan Bank NA 76.23%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza
New York, NY 10081-1001
Vista Prime Money Market Fund - Premier Shares
Chase Manhattan Bank NA 77.19%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Treasury Plus Money Market Fund - Premier Shares
Chase Manhattan Bank NA 75.75%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
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<PAGE>
Photronics Incorporated 11.28%
Attn: Robert J. Bollo
15 Secor Road
Brookfield, CT 06804-3937
Vista Treasury Plus Money Market Fund - Institutional Shares
Trenwick America Reinsurance Corp. 21.08%
Trenwick c/o Lori Stalowicz
Metro Center One Station Place
Stamford, CT 06902
Chase Manhattan Bank NA 26.82%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Chase Manhattan Bank as TTEE 37.00%
for Dade County Fla.
Attn: Ronald J. Halleran
4 Chase Metro Tech Center
Brooklyn, NY 11245-0001
Vista Federal Money Market Fund - Vista Shares
Chase Manhattan Bank NA 25.74%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue - 2
New Hyde Park, NY 11042-1081
Vista Federal Money Market Fund - Premier Shares
Chase Manhattan Bank NA 26.78%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue - 2
New Hyde Park, NY 11042-1081
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<PAGE>
National Financial Serv Corp
for the Excl Ben of Our Cust 49.84%
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Vista Federal Money Market Fund - Institutional Shares
Cudd & Company 42.79%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 40.57%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Tax Free Money Market Fund - Vista Shares
Cudd & Company 73.92%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 15.35%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue - 2
New Hyde Park, NY 11042-1081
Vista Tax Free Money Market Fund - Premier Shares
Cudd & Company 37.03%
Chase Manhattan Bank NA PTIS Div
Attn: Andrew C. Olson 35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank of 7.65%
Florida Institutional
Omnibus Account
Attn: WMA Dept.
4925 Independent Parkway
Tampa Bay, FL 33634-7524
National Financial Serv Corp 13.20%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
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<PAGE>
Vista Tax Free Money Market Fund - Institutional Shares
Cudd & Company 60.60%
Omnibus Account #1
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Union Bank of Switzerland, 5.38%
NY Branch, as Custodian
Attn: Andrew Fox
1345 Avenue of the Americas
New York, NY 10105-0199
Chase Manhattan Bank N/A 5.84%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Nomura Research Institute 10.00%
America Inc.
Nicholas Curcio, VP Controller
2 World Financial Center, 18th Floor
New York, NY 10281-1197
<PAGE>
Vista New York, Tax Free Money Market Fund
Chase Manhattan Bank NA 28.38%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue - 2
New Hyde Park, NY 11042-1081
National Financial Serv Corp 5.06%
for the Excl Ben of Our Cust
Attn: Mike McLauglin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Chase Manhattan Bank NA 9.59%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue - 2
New Hyde Park, NY 11042-1081
Cudd & Company 30.17%
c/o Chase Manhattan Bank
PTIS Div Attn: Andrew C. Olson
1211 Avenue of the Americas 35th Floor
New York, NY 10036-8701
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<PAGE>
Vista California Tax-Free Money Market Fund
Cudd & Company 55.37%
c/o Chase Manhattan Bank
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
National Financial Serv Corp 21.38%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Union Bank of Switzerland, NY Branch 17.42%
Attn: Andrew Fox, VP
1345 Avenue of the Americas
New York, NY 10105-0199
Vista New York Tax Free Income Fund - A Shares
Cudd & Company 18.66%
Custody Division
1211 6th Avenue 35th Floor
New York, NY 10036-8701
Vista New York Tax Free Income Fund - B Shares
Jeane B. Mahony 5.84%
38 Hutchinson Blvd.
Scarsdale, NY 10583-6524
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<PAGE>
Union Bank of Switzerland NY %
Attn: Andrew Fox VP
299 Park Avenue 40th Floor
New York, NY 10171-0026
National Financial Serv Corp %
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
200 Liberty Street
New york, NY 10281-1003
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<PAGE>
Financial Statements
The 1995 Annual Report to Shareholders of each Fund other than the Vista
100% U.S. Treasury Securities Money Market Fund and Vista Cash Management Fund,
including the reports of independent accountants, financial highlights and
financial statements for the fiscal year ended August 31, 1995 contained
therein, are incorporated herein by reference. The 1995 Annual Report to
Shareholders of each of The 100% U.S. Treasury Securities Money Market Fund and
The Cash Management Fund of The Hanover Funds, Inc., including the reports of
independent auditors, financial highlights and financial statements for the
fiscal year ended November 30, 1995 contained therein, are incorporated herein
by reference.
Specimen Computations of Offering Prices Per Share
New York Tax Free Income Fund (specimen computations)
- -----------------------------
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.47
Maximum Offering Price per Share ($ 11.47 divided by .955)
(reduced on purchases of $100,000 or more) $12.01
New York Tax Free Income Fund - B Shares (specimen computations)
- -----------------------------
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.41
Tax Free Income Fund (specimen computations)
- ---------------------
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.85
Maximum Offering Price per Share ($11.85 divided by .955)
(reduced on purchases of $100,000 or more) $12.41
Tax Free Income Fund - B Shares (specimen computations)
- --------------------
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.77
California Intermediate Tax Free Income Fund (specimen computations)
- --------------------------------------------
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $9.89
Maximum Offering Price per Share ($ 9.89 divided by .955)
(reduced on purchases of $100,000 or more) $10.36
The Shares of the Money Market Funds are offered for sale at Net Asset
Value.
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APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds -- are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds -- are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.
FNMA Bonds -- are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures -- are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S. Government.
FHA Insured Notes -- are bonds issued by the Farmers Home Administration
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 form 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)
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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.
GNMA FHLMC Bonds and GNMA FNMA Bonds -- 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.
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.
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Washington Metropolitan Area Transit Authority Bonds -- are bonds issued
by the Washington Metropolitan Area Transit Authority and guaranteed by the U.S.
Government.
FHLMC Bonds -- are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds -- are notes and bonds issued by
the Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and Bonds -- are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds -- are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates -- are certificates of beneficial
interest and participation certificates issued and guaranteed by the
Export-Import Bank of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of
the U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies
or instrumentalities other than those listed above.
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APPENDIX B
DESCRIPTION OF RATINGS*
The ratings of Moody's and Standard & Poor's represent their opinions as
to the quality of various Municipal Obligations. It should be emphasized,
however, that ratings are not absolute standards of quality. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields while Municipal Obligations of the same maturity and coupon
with different ratings may have the same yield.
Description of Moody's
four highest municipal bond ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or 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 attributes
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.
Description of Moody's two highest ratings
of state and municipal notes:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used are as follows:
MIG-1 -- Notes bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
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* As described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may from
time to time revise such ratings, they undertake no obligation to do so.
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MIG-2 -- Notes bearing this designation are of high quality, with margins
of protection ample although not so large as in the preceding group.
B-2
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Description of Standard & Poor's four highest municipal bond ratings:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal 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 pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Standard & Poor's
ratings of municipal notes and tax-exempt demand bonds:
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment.
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 --Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 --Satisfactory capacity to pay principal and interest.
SP-3 --Speculative capacity to pay principal and interest.
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/B-1+"). For the newer "demand notes," S&P's note
rating symbols, combined with the commercial paper symbols, are used (for
example, "SP-1+/A-1+").
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Description of Standard & Poor's
two highest commercial paper ratings:
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
B-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Description of Moody's
two highest commercial paper ratings:
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2 and Prime-3.
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory 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 alternate liquidity is maintained.
Description of Fitch's ratings of municipal notes
and tax-exempt demand bonds
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issuer, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's financial strength and
credit quality.
AAA--Bonds rated AAA 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 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 issuers is generally
rated F-1.
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Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
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<PAGE>
APPENDIX C
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
NEW YORK MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the
investments of The New York Tax Free Money Market Fund in New York municipal
securities are summarized below. The following information constitutes only a
brief summary, does not purport to be a complete description and is largely
based on information drawn from official statements relating to securities
offerings of New York municipal obligations available as of the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in such offering statements has not been independently
verified.
NEW YORK STATE
New York State Financing Activities. There are a number of methods by
which New York State (the "State") may incur debt. Under the State Constitution,
the State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
New York State Legislature (the "Legislature") and approved by the voters. There
is no limitation on the amount of long-term general obligation debt that may be
so authorized and subsequently incurred by the State. With the exception of
general obligation housing bonds (which must be paid in equal annual
installments or installments that result in substantially level or declining
debt service payments, within 50 years after issuance, commencing no more than
three years after issuance), general obligation bonds must be paid in equal
annual installments or installments that result in substantially level or
declining debt service payments, within 40 years after issuance, beginning not
more than one year after issuance of such bonds.
In April 1993, legislation was also enacted providing for significant
constitutional changes to the long-term financing practices of the State and the
Authorities.
In June 1994, the Legislature passed a proposed constitutional amendment
that would permit the State, within a formula-based cap, to issue revenue bonds,
which would be debt of the State secured solely by a pledge of certain State tax
receipts (including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would permit multiple purpose general obligation bond
proposals to be proposed on the same ballot, require that State debt be incurred
only for capital projects included in a multi-year capital financing plan and
prohibit, after its effective date, lease- purchase and contractual-obligation
financing mechanisms for State facilities.
Public hearings were held on the proposed constitutional amendment
during 1993. Following these hearings, in February 1994, Governor Cuomo and the
State Comptroller recommended a revised constitutional amendment which would
further tighten the ban
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on lease-purchase and contractual-obligation financing, incorporate existing
lease-purchase and contractual-obligation debt under the proposed revenue bond
cap while simultaneously reducing the size of the cap. After considering these
recommendations, the Legislature passed a revised constitutional amendment which
tightens the ban, and provides for a phase-in to a lower cap (4.4 percent of
personal income).
Although the State Senate and Assembly passed the amendment, the voters
defeated it in November 1995.
The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes ("TRANs"), and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes ("BANs"). TRANs must mature within one year from their dates
of issuance and may not be refunded or refinanced beyond such period. BANS may
only be issued for the purposes and within the amounts for which bonds may be
issued pursuant to voter authorizations. Such BANs must be paid from the
proceeds of the sale of bonds in anticipation of which they were issued or from
other sources within two years of the date of issuance or, in the case of BANs
for housing purposes, within five years of the date of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey. The State has never
been called upon to make any direct payments pursuant to such guarantees. The
constitutional provisions allowing a State-guarantee of certain Port Authority
of New York and New Jersey debt stipulates that no such guaranteed debt may be
outstanding after December 31, 1996.
Payments of debt service on State general obligation and
State-guaranteed bonds and notes are legally enforceable obligations of the
State.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financing, which involve obligations
of public authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the
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New York Local Government Assistance Corporation ("LGAC") to restructure the way
the States makes certain local aid payments. The State also participates in the
issuance of certificates of participation ("COPs") in a pool of leases entered
into by the State's Office of General Services on behalf of several State
departments and agencies interest in acquiring operational equipment, or in
certain cases, real property.
The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
The State also employs moral obligations financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and includes statutory provisions requiring the State, subject
to appropriation by the Legislature, to make up any deficiencies which may occur
in the issuer's debt service reserve fund. There has never been a default on any
moral obligation debt of any public authority.
The State anticipates that its capital programs will be financed, in
part, through borrowings by the State and public authorities in the 1995-96
fiscal year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in COPs during the State's 1995-96
fiscal year for equipment purchases and $14 million for capital purposes. The
projection of the State regarding its borrowings for the 1995-96 fiscal year may
change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million during
the State's 1995-96 fiscal year, to redeem notes sold in June 1995.
Borrowings by other public authorities pursuant to lease-purchase and
contractual- obligation financings for capital programs of the State are
projected to total $2.7 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1994-95
capital projects. Included therein are borrowings by (i) the Dormitory Authority
of the State of New York ("DA") for State University of New York ("SUNY"), The
City University of New York ("CUNY"), and health facilities, (ii) the New York
State Medical Care Facilities Finance Agency ("MCFFA") for mental health
facilities; (iii) Thruway Authority for the Dedicated Highway and Bridge Trust
Fund and Consolidated Highway Improvement Program; (iv) UDC for prison and youth
facilities and economic development programs; (v) the Housing Finance Agency
("HFA") for housing programs; and (vi) other borrowings by the Environmental
Facilities Corporation ("EFC") and the Energy Research and Development Authority
("ERDA").
In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to aid
financially
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troubled localities. The Municipal Assistance Corporation for The City of New
York ("MAC"), created to provide financing assistance to New York City (the
"City"), is the only municipal assistance corporation created to date. To enable
MAC to pay debt service on its obligations, MAC receives, subject to annual
appropriation by the Legislature, receipts from the 4% New York State Sales Tax
for the Benefit of New York City, the State-imposed Stock Transfer Tax and,
subject to certain prior liens, certain local assistance payments otherwise
payable to the City. The legislation creating MAC also includes a moral
obligation provision. Under its enabling legislation, MAC's authority to issue
bonds and notes (other than refunding bonds and notes) expired on December 31,
1984.
