Rule 497 (c)
File Number33-75250
VISTA(SM) SHARES PROSPECTUS -- DECEMBER 31, 1995
Mutual Fund Trust (the "Trust") is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994, presently consisting of 11 separate series
(the "Fund" or the "Funds"). Under a multi-class distribution system, the money
market funds may be offered through three separate classes of shares (the
"Shares"). The Vista Shares described in and offered pursuant to this Prospectus
are offered through the Vista California Tax Free Money Market Fund, Vista New
York Tax Free Money Market Fund, Vista Tax Free Money Market Fund, Vista U.S.
Government Money Market Fund, Vista Global Money Market Fund and Vista Federal
Money Market Fund (the "Vista Shares"). The Premier Shares of the money market
Funds are offered only to institutional clients and are sold under a separate
prospectus. The Institutional Shares of the money market funds are also sold
under a separate prospectus available only to qualified institutional investors
making an initial investment of at least $1,000,000. Because the tax free money
market Funds in this Prospectus are "non-diversified", more than 5% of such
Fund's assets may be invested in the obligations of any single issuer, which may
make the value of shares of a Fund more susceptible to certain risks than shares
of a diversified mutual fund. Each Fund offered through this Prospectus has a
different investment objective, as follows:
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND ("CA TAX FREE FUND") seeks 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 will invest primarily in the debt securities
of the State of California, its political subdivisions, authorities and
corporations, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from federal and State of California personal income taxes.
VISTA NEW YORK TAX FREE MONEY MARKET FUND ("N.Y. TAX FREE FUND") seeks to
provide as high a level of current income which is excluded from gross income
for federal income tax purposes and exempt from New York State and New York City
personal income taxes as is consistent with the preservation of capital and
maintenance of liquidity, through investments primarily in short-term municipal
obligations issued by or on behalf of the State of New York, its
instrumentalities or political subdivisions.
VISTA TAX FREE MONEY MARKET FUND ("TAX FREE FUND") seeks 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, through investments primarily in short-term municipal obligations.
VISTA U.S. GOVERNMENT MONEY MARKET FUND ("U.S. GOVERNMENT FUND") seeks to
provide as high a level of current income as is consistent with the preservation
of capital and maintenance of liquidity, through investments in obligations
issued or guaranteed by the U.S. Treasury, agencies of the U.S. Government or
instrumentalities that have been established or sponsored by the U.S. Government
and repurchase agreements collateralized by such securities.
VISTA GLOBAL MONEY MARKET FUND ("GLOBAL FUND") seeks to provide maximum current
income consistent with preservation of capital and maintenance of liquidity
through investments in U.S. Dollar denominated commercial paper, obligations of
foreign governments, obligations guaranteed by U.S. banks, and securities issued
by the U.S. Government or its agencies.
VISTA FEDERAL MONEY MARKET FUND ("FEDERAL FUND") seeks to provide current income
consistent with the preservation of capital and the maintenance of liquidity,
through investments in obligations issued or guaranteed as to principal and
interest by the U.S. Government or by U.S. Government agencies or
instrumentalities, the interest income from which, under current federal law,
generally may not be subject to state or local income taxes. The Federal Fund is
structured to provide shareholders with income which is exempt from state and
local income taxes.
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.
The Chase Manhattan Bank, N.A. ("Chase") is the investment adviser (the
"Adviser"), custodian (the "Custodian"), administrator ("the Administrator") and
Shareholder Servicing Agent for each of the Vista Money Market Funds described
in this Prospectus. VISTA BROKER-DEALER SERVICES, INC.
<PAGE>
("VBDS") IS THE FUNDS' DISTRIBUTOR AND IS UNAFFILIATED WITH CHASE. INVESTMENTS
IN THE FUNDS 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, N.A. OR ANY OF ITS AFFILIATES AND ARE NOT
FEDERALLY 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.
AN INVESTMENT IN EACH FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. Prospective investors should
carefully consider the risks associated with an investment in a Fund. For a
further discussion on the risks associated with an investment in a Fund, see
"Investment Objectives and Policies" in this Prospectus. There can be no
assurance that the Funds will achieve their investment objectives.
The Vista Shares are continuously offered for sale without a sales load
through VBDS, the Fund's distributor (the "Distributor"), to customers of a
financial institution, such as a federal or state-chartered bank, trust company
or savings and loan association with which the Trust has entered into a
shareholder servicing agreement (collectively, "Shareholder Servicing Agents")
or securities brokers or certain financial institutions which have entered into
Selected Dealer Agreements with the Distributor. Each of the Vista Shares, other
than the Global Fund, has a distribution plan and may incur distribution
expenses, at an annual rate, not to exceed a specified percentage of its average
daily net assets. An investor should obtain from his Shareholder Servicing
Agent, if appropriate, and should read in conjunction with this Prospectus, the
materials provided by the Shareholder Servicing Agent describing the procedures
under which Vista Shares may be purchased and redeemed through such Shareholder
Servicing Agent. Shares may be redeemed by shareholders at the net asset value
next determined on any Fund Business Day as hereinafter defined.
This Prospectus sets forth concisely information concerning each Fund and
its Vista Shares that a prospective investor ought to know before investing. A
Statement of Additional Information dated December 31, 1995 containing more
detailed information about the Funds has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. An
investor may obtain a copy of the Statement of Additional Information for the
Vista Shares without charge by contacting his Shareholder Servicing Agent, the
Distributor or the Fund.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
For information about each of the Vista Shares, simply call the Vista
Service Center at 1-800-34-VISTA.
TABLE OF CONTENTS
Expense Summary........................................................... 3
Financial Highlights...................................................... 4
Investment Objectives and Policies........................................ 10
Vista California Tax Free Money Market Fund........................... 10
Vista New York Tax Free Money Market Fund............................. 11
Vista Tax Free Money Market Fund...................................... 12
Vista U.S. Government Money Market Fund............................... 13
Vista Global Money Market Fund........................................ 14
Vista Federal Money Market Fund....................................... 15
Management of the Funds................................................... 16
Purchases and Redemptions of Shares....................................... 18
Tax Matters............................................................... 23
Other Information Concerning Shares of the Funds.......................... 26
Shareholder Servicing Agents, Transfer Agent and Custodian................ 31
Additional Information on Investment Policies and Techniques.............. 33
Common Fund Policies and Other Information................................ 35
Yield and Performance Information......................................... 44
Appendix A
Description of Ratings................................................ A-1
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
U.S.