State Financial Operations. The State has historically been one of the
wealthiest states in the nation. For decades, however, the State economy has
grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs and
an influx of generally less affluent residents. Regionally, the older Northeast
cities have suffered because of the relative success that the South and the West
have had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
Although the State ranks 22nd in the nation for its State tax burden,
the State has the second highest combined state and local tax burden in the
United States. In 1991, total State and local taxes in New York were $3,349 per
capita, compared with $1,475 per capita in 1980. Between 1980 and 1991, State
and local taxes per capita increased at approximately the same rate in the State
as in the nation as a whole with per capita taxes in the State increasing by
127% while such taxes increased 111% in the nation. The State Division of the
Budget ("DOB") believes, however, that it is more informative to describe the
state and local tax burden in terms of its relationship to personal income. In
1992, total State and local taxes in New York were $154.70 per $1,000 of
personal income, compared with $152.70 in 1980. Between 1980 and 1992, State and
local taxes per $1,000 of personal income increased at a slower rate in the
State than in the nation as a whole with such taxes in the State increasing by
1.3 percent while such taxes increased 4 percent in the nation. The burden of
State and local taxation, in combination with the many other causes of regional
economic dislocation, may have contributed to the decisions of some businesses
and individuals to relocate outside, or not locate within the State. The State
and its localities have used these taxes to develop and maintain their
respective transportation networks, public schools and colleges, public health
systems, other social services, and recreational facilities. Despite these
benefits, the burden of State and local taxation, in combination with the many
other causes of regional economic dislocation, may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
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The national economy began expanding in 1991 and has added over 7
million jobs since early 1992. However, the recession lasted longer in the State
and the State's economic recovery has lagged behind the nation's. Although the
State has added approximately 185,000 jobs since November 1992, employment
growth in the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility, defense, and
banking industries. DOB forecasted that national economic growth would weaken,
but not turn negative, during the course of 1995 before beginning to rebound.
This dynamic is often described as a "soft landing."
The national economy achieved the desired "soft landing" in 1995, as
growth slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit
the buildup of inflationary pressures. This was achieved without any material
pause in the economic expansion, although recession worries flared in the late
spring and early summer. Growth in the national economy is expected to moderate
during 1996. Real GDP grew only 0.9 percent in the fourth quarter of 1995, and
there were declines in the leading economic indicators in four of the past five
months. It is anticipated that slow economic growth will continue through the
first half of 1996 and inflationary pressures will be modest in 1996. Economic
growth will gradually accelerate in the second half of 1996 as the lower level
of interest rates over the last year is expected to stimulate economic activity.
Economic growth, as measured by the nation's nominal GDP, is projected to expand
by 4.3 percent in 1996 versus 4.6 in 1995. In 1992 dollars, real GDP is expected
to grow 1.8 percent as compared with the 2.1 percent growth in 1995. By either
measure, economic growth is projected to be noticeably slower for 1996 than
1995.
To stimulate economic growth, the State has developed programs,
including the provision of direct financial assistance, designed to assist
businesses to expand existing operations located within the State and to attract
new businesses to the State. In addition, the State has provided various tax
incentives to encourage business relocation and expansion. These programs
include direct tax abatements from local property taxes for new facilities
(subject to locality approval) and investment tax credits that are applied
against the State corporation franchise tax. Furthermore, the State has created
40 "economic development zones" in economically distressed regions of the
States. Businesses in these zones are provided a variety of tax and other
incentives to create jobs and make investments in the zones. There can be no
assurance that these programs will be successful.
From 1994 to 1995 the annual growth rates of most economic indicators
for the State improved. The pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at federal, State and local levels.
Similar to the nation, some moderation of growth is expected in the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated
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continued restraint in wage settlements, a lower rate of employment growth and
falling interest rates are expected to slow personal income growth
significantly.
The State's current fiscal year commenced on April 1, 1995, and ends on
March 31, 1996, and is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year (the "1995-96 State Financial Plan")
was formulated on June 20, 1995 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor. The State Financial Plan is
updated quarterly pursuant to law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
Governor George Pataki, who assumed office on January 1, 1995. It is the first
budget in over half a century which proposed and, as enacted, projects an
absolute year-over-year decline in General Fund disbursements. Spending for
State operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the 1995- 96 State Financial Plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
The 1995-96 State Financial Plan contemplates closing this gap based on
the enacted budget, through a series of actions, mainly spending reductions and
cost containment measures and certain reestimates that are expected to be
recurring, but also through the use of one-time solutions. The 1995-96 State
Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene
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programs, capital projects, the prison system and fringe benefits; (iii) $300
million in savings from local assistance reforms, including actions affecting
school aid and revenue sharing while proposing program legislation to provide
relief from certain mandates that increase local spending; (iv) over $400
million in revenue measures, primarily a new Quick Draw Lottery game, changes to
tax payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The following discussion summarizes updates to the 1995-96 State
Financial Plan and recent fiscal years with particular emphasis on the State's
General Fund. Pursuant to statute, the State updates the financial plan at least
on a quarterly basis. Due to changing economic conditions and information,
public statements or reports may be released by the Governor, members of the
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, including potential operating results for the current
fiscal year and projected baseline gaps for future fiscal years, that may vary
materially and adversely from the information provided herein.
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1995-96 fiscal year, the General Fund is expected by the State to
account for approximately 49 percent of total governmental-fund receipts and 71
percent of total governmental-fund disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts are projected to be $33.110 billion, an
increase of $48 million over total receipts in the prior fiscal year. Total
General Fund disbursements are projected to be $33.055 billion, an increase of
$344 million over the total amount disbursed and transferred in the prior fiscal
year.
In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds.
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise more than 40 percent
of total government funds receipts and disbursements in the 1995-96 fiscal year,
about three-quarters of that activity relates to Federally-funded programs.
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Projected receipts in this fund type total $25.547 billion, an increase
of $1.316 billion over the prior year. Projected disbursements in this fund type
total $26.002 billion, an increase of $1.641 billion over 1994-95 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs, are projected to total $19.209 billion in the
1995-96 fiscal year. Remaining projected spending of $6.793 billion primarily
reflects aid to SUNY supported by tuition and dormitory fees, education aid
funded from lottery receipts, operating aid payments to the Metropolitan
Transportation Authority (the "MTA") funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs which
deliver services financed by user fees.
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major State capital
facilities and for capital assistance grants to certain local governments or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1995-96 fiscal year, activity in these funds
is expected to comprise 7 percent of total governmental receipts and
disbursements.
Disbursements from this fund type are projected to increase by $541
million over prior- year levels, primarily reflecting higher spending for
transportation and mental hygiene projects. The Dedicated Highway and Bridge
Trust Fund is projected to comprise 23 percent of the activity in this fund
type$936 million in 1995-96and is the single largest dedicated fund. Projected
disbursements from this dedicated fund reflect an increase of $80 million over
1994-95 levels. Spending for capital projects will be financed through a
combination of sources: Federal grants (25 percent), public authority bond
proceeds (38 percent), general obligation bond proceeds (9 percent), and current
revenues (28 percent). Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be available from the proceeds
of general obligation bonds.
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual- obligation financing arrangements. This
fund is expected to comprise 4 percent of total governmental fund receipts and
disbursements in the 1995-96 fiscal year. Receipts in these funds in excess of
debt service requirements are transferred to the General Fund and Special
Revenue Funds, pursuant to law.
The Debt Service Fund type consists of the General Debt Service Fund,
which is supported primarily by tax dollars transferred from the General Fund,
and seven other funds. In the 1995-96 fiscal year, total disbursements in this
fund type are projected at $2.506 billion, an increase of $303 million or 13.8
percent. The transfer from the General Fund of $1.583 billion is expected to
finance 63 percent of these payments.
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The State contemplates financing the remaining payments by pledged
revenues, including $1.794 billion in taxes, $228 million in dedicated fees, and
$2.200 billion in patient revenues, including transfers of Federal
reimbursements. After impoundment for debt service, as required, $3.481 billion
is expected to be transferred to the General Fund and other funds in support of
State operations. The largest transfer$1.761 billionis made to the Special
Revenue Fund type, in support of operations of the mental hygiene agencies.
Another $1.341 billion in excess sales taxes is expected to be transferred to
the General Fund, following payment of projected debt service on bonds of LGAC.
The State issued the first of the three required quarterly updates to
the 1995-96 cash-basis State Financial Plan on July 28, 1995 (the "First Quarter
Update"). The First Quarter Update projected continued balance in the State's
1995-96 Financial Plan, and incorporated few revisions to the initial State
Financial Plan of June 20, 1995. The economic forecast was unchanged. A number
of small, offsetting changes were made to the annual receipts and disbursements
estimates. The First Quarter Update also incorporated the restatement of three
transactions within the budget so that these transactions conformed with
accounting treatments utilized by the Office of the State Comptroller. These
restatements had the net effect of reducing both General Fund receipts and
disbursements by $251 million; therefore, they had no impact on the closing
balance of the General Fund.
The State issued its second quarterly update to the cash-basis 1995-96
State Financial Plan (the "Mid-Year Update") on October 26, 1995. The Mid-Year
Update projected continued balance in the State's 1995-96 Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the expected use of
$41 million from the Contingency Reserve Fund for payments of litigation and
disallowance expenses. The Mid-Year Update also incorporated changes resulting
from implementation of the Governor's Management Review Plan which was released
on October 12, 1995. The Management Review Plan is expected to produce savings
of $148 million in State fiscal year 1995-96, primarily through Medicaid
Utilization controls, consolidation of State agency staffing and office space,
controls on staffing, overtime and contractual expenses, and increased
productivity. Of the $148 million in savings attributable to the Management
Review Plan, $146 million was reflected in low spending from the General Fund
and $2 million was reflected in increased General Fund receipts.
The State revised the cash-basis 1995-96 Financial Plan on December 15,
1995 (the "December 15 Update"), in conjunction with the release of the
Executive Budget for the 1996-97 fiscal year.
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The December 15 Update projected continued balance in the 1995-96
General Fund Financial Plan, with reductions on projected receipts offset by an
equivalent reduction in projected disbursements. Modest changes were made to the
Mid-Year Update, reflecting two more months of actual results, deficiency
requests by State agencies (the largest of which is for school aid resulting
from revisions to data submitted by school districts), and administrative
efficiencies achieved by State agencies. Total General Fund receipts are
expected to be approximately $73 million lower than estimated at the time of the
Mid-Year Update. Tax receipts are now projected to be $29.57 billion, $8 million
less than in the earlier plan. Miscellaneous receipts and transfers from other
funds are estimated at $3.15 billion, $65 million lower than in the Mid-Year
Update. The largest single change in these estimates is attributable to the lag
in achieving $50 million in proceeds from sales of State assets, which are
unlikely to be completed prior to the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending masks the impact of deficiency
requests totaling more than $140 million, primarily for school aid and tuition
assistance to college students. Offsetting reductions in spending are
attributable to the continued maintenance of strict controls on spending through
the fiscal year by State agencies, yielding savings of $50 million. Reductions
of $49 million in support for capital projects reflect a stringent review of all
capital spending. Reductions of $30 million in debt service costs reflect
savings from refundings undertaken in the current fiscal year, as well as
savings from lower interest rates in the financial market. Finally, the 1995-96
Financial Plan reflects reestimates based on actual results through November,
the largest of which is a reduction of $70 million in projected costs for income
maintenance. This reduction is consistent with declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year
is expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit in the Contingency Reserve Fund included as part of
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These Contingency
Reserve Fund monies are expected to support payments from the General Fund for
litigation related to the State's Medicaid program, and for federal
disallowances.
Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which can not be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balances of the year.
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The State issued its third required quarterly update to the 1995-96
cash-basis State Financial Plan on January 30, 1996 (the "Third Quarterly
Update"). The Third Quarterly Update was published two weeks after the closure
of the Governor's 30-day amendment period, during the Governor revised the
1996-97 State Financial Plan.
The Third Quarterly Update reflected actual results through the third
quarter of the State's fiscal year, quarterly and year-end tax payments received
in December and January, and modest changes in spending to reflect the current
year impact of certain 30-day amendments. The 1995- 96 General Fund State
Financial Plan was projected to remain in balance on a cash basis, with both
receipts and disbursements projected to be $47 million higher than in the
December 15 Update. Total taxes were projected to be $29.66 billion, $88 million
higher than in the December 15 Update. Miscellaneous receipts and transfers were
expected to total $3.1 billion, down $41 million from the December 15 Update.
Total disbursements were projected to be $32.75 billion. Spending in
Governmental Funds were projected at $63.31 billion, an increase of $15 million
from the December 15 Update.
The Governor presented his 1996-97 Executive Budget to the Legislature
on December 15, 1995. The Executive Budget also contains financial projections
for the State's 1997-98 and 1998-99 fiscal years and an updated Capital Plan. As
provided by the State Constitution, the Governor submitted amendments to his
1996-97 Executive Budget within 30 days following submission and after the
30-day amendment period. Those amendments are reflected in the discussion of the
1996-97 Executive Budget contained in this Statement of Additional Information.
There can be no assurance that the Legislature will enact the Executive Budget
as proposed by the Governor into law, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in this Statement of Additional Information.
The 1996-97 Financial Plan projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
Executive Budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The Executive Budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an
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increase of $2.3 billion or 7 percent from 1995-96. This increase would have
resulted from growth in Medicaid, inflationary increases in school aid, higher
fixed costs such as pensions and debt service, collective bargaining agreements,
inflation, and the loss of non-recurring resources that offset spending in
1995-96. Receipts would have been expected to fall by $1.6 billion. This
reduction would have been attributable to modest growth in the State's economy
and underlying tax base, the loss of non-recurring revenues available in 1995-96
and implementation of previously enacted tax reduction programs.
The Executive Budget proposes to close this gap primarily through a
series of spending reductions and cost containment measures. The Executive
Budget projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental programs; (ii) $1.3 billion in savings from a reduced State
General Fund share of Medicaid made available from anticipated changes in the
federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions in
other State programs. The assumption regarding an increased share of federal
Medicaid funding has received bipartisan Congressional support and would benefit
32 states, including New York.
The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund.
The Governor has submitted several amendments to the Executive Budget.
These amendments have a nominal impact on the State's Financial Plan for 1996-97
and the subsequent years. The net impact of the amendments leaves unchanged the
total estimated amount of General Fund spending in 1996-97, which continues to
be projected at $31.22 billion. All funds spending in 1996-97 is increased by
$68 million, primarily reflecting adjustments to projections of federal funds,
and now totals $63.87 billion.
The budget amendments advanced by the Governor are largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a declining
caseload) and debt service (reflecting lower interest rates and recent bond
sales). Disbursement increases are projected for snow and ice control, the AIDS
Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
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On March 15, 1996, two weeks before the start of the 1996-97 fiscal
year, the Governor presented additional amendments to the 1996-97 Executive
Budget which address two potential outcomes of the federal debate on entitlement
reform:
O Contingency Plan If the federal government fails to adopt entitlement
changes assumed to produce savings in the Executive Budget for the
State's 1996-97 fiscal year, the Governor has identified $2.01
billion in new or redirected resources to replace these savings in
order to preserve budget balance in the 1996-97 State Financial Plan.
O Balanced Budget Bonus Plan If the federal government acts, through
legislation or through waivers of existing federal provisions, and
any necessary conforming changes are adopted by the State
Legislature, the State could receive all or a portion of the $2.01
billion benefit anticipated in the original 1996-97 Executive Budget.
As a result, a portion of the new resources identified in the
Contingency Plan would then be available to make restorations or add
new spending to the 1996-97 State budget. The Balanced Budget Bonus
Plan sets priorities for up to $1.42 billion in potential recurring
and non-recurring spending increases.
There can be no assurance that the Legislature will enact the Executive
Budget or any of the amendments proposed by the Governor, that the State's
adopted budget projections will not differ materially and adversely from the
projections set forth in this Statement of Additional Information, or that the
State's actions will be sufficient to maintain budgetary balance in 1996- 97 or
future fiscal years.. Further, since the amendments implementing the Contingency
Plan and the Balanced Budget Bonus Plan have been submitted after the 30-day
amendment period, the Legislature must consent to their introduction.
DOB believes that its economic assumptions and its projections of
receipts and disbursements for the 1996-97 Executive Budget as amended by the
Contingency Plan and the Balanced Budget Bonus Plan are reasonable. However,
various financial, social, economic, and political factors can affect these
projections, of which certain factors, such as action by the federal government,
are outside the State's control. Because of the uncertainty and unpredictability
of these factors, their impact cannot be fully anticipated in the assumptions
underlying the State's projections.
The 1996-97 Executive Budget includes actions that will have an impact
on receipts and disbursements in future fiscal years. The Governor has proposed
closing the 1996-97 budget gap primarily through expenditures reductions and
without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the Executive Budget submitted during the
30-day amendment period, the net impact of these actions is expected to produce
a potential imbalance in the 1997-98 fiscal year of $1.44 billion and in the
1998-99 fiscal year of $2.46 billion, assuming implementation
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of the 1996-97 Executive Budget recommendations. For 1997-98, receipts are
estimated at $30.62 billion and disbursements at $32.05 billion. For 1998-99,
receipts are estimated at $31.85 billion and disbursements at $34.32 billion.
For 1996-97 the closing fund balance in the General Fund is projected to
be $272 million. The required deposit to the Tax Stabilization Reserve Fund adds
$15 million to the 1995-96 balance of $172 million in that fund, bringing the
total to $187 million at the close of 1996-97. The remaining General Fund
balance reflects the deposit of $85 million to the Contingency Reserve Fund, to
provide resources to finance potential costs associated with litigation against
the State. This deposit is expected to be made pursuant to legislation submitted
with the Executive Budget which will require the State share of certain
non-recurring federal recoveries to be deposited to the Contingency Reserve
Fund.
For 1996-97, the Financial Plan projects disbursements of $28.93 billion
from this Fund. This includes $7.65 billion from Special Revenue Funds
containing State revenues, and $21.28 billion from funds containing federal
grants, primarily for social welfare programs.
The 1996-97 Executive Budget recommends that all of the SUNY's revenues
be consolidated in a single fund, permitting SUNY more flexibility and control
in the use of its revenues. As a result of this proposal, General Fund support
would be transferred to this fund, rather than spent directly from the General
Fund. SUNY's spending from this fund is projected to total $2.55 billion in
1996-97. The Mass Transportation Operating Assistance Fund and the Dedicated
Mass Transportation Trust Fund, which receive taxes earmarked for mass
transportation programs throughout the State, are projected to have total
disbursements of $1.23 billion in 1996-97. Disbursements also include $1.63
billion in lottery proceeds which, after payment of administrative expenses,
permit the distribution of $1.43 billion for education purposes. One hundred
million dollars of lottery proceeds will be reserved in a separate account for a
local school tax reduction program to be agreed upon by the Governor and the
Legislature for disbursement in State fiscal year 1997-98. Disbursements of $650
million in 1996-97 from the Disproportionate Share Medicaid Assistance Fund
constitutes most of the remaining estimated State Special Revenue Funds
disbursements.
Federal Special Revenue Fund projections for 1996-97 were developed in
the midst of considerable uncertainty as to the ultimate composition of the
federal budget, including uncertainties regarding major federal entitlement
reforms. Disbursements are estimated at $21.27 billion in 1996-97, an increase
of $2.02 billion, or 10.5 percent from 1995-96. The projections included in the
1996-97 State Financial Plan assume that the federal Medicaid program will be
reformed generally along the lines of the congressional MediGrant program. This
would include an increase from 50 percent to 60 percent in the federal share of
New York's Medicaid expenses. A repeal of the federal Boren amendment regarding
provider rates is also anticipated. As a result of these changes,
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the Executive Budget projects the receipt of $13.1 billion in total federal
Medicaid reimbursements in 1996-97, an increase of approximately $915 million
from the 1995-96 level.
The second largest projected increase in federal reimbursement is for
the State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626 million.
Disbursements from the Capital Projects Funds in 1996-97 are estimated
at $3.76 billion. This estimate is $332 million less than the 1995-96
projections. The spending reductions are the result of program restructuring,
achieved in 1995-96 and continued in the 1996-97 Financial Plan. The spending
plan includes:
O $2.5 billion in disbursements for the second year of the five-year
$12.6 billion State and local highway and bridge program;
O Environmental Protection Fund spending of $106.5 million;
O Correctional services spending of $153 million; and
O SUNY and CUNY capital spending of $196 million and $87 million,
respectively.
The share of capital projects to be financed by "pay-as-you-go"
resources is projected to hold steady in 1996-97 at approximately 27 percent.
State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.
Disbursements from the Debt Service Fund are estimated at $2.64 billion
in 1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the State
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new debt
service on prisons recently purchased from New York City, and $27 million is for
the mental hygiene programs financed through the Mental Health Services Fund.
Debt service for LGAC bonds increases only slightly after years of significant
increases, as the new- money bond issuance portion of the LGAC program was
completed in State fiscal year 1995-96. Increased debt service costs primarily
reflect prior capital commitments financed by bonds issued by the State and its
public authorities, the reduced use of capitalized interest, and the use of
shorter term bonds, such as the 10 year average maturity for the Dedicated
Highway and Bridge Trust Fund bonds.
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The 1995-96 State Financial Plans and the 1996-97 Executive Budget are
based upon forecasts of national and State economic and financial conditions.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, can vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State but also by entities, such as the federal
government, that are outside the State's control. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results in the 1995-96 and
the 1996-97 fiscal years that are worse than predicted, with corresponding
material and adverse effects on the State's financial projections.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
TRANs. First, the national recession, and then the lingering economic slowdown
in the New York and regional economy, resulted in repeated shortfalls in
receipts and three budget deficits. For its 1992-93, 1993-94 and 1994-95 fiscal
years, the State recorded balanced budgets on a cash basis, with substantial
fund balances in 1992-93 and 1993-94, and a smaller fund balance in 1994-95 as
described below.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994- 95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which
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exceeded projections by $210 million. Of this amount, $227 million was
attributable to certain restatements for accounting treatment purposes
pertaining to the CRF and LGAC; these restatements had no impact on balance in
the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion
in its tax refund reserve account, $265 million in its CRF and $134 million in
its Tax Stabilization Reserve Fund. These fund balances were primarily the
result of an improving national economy, State employment growth, tax
collections that exceeded earlier projections and disbursements that were below
expectations. Deposits to the personal income tax refund reserve have the effect
of reducing reported personal income tax receipts in the fiscal year when made
and withdrawals from such reserve increase receipts in the fiscal year when
made. The balance in the tax refund reserve account will be used to pay taxpayer
refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF will be used to meet the cost of litigation facing the State.
The Tax Stabilization Reserve Fund may be used only in the event of an
unanticipated General Fund cash-basis deficit during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in the 1993-94 fiscal year exceeded those originally
projected when the State Financial Plan for that year was formulated on April
16, 1993 by $1.002 billion. Greater-than-expected receipts in the personal
income tax, the bank tax, the corporation franchise tax and the estate tax
accounted for most of this variance, and more than offset weaker-than-projected
collections from the sales and use tax and miscellaneous receipts.
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Collections from individual taxes were affected by various factors including
changes in Federal business laws, sustained profitability of banks, strong
performance of securities firms, and higher-than-expected consumption of tobacco
products following price cuts.
The higher receipts resulted, in part, because the State economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The State economy exhibited signs of strength in the service sector,
in construction, and in trade. Long Island and the Mid-Hudson Valley continued
to lag behind the rest of the State in economic growth. The State Division of
the Budget (the "DOB") believes that approximately 100,000 jobs were added
during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were $303 million
below the level that was projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid billings,
which in the April 1993 State Financial Plan were planned to be deferred into
the 1994-95 fiscal year. Compared to the estimates included in the State
Financial Plan formulated in April 1993, lower disbursements resulted from lower
spending for Medicaid, capital projects, and debt service (due to refundings)
and $114 million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher-than- expected for general support for public
schools, the State share of income maintenance, overtime for prison guards, and
highway snow and ice removal. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal year.
In addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund.
The State's 1992-93 fiscal year was characterized by performance that
was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992.
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This favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated payment
components of the tax.
There were large, but mainly offsetting, variances in other categories
of receipts. Significantly higher-than-projected business tax collections and
the receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200-million Federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections made in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
The financial condition of the State is affected by several factors,
including the strength of the State and regional economy and actions of the
Federal government, as well as State actions affecting the level of receipts and
disbursements. Owing to these and other factors, the State may, in future years,
face substantial potential budget gaps resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
future costs of maintaining State programs at current levels. Any such recurring
imbalance would be exacerbated if the State were to use a significant amount of
nonrecurring resources to balance the budget in a particular fiscal year. To
address a potential imbalance for a given fiscal year, the State would be
required to take actions to increase receipts and/or reduce disbursements as it
enacts the budget for that year, and under the State Constitution the Governor
is required to propose a balanced budget each year. To correct recurring
budgetary imbalances, the State would need to take significant actions to align
recurring receipts and disbursements in future fiscal years. There can be no
assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation authorized LGAC
to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the
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need for continued short-term seasonal borrowing. The legislation also dedicated
revenues equal to one-quarter of the four cent State sales and use tax to pay
debt service on these bonds. The legislation also imposed a cap on the annual
seasonal borrowing of the State at $4.7 billion, less net proceeds of bonds
issued by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified the need for
additional borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap is thus permitted in any fiscal year, it is required by
law to be reduced to the cap by the fourth fiscal year after the limit was first
exceeded. This provision capping the seasonal borrowing was included as a
covenant with LGAC's bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds
of $4.7 billion completing the program. The impact of LGAC's borrowing is that
the State is able to meet its cash flow needs in the first quarter of the fiscal
year without relying on short-term seasonal borrowings. The 1995-96 State
Financial Plan includes no spring borrowing nor did the 1994-95 State Financial
Plan, which was the first time in 35 years there was no short-term seasonal
borrowing.