CALIFORNIA N.Y. TAX TAX GOVERNMENT GLOBAL
TAX FREE FREE MONEY FREE MONEY MONEY
MM MARKET MONEY MARKET MARKET FEDERAL
FUND FUND MARKET FUND FUND FUND
---------- ---------- ------ ---------- ------ -------
VISTA VISTA VISTA VISTA VISTA VISTA
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses After Waiver
of Fees* (as a percentage of average net
assets)
Investment Advisory Fee.................... 0.05% 0.10% 0.10 % 0.10% 0.10 % 0.10%
Rule 12b-1 Distribution Plan Fee (After
Waiver of Fees)............................ 0.20% 0.20% 0.20 % 0.10% n/a 0.10%
Administrative Fee (after Waiver of
Fees)...................................... 0.02% 0.05% 0.05 % 0.05% 0.05 % 0.05%
Other Expenses
- --Sub-Administration Fee................... 0.05% 0.05% 0.05 % 0.05% 0.05 % 0.05%
- --Shareholder Servicing and Fund Servicing
Fee (After Assumption of Expenses)+....... 0.00% 0.35% 0.35 % 0.35% 0.15 % 0.12%
- --Other Operating Expenses (After
Assumption of Expenses)++.................. 0.23% 0.13% 0.12 % 0.15% 0.25 % 0.28%
--- --- ------ --- ------ -------
Total Fund Operating Expenses.............. 0.55% 0.88% 0.87 % 0.80% 0.60 % 0.70%
--- --- ------ --- ------ -------
--- --- ------ --- ------ -------
EXAMPLE:
You would pay the following expenses on a $1,000 investment in a Fund, assuming (1) 5%
annual return and (2) redemption at the end of:
1 year.................................. $ 6 $ 9 $ 9 $ 8 $ 6 $ 7
3 years................................. 18 28 28 26 19 22
5 years................................. 31 49 48 44 33 39
10 years................................ 69 108 107 99 75 87
</TABLE>
- ------------
* Fees waived on a month to month basis.
+ Shareholder Servicing Agents may provide various services to their customers
and charge additional fees for these services. The Shareholder Servicing and
Fund Servicing Fees include fees for activities in connection with serving as
liaison for holders of Vista Shares and in providing personal services to
such shareholders as well as other ministerial and servicing activities. Fees
for the activities in connection with serving as liaison to, and providing
personal services to, holders of Vista Shares will not exceed the NASD's
maximum fee of 0.25% for these types of activities. The other ministerial and
servicing activities provided for the Fund include: assisting in processing
purchase and redemption transactions; transmitting and receiving funds in
connection with purchase and redemption orders; preparing and providing
periodic statements showing account balances; and preparing and transmitting
proxy statements and other periodic reports and communications from the Trust
to customers.
++ A shareholder may incur a $10.00 charge for certain wire redemptions.
The expense summary is intended to assist investors in understanding the
various costs and expenses that a shareholder in any class of shares of each
Fund will bear directly or indirectly. The expense summary shows the investment
advisory fee, distribution fee, administrative fee, sub-administration fee and
shareholder servicing agent fee expected to be incurred by each class of shares
of each Fund, after certain waivers of fees.
Absent certain waivers, the annual investment advisory fees, administration
fees and sub-administration fees would be 0.10%, 0.05% and 0.05%, respectively,
for each of Fund's average net assets. Absent certain waivers, the distribution
fee for the Vista Shares of the Tax Free Funds would be 0.25% of each Fund's
average net assets. Absent certain waivers, the distribution fee for the Vista
Shares of the Federal Fund and the U.S. Government Fund would be 0.10% of each
Fund's average net assets. There is no Distribution Plan for the Global Fund.
These percentages include the potential expense reimbursement to the Distributor
for print and electronic media advertising of up to 0.05%.
Absent certain waivers, the shareholder servicing and fund servicing fees for
the Vista Shares of the Funds would be 0.35% for each Fund's average net assets.
As a result of the distribution fees, long-term investors may pay more than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. ("NASD"). More complete
descriptions of each Class of shares' expenses, including any fee waivers, are
set forth herein or in the prospectus for such class of Shares.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF A CLASS OF SHARES OF A FUND; ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
3
<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 Statement of Additional Information.
The financial statements and notes, as well as the financial information set
forth in the tables 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.
<TABLE>
CALIFORNIA TAX FREE FUND
- ----------------------------------------------------------------------------------------------------------
<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
-------- --------- ------ ----------
Total from Investment Operations............. 0.033 0.018 0.023 0.019
LESS DISTRIBUTIONS:
Dividends from net investment income......... 0.033 0.018 0.023 0.019
-------- --------- ------ ----------
Total Distributions.......................... 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.
4
<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 Statement of Additional Information.
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 below for each of the five years
ended August 31, 1995, have been audited by Price Waterhouse LLP, independent
accountants, whose reports thereon is included in the Annual Report to
shareholders.
<TABLE>
NEW YORK TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR 11/1/93 YEAR ENDED OCTOBER 31,
ENDED THROUGH ---------------------------------------------------------------
8/31/95 8/31/94+ 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.00 $ 1.00 $ 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 0.051 0.043
-------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations.................. 0.028 0.015 0.017 0.025 0.038 0.050 0.051 0.043
LESS DISTRIBUTIONS:.............
Dividends from net investment
income...................... 0.028 0.015 0.017 0.025 0.038 0.050 0.051 0.043
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions........... 0.028 0.015 0.017 0.025 0.038 0.050 0.051 0.043
NET ASSET VALUE, END OF PERIOD... $ 1.00 $ 1.00 $ 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% 5.28% 4.50%
RATIOS/SUPPLEMENTAL DATA........
Net Assets, End of Period (000
omitted).................... $378,400 $365,669 $300,425 $285,889 $230,855 $251,897 $252,201 $230,639
Ratio of Expenses to Average
Net Assets#................. 0.86% 0.85% 0.85% 0.85% 0.85% 0.83% 0.81% 0.78%
Ratio of Net Income to Average
Net Assets#................. 2.84% 1.77% 1.72% 2.48% 3.83% 4.91% 5.15% 4.26%
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% 0.95% 1.10%
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% 5.01% 3.94%
<CAPTION>
9/4/87* TO
10/31/87
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.00
INCOME FROM INVESTMENT
OPERATIONS:...................
Net Investment Income......... 0.009
-----
Total from Investment
Operations.................. 0.009
LESS DISTRIBUTIONS:.............
Dividends from net investment
income...................... 0.009
-----
Total Distributions........... 0.009
NET ASSET VALUE, END OF PERIOD... $ 1.00
-----
-----
TOTAL RETURN..................... 4.71%
RATIOS/SUPPLEMENTAL DATA........
Net Assets, End of Period (000
omitted).................... $2,385
Ratio of Expenses to Average
Net Assets#...................... 0.25%
Ratio of Net Income to Average
Net Assets#................. 4.71%
Ratio of expenses without
waivers and assumption of
expenses to Average Net
Assets#..................... 1.50%
Ratio of net investment income
without waivers and
assumption of expenses to
Average Net Assets#......... 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.
5
<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 are incorporated by reference into the Statement of Additional
Information. 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 below for each of
the five years ended August 31, 1995, have been audited by Price Waterhouse LLP,
independent accountants, whose reports thereon is included in the Annual Report
to Shareholders.