On January 13, 1992, Standard & Poor's ("S&P") lowered its rating on the
State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. S&P also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993 S&P revised the
rating outlook assessment to stable. On February 14, 1994, S&P revised its
outlook to positive and, on October 3, 1995, confirmed its A- rating. On January
6, 1992, Moody's reduced its ratings on outstanding limited-liability State
lease purchase and contractual obligations from A to Baa1. On October 2, 1995,
Moody's reconfirmed its A rating on the State's general obligation long-term
indebtedness.
On June 6, 1990, Moody's changed its ratings on all of the State's
outstanding general obligation bonds from A1 to A, the rating having been A1
since May 27, 1986. On November 12, 1990, Moody's confirmed the A rating. In
1992, S&P lowered the State's general obligation bond rating to A-, where it
currently remains and was affirmed on July 13, 1995. Prior to this, on March 26,
1990, S&P lowered its rating of all of the State's outstanding general
obligation bonds from AA- to A. Previous S&P ratings were AA- from August, 1987
to March, 1990 and A+ from November, 1982 to August, 1987.
Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially
adversely
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affected, if any of its public authorities were to default on their respective
obligations. As of September 30, 1994, the date of the latest data available,
there were 18 Authorities that had outstanding debt of $100 million or more, and
the aggregate outstanding debt, including refunding bonds, of these 18
Authorities was $70.3 billion. As of March 31, 1995, aggregate Authority debt
outstanding as State-supported debt was $27.9 billion and as State-related debt
was $36.1 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques
for public authorities. Also, there are statutory arrangements providing for
State local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
Some authorities also receive monies from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to carry out mass transit and
commuter services.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency, the New York State Urban Development Corporation
and certain other Authorities have in the past required and continue to require
substantial amounts of assistance from the State to meet debt service costs or
to pay operating expenses. Further assistance, possibly in increasing amounts,
may be required for these, or other, Authorities in the future. In addition,
certain other statutory arrangements provide for State local assistance payments
otherwise payable to localities to be made under certain circumstances to
certain Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
Authorities under these arrangements. However, in the event that such local
assistance payments are so diverted, the affected localities could seek
additional State funds.
Metropolitan Transportation Authority. The MTA oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The
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MTA operates certain commuter rail and bus lines in the New York Metropolitan
area through MTA's subsidiaries, the Long Island Rail Road Company, the
Metro-North Commuter Railroad Company and the Metropolitan Suburban Bus
Authority. In addition, the Staten Island Rapid Transit Operating Authority, an
MTA subsidiary, operates a rapid transit line on Staten Island. Through its
affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the
MTA operates certain intrastate toll bridges and tunnels. Because fare revenues
are not sufficient to finance the mass transit portion of these operations, the
MTA has depended, and will continue to depend for operating support upon a
system of State, local government and TBTA support, and, to the extent
available, Federal operating assistance, including loans, grants and operating
subsidies. If current revenue projections are not realized and/or operating
expenses exceed current projections, the TA or commuter railroads may be
required to seek additional State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes -- including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax -- that provide revenues for mass transit purposes, including assistance to
the MTA. In addition, since 1987, State law has required that the proceeds of a
one quarter of 1% mortgage recording tax paid on certain mortgages in the
Metropolitan transportation Region be deposited in a special MTA fund for
operating or capital expenses. Further, in 1993 the State dedicated a portion of
the State petroleum business tax to fund operating or capital assistance to the
MTA. For the 1995-96 fiscal year, total State assistance to the MTA is estimated
by the State to be approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net certain statutory
exclusions) to finance a portion of the 1992-96 Capital Program. The 1992-96
Capital Program may be financed in significant part through dedication of State
petroleum business taxes referred to above. However, in December 1994 the
proposed bond resolution based on such tax receipts was not approved by the MTA
Capital Program Review Board. Further consideration of the resolution was
deferred until 1995.
There can be no assurance that all the necessary governmental actions
for the 1992-96 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will
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not be delayed or reduced. If the 1992-96 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional State
assistance.
Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the 1995-96 fiscal years and thereafter. The potential impact on the State of
such actions by localities is not included in the projections of the State
receipts and disbursements for the 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re- establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of
State resources in amounts that cannot yet be determined.
Municipal Indebtedness. Municipalities and school districts have engaged
in substantial short-term and long-term borrowings. In 1993, the total
indebtedness of all localities in the State was approximately $17.7 billion. A
small portion (approximately $105 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Fifteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1993.
From time to time, proposed Federal expenditure reductions could reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect certain localities and require increasing State
assistance in the future.
Litigation. Certain litigation pending against the State or its officers
or employees could have a substantial or long-term adverse affect on State
finances. Among the more significant of these cases are those that involve: (i)
a challenge to certain enhanced supplemental pension allowances for members of
the ose that involve state and local retirement systems; (ii) several challenges
to provisions of Chapter 81 of the Laws of 1995 which after the nursing home
Medicaid reimbursement methodology; (iii) the validity of agreements and
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treaties by which various Indian tribes transferred title to the State of
certain land in central and upstate New York; (iv) a challenge to State
regulations which reduce base prices for the direct and indirect component of
Medicaid reimbursement for rate years commencing 1989; (v) an action against
State and City officials alleging that the present level of shelter allowance
for public assistance recipients is inadequate under statutory standards to
maintain proper housing; (vi) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) alleged responsibility of the
State Department of Environmental Conservation for a plaintiff's inability to
complete construction of a cogeneration facility in a timely fashion and the
damages suffered thereby; (ix) challenges to the promulgation of the State's
proposed procedure to determine the eligibility for and nature of home care
services for Medicaid recipients; (x) a challenge to State implementation of a
program which reduces Medicaid benefits to certain home-relief recipients; (xi)
a challenge to the constitutionality of petroleum business tax assessments
authorized by Tax Law 301; and (xii) two cases by commercial insurers, employee
welfare benefit plans, and health maintenance organizations to provisions of
Section 2807-c of the Public Health Law which impose 13%, 11%, and 9% surcharges
on inpatient hospital bills and a bad debt and charity care allowance on all
hospital bills paid by such entities were resolved by order dated October 2,
1995, the United States District Court for the Southern District of New York
held that the 11 percent and 13 percent surcharges are preempted by FEBHA and
unenforceable against commercial insurers which provide stop-loss coverage to
self-funded ERISA plans.
Adverse developments in the proceedings described above or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced 1995-96 State Financial Plan. In its Notes to its General Purpose
Financial Statements for the fiscal year ended March 31, 1994, the State reports
its estimated liability for awards and anticipated unfavorable judgments at $675
million. There can be no assurance that an adverse decision in any of the above
cited proceedings would not exceed the amount of the 1995-96 State Financial
Plan reserves for the payment of judgments and, therefore, could affect the
ability of the State to maintain a balanced 1995-96 State Financial Plan.
NEW YORK CITY
The fiscal health of the State may also be impacted by the fiscal health
of its localities, particularly the City, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its fiscal years from 1981
through 1993, which end on June 30, show a General Fund surplus reported in
accordance with generally accepted accounting principles ("GAAP"). In addition,
the City's financial statements for the 1993 fiscal year received an unqualified
opinion from the City's independent auditors, the eleventh consecutive year the
City has received such an opinion.
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In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among these actions, the
State established the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for The City of New York (the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for the City of New York ("OSDC") to assist the Control Board in exercising its
powers and responsibilities; and a "Control Period" from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal- monitoring
arrangements. Although the Control Board terminated the Control Period in 1986
when certain statutory conditions were met, thus suspending certain Control
Board powers, the Control Board, MAC and OSDC continue to exercise various
fiscal-monitoring functions over the City, and upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including, but not limited to a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (i.e., those which receive or
may receive money from the City directly, indirectly or contingently) operate
under a four-year financial plan which the City prepares annually and
periodically updates.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If, for example, expected Federal or State aid
is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the City's
financial plan or if other uncertainties materialize that reduce expected
revenues or increase projected expenditures, then, to avoid operating deficits,
the City may be required to implement additional actions, including increases in
taxes and reductions in essential City services. The City might also seek
additional assistance from the State.
On January 31, 1996, the City published the Financial Plan for the
1996-1999 fiscal years, which is a modification to a financial plan submitted to
the Control Board on July 11, 1995 (the "July Financial Plan") and which relates
to the City, the Board of Education ("BOE") and the City University of New York
("CUNY"). The Financial Plan sets forth proposed actions by the City for the
1996 fiscal year to close substantial projected budget gaps resulting from lower
than projected tax receipts and other revenues and greater than projected
expenditures. In addition to substantial proposed agency expenditure reductions,
the Financial Plan reflects a strategy to substantially reduce spending for
entitlements for the 1996 and subsequent fiscal years, and to decrease the
City's costs for Medicaid in the 1997 fiscal year and thereafter by increasing
the Federal share of Medicaid costs otherwise paid by the City. This strategy is
the
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subject of substantial debate, and implementation of this strategy will be
significantly affected by State and Federal budget proposals currently being
considered. The Financial Plan, which is consistent with the City's preliminary
budget for the 1997 fiscal year, may be changed significantly by the time the
budget for the 1997 fiscal year is adopted.
The July Financial Plan set forth proposed actions to close a previously
projected gap of approximately $3.1 billion for the 1996 fiscal year. The
proposed actions in the July Financial Plan for the 1996 fiscal year included
(i) a reduction in spending of $400 million, primarily affecting public
assistance and Medicaid payments by the City; (ii) agency reduction programs,
totaling $1.2 billion; (iii) transitional labor savings totaling $600 million;
and (iv) the phase-in of the increased annual pension funding cost due to
revisions resulting from an actuarial audit of the City pension systems, which
would reduce such costs in the 1996 fiscal year. A modification to the July
Financial Plan published on November 29, 1995 (the "November Financial Plan")
included savings from a proposed refunding of outstanding debt and other
expenditure reductions to offset a $129 million increase in projected
expenditures.
The 1996-1999 Financial Plan published on January 31, 1996 reflects
actual receipts and expenditures and changes in forecast revenues and
expenditures since the November Financial Plan, and projects revenues and
expenditures for the 1996 fiscal year balanced in accordance with GAAP. For the
1996 fiscal year, the Financial Plan includes actions to offset an additional
$759 million budget gap resulting primarily from (i) the failure of the Port
Authority of New York and New Jersey (the "Port Authority") to pay disputed back
rent for the City's airports in the amount included in the November Financial
Plan, (ii) shortfalls in Federal and State aid included in the November
Financial Plan, (iii) shortfalls in revenues and in amounts to be saved through
gap-closing actions at BOE, (iv) shortfalls in projected savings from cost
containment initiatives proposed in the July Financial Plan affecting public
assistance and Medicaid, and (v) the failure of the City and its labor unions to
identify assumed savings in the City's health benefits system. The gap-closing
measures for the 1996 fiscal year set forth in the Financial Plan include (i)
additional proposed agency actions aggregating $207 million, (ii) the receipt of
$150 million from MAC, and (iii) the receipt of $120 million from the proposed
sale of mortgages, $75 million from increased revenues from the proposed sale of
City tax liens on real property and $207 million from the proposed sale of the
City's television station.
The receipt of funds from MAC is subject to approval of MAC, the sale of
the tax liens requires adoption of a local law by the City Council and the
proposed sale of the City's television station is subject to Federal regulatory
approval. In addition, the Federal budget negotiation process for the 1996
Federal fiscal year could result in a reduction in, or a delay in the receipt
of, Federal grants in the City's 1996 fiscal year. If such approvals are not
received on a timely basis, the City may be required to identify alternative
measures to balance its 1996 fiscal year budget.
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The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate a
projected gap of $2.0 billion for the 1997 fiscal year, and to reduce projected
gaps of $3.3 billion and $4.1 billion for the 1998 and 1999 fiscal years,
respectively, assuming successful implementation of the gap-closing program for
the 1996 fiscal year. The projected gaps for the 1997 through 1999 fiscal years
have increased from the gaps projected in the November Financial Plan to reflect
(i) reductions in projected property taxes of $177 million, $294 million and
$421 million in the 1997, 1998 and 1999 fiscal years, respectively, due to a
lower than forecast increase in the tentative assessment roll published by the
New York City Department of Finance, (ii) reductions in other forecast tax
revenues of $114 millon, $216 million and $261 million in the 1997, 1998 and
1999 fiscal years, respectively, (iii) reductions in tax revenues of $79
million, $224 million and $341 million in the 1997, 1998 and 1999 fiscal years,
respectively, as a result of new tax reduction initiatives, including a proposed
sales tax exemption on clothing items under $500, and (iv) increased agency
expenditures.
The proposed gap-closing actions for the 1997 through 1999 fiscal years
include (i) additional agency actions, totaling between $643 million and $691
million in each of the 1997 through 1999 fiscal years; (ii) additional savings
resulting from State and Federal aid and cost containment in entitlement
programs to reduce City expenditures and increase revenues by $650 million in
the 1997 fiscal year and by $727 million in each of the 1998 and 1999 fiscal
years; (iii) additional proposed Federal aid of $50 million in the 1997 fiscal
year and State aid of $100 million in each of the 1997 through 1999 fiscal
years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, including the sale of the City's parking
meters and associated revenues, which may require legislative action by the City
Council, or the sale of other assets; and (v) the assumed receipt of revenues
relating to rent payments for the City's airports, totaling $244 million, $226
million and $70 million in the 1997 through 1999 fiscal years, respectively,
which are currently the subject of a dispute with the Port Authority and the
collection of which may depend on the successful completion of negotiations with
the Port Authority or the enforcement of the City's remedies under the leases
through pending legal actions. The City is also preparing an additional
contingency gap-closing program for the 1997 fiscal year to be comprised of $200
million in additional agency actions.
The Governor has released the 1996-1997 Executive Budget, which will be
considered for adoption by the State Legislature. The City estimates that the
1996-1997 Executive Budget provides the City with $173 million of savings from
Medicaid cost containment proposals and $127 million of savings from proposed
reductions in welfare spending in the 1997 fiscal year. The Financial Plan
assumes that the remaining $350 million of the $650 million of entitlement
reform benefits included in the Financial Plan for the 1997 fiscal year will be
generated by the State providing the City with a portion of the additional funds
received by the State as a result of the increased Federal share of Medicaid
costs proposed in the State Executive Budget. However, the State Executive
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Budget does not currently contemplate sharing such funds with the City. In
addition, the President and Congress are currently considering budget proposals
for the 1996 Federal fiscal year. The Federal budget or other factors may cause
substantial amendments to the State Executive Budget.
The Federal and State budgets, when adopted, may result in substantial
reductions in revenues for the City, as well as a reduction in projected
expenditures in entitlement programs, including Medicare, Medicaid and welfare
programs. The Federal and State aid projected in the Financial Plan, and the
substantial savings assumed from cost containment in entitlement programs
included in the Financial Plan gap-closing program for the 1997 through 1999
fiscal years, will be significantly affected both by the outcome of the current
Federal budget negotiations and by the State budget proposals made by the
Governor and to be considered by the State Legislature. The nature and extent of
the impact on the City of the Federal and State budgets, when adopted, is
uncertain, and no assurance can be given that Federal or State actions included
in the Federal and State adopted budgets may not have a significant adverse
impact on the City's budget and its Financial Plan.
The projections for the 1996 through 1999 fiscal years reflect the costs
of the proposed settlement with the United Federation of Teachers ("UFT") and
the recent settlement with a coalition of unions headed by District Council 37
of the American Federation of State, County and Municipal Employees ("District
Council 37"), and assume that the City will reach agreement with its remaining
municipal unions under terms which are generally consistent with such
settlements which are discussed below. The projections for the 1996 through 1999
fiscal years also assume the BOE will be able to identify actions to offset
possible substantial shortfalls in Federal, State and City revenues.
Contracts with all of the City's municipal unions expired in the 1995
and 1996 fiscal years. In November 1995 the City announced a tentative
settlement with the UFT and a coalition of unions headed by District Council 37
which represent approximately two-thirds of the City's workforce. The settlement
provides for a wage freeze in the first two years, followed by a cumulative
effective wage increase of 11% by the end of the five year period covered by the
proposed agreements, ending in fiscal years 2000 and 2001. Additional benefit
increases would raise the total cumulative effective increase to 13% above
present costs. The Financial Plan reflects the costs associated with the
settlements, and assumes similar increases for all other City- funded employees,
which total $49 million, $459 million and $1.2 billion in the 1997, 1998 and
1999 fiscal years, respectively. Such increases exceed $2 billion in each fiscal
year after the 1999 fiscal year. District Council 37 and Local 237, representing
approximately 90,000 full-time employees, have ratified the proposed settlement.
On December 7, 1995, the members of the UFT voted on the proposed settlement
with the UFT. Six chapters of the UFT, representing approximately 18,000
full-time employees, including teaching paraprofessionals, voted to ratify the
proposed settlement, which will apply to those
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chapters if approved by BOE. Five chapters, representing approximately 76,000
full-time employees, including teachers, voted not to ratify the proposed
settlement. A portion of the transitional labor savings contained in the
Financial Plan is dependent upon conclusion of collective bargaining agreements
with the City's workforce. There can be no assurance that the City will reach an
agreement with the chapters of the UFT which rejected the proposed settlement on
the terms contained in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to non-binding arbitration. On January 23, 1996, the
City requested the Office of Collective Bargaining to declare an impasse against
the Patrolmen's Benevolent Association ("PBA") and the United Firefighters
Association ("UFA").
From time to time, the Control Board staff, MAC, OSDC, the City
Comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services. It is reasonable to expect that reports and statements will continue
to be issued and to engender public comment. It is expected that the staff of
the Control Board will issue a report in March 1996 reviewing the Financial
Plan.
On February 29, 1996 the staff of the City Comptroller issued a report
on the Financial Plan. The report projects that there remains $408 million to
$528 million in budget risks for the 1996 fiscal year, before taking into
account the availability of $160 million in the General Reserve. The principal
risks for the 1996 fiscal year identified in the report include $140 million to
$190 million of uncertain revenues and projected savings at BOE and the receipt
by the City of $100 million to $130 million from a proposed MAC refunding. The
report also expressed concern as to whether the required regulatory approval for
the sale of the City's television station would be received before the end of
the 1996 fiscal year.
With respect to the 1997 fiscal year, the report states that the
Financial Plan includes total risks of between $2.05 billion and $2.15 billion.
The report notes that the gap-closing program for the 1997 fiscal year assumes
the implementation of highly uncertain State and Federal actions that would
provide between $1.2 billion and $1.4 billion in relief to the City resulting
from proposed public assistance and medical assistance entitlement reductions, a
proposed increase in Federal Medicaid
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reimbursements, additional State aid and various privatization proposals. The
report concludes that it is unlikely that the City will be able to implement
most of these initiatives due to Federal and State budget difficulties.
Additional risks for the 1997 fiscal year identified in the report include (i)
risks attributable to BOE relating to unspecified additional State aid,
unspecified expenditure reductions and proposals to reduce special education
spending, which total $415 million, without taking into account potential
reductions that will likely take place upon adoption of the Federal and State
budgets; (ii) proposals for the sale of parking meters and other assets; and
(iii) the receipt of $244 million to $294 million of lease payments from the
Port Authority for the City's airports.
The report concluded that the magnitude of the budget risk for the 1997
fiscal year, after two years of large agency cutbacks and work force reductions,
indicates the seriousness of the City's continuing budget difficulties, and that
the Financial Plan will require substantial revision in order to provide a
credible program for dealing with the large projected budget gap for the 1997
fiscal year. The report further notes that the relative weakness of the national
and City economies makes it unlikely that new jobs and business expansion will
generate significant additional tax revenues and that proposed Federal and State
reductions in funding will reduce the levels of intergovernmental assistance for
the City.
On March 6, 1996, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that there remained a budget gap for the 1996 fiscal
year of $44 million, which can be closed with the $200 million General Reserve,
and additional significant risks totaling $507 million involving actions which
require the approval of the State and Federal governments or other third
parties. These risks include (i) potential delays in the sale of the City's
television station; (ii) shortfalls in projected resources from MAC; and (iii)
shortfalls of $100 million in projected State education aid and $50 million in
projected Federal assistance. In addition, the report expressed concern that (i)
the City may have to write off a portion of approximately $300 million in State
education aid that was included as revenue in prior years' budgets, since the
State has not made payment and neither the current nor the proposed State budget
include an appropriation sufficient to cover most of this liability, and (ii)
the City must complete two transactions before the end of the fiscal year, the
sale of property tax liens and housing mortgages, that together are expected to
produce resources of $267 million.
The report also concluded that the gap for the 1997 fiscal year could be
$544 million greater than the City's projected budget gap of $2 billion,
primarily due to the failure of BOE to specify $304 million of expenditure
reductions or additional resources necessary to bring its spending in line with
the resources allocated to it in the Financial Plan. In addition, the report
noted that gap-closing proposals set forth in the Financial Plan totalling $1.6
billion are at high risk of falling short of target. The proposals identified in
the report as high risk include (i) $800 million in expected State and Federal
assistance, primarily from savings in social service entitlement programs, which
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are dependent on the ultimate resolution of the Federal and State budgets; (ii)
$300 million from initiatives to privatize parking meters and other City assets;
(iii) $244 million to be received from the Port Authority as retroactive lease
payments for the City's two airports; and (iv) $181 million in spending cuts for
BOE. Moreover, the report expressed concern that the potential for budget cuts
at BOE could exceed $1 billion after taking into account the possible loss of
$453 million in proposed reductions in State and Federal funding. The report
also stated that non-recurring resources for the 1996 fiscal year have increased
to over $1.7 billion, approaching the unprecedented $2 billion used in the 1995
fiscal year, and that one-third of the 1997 fiscal year gap-closing program
already relies on one-time resources.
With respect to the economy, the report noted that, in a time of slow
economic growth, revenues continue to stagnate, and that the City's economic
forecast, which is premised on sluggish national growth, does not reflect the
potential for a national recession during the four years of the Financial Plan.
In addition, the report expressed concern that the City's economy, and City and
State tax revenues, are closely tied to swings in the financial markets, such as
rising interest rates, which sharply reduced the profits of securities firms in
1994, and rising equity markets, which raised personal income and business tax
collections in 1995, as well as economic conditions in Europe and Japan, which
are currently weak.
The report noted that Federal and State assistance is likely to be
significantly reduced and that there is little potential for significant new
revenues beyond those already reflected in the Financial Plan. The report
concluded that, despite the City's success in work force reduction and
entitlement savings, the Financial Plan shows an increasing imbalance between
the City's recurring revenues and expenditures.
On December 12, 1995, the City Comptroller issued a report noting that
the capacity of the City to issue general obligation debt could be reduced in
future years. The report noted that, under the State constitution, the City is
permitted to issue debt in an amount not greater than 10% of the average full
value of taxable real estate for the current year and preceding four years. The
report concluded that, if the value of taxable real property in each of 1998 and
1999 fiscal years continues to decline, reflecting the continuing trend of lower
values of taxable property, the City would have to continue to curtail its
capital program from the levels projected in the Financial Plan to remain within
the legal debt-incurring limit in those years. The City Comptroller recommended
that the City prioritize and improve the efficiency and administration of its
current capital plan to determine which capital projects can be delayed or
cancelled to further reduce capital expenditures and thus debt service over the
course of the Financial Plan.
On October 9, 1995, Standard & Poor's issued a report which concluded
that proposals to replace the graduated Federal income tax system with a "flat"
tax could be detrimental to the creditworthiness of certain municipal bonds. The
report noted that the elimination of Federal income tax deductions currently
available, including
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residential mortgage interest, property taxes and state and local income taxes,
could have a severe impact on funding methods under which municipalities
operate. With respect to property taxes, the report noted that the total
valuation of a municipality's tax base is affected by the affordability of real
estate and that elimination of mortgage interest deduction would result in a
significant reduction in affordability and, thus, in the demand for, and the
valuation of, real estate. The report noted that rapid losses in property
valuations would be felt by many municipalities, hurting their revenue raising
abilities. In addition, the report noted that the loss of the current deduction
for real property and state and local income taxes from Federal income tax
liability would make rate increases more difficult and increase pressures to
lower existing rates, and that the cost of borrowing for municipalities could
increase if the tax-exempt status of municipal bond interest is worth less to
investors. Finally, the report noted that tax anticipation notes issued in
anticipation of property taxes could be hurt by the imposition of a flat tax, if
uncertainty is introduced with regard to their repayment revenues, until
property values fully reflect the loss of mortgage and property tax deductions.
The City since 1981 has fully satisfied its seasonal financing needs in
the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. The City's current monthly cash flow forecast for the
1996 fiscal year shows a need of $2.4 billion of seasonal financing for the 1996
fiscal year, a portion of which will be met with the proceeds of notes. Seasonal
financing requirements for the 1995 fiscal year increased to $2.2 billion from
$1.75 billion and $1.4 billion in the 1994 and 1993 fiscal years, respectively.
The delay in the adoption of the State's budget for its 1992 fiscal year
required the City to issue $1.25 billion in short-term notes on May 7, 1991, and
the delay in the adoption of the State's budget for its 1991 fiscal year
required the City to issue $900 million in short-term notes on May 15, 1990.
Seasonal financing requirements were $2.25 billion and $3.65 billion in the 1992
and 1991 fiscal years, respectively.
The 1996-1999 Financial Plan is based on numerous assumptions, including
the condition of the City's and the region's economy and a modest employment
recovery and the concomitant receipt of economically sensitive tax revenues in
the amounts projected. The 1996-1999 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 1996 through 1999 fiscal years; continuation of interest
earnings assumptions for pension fund assets and current assumptions with
respect to wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State, in the context of the
State's current financial condition, to provide the aid contemplated by the
Financial Plan and to take various other actions to assist the City, including
the proposed entitlement spending reductions; the ability of HHC, BOE and other
such agencies to maintain balanced budgets; the willingness of the Federal
government to provide the amount of Federal aid contemplated in the Financial
Plan; adoption of the City's budgets by the City Council in substantially the
forms submitted by the Mayor; the ability of the City to implement proposed
reductions in City personnel and other cost reduction initiatives,
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and the success with which the City controls expenditures; the impact of
conditions in the real estate market on real estate tax revenues; approval by
MAC of the projected receipt of funds from MAC; the City's ability to market its
securities successfully in the public credit markets; and unanticipated
expenditures that may be incurred as a result of the need to maintain the City's
infrastructure. Certain of these assumptions have been questioned by the City
Comptroller and other public officials.