<TABLE>
TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
VISTA SHARES
--------------------------------------------------------------------------------------
YEAR 11/1/93 YEAR ENDED OCTOBER 31,
ENDED THROUGH ---------------------------------------------------------------
8/31/95 8/31/94+ 1993 1992 1991 1990 1989 1988
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <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 $1.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income........ 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045
-------- --------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations................. 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045
LESS DISTRIBUTIONS:
Dividends from net investment
income..................... 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045
-------- --------- -------- -------- -------- -------- -------- --------
Total Distributions.......... 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045
NET ASSET VALUE, END OF
PERIOD....................... $1.00 $1.00 $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% 5.76% 4.61%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000 omitted)............. $166,915 $121,710 $160,497 $145,241 $115,770 $112,770 $107,534 $116,260
Ratio of Expenses to Average
Net Assets#............... 0.86% 0.85% 0.85% 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% 5.59% 4.47%
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% 1.01% 1.02%
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% 5.43% 4.30%
<CAPTION>
9/4/87* TO
10/31/87
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period..................... $1.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income........ 0.007
------------
Total from Investment
Operations................. 0.007
LESS DISTRIBUTIONS:
Dividends from net investment
income..................... 0.007
------------
Total Distributions.......... 0.007
NET ASSET VALUE, END OF
PERIOD..................... $1.00
------------
------------
TOTAL RETURN................... 4.50%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000 omitted)............. $133,177
Ratio of Expenses to Average
Net Assets#............... 0.85%
Ratio of Net Investment
Income to
Average Net Assets#....... 4.47%
Ratio of Expenses without
waivers and assumption of
expenses to Average Net
Assets#................... 1.18%
Ratio of net investment
income without waivers and
assumption of expenses to
Average Net Assets#....... 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The tables set forth below provide 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 Statement of Additional Information.
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 below for each of the periods
commencing subsequent to June 30, 1992, have been audited by Price Waterhouse
LLP, independent accountants, whose reports thereon is included in the Annual
Report to shareholders.
<TABLE>
U.S. GOVERNMENT MONEY MARKET FUND(1)
- ------------------------------------------------------------------------------------------------
<CAPTION>
VISTA SHARES
-------------------------------
FOR THE
PERIOD
YEAR 11/1/93 1/1/1993
ENDED THROUGH TO
8/31/95 8/31/94+ 10/31/1993*
-------- --------- ----------
<S> <C> <C> <C>
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
-------- --------- ----------
Total from Investment Operations............................. 0.049 0.025 0.019
LESS DISTRIBUTIONS:
Dividends from net investment income......................... 0.049 0.025 0.019
-------- --------- ----------
Total Distributions.......................................... 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 variance and assumption of expenses
to Average Net Assets#..................................... 0.80% 0.80% 0.82%
Ratio of net investment income without variance 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.
(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. The new portfolio is named Vista U.S.
Government Money Market Fund. In connection with its reorganization, shares
of the Trinity Government Fund were reorganized as Premier Shares of the
Vista U.S. Government Money Market Fund at $1 per share. In addition, net
assets of the former Vista U.S. Government Money Market Fund consisting of
both Vista and Premier Shares were reorganized as Vista shares and Premier
shares of the new Vista U.S. Government Money Market Fund, at $1 per share.
The per share data and ratios for the periods prior to January 1, 1993
relate to the Trinity Government Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The tables set forth below provide 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 Statement of Additional Information.
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 below for each of the periods
commencing subsequent to June 30, 1992, have been audited by Price Waterhouse
LLP, independent accountants, whose reports thereon is included in the Annual
Report to shareholders. Periods ended prior to July 1, 1993 were audited by
other independent accountants who expressed an unqualified opinion thereon.
<TABLE>
GLOBAL MONEY MARKET FUND (1)
-------------------------------------------------------------------------------------------------------------------
VISTA SHARES
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE
FOR THE PERIOD JULY
YEAR 11/1/93 YEAR ENDED 1, 1992 TO YEAR ENDED JUNE 30,
ENDED THROUGH OCTOBER 31, OCTOBER 31, --------------------------------------------------------------------
8/31/95 8/31/94++ 1993 1992* 1992 1991 1990 1989 1988 1987 1986
-------- --------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net Investment
Income....... 0.051 0.028 0.029 0.010 0.045 0.069 0.081 0.084 0.066 0.059 0.072
-------- -------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations.. 0.051 0.028 0.029 0.010 0.045 0.069 0.081 0.084 0.066 0.059 0.072
LESS
DISTRIBUTIONS:
Dividends from
net investment
income....... 0.051 0.028 0.029 0.010 0.045 0.069 0.081 0.084 0.066 0.059 0.072
-------- -------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions. 0.051 0.028 0.029 0.010 0.045 0.069 0.081 0.084 0.066 0.059 0.072
NET ASSET VALUE,
END OF
PERIOD......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
-------- -------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN.... 5.27% 2.84% 2.99% 1.02% 4.59% 7.13% 8.42% 8.68% 6.83% 6.03% 7.29%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period
(000
omitted)..... $ 91,621 $156,645 $ 258,630 $ 443,102 $464,810 $359,637 $392,073 $526,972 $471,740 $414,983 $363,642
Ratio of
Expenses to
Average Net
Assets#...... 0.57% 0.60% 0.60% 0.59% 0.59% 0.59% 0.59% 0.59% 0.57% 0.55% 0.57%
Ratio of Net
Investment
Income to
Average Net
Assets#...... 5.13% 3.29% 2.93% 3.03% 4.50% 6.91% 8.13% 8.41% 6.63% 5.88% 7.29%
Ratio of
expenses
without
waivers and
assumption of
expenses to
Average Net
Assets#...... 0.79% 0.74% 0.70% 0.59% 0.59% 0.59% -- -- -- -- --
Ratio of net
investment
income
without
waivers and
assumption of
expenses to
Average Net
Assets#...... 4.91% 3.15% 2.82% 3.03% 4.50% 6.91% -- -- -- -- --
<CAPTION>
1985 1984
-------- --------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD......... $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net Investment
Income....... 0.090 0.094
-------- --------
Total from
Investment
Operations... 0.090 0.094
LESS
DISTRIBUTIONS:
Dividends from
net investment
income....... 0.090 0.094
-------- --------
Total
Distributions... 0.090 0.094
NET ASSET VALUE,
END OF
PERIOD......... $1.00 $1.00
-------- --------
-------- --------
TOTAL RETURN.... 9.08% 9.44%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period
(000
omitted)..... $274,779 $274,430
Ratio of
Expenses to
Average Net
Assets#...... 0.58% 0.60%
Ratio of Net
Investment
Income to
Average Net
Assets#......... 9.08% 9.44%
Ratio of
expenses
without
waivers and
assumption of
expenses to
Average Net
Assets#...... -- --
Ratio of net
investment
income
without
waivers and
assumption of
expenses to
Average Net
Assets#...... -- --
</TABLE>
- ------------
* In 1992, the Trinity Money Market Fund, the predecessor to the Vista Global
Money Market Fund, changed its fiscal year-end from June 30 to October 31.
# Periods less than one year have been annualized.
++ In 1994 the Global Money Market Fund changed its fiscal year-end from
October 31 to August 31.
(1) Trinity Money Market Fund and Vista Global Money Market Fund each
reorganized as a new portfolio of Mutual Fund Group effective January 1,
1993 in a tax-free reorganization. The new portfolio was named Vista Global
Money Market Fund. In connection with each reorganization, shares of the
Trinity Money Market Fund were reorganized as Vista Shares of Vista Global
Money Market Fund, and shares of the former Vista Global Money Market Fund
were reorganized as Premier Shares. The per share data and ratios for the
period prior to the reorganization relate to the Trinity Money Market Fund.
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 Statement of Additional Information.
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 also
included in the Annual Report to Shareholders.
<TABLE>
<CAPTION>
VISTA FEDERAL MONEY
MARKET
---------------------
YEAR 5/9/94**
ENDED THROUGH
8/31/95 8/31/94
---------- -------
VISTA SHARES
---------------------
<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 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 assumption of expenses to
average net assets#............................................................. 4.92% 3.74%
</TABLE>
- ------------
# Periods less than one year have been annualized.
* Commencement of operations.
** Commencement of offering shares.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Funds seek to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Funds use the amortized cost method of
valuing securities pursuant to Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"), certain requirements of which are summarized
as follows. In accordance with Rule 2a-7, the Funds will maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Board of Trustees to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated only by one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees.
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the CA Tax Free Fund 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. To accomplish its objective, the Fund invests
primarily in the debt securities of the State of California, its political
subdivisions, authorities and corporations, the interest from which is, in the
opinion of bond counsel to the Issuer, exempt from federal and State of
California personal income taxes (collectively, "California Municipal
Obligations"). To the extent acceptable California Municipal Obligations are at
any time unavailable for investment by the CA Tax Free Fund, the CA Tax Free
Fund will invest, for temporary defensive purposes, primarily in other debt
securities the interest from which is, in the opinion of bond counsel to the
issuer, exempt from federal, but not State of California, income tax. The CA Tax
Free Fund's investment objective cannot be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. There can be no assurance that the CA Tax Free Fund's investment
objective will be achieved. Securities in which the Fund will invest may not
earn as high a level of current income as long-term or lower quality securities
which generally have less liquidity, greater market risk and more fluctuation in
market value.
INVESTMENT POLICIES -- It is a fundamental policy of the CA Tax Free Fund
that it will invest at least 80% of the value of its net assets in Municipal
Obligations (as defined on page 43) and at least 65% of the value of its total
assets in California Municipal Obligations, except in both instances when the
Fund is maintaining a temporary defensive position. The remainder of the CA Tax
Free Fund's net assets may be invested in securities that are not California
Municipal Obligations and therefore may be subject to California state income
tax. See "Risk Factors--Investing in California Municipal Obligations" on page
44 and "Tax Matters."
Although the CA Tax Free Fund will attempt to invest 100% of its assets in
Municipal Obligations, it reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which in includable in gross
income for federal income tax purposes or which constitutes a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. The CA Tax Free Fund may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
10
<PAGE>
interest upon which is paid from revenues of similar types of projects. As a
result, the CA Tax Free Fund may be subject to greater risk as compared to a
fund that does not follow this practice.
From time to time, the CA 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 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. Interest
on Municipal Obligations (including certain industrial development bonds), which
are specified private activity bonds, as defined in the Internal Revenue Code of
1986, as amended (the "Code"), issued after August 7, 1986, while exempt from
federal income tax, is a preference item for the purpose of the alternative
minimum tax. Where a regulated investment company receives such interest, a
proportionate share of any exempt-interest dividend paid by the investment
company may be treated as such a preference item to shareholders. The CA Tax
Free Fund will invest no more than 20% of the value of its net assets in
Municipal Obligations the interest from which gives rise to a preference item
for the purpose of the alternative minimum tax and, except for temporary
defensive purposes, in other investments subject to federal income tax.
VISTA NEW YORK TAX FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the N.Y. Tax Free Fund
is to provide its shareholders with 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 the maintenance of liquidity. The investment
objective of the N.Y. Tax Free Fund may not be changed unless approved by the
holders of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The N.Y. Tax Free Fund seeks to achieve its
investment objective by investing in short-term, fixed rate and variable rate
Municipal Obligations (as defined on page 43). The Municipal Obligations in
which the Fund invests will be of high quality and present minimal credit risks.
To the extent suitable New York municipal obligations are not available for
investment, the N.Y. Tax Free Fund may purchase Municipal Obligations issued by
other states, their agencies and instrumentalities. Except when acceptable
securities are unavailable for investment as determined by the Adviser, at least
65% of the assets of the N.Y. Tax Free Fund will be invested in New York
Municipal Obligations, although the exact amount of its assets invested in such
securities will vary from time to time. Although the N.Y. Tax Free Fund does not
anticipate doing so to a significant extent in normal circumstances, it may hold
uninvested cash reserves, which would adversely affect its yield.
Although the N.Y. Tax Free Fund will attempt to invest 100% of its assets in
Municipal Obligations, it reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which is includable in gross
income for federal income tax purposes or which constitutes a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. The N.Y. Tax Free Fund may invest more than 25% of its assets in
Municipal Obligations secured by U.S. bank letters of credit or guarantees. In
view of this possible "concentration" in these Municipal Obligations with bank
credit support, an investment in N.Y. Tax Free Fund shares should be made with
an understanding of the characteristics of the banking industry and the
potential risks associated with such an investment. All investments of the N.Y.
Tax Free Fund will mature or will be deemed to mature
11
<PAGE>
within 397 days from the date of acquisition and the average maturity of the
N.Y. Tax Free Fund's portfolio (on a dollar-weighted basis) will be 90 days or
less. The maturities of variable rate demand instruments held in the N.Y. Tax
Free Fund's portfolio will be deemed to be the longer of the demand period, or
the period remaining until the next interest rate adjustment, although the
stated maturities may be in excess of 397 days.
As a fundamental policy, the N.Y. Tax Free Fund, during periods of normal
market conditions, will have at least 80% of its assets invested in 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
and, therefore, will not be subject to the federal alternative minimum tax on
individuals. As a non-fundamental policy, the N.Y. Tax Free Fund's assets will
only be invested in obligations that satisfy certain ratings and other criteria.
For descriptions of these criteria and of certain types of investments that may
be purchased by the N.Y. Tax Free Fund, including variable rate demand
instruments, "when-issued" securities and stand-by commitments, as well as
further information concerning the investment policies and techniques of the
N.Y. Tax Free Fund and of special factors affecting investments in New York
Municipal Obligations of which investors should be aware, see "Additional
Information on Investment Policies and Techniques".
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA TAX FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the Tax Free Fund is to
provide its shareholders with 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 the maintenance of liquidity. The investment
objective of the Tax Free Fund may not be changed unless approved by the holders
of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The Tax Free Fund seeks to achieve its investment
objective by investing in short-term, fixed rate and variable rate Municipal
Obligations (as defined at page 43). The Municipal Obligations in which the Fund
invests will be of high quality and present minimal credit risks. Although the
Tax Free Fund does not anticipate doing so in normal circumstances to a
significant extent, it may hold uninvested cash reserves, which would adversely
affect its yield.
Although the Tax Free Fund will attempt to invest 100% of its assets in
Municipal Obligations, it reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which is includable in gross
income for federal income tax purposes or which constitutes a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. The Tax Free Fund may invest more than 25% of its assets in
Municipal Obligations secured by bank letters of credit or guarantees. In view
of this possible "concentration" in these Municipal Obligations with bank credit
support, an investment in Tax Free Fund shares should be made with an
understanding of the characteristics of the banking industry and the potential
risks associated with such an investment. All investments of the Tax Free Fund
will mature or will be deemed to mature within 397 days from the date of
acquisition and the average maturity of the Fund's portfolio (on a
dollar-weighted basis) will be 90 days or less. The maturities of variable rate
demand instruments held in the Tax Free Fund's portfolio
12
<PAGE>
will be deemed to be the longer of the demand period, or the period remaining
until the next interest rate adjustment, although the stated maturities may be
in excess of 397 days.