On June 7, 1995, the State adopted its Budget for the State's 1996
fiscal year, commencing April 1, 1995. Prior to adoption of the budget the State
had projected a potential budget gap of approximately $5 billion for its 1996
fiscal year. This gap is projected to be closed in the 1995-1996 State Financial
Plan based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
On January 30, 1996, the State issued an update to the 1995-1996 state
Financial Plan. These projections show continued balance in the State's
1995-1996 Financial Plan.
A significant risk to the State's projections arises from tax
legislation under consideration by Congress and the President.
Congressionally-adopted retroactive changes to Federal tax treatment of capital
gains would flow through automatically to the State personal income tax. Such
changes, if ultimately enacted, could produce revenue losses in both the
1995-1996 fiscal year and the 1996-1997 fiscal year. In addition, changes in
Federal aid programs, currently pending in Congress, could result in prolonged
interruptions in the receipt of Federal grants. According to the State Division
of the Budget, the major remaining uncertainties in the 1995- 1996 State
Financial Plan continue to be those related to the economy and tax collections,
which could produce either favorable or unfavorable variances during the balance
of the year.
The Governor presented his 1996-1997 Executive Budget to the Legislature
on December 15, 1995. The Legislature and the Comptroller will review the
Governor's Executive Budget and are expected to comment on it. There can be no
assurance that the Legislature will enact the Executive Budget into law, or that
the State's adopted
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budget projections will not differ materially and adversely from the projections
set forth in the Executive Budget.
The Governor's Executive Budget projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.3 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.2 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year.
The 1996-1997 Executive Budget proposes $3.9 billion in actions to
balance the 1996-97 State Financial Plan. The Executive Budget proposes to close
this gap primarily through a series of spending reductions and cost containment
measures. The Executive Budget projects (i) over $1.8 billion in savings from
cost containment and other actions in social welfare programs, including
Medicaid, welfare and various health and mental health programs; (ii) $1.3
billion in savings from a reduced State General Fund share of Medicaid made
available from anticipated changes in the Medicaid program, including an
increase in the Federal share of Medicaid; (iii) over $450 million in savings
from reforms and cost avoidance in educational services (including school aid
and higher education), while providing fiscal relief from certain State mandates
that increase local spending; and (iv) $350 million in savings from efficiencies
and reductions in other State programs. The State has noted that there is
considerable uncertainty as to the ultimate composition of the Federal budget,
including uncertainties regarding major Federal entitlement reforms. The
1996-1997 Executive Budget seeks to lessen the effect of the proposed cuts on
localities by granting certain mandate relief to permit them to exercise greater
flexibility in allocating their resources. However, no assurance can be given as
to the amount of savings which the City might realize from any of the Medicaid
cost containment or welfare reform measures proposed in the Executive Budget or
the size of any reductions in State aid to the City. Depending upon the amount
of such savings or the size of any such reduction in State aid, the City might
be required to make substantial additional changes in the Financial Plan.
The State Division of the Budget has noted that the economic and
financial condition of the State may be affected by various financial, social,
economic and political factors. Those factors can be very complex, can vary from
fiscal year to fiscal year, and are frequently the result of actions taken not
only by the State but also by entities, such as the Federal government, that are
outside the State's control. Because of the uncertainty and unpredictability of
these changes, their impact cannot be included in the assumptions underlying the
State's projections at this time. There can be no assurance that the State
economy will not experience results that are worse than predicted, with
corresponding material and adverse effects on the State's financial projections.
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To make progress toward addressing recurring budgetary imbalances, the
1996-97 Executive Budget proposes significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in future fiscal years. The 1996-1997
Executive Budget includes actions that will have an impact on receipts and
disbursements in future fiscal years. The net impact of these actions is
expected to produce a potential imbalance in State fiscal year 1997-98 of $1.4
billion and in the 1998-99 fiscal year of $2.5 billion, assuming implementation
of the 1996-97 Executive Budget recommendations. It is expected that the
Governor will propose to close these budget gaps with future spending
reductions.
Uncertainties with regard to both the economy and potential decisions at
the Federal level add further pressure on future budget balance in New York
State. For example, various proposals relating to Federal tax and spending
policies could, if enacted, have a significant impact on the State's financial
condition in the current and future fiscal years. Specific budget and tax
proposals under consideration at the Federal level but not included in the
State's 1996- 1997 Executive Budget forecast could also have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states.
In the State's 1996 fiscal year and in certain recent fiscal years, the
State has failed to enact a budget prior to the beginning of the State's fiscal
year. A delay in the adoption of the State's budget beyond the statutory April 1
deadline could delay the projected receipt by the City of State aid, and there
can be no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline. In the event that a State budget is not adopted
by the statutory deadline of April 1, 1996, temporary spending measures may be
adopted by the State pending the adoption of a Federal budget.
The projections and assumptions contained in the 1996-1999 Financial
Plan are subject to revision which may involve substantial change, and no
assurance can be given that these estimates and projections, which include
actions which the City expects will be taken but which are not within the City's
control, will be realized. Changes in major assumptions could significantly
affect the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements. The City's projections are
subject to the City's ability to implement the necessary service and personnel
reduction programs successfully.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if any,
on the proceedings and claims are not currently predictable,
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adverse determinations in certain of them might have a material adverse effect
upon the City's ability to carry out the 1996-99 Financial Plan. The City is a
party to numerous lawsuits and is the subject of numerous claims and
investigations. The City has estimated that its potential future liability on
account of outstanding claims against it as of June 30, 1995 amounted to
approximately $2.5 billion. This estimate was made by categorizing the various
claims and applying a statistical model, based primarily on actual settlements
by type of claim during the preceding ten fiscal years, and by supplementing the
estimated liability with information supplied by the City's Corporation Counsel.
On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector". Other
factors identified by S&P's in lowering its rating on City bonds included a
trend of using one-time measures, including debt refinancings, to close
projected budget gaps, dependence on unratified labor savings to help balance
the Financial Plan, optimistic projections of additional federal and State aid
or mandate relief, a history of cash flow difficulties caused by State budget
delays and continued high debt levels.
Fitch Investors Service, Inc. ("Fitch") rates City general obligation
bonds A-. Moody's rating for City general obligation bonds is Baa1. On March 1,
1996, Moody's put the City's Baa1 general obligation bond rating under review
for a possible downgrade pending the outcome of the adoption of the City's
budget for the 1997 fiscal year and in light of the status of the debate on
public assistance and Medicaid reform; the enactment of a State budget, upon
which major assumptions regarding State aid are dependent, which may be
extensively delayed; and the seasoning of the City's economy with regard to its
strength and direction in the face of a potential national economic slowdown.
Since July 15, 1993, Fitch has rated City bonds A-. On February 28, 1996, Fitch
placed the City's general obligation bonds on FitchAlert with negative
implications. There is no assurance that such ratings will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse effect
on the market prices of the City's general obligation bonds.
In 1975, S&P suspended its A rating of City bonds. This suspension
remained in effect until March 1981, at which time the City received an
investment grade rating of BBB from S&P. On July 2, 1985, S&P revised its rating
of City bonds upward to BBB+ and on November 19, 1987, to A-. On July 10, 1995,
S&P revised its rating of City bonds downward to BBB+, as discussed above.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. Since July 15, 1993, Fitch has
rated City bonds A-. On July 12, 1995, Fitch stated that the City's credit trend
remains "declining."
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APPENDIX D
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
CALIFORNIA MUNICIPAL OBLIGATIONS
Overview
The financial condition of the State of California ("California"), its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per unit and the interest
income of, the Tax-Exempt California Portfolio, or result in the default of
existing obligations, including obligations which may be held by the Tax-Exempt
California Portfolio. The following section provides only a brief summary of the
complex factors affecting the financial condition of California, and is based on
information obtained from California, as publicly available prior to the date of
this Statement of Additional Information. The information contained in such
publicly available documents has not been independently verified. It should be
noted that the creditworthiness of obligations issued by local issuers may be
unrelated to the creditworthiness of California, and that there is no obligation
on the part of California to make payment on such local obligations in the event
of default in the absence of a specific guarantee or pledge provided by
California.
California is experiencing significant financial difficulties, which have
reduced its credit standing. The ratings of certain related debt of other
issuers for which California has an outstanding lease purchase, guarantee or
other contractual obligation (such as for state-insured hospital bonds) are
generally linked directly to California's rating. Should the financial condition
of California deteriorate, its credit ratings could be further reduced, and the
market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.
Economic Factors. California's economy is the largest among the 50 states
(accounting for 13% of the nation's output of goods and services) and one of the
largest in the world. California's population of more than 31 million represents
over 12% of the total United States population and grew by 27% in the 1980s.
While California's substantial population growth during the 1980's stimulated
local economic growth and diversification and sustained a real estate boom
between 1984 and 1990, it has increased strains on California's limited water
resources and demands for government services and may impede future economic
growth. Population growth slowed between 1991 and 1993 even while substantial
immigration has continued, due to a significant increase in outmigration by
California residents. Generally, the household incomes of new residents have
been substantially lower (and their education and welfare utilization higher)
than those of departing households, which may have a major long-term
socioeconomic and fiscal impact. However, with the California economy improving,
the recent net outmigration within the Continental U.S. is expected to decrease
or be reversed.
From mid-1990 to late 1993, California's economy suffered its worst
recession since the 1930s, with recovery starting later than for the nation as
a whole. California has experienced the worst job losses of any post-war
recession. Prerecession job levels may not be realized until near the end of the
decade. The largest job losses have been in Southern California, led by declines
in the aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on California's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing but slowing job losses in the aerospace industry and restructuring of
the finance and utility sectors. Unemployment in California is down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales are up strongly in 1994 from
year-earlier figures. Delay or slowdown in recovery will adversely affect
California's revenues.
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Orange County. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Pooled Funds") filed
for protection under chapter 9 of the federal Bankruptcy Code, after reports
that the Pooled Funds had suffered significant market losses in their
investments causing a liquidity crisis for the Pooled Funds and the County. More
than 180 other public entities, most but not all located in the County, were
also depositors in the Pooled Funds. As of mid-January, 1995, the County
estimated the Pooled Funds' loss at about $1.8 billion, or 22% of its initial
deposits of around $7.5 billion. The Pooled Funds have been almost completely
restructured to reduce their exposure to changes in interest rates. Many of the
entities which kept moneys in the Pooled Funds, including the County, are facing
cash flow difficulties because of the bankruptcy filing and may be required to
reduce programs or capital projects. The County and some of these entities have,
and others may in the future, defaulted in payment of their obligations. Moody's
and Standard & Poor's have suspended, reduced to below investment grade levels,
or placed on "Credit Watch" various securities of the County and the entities
participating in the Pooled Funds.
The State of California has no existing obligation with respect to any
outstanding obligations or securities of the County or any of the other
participating entities. However, the State may be obligated to ensure that
school districts have sufficient funds to operate or to maintain certain county
administered state programs.
Constitutional Limitations on Taxes and Appropriations
Limitations on Taxes. Certain California Instruments may be obligations of
issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing power of California local
governments and districts is limited by Article XIIIA of the California
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the voters
of the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
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Appropriation Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" excludes most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post
1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population and any transfer of service
responsibilities between governmental units. The definitions for such
adjustments were liberalized in 1990 to follow more closely growth in the
State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% paid to schools and community colleges. With more liberal annual adjustment
factors since 1988, and depressed revenues since 1990 because of the recession,
few governments, including the State, are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies of their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIIIA or Article XIIIB on California Instruments. It is not presently
possible to predict the outcome of any pending litigation with respect to the
ultimate scope, impact or constitutionality of either Article XIIIA or Article
XIIIB, or the impact of any such determinations upon State agencies or local
governments, or upon their ability to pay debt service or their obligations.
Future initiatives or legislative changes in laws or the California Constitution
may also affect the ability of the State or local issuers to repay their
obligations.
State Debt. Under the California Constitution, debt service on
outstanding general obligation bonds is the second charge to the General Fund
after support of the public school system and public institutions of higher
education. Total outstanding general obligation bonds and lease purchase debt of
California increased from $9.4 billion at June 30, 1987 to $23 billion at June
30, 1994. In FY1993-94, debt service on general obligation bonds and lease
purchase debt was approximately 5.2% of General Fund revenues.