As a fundamental policy, the Tax Free Fund, during periods of normal market
conditions, 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 and, therefore, will not be subject to the federal alternative
minimum tax on individuals.
As a non-fundamental policy, the assets of the Tax Free Fund will only be
invested in obligations that satisfy certain ratings and other criteria. For
descriptions of these criteria and of certain types of investments that may be
purchased by the Tax Free Fund, including variable rate demand instruments,
"when-issued" securities and stand-by commitments, as well as further
information regarding the investment policies and techniques of the Tax Free
Fund, see "Additional Information on Investment Policies and Techniques".
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA U.S. GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the U.S. Government Fund
is to provide its shareholders with as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
The investment objective of the U.S. Government Fund may not be changed unless
approved by the holders of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The U.S. Government Fund seeks to achieve its
investment objective by investing at least 80% of its assets in obligations that
are issued or guaranteed by the U.S. Treasury, by agencies of the U.S.
Government, and by instrumentalities that have been established or sponsored by
the U.S. Government, and in repurchase agreements collateralized by U.S.
Government obligations or other securities in which the U.S. Government Fund is
permitted to invest. The U.S. Government Obligations in which the Fund invests
will be of high quality and present minimal credit risks. Although the U.S.
Government Fund does not anticipate doing so in normal circumstances, it may
hold uninvested cash reserves, which would adversely affect its yield. Neither
the United States nor any of its agencies insures or guarantees the market value
of shares of the U.S. Government Fund.
U.S. Treasury securities are backed by the "full faith and credit" of the
U.S. Government. Other U.S. Government obligations may or may not be 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.
Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. Government agencies which issue or guarantee securities backed by the
"full faith and credit" of the United States include the Department of Housing
and Urban Development, the Government National Mortgage Association ("GNMA"),
the Farmer's Home Administration and the Small Business Administration. The U.S.
Government agencies and instrumentalities that issue or guarantee securities not
backed by the "full faith and credit" of the U.S. Government include, but are
not limited to, the Federal Farm Credit
13
<PAGE>
System, the Federal Land Banks, the Federal Intermediate Credit Banks, the Banks
for Cooperatives, the Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Securities issued or guaranteed by GNMA, FNMA or FHLMC typically may be
prepaid by the issuer without penalty. Thus, when prevailing interest rates
decline, the value of these securities is not likely to rise on a comparable
basis with other debt securities that are not so prepayable. The proceeds of
prepayments and scheduled payments of principal of these securities will be
reinvested by the U.S. Government Fund at then prevailing interest rates, which
may be lower than the rate of interest on the securities on which these payments
are received.
The U.S. Government Fund intends to hold its portfolio securities to
maturity. Historically, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities have involved little risk of loss of
interest or principal, if held to maturity. All investments of the U.S.
Government Fund will mature or will be deemed to mature within 397 days from the
date of acquisition. In addition, the U.S. Government Fund intends to have a
dollar weighted average maturity of its portfolio securities of 60 days or less.
Securities in which the U.S. Government Fund will invest may not earn as high a
level of current income as long term or lower quality securities.
Shareholder approval is required to change any of the investment policies
discussed above or in "Additional Information on Investment Policies and
Techniques".
VISTA GLOBAL MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the Global Fund is to
seek as high a level of current income as is consistent with high stability and
liquidity of capital. The investment objective of the Global Fund may not be
changed unless approved by the holders of a majority of the Global Fund's
outstanding shares.
INVESTMENT POLICIES -- The Global Fund seeks to achieve its investment
objective by investing in (i) U.S. Dollar denominated 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets as
reported in recognized financial publications, or such other U.S. or foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria; (iv) securities issued or guaranteed as to principal and
interest by the U.S. Government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which
the Global Fund invests, described in greater detail under "Additional
Information on Investment Policies and Techniques," will be of high quality and
present minimal credit risks. To the extent that the Global Fund is invested in
STRIPS (see "Additional Information on Investment Policies and
Techniques--Global Fund"), those securities may be subject to greater
fluctuation of market value than other securities in which the Global Fund
invests. There can be no assurance that the Global Fund will achieve its
investment objective.
It is anticipated that, in normal circumstances, the Global Fund's assets
will include securities of issuers in at least three countries, including the
United States. However, all of the Fund's investments
14
<PAGE>
will be in U.S. Dollar denominated securities with remaining maturities of 397
days or less. Securities in which the Global Fund will invest may not earn as
high a level of current income as long-term or lower quality securities which
generally have less liquidity, greater market risk and more fluctuation in
market value. Certain instruments issued or guaranteed by issuers, including the
U.S. Government or agencies thereof, which have a variable rate of interest
readjusted no less frequently than annually are deemed to have a maturity equal
to the period remaining until the next readjustment of the interest rate. The
dollar weighted average maturity of the Fund will be 90 days or less.
Shareholder approval is not required to change any of the investment
policies discussed above or in "Additional Information on Investment Policies
and Techniques".
VISTA FEDERAL MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Federal Fund is to
seek maximum current income consistent with the preservation of capital and
maintenance of liquidity. The investment objective of the Federal Fund may not
be changed unless approved by the holders of a majority of the Federal Fund's
outstanding shares.
INVESTMENT POLICIES-- The Federal Fund seeks to achieve its investment
objective by investing primarily in direct obligations of the U.S. Treasury with
remaining maturities of 13 months or less such as Treasury Bills and Notes. The
Federal Fund may also from time to time invest in obligations with remaining
maturities of 13 months or less issued or guaranteed as to principal and
interest by certain agencies or instrumentalities of the U.S. Government, such
as the Farm Credit System Financial Assistance Corporation, Federal Financing
Bank, General Services Administration, Federal Home Loan Banks, Farm Credit
System, Tennessee Valley Authority and the Student Loan Marketing Association.
Income on direct investments in U.S. Treasury securities and obligations of the
aforementioned agencies and instrumentalities is generally not subject to state
and local income taxes by reason of federal law.
Shareholders in a particular 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 Federal Fund's capital gains and other
income, if any, when distributed will be subject to the state's income tax. See
"Tax Matters". Due to state income tax considerations, the Fund will not enter
into repurchase agreements.
All of the Federal Fund's investments will have remaining maturities of 397
days or less. The dollar weighted average maturity of the Federal Fund will be
90 days or less.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Federal Fund. The Federal Fund may from time to time engage in portfolio
trading for liquidity purposes in order to enhance its yield, or if otherwise
deemed advisable. In selling portfolio securities prior to maturity, the Federal
Fund may realize a price higher or lower than that paid to acquire such
securities, depending upon whether interest rates have increased or decreased
since its acquisition.
The Federal Fund may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government including U.S.
Treasury Bills, Bonds, and Notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund may also invest in
selected securities issued by the U.S. Treasury of which the principal and
interest components of such
15
<PAGE>
securities are traded independently under the Separate Trading of Registered
Interest and Principal of Securities Program ("STRIPS"). These obligations are
usually issued at a discount to their "face value" and because of the manner in
which principal and interest are returned may exhibit greater price volatility
than more conventional debt securities. The Federal Fund's investments in these
securities will be limited to U.S. Treasury Receipts and "interest only"
stripped securities that have been issued or guaranteed by the U.S. Government
which are registered under the STRIPS program.
To the extent permissible by federal and state law, the Federal Fund is
structured to provide shareholders with income that is exempt or excluded from
taxation at the state and local level. Substantially all dividends paid to
shareholders residing in certain states will be exempt or excluded from state
income tax. Many states, by statute, judicial decision or administrative action,
have taken the position that dividends of a regulated investment company such as
the Federal Fund that are attributable to interest obligations of the U.S.
Treasury and certain U.S. Government agencies and instrumentalities are the
functional equivalent of interest from such obligations and are, therefore,
exempt from state and local income taxes. Investors should be aware of the
application of their state and local laws to investments in the Federal Fund.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
MANAGEMENT OF THE FUNDS
ADVISER
THE CHASE MANHATTAN BANK, N.A. manages the assets of the Funds pursuant to
an Investment Advisory Agreement, dated October 25, 1994. Subject to such
policies as the Board of Trustees may determine, Chase makes investment
decisions for each Fund. For its services under the Investment Advisory
Agreements, 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. However, Chase may, from time to time, voluntarily waive all or a
portion of its fees payable under the Investment Advisory Agreements.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, the Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the
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shareholders of each holding company and the receipt of certain regulatory
approvals. The Holding Company Merger is expected to be completed on or about
January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Efffective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. 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 Distributor or affiliates of
the Distributor. The Adviser 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 the
Adviser 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 on behalf of any Fund. The Adviser
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 Adviser or in the possession of any affiliate of
such Adviser, including the division of Chase 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.
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as Administrator of the Trust. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; arranging for the maintenance of
books and records; and providing office facilities necessary to carry out its
duties. For these services and facilities, the Administrator is entitled to
receive from each Fund a fee computed daily and paid monthly at an annual rate
equal to 0.05% of each Fund's average daily net assets. However, the
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable under the Administration Agreement. The Administrator, pursuant to
the terms of the Administration Agreement, shall not have any responsibility or
authority for each Fund's investments, the determination of investment policy,
or for any matter pertaining to the distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement described below without violating
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the federal banking law commonly known as the Glass-Steagall Act. The Act
generally bars banks from publicly underwriting or distributing certain
securities.
Based on the advice of its counsel, Chase believes that the Court's
decision, and these other decisions of federal banking regulators, permit it to
serve as investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, Chase
believes, based on advice of its counsel, that it may serve as shareholder
servicing agent to the Funds and render the services described in the
shareholder servicing agreements, and Chase believes, based on advice of its
counsel, that it may serve as Custodian to the Trust and render the services set
forth in the Custodian Agreement, as appropriate, incidental national banking
functions and as proper adjunct to its serving as investment adviser and
administrator to the Funds.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. Chase, on the
advice of its counsel, believes that it may render the services described in its
Administration Agreement without violating the Glass-Steagall Act or other
applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent Chase from
continuing to perform investment advisory, shareholder servicing, custodian or
other administrative services for the Funds. If that occurred, the Trust's Board
of Trustees promptly would seek to obtain for the Funds the services of another
qualified adviser, shareholder servicing agent, custodian or administrator, as
necessary. Although no assurances can be given, the Trust believes that, if
necessary, the switch to a new adviser, shareholder servicing agent, custodian
or administrator could be accomplished without undue disruption to the Funds'
operations.
In addition, state securities laws on this issue may differ from the
interpretation of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
The Vista Shares are continuously offered for sale without a sales load at the
net asset value next determined through Vista Broker-Dealer Services, Inc.
("VBDS" or the "Distributor") after an order is received and accepted by the
Transfer Agent, provided it is transmitted prior to 12:00 noon, Eastern time for
the CA Tax Free Fund, New York Tax Free Fund and Tax Free Fund and prior to 2:00
p.m., Eastern time for the U.S. Government Fund, the Global Fund and the Federal
Fund, on any business day during which the New York Stock Exchange and the
Adviser are open for trading ("Fund Business Day"). (See "Other Information
Concerning Shares of the Funds--Net Asset Value"). Orders for Vista Shares
received and accepted prior to the above designated times will be entitled to
all dividends declared on such day.
It is anticipated that each Vista Shares' net asset value will remain
constant at $1.00 per share and each Fund will employ specific investment
policies and procedures to accomplish this result. Shares of each Fund are being
offered to customers of a Shareholder Servicing Agent (i.e., a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a shareholder servicing agreement
with the Fund) or to customers of brokers or certain financial
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<PAGE>
institutions which have entered into Selected Dealer Agreements with VBDS. An
investor may purchase Vista Shares by authorizing his Shareholder Servicing
Agent, broker or financial institution to purchase such Shares on his behalf
through the Distributor, which the Shareholder Servicing Agent, broker or
financial institution must do on a timely basis. All share purchases must be
paid for in U.S. dollars, and checks must be drawn on U.S. banks. In the event a
check used to pay for shares purchased is not honored by the bank on which it is
drawn, the purchase order will be cancelled and the shareholder will be liable
for any losses or expenses incurred by the Fund or its agents.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 calendar days. In addition, redemption
of shares purchased by periodic automatic investment will not be allowed for 7
calendar days.
Shareholder Servicing Agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption of
Vista Shares, such as pre-authorized or systematic purchase and redemption
programs and "sweep" checking programs. Each Shareholder Servicing Agent may
establish its own terms, conditions and charges, including limitations on the
amounts of transactions, with respect to such services. Charges for these
services may include fixed annual fees, transaction fees, account maintenance
fees and minimum account balance requirements. The effect of any such fees will
be to reduce the yield on the investment of customers of that Shareholder
Servicing Agent. Conversely, certain Shareholder Servicing Agents may (although
they are not required by the Fund 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 (see
"Shareholder Servicing Agents, Transfer Agent and Custodian--Shareholder
Servicing Agents"), which will have the effect of increasing the yield on the
investment of customers of that Shareholder Servicing Agent. Shareholder
Servicing Agents may also increase or reduce the minimum dollar amount required
to invest in the Funds and waive any applicable holding periods.
Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to enhance the yield on its assets. Accordingly, in order
to make investments which will immediately generate income, each Fund must have
federal funds available to it (i.e., monies credited to the account of such
Fund's custodian bank by a Federal Reserve Bank). Each Shareholder Servicing
Agent has agreed to provide each of the Vista Shares with federal funds for each
purchase at the time it transmits the order for such purchase to the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, his Shareholder Servicing Agent, there may be a delay
in transmitting and effecting his purchase order since his Shareholder Servicing
Agent will have to convert his check, bank draft, money order or similar
negotiable instrument into federal funds prior to effecting the purchase order.
In such case, the purchase order will be effected at the purchase price per
share next determined after the conversion to federal funds has been
accomplished. If such a delay is necessary, it is expected that in most cases it
would not be longer than two business days.
Each of the Vista Shares reserves the right to cease offering shares for
sale at any time, to reject any order for the purchase of shares and to cease
offering any services provided by a Shareholder Servicing Agent. Fund shares
will be maintained in book entry form, and no certificates representing shares
owned will be issued to shareholders.