D-3
<PAGE>
Cash Flow Requirements. To meet its seasonal cash flow needs, California
has used internal borrowing resources (temporary loans from the Special Fund for
Economic Uncertainties and its special funds) and issued tax and revenue
anticipation notes. California's short term borrowing requirements in the public
credit markets have increased substantially in recent years, rising from $3.0
billion in FY1987-88 to $7.0 billion in 1994-95. Because of the accumulated
budget deficit over the past several years (described below), the payment of
certain unbudgeted expenditures to schools to maintain constant per-pupil aid
levels, and a reduction of the level of available internal borrowing,
California's cash resources have been significantly depleted. This has required
California to rely on a series of external borrowings for the past several years
to pay its normal expenses, including repayment of previous cash flow
borrowings. Since June 1992, some of these borrowings have gone past the end of
the fiscal year. In February 1994, California borrowed $3.2 billion, maturing by
December 1994. In July 1994, California borrowed a total of $7.0 billion to meet
its cash flow requirements for the 1994-95 fiscal year, and to fund a part of
its deficit into the 1995-96 fiscal year. A total of $4.0 billion of this
borrowing matures in April 1996. California will continue to have to rely on
external borrowing to meet its cash needs for the foreseeable future. No
assurance can be given that California will be able to continue to meet its
financing requirements in the public credit markets at the times or in the
amounts required.
Recent Financial Results. The principal sources of General Fund revenues
in 1992-1993 were the California personal income tax (44% of total revenues),
the sales tax (38%), bank and corporation taxes (12%), and the gross premium tax
on insurance (3%). California maintains a Special Fund for Economic
Uncertainties, derived from General Fund revenues, as a reserve to meet cash
needs of the General Fund.
General. Throughout the 1980s, California state spending increased
rapidly as California's population and economy also grew rapidly, including
increased spending for many assistance programs to local governments, which were
constrained by Proposition 13 and other laws. The largest state program is
assistance to local public school districts. In 1988, an initiative (Proposition
98) was enacted which (subject to suspension by a two-thirds vote of the
Legislature and the Governor) guarantees local school districts and community
college districts a minimum share of California General Fund revenues (currently
33%).
Since the start of 1990-91 Fiscal Year, California has faced adverse
economic, fiscal and budget conditions. The economic recession seriously
affected California's tax revenues. It also caused increased expenditures for
health and welfare programs. California is also facing a structural imbalance in
its budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates higher than the growth rates
for the principal revenue sources of the General Fund. These structural
concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes" law enacted in 1994. As a result, California entered a
period of budget imbalance, with expenditures exceeding revenues for four of the
five fiscal years ending in 1991-92; revenues and expenditures were about equal
in 1992-93. By June 30, 1993, California's General Fund had an accumulated
deficit, on a budget basis, of approximately $2.8 billion.
Recent Budgets. California failed to enact its 1992-93 budget by July 1,
1992. Although the State of California had no legal authority to pay many of its
vendors, certain obligations (such as debt service, school apportionments,
welfare payments and employee salaries) were payable because of continuing or
special appropriations, or court orders. However, California's Controller did
not have enough cash to pay as they came due all of these ongoing obligations,
as well as valid obligations incurred in the prior fiscal year.
D-4
<PAGE>
Starting on July 1, 1992, the Controller was required to issue
"registered warrants" in lieu of normal warrants backed by cash to pay many
State obligations. Available cash was used to pay constitutionally mandated and
priority obligations. Between July 1 and September 3, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered warrants all of
which were called for redemption by September 4, 1992 following enactment of the
1992-93 Budget Act and issuance by California of short-term notes.
The 1992-93 Budget Act, when finally adopted, was projected to eliminate
California's accumulated deficit, with additional expenditure cuts and a $1.3
billion transfer of state education funding costs to local governments by
shifting local property taxes to school districts. However, as the recession
continued longer and deeper than expected, revenues once again were far below
projections, and only reached a level just equal to the amount of expenditures.
Thus, California continued to carry its $2.8 billion budget deficit at June 30,
1993.
The 1993-94 Budget Act represented a third consecutive year of difficult
budget choices. As in the prior year, the budget contained no general state tax
increases, and relied principally on expenditure costs, particularly for health
and welfare and higher education, a two-year suspension of the renters' tax
credit, some one-time and accounting adjustments, and -- the largest component
- -- an additional $2.6 billion transer of property taxes from local government,
particularly counties, to school districts to reduce state education funding
requirements. A temporary state sales tax scheduled to expire on June 30, 1993
was extended for six months, and dedicated to support local government public
safety costs.
A major feature of the budget was a two-year plan to eliminate the
accumulated deficit by borrowing into the 1994-95 fiscal year. With the
recession still continuing longer than expected, the General Fund had $800
million less revenue and $800 million higher expenditures than budgeted. As a
result revenues only exceed expenditures by about $500 million. However, this
was the first operating surplus in four years and reduced the accumulated
deficit to $2.0 billion at June 30, 1994 (after taking account of certain other
accounting reserves).
Current Budget. The 1994-95 Budget Act was passed on July 8, 1994, and
provides for an estimated $41.9 billion of General Fund revenues, and $40.9
billion of expenditures. The budget assumed receipt of about $750 million of new
federal assistance for the costs of incarceration, education, health and welfare
related to undocumented immigrants. Other major components of the budget
include further reductions in health and welfare costs and miscellaneous
government costs, some additional transfers of funds from local government, and
a plan to defer retirement of $1 billion of the accumulated budget deficit to
the 1995-96 fiscal year. The federal government has apparently budgeted only $33
million of the expected immigration aid. However, this shortfall is expected to
be almost fully offset by higher than projected revenues, and lower than
projected caseload growth, as the economy improves.
As noted above under "Cash Flow Requirements," California issued $7.0
billion of short-term debt in July, 1994 to meet its cash flow needs and to
finance the deferral of part of the accumulated budget deficit to the 1995-96
fiscal year. In order to assure repayment of the $4 billion, 22-month part of
this borrowing, California enacted legislation (the "Trigger Law") which can
lead to automatic, across-the-board cuts in General Fund expenditures in either
the 1994-95 or 1995-96 fiscal years if cash flow projections made at certain
times during those years show deterioration from the projections made in July
1994 when the borrowings were made. On November 15, 1994, California's
Controller as part of the Trigger Law reported that the cash position of the
General Fund on June 30, 1995 would be about $580 million better than earlier
projected, so no automatic budget adjustments were required in 1994-95. The
Controller's report showed that loss of federal funds was offset by higher
revenues, lower expenditures, and certain other increases in cash resources.
D-5
<PAGE>
Proposed 1995-96 Budget. On January 10, 1995, the Governor presented his
proposed FY1995-96 Budget. This budget projects total General Fund revenues and
transfers of $42.5 billion, and expenditures of $41.7 billion, to complete the
elimination of the accumulated deficits from earlier years. However, this
proposal leaves no cushion, as the projected budget reserve at June 30, 1996
would be only about $92 million. While proposing increases in funding for
schools, universities and corrections, the Governor proposes further cuts in
welfare programs, and a continuation of the "realignment" of functions with
counties which would save California about $240 million. The Governor also
expects about $800 million in new federal aid for California's costs of
incarcerating and educating illegal immigrants. The Budget proposal also does
not account for possible additional costs if California loses its appeals on
lawsuits which are currently pending concerning such matters as school funding
and pension payments, but these appeals could take several years to resolve.
Part of the Governor's proposal also is a 15% cut in personal income and
corporate taxes, to be phased in over three years, starting with calendar year
1996 (which would have only a small impact on 1995-96 income).
California's difficult financial condition for the current and upcoming
years will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on state aid. Despite
efforts in recent years to increase taxes and reduce governmental expenditures,
there can be no assurance that California will not face budget gaps in the
future.
Bond Ratings. State general obligation bond ratings were reduced in July
1994 to "A1" by Moody's Investors Services, Inc. ("Moody's") and "A" by Standard
& Poor's Ratings Group ("S&P"). Both of these ratings were reduced from "AAA"
levels which California held until late 1991. There can be no assurance that
such ratings will be maintained in the future. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and that there is no obligation on the part of California to make
payment on such obligations in the event of default.
Legal Proceedings. Calfornia is involved in certain legal proceedings
(described in California's recent financial statements) that, if decided against
California, may require California to make significant future expenditures or
may substantially impair revenues. Trial courts have recently entered tentative
decisions or injunctions which would overturn several parts of the state's
recent budget compromises. The matters covered by these lawsuits include a
deferral of payments by California to the Public Employees Retirement System,
reductions in welfare payments and the use of certain cigarette tax funds for
health costs. All of these cases are subject to further proceedings and appeals,
and if California eventually loses, the final remedies may not have to be
implemented in one year.
D-6
<PAGE>
Obligations of Other Issuers
Other Issuers of California Instruments. There are a number of state
agencies, instrumentalities and political subdivisions of the State of
California that issue municipal obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them may vary considerably from the credit
quality of obligations backed by the full faith and credit of the State of
California.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
California's General Fund surplus to local agencies, the reallocation of certain
state revenues to local agencies and the assumption of certain governmental
functions by the State of California to assist municipal issuers to raise
revenues. Through 1990-91, local assistance (including public schools) accounted
for around 75% of General Fund spending. To reduce California General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer a total of $3.9 billion of property tax revenues to
school districts, representing loss of all the post-Proposition 13 "bailout"
aid. The largest share of these transfers came from counties, and the balance
from cities, special districts and redevelopment agencies. In order to make up
part of this shortfall, the Legislature proposed, and voters approved in 1993,
dedicating 0.5% of the sales tax to counties and cities for public safety
purposes. In addition, the Legislature has changed laws to relieve local
governments of certain mandates, allowing them to reduce costs.
To the extent that California should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of state
assistance to local governments may continue to be reduced. Any such reductions
in state aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. At least one rural county
(Butte) publicly announced that it might enter bankruptcy proceedings in August
1990, although such plans were put off after the Governor approved legislation
to provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. The Richmond Unified School
District (Contra Costa County) entered bankruptcy proceedings in May 1991, but
the proceedings have been dismissed.
Assessment Bonds. California Instruments which are assessment bonds may
be adversely affected by a general decline in real estate values or a slowdown
in real estate sales activity. In many cases, such bonds are secured by land
which is undeveloped at the time of issuance but anticipated to be developed
within a few years after issuance. In the event of such reduction or slowdown,
such development may not occur or may be delayed, thereby increasing the risk of
a default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most cases
the issuer of these bonds is not required to make payments on the bonds in the
event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
D-7
<PAGE>
California Long-Term Lease Obligations. Certain California long-term
lease obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
in unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common cases of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g. due to earthquake). In the event abatement occurs with respect to
a lease obligation, lease payments may be interrupted (if all available
insurance proceeds and reserves are exhausted) and the certificates may not be
paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a state receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State of California was a named defendant (on the grounds
that it controlled the District's finances). One of the defenses raised in
answer to this lawsuit was the invalidity of the District's lease. The trial
court upheld the validity of the lease, and the case was subsequently settled.
Any ultimate judgment in any future case against the position taken by the
Trustee may have adverse implications for lease transactions of a similar nature
by other California entities.
Other Considerations
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in state regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g. because of major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which typically are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
D-8
<PAGE>
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California Instruments in which the California Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Instruments.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any security in the California Portfolio could be affected by
an interruption of revenues because of damaged facilities, or, consequently,
income tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or state government to appropriate
sufficient funds within their respective budget limitations.
D-9
<PAGE>
PART C
<PAGE>
MUTUAL FUND TRUST
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial statements:
In Part A: Financial Highlights.
In Part B: Financial Statements and the Reports thereon
for the Funds filed herein, other than Vista 100% U.S.
Treasury Securities Money Market Fund and Vista Cash
Management Fund, for the fiscal year ended August 31,
1995 are incorporated by reference into Part B as part
of the 1995 Annual Reports to Shareholders for such
Funds included as Exhibit 12 to Post-Effective
Amendment No. 3 of the Registrant filed on October 31,
1995, which are incorporated into Part B by reference.
Financial Statements and the Reports thereon for The
100% U.S. Treasury Securities Money Market Fund and
The Cash Management Fund of The Hanover Funds, Inc.
for the fiscal year ended November 30, 1995 are
incorporated by reference into Part B as part of the
1995 Annual Reports to Shareholders for such funds as
filed with the Securities and Exchange Commission by
The Hanover Funds, Inc. on Form N-30D on February 2,
1996, accession number 0000950123-96-000335, which are
incorporated into Part B by reference.
In Part C: None.
(b) Exhibits:
Exhibit
Number
- -------
1 Declaration of Trust. (1)
2 By-laws. (1)
3 None.
4 Specimen share certificate. (4)
5(a) Form of Investment Advisory Agreement. (1) and (3)
5(b) Form of Interim Investment Advisory Agreement.(6)
5(c) Form of Proposed Investment Advisory Agreement.(6)
5(d) Form of Proposed Investment Subadvisory Agreement between The Chase
Manhattan Bank and Chase Asset Management, Inc.(6)
5(e) Form of Proposed Investment Sub-Advisory Agreement between The
Chase Manhattan Bank and [Chase Asset Management/Texas Commerce
Bank, National Association]. (7)
5(f) Form of Administration Agreement. (1) and (3)
5(g) Form of Administration Agreement.(6)
6(a) Form of Distribution and Sub-Administration Agreement. (1)
6(b) Distribution and Sub-Administration Agreement dated August 21,
1995.(6)
7(a) Retirement Plan for Eligible Trustees.(6)
7(b) Deferred Compensation Plan for Eligible Trustees.(6)
8(a) Form of Custodian Agreement. (1)
8(b) None.