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MINIMUM INVESTMENTS
The Fund has established minimum initial and additional investments for the
purchase of Fund Shares. The minimums detailed below vary by the type of account
being established:
<TABLE>
<CAPTION>
MINIMUM
INITIAL
ACCOUNT TYPE INVESTMENT
- --------------------------------------- --------------------------
<S> <C>
Individual............................. $2,500(1)
Individual Retirement Account (IRA).... $1,000(2)
Spousal IRA............................ $ 250
SEP-IRA................................ $1,000(2)
Purchase Accumulation Plan............. $ 250(3)
Payroll Deduction Program (401K, 403B,
Keogh)............................... $ 100(4)
</TABLE>
- ------------
(1) Employees of the Adviser and its affiliates, and certain Qualified Persons
are eligible for a $1,000 minimum initial investment.
(2) A $250 minimum initial investment is allowed if the new account is
established with a $100 minimum monthly Systematic Investment Plan as
described below.
(3) Account must be established with a $200 minimum monthly Systematic
Investment Plan as described below.
(4) A $25 minimum monthly investment must be established through an automated
payroll cycle.
The minimum additional investment is $100 for all types of accounts.
For further information as to how to direct a Shareholder Servicing Agent to
purchase shares of the Funds, an investor should contact his Shareholder
Servicing Agent.
SYSTEMATIC INVESTMENT PLAN. A shareholder may establish a monthly investment
plan by which investments are automatically made to his/her Vista Fund account
through Automatic Clearing House (ACH) deductions from a checking account. The
minimum monthly investment through this plan is $100. Shareholders may choose
either to have these investments made during the first or third week each month.
Please note that your initial ACH transactions may take up to 10 days from the
receipt of your request to be established.
Shareholders electing to start this Systematic Investment Plan when opening
an account should complete Section 8 of the account application. Current
shareholders may begin a Systematic Investment Plan at any time by sending a
signed letter with SIGNATURE GUARANTEE to the Vista Service Center, P.O. Box
419392, Kansas City, MO 64141-6392. The letter should contain your Vista Fund
account number, the desired amount and cycle of the systematic investment, and
must include a voided check from the checking account from which debits are to
be made. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of the national securities exchange. Please note
that a notary public cannot provide signature guarantees.
REDEMPTIONS
A shareholder may redeem all or any portion of the shares in his account on
any Fund Business Day at the net asset value next determined after a redemption
request in proper form is furnished by the shareholder to his Shareholder
Servicing Agent and transmitted by it to and received by a Fund's Transfer
Agent. Therefore, redemptions will be effected on the same day the redemption
order is received only if such order is received prior to 12:00 noon, Eastern
time for the CA Tax Free Fund, New York Tax Free Fund and Tax Free Fund and
prior to 2:00 p.m., Eastern time for the U.S. Government Fund, Global Fund and
Federal Fund on any Fund Business Day. Shares which are redeemed earn
20
<PAGE>
dividends up to and including the day prior to the day the redemption is
effected. The proceeds of a redemption normally will be paid on the Fund
Business Day the redemption is effected, but in any event within seven days. The
forwarding of proceeds from redemption of shares which were recently purchased
by check may be delayed until the purchase check has cleared, which may take up
to fifteen days. Similarly, the forwarding of proceeds from redemption of shares
which were purchased by Automatic Clearing House transfer may be delayed up to 7
calendar days. A shareholder who is a customer of a Shareholder Servicing Agent
may redeem his Vista Shares by authorizing his Shareholder Servicing Agent or
its agent to redeem such shares which the Shareholder Servicing Agent or its
agent must do on a timely basis.
The signature of both shareholders is required for any written redemption
requests (other than those by check) from a joint account. In addition, a
redemption request may be deferred for up to 15 calendar days if the Transfer
Agent has been notified of a change in either the address or the bank account
registration previously listed in the Fund records.
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).
The payment of redemption requests may be wired or mailed directly to a
previously designated domestic commercial bank account. However, all telephone
redemption requests in excess of $25,000 will be wired directly to such
previously designated bank account, for the protection of shareholders.
Normally, redemption payments will be transmitted on the next business day
following receipt of the request (provided it is made prior to 12:00 noon,
Eastern time for the CA Tax Free Fund, New York Tax Free Fund and Tax Free Fund
and prior to 2:00 p.m., Eastern time for the U.S. Government Fund, the Global
Fund and the Federal Fund on any day redemptions may be made). Redemption
payments requested by telephone may not be available in a previously designated
bank account for up to four days. If no share certificates have been issued, a
wire redemption may be requested by telephone or wire to the Vista Service
Center. For telephone redemptions, call the Vista Service Center at (800)
34-VISTA.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act if an emergency exists. Payment may
also be delayed on days when the Federal Reserve Bank is closed.
AUTOMATIC REDEMPTION PLAN. A shareholder owning $10,000 or more of the
shares of a Fund as determined by the then current net asset value may provide
for the payment monthly or quarterly of any requested dollar amount (subject to
limits) from his account to his order. A sufficient number of full and
fractional shares will be redeemed so that the designated payment is received on
approximately the 1st or 15th day of the month following the end of the selected
payment period.
For further information as to how to direct a Shareholder Servicing Agent to
redeem shares of a Fund, a shareholder should contact his Shareholder Servicing
Agent.
REDEMPTION OF ACCOUNTS OF LESS THAN $500. Each Fund may redeem the shares of
any shareholder, if at such time, the aggregate net asset value of the shares in
such shareholder's account is less than $500. In the event of any such
redemption, a shareholder will receive at least 60 days' notice prior to the
redemption.
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<PAGE>
EXCHANGE PRIVILEGES
Shareholders of the Vista Shares of the Funds may exchange at relative net
asset value among such Vista Shares of each of the Funds, and may exchange at
relative net asset value plus any applicable sales charges, the Vista Shares of
a Fund for the shares of the non-money market Vista Mutual Funds of the Trust or
for the shares of the non-money market Vista Funds of Mutual Fund Group
("MFG"),an affiliated investment company, of which Chase is the adviser and VBDS
is the distributor, in accordance with the terms of the then-current prospectus
of the Fund being acquired. The prospectus of the Vista Mutual Fund into which
shares are being exchanged should be read carefully prior to any exchange and
retained for future reference. With respect to exchanges into a fund which
charges a front-end sales charge, such sales charge will not be applicable if
the shareholder previously acquired his Vista Shares by exchange from such fund.
Under the Exchange Privilege, Shares of a Fund may be exchanged for shares
of other Funds of the Trust or MFG only if those Funds are registered in the
states where the exchange may legally be made. In addition, the account
registration for the Vista Fund (whether a Fund of the Trust or MFG) into which
shares of the Funds are being exchanged must be identical to that of the account
registration for the Fund from which shares are being redeemed. 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 up to five
business days if the Fund determines that it would be disadvantaged by an
immediate transfer of the proceeds.
This privilege may be amended or terminated at any time without notice.
Arrangements have been made for the acceptance of instructions by telephone to
exchange shares if certain preauthorizations or indemnifications are accepted
and on file. Further information and telephone exchange forms are available from
the Vista Service Center.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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 a Fund in a year or three in a calendar quarter will be charged
$5.00 administration fee per each such exchange.