9(a) Form of Transfer Agency Agreement. (1)
9(b) Form of Shareholder Servicing Agreement. (1)
9(c) Form of Shareholder Servicing Agreement. (6)
9(d) Agreement and Plan of Reorganization and Liquidation.(6)
10(a) Opinion of Reid & Priest re: Legality of Securities being
Registered. (2)
11(a) Consent of Price Waterhouse LLP. (8)
11(b) Consent of KPMG Peat Marwick LLP. (8)
12 None.
13 N/A.
14 None.
15(a) Forms of Rule 12b-1 Distribution Plans including Selected Dealer
Agreements and Shareholder Service Agreements. (1) and (3)
15(b) Form of Proposed Rule 12b-1 Distribution Plan (including forms of
Selected Dealer Agreement and Shareholder Servicing Agreement).(6)
16. Schedule for Computation of Each Performance Quotation.(6)
C-1
<PAGE>
17. Financial Data Schedule. (8)
18. Form of Rule 18f-3 Multi-Class Plan. (6)
- -------------------
(1) Filed as an Exhibit to the Registration Statement on Form N-1A of the
Registrant (File No. 33-75250) as filed with the Securities and Exchange
Commission on February 14, 1994.
(2) Filed as an Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of the Registrant (File No. 33-75250) as filed with
the Securities and Exchange Commission on April 18, 1994.
(3) Filed as an Exhibit to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of the Registrant (File No. 33-75250) as filed with
the Securities and Exchange Commission on August 29, 1994.
(4) Filed as an Exhibit to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A of the Registrant (File No. 33-75250) as filed with
the Securities and Exchange Commission on October 28, 1994.
(5) Filed as an Exhibit to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A of the Registrant (File No. 33- 75250) as filed
with the Securities and Exchange Commission on October 31, 1995.
(6) Filed as an Exhibit to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A of the Registrant as filed with the Securities and
Exchange Commission on December 28, 1995.
(7) Filed as an Exhibit to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A of the Registrant as filed with the Securities and
Exchange Commission on March 7, 1996.
(8) Filed herewith.
ITEM 25. Persons Controlled by or Under Common
Control with Registrant
Not applicable
ITEM 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Series January 31, 1996
--------------- -----------------
None
Vista Premier Institutional Class A Class B
Shares Shares Shares Shares Shares
------ ------ ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Vista(SM) Treasury Plus
Money Market Fund N/A 30 28 N/A N/A
Vista(SM) Federal Money
Market Fund 8,401 214 16 N/A N/A
Vista(SM) U.S. Government
Money Market Fund 4,226 502 122 N/A N/A
Vista(SM) Cash Management
Fund 3,303 380 66 N/A N/A
Vista(SM) Prime Money
Market Fund N/A 103 38 N/A 243
Vista(SM) Tax Free Money
Market Fund 642 205 35 N/A N/A
Vista(SM) California Tax Free
Money Market Fund 74 N/A N/A N/A N/A
Vista(SM) New York Tax Free
Money Market Fund 3,913 N/A N/A N/A N/A
Vista(SM) 100% U.S. Treasury
Securities Money Market Fund 0 0 0 N/A N/A
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Vista Premier Institution Class A Class B
Shares Shares Shares Shares Shares
------ ------ ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Vista(SM) Tax Free Income
Fund 3,138 N/A N/A N/A 606
Vista(SM) New York Tax Free
Income Fund 3,024 N/A N/A N/A 465
Vista(SM) California Intermediate
Tax Free Income Fund 700 N/A N/A N/A N/A
</TABLE>
ITEM 27. Indemnification
Reference is hereby made to Article V of the Registrant's Declaration
of Trust.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser, administrator and distributor are insured
under an errors and omissions liability insurance policy. The Registrant and
its officers are also insured under the fidelity bond required by Rule 17g-1
under the Investment Company Act of 1940.
Under the terms of the Registrant's Declaration of Trust, the
Registrant may indemnify any person who was or is a Trustee, officer or
employee of the Registrant to the maximum extent permitted by law; provided,
however, that any such indemnification (unless ordered by a court) shall be
made by the Registrant only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Trustees, by a
majority vote of a quorum which consists of Trustees who are neither in Section
2(a)(19) of the Investment Company Act of 1940, nor parties to the proceeding,
or (ii) if the required quorum is not obtainable or, if a quorum of such
Trustees so directs, by independent legal counsel in a written opinion. No
indemnification will be provided by the Registrant to any Trustee or officer of
the Registrant for any liability to the Registrant or shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Insofar as the conditional advancing of indemnification monies for
actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must
be limited to amounts used, or to be used, for the preparation or presentation
of a defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds that amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification; and (iii) (a) such
promise must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against
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<PAGE>
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of it counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28 Business and Other Connections of Investment Adviser
The Chase Manhattan Bank, N.A. (the "Adviser") is a commercial bank
providing a wide range of banking and investment services.
To the knowledge of the Registrant, none of the Directors or
executive officers of the Adviser, except those described below, are or have
been, at any time during the past two years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
Directors and executive officers of the Adviser also hold or have held various
positions with bank and non-bank affiliates of the Adviser, including its
parent, The Chase Manhattan Corporation. Each Director listed below is also a
Director of The Chase Manhattan Corporation.
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ------------- -----------------------------
<S> <C> <C>
Thomas G. Labreque Chairman of the Board, Chairman, Chief Executive Officer
Chief Executive Officer and a Director of The Chase
and Director Manhattan Corporation and a
Director of AMAX, Inc.
Richard J. Boyle Vice Chairman of the Vice Chairman of the Board and a
Board and Director Director of The Chase Manhattan
Corporation and Trustee of
Prudential Realty Trust
Robert R. Douglass Vice Chairman of the Vice Chairman of the Board and a
Board and Director Director of The Chase Manhattan
Corporation and Trustee of HRE
Properties
Joan Ganz Cooney Director Chairman of the Executive
Committee of the Board of
Trustees, formerly Chief Executive
Officer of Children's Television
Workshop and a Director of each
of Johnson & Johnson,
Metropolitan Life Insurance
Company and Xerox Corporation
Edward S. Finkelstein Director Retired Chairman and Chief
Executive Officer and Director of
R.H. Macy & Co., Inc. and a
Director of Time Warner Inc.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ------------- -----------------------------
<S> <C> <C>
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director of
Amoco Corporation and Director of
Abbott Laboratories
Howard C. Kauffman Director Retired President of Exxon
Corporation and a Director of each
of Pfizer Inc. and Ryder System,
Inc.
Paul W. MacAvoy Director Dean of Yale School of
Organization and Management
David T. McLaughlin Director President and Chief Executive
Officer of The Aspen Institute,
Chairman of Standard Fuse
Corporation and a Director of each
of ARCO Chemical Company and
Westinghouse Electric Corporation
Edmund T. Pratt, Jr. Director Chairman Emeritus, formerly
Chairman and Chief Executive
Officer, of Pfizer Inc. and a
Director of each of Pfizer, Inc.,
Celgene Corp., General Motors
Corporation and International Paper
Company
Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine
Company, Inc. and a Director of
each of American Telephone and
Telegraph Company and CBS Inc.
A. Alfred Taubman Director Chairman and Director, formerly
also Chief Executive Officer, of
The Taubman Company, Inc.,
majority shareholder and Chairman
of Sotheby's Holdings, Inc., owner
of Woodward & Lothrop, Inc. and
its subsidiary, John Wanamaker,
and Chairman of A&W
Restaurants, Inc. and a Director of
R.H. Macy & Co., Inc.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or Other
Position with Employment of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ------------- -----------------------------
<S> <C> <C>
Donald H. Trautlein Director President and Chief Executive
Officer of The Aspen Institute,
Chairman of Standard Fuse
Corporation and a Director of
each of ARCO Chemical
Company and Westinghouse
Electric Corporation
Kay R. Whitmore Director Chairman of the Board,
President and Chief Executive
Officer and Director of Eastman
Kodak Company
</TABLE>
ITEM 29. Principal Underwriters
(a) Vista Fund Distributors, Inc., a wholly-owned subsidiary of
The BISYS Group, Inc. is the underwriter for the Registrant.
(b) The following are the Directors and officers of Vista Fund
Distributors, Inc. The principal business address of each of these persons,
with the exception of Mr. Spicer, is 101 Park Avenue, New York, New York 10178.
The principal business address of Mr. Spicer is One Bush Street, San Francisco,
California 94104.
<TABLE>
<CAPTION>
Position and Offices Position and Offices
Name with Distributor with the Registrant
- ---- -------------------- --------------------
<S> <C> <C>
William B. Blundin Director Chief Executive Officer None
Richard E. Stierwalt Director Chief Operating Officer None
Timothy M. Spicer Director Chairman of the Board None
Joseph Kissel President None
George Martinez Chief Compliance Officer Secretary and
and Secretary Assistant Treasurer
</TABLE>
(c) Not applicable
ITEM 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or
in part, at the office of the Registrant and the following locations:
C-6
<PAGE>
Name Address
---- -------
Vista Fund Distributors, Inc. 101 Park Avenue,
New York, NY 10022
DST Systems, Inc. 210 W. 10th Street,
Kansas City, MO 64105
The Chase Manhattan Bank 270 Park Avenue,
New York, NY 10017
The Chase Manhattan Bank One Chase Square,
Rochester, NY 14363
Chase Asset Management, Inc. 1211 Avenue of the
Americas,
New York, NY 10036
Texas Commerce Bank, National Association 600 Travis,
Houston, TX 77002
ITEM 31. Management Services
Not applicable
ITEM 32. Undertakings
(1) Registrant undertakes that its trustees shall promptly call a
meeting of shareholders of the Trust for the purpose of voting upon the
question of removal of any such trustee or trustees when requested in writing
so to do by the record holders of not less than 10 per centum of the
outstanding shares of the Trust. In addition, the Registrant shall, in certain
circumstances, give such shareholders assistance in communicating with other
shareholders of a fund as required by Section 16(c) of the Investment Company
Act of 1940.
(2) The Registrant, on behalf of the Funds, undertakes, provided the
information required by Item 5A is contained in the latest annual report to
shareholders, to furnish to each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the Registrant's
latest annual report to shareholders.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has certified that it meets all
of the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York on the 18th day of April, 1996.
MUTUAL FUND TRUST
By /s/ H. Richard Vartabedian
------------------------------
H. Richard Vartabedian
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Fergus Reid, III Chairman and Trustee April 18, 1996
- -----------------------------
Fergus Reid, III
/s/ William J. Armstrong Trustee April 18, 1996
- -----------------------------
William J. Armstrong
/s/ John R.H. Blum Trustee April 18, 1996
- -----------------------------
John R.H. Blum
/s/ Joseph J. Harkins Trustee April 18, 1996
- -----------------------------
Joseph J. Harkins
/s/ Richard E. Ten Haken Trustee April 18, 1996
- -----------------------------
Richard E. Ten Haken
/s/ H. Richard Vartebedian Trustee April 18, 1996
- -----------------------------
H. Richard Vartebedian
/s/ Irving L. Thodie Trustee April 18, 1996
- -----------------------------
Irving L. Thodie
/s/ Stuart W. Cragin Trustee April 18, 1996
- -----------------------------
Stuart W. Cragin
/s/ Martin R. Dean Treasurer and April 18, 1996
- ----------------------------- Principal Financial
Martin R. Dean Officer
C-8
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- -------
11(a) Consent of Price Waterhouse LLP.
11(b) Consent of KPMG Peat Marwick LLP.
17 Financial Data Schedules (filed as Exhibit 27 in Edgar)
C-9
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 6 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated October 13, 1995, relating to the financial
statements and selected per share data and ratios for a share of beneficial
interest outstanding appearing in the August 31, 1995 Annual Reports to
Shareholders of Vista U.S. Government Money Market Fund, Vista Treasury Plus
Money Market Fund, Vista Federal Money Market Fund, Vista Prime Money Market
Fund, Vista Tax Free Money Market Fund, Vista New York Tax Free Money Market
Fund, Vista California Tax Free Money Market Fund, Vista Tax Free Income Fund,
Vista New York Tax Free Income Fund and Vista California Intermediate Tax Free
Fund (separately managed portfolios of Mutual Fund Trust), which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the heading "Independent Accountants" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 11, 1996
Independent Auditors' Consent
To the Shareholders and Board of Directors of The Hanover Funds, Inc.:
We consent to the use of our report dated January 19, 1996 with respect to The
100% U.S. Treasury Securities Money Market Fund and The Cash Management Fund
incorporated herein by reference and to the references to our Firm under the
headings "Financial Highlights" in the Prospectuses and "Independent
Accountants" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
April 19, 1996
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<TOTAL-LIABILITIES> 145,000
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<NET-CHANGE-IN-ASSETS> (3,517,119)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INVESTMENTS-AT-VALUE> 921,696,807
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