GENERAL
The Funds have 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 this Prospectus are not available
until a completed and signed account application has been received by the Fund's
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
22
<PAGE>
Account Application. To provide evidence of telephone instructions, the Transfer
Agent will record telephone conversations with shareholders. The Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. In the event the Fund does not employ such procedures, it
may be liable for losses due to unauthorized or fradulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Funds or their agents are 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 a Fund and depositing and withdrawing monies
from the bank account specified in the Bank Account Registration section of the
shareholder's latest account application or as otherwise properly specified to
the Funds in writing. Shareholders agree to release and hold harmless the Funds,
the Adviser, the Administrator, any Shareholder Servicing Agent or sub-agent and
broker-dealer, and the officers, directors, employees and agents thereof against
any claim, liability, loss, damage and expense for any act or failure to act in
connection with Fund shares, any related investment account, any privileges or
services selected in connection with such investment account, or any written or
oral instructions or requests with respect thereto, or any written or oral
instructions or requests from someone claiming to be a shareholder if the Funds
or any of the above-described parties follow instructions which they reasonably
believe to be genuine and act in good faith by complying with the reasonable
procedures that have been established for Fund accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
The Funds may also establish and revise, from time to time, account minimums
and transactions or amount restrictions on purchases, exchanges, redemptions,
checkwriting services, or other transactions permitted in connection with
shareholder accounts. The Funds may also 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 the bank account specified in
the Bank Account Registration, or for any written requests for additional
account services made after a shareholder has submitted an initial account
application to the Funds. The Funds may refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to individual investors and
is for general information only. A prospective investor, including a corporate
investor, should also review the more detailed discussion of federal income tax
considerations relevant to each Fund that is contained in the Statement of
Additional Information. In addition, each prospective investor should consult
with his own tax advisers as to the tax consequences of an investment in the
Funds, including the status of distributions
23
<PAGE>
from a Fund in his own state and locality and the possible applicability of a
federal alternative minimum tax to a portion of the distributions of the Tax
Free Funds.
Each Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If a Fund is treated as a "regulated
investment company" and all its taxable income, if any, is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on amounts so distributed. If for any
taxable year a Fund does not qualify for the treatment as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to its shareholders, and such
distributions to shareholders will be taxable to the extent of each Fund's
current and accumulated earnings and profits.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by a Fund of its taxable ordinary income (net of expenses) and
the excess, if any, of its net short-term capital gain over its net long-term
capital loss are generally taxable to shareholders as ordinary income. Such
distributions are treated as dividends for federal income tax purposes, but do
not qualify for the dividends-received deduction for corporations. Distributions
by a Tax Free Fund of its tax-exempt interest income (net of expenses) are
designated as "exempt-interest dividends" which are excluded from gross income
for regular federal income tax purposes. Distributions by a Fund of the excess,
if any, of its net long-term capital gain over its net short-term capital loss
are designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Each Fund will seek to avoid recognition of capital gains.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year, including any portions which constitute ordinary income
dividends, capital gain dividends and exempt-interest dividends, will be sent to
each Fund's shareholders promptly after the end of each year.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Funds. Generally, shareholders are subject to backup
withholding if they have not provided the Funds with a correct taxpayer
identification number and certain required certifications.
U.S. GOVERNMENT FUND. Shareholders of the U.S. Government Fund (other than
tax-exempt shareholders) will be subject to federal income tax on the ordinary
income dividends and any capital gain dividends from the Fund and may also be
subject to state and local taxes. The laws of some states and localities,
however, exempt from some taxes dividends such as those paid on shares of the
U.S. Government Fund to the extent such dividends are attributable to interest
on obligations of the U.S. Government and certain of its agencies and
instrumentalities. The U.S. Government Fund intends
24
<PAGE>
to advise its shareholders of the proportion of their ordinary income dividends
which are attributable to such interest.
The State of New York for example, exempts from its personal income tax
dividends such as those paid on shares of the U.S. Government Fund to the extent
such dividends are attributable to interest from obligations of the U.S.
Government and certain of its agencies and instrumentalities, provided that at
least 50% of the Fund's portfolio consists of such obligations and the Fund
complies with certain notice requirements. The New York State Department of
Taxation and Finance (like most other states) currently takes the position,
however, that certain obligations backed by the full faith and credit of the
U.S. Treasury, such as GNMA Certificates and repurchase agreements backed by any
U.S. Government obligation, do not constitute exempt obligations of the U.S.
Government. Under present market conditions, it is expected that less than 50%
of the U.S. Government Fund's portfolio will consist of obligations which the
New York State Department of Taxation and Finance views as exempt. Accordingly,
it is likely that no portion of the dividends paid on shares of the U.S.
Government Fund will be exempt from New York State personal income tax.
Shareholders are urged to consult their tax advisers regarding the possible
exclusion from state and local income tax of a portion of the dividends paid on
shares of the U.S. Government Fund which is attributable to interest from
obligations of the U.S. Government and its agencies and instrumentalities.
TAX FREE FUNDS. In accordance with the investment objectives of the Tax
Free Funds, it is expected that most or all of the net investment income of each
Tax Free Fund will be attributable to interest from Municipal Obligations,
although from time to time a portion of the portfolio of any Tax Free Fund may
be invested in short-term taxable obligations since the preservation of capital
and the maintenance of liquidity are important aspects of each Tax Free Fund's
investment objective. As a result, most or all of the dividends paid out of each
Tax Free Fund's net investment income will be designated "exempt-interest
dividends". The percentage of such dividends so designated will be applied
uniformly to all such dividends from a Tax Free Fund made during each fiscal
year and may differ from the actual percentage for any particular month. Any
dividends paid out of any net long-term or short-term capital gains will be
taxable to shareholders, although the Tax Free Funds will seek to avoid
recognition of capital gains.
Although excluded from gross income for regular federal income tax purposes,
exempt-interest dividends, together with other tax-exempt interest, are required
to be reported on shareholders' federal income tax returns, and are taken into
account in determining the portion, if any, of Social Security benefits which
must be included in gross income for federal income tax purposes. In addition,
exempt-interest dividends paid out of interest on certain Municipal Obligations
that may be purchased by a Tax Free Fund will be treated as a tax preference
item for both individual and corporate shareholders potentially subject to an
alternative minimum tax ("AMT"), and all exempt-interest dividends will be
included in computing a corporate shareholder's adjusted current earnings, upon
which is based a separate corporate preference item which may be subject to AMT
and to the environmental superfund tax.
Interest on indebtedness incurred, or continued, to purchase or carry shares
of a Tax Free Fund is not deductible. Further, entities or persons who may be
"substantial users" (or persons related to
25
<PAGE>
"substantial users") of facilities financed by certain types of Municipal
Obligations should consult with their own tax advisers before purchasing shares
of a Tax Free Fund.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. Shareholders of
a Tax Free Fund may be exempt from state and local taxes on exempt-interest
dividends paid out of interest on Municipal Obligations of the state and/or
municipalities of the state in which they reside but may be subject to state and
local tax on exempt-interest dividends paid out of interest on Municipal
Obligations of other jurisdictions. To the extent that exempt-interest dividends
from the N.Y. Tax Free Fund are paid out of interest on New York Municipal
Obligations, the dividends will be exempt from New York State and New York City
personal income taxes for a New York individual resident shareholder. The annual
tax information statements referred to above, when sent to shareholders of the
N.Y. Tax Free Fund, will indicate the New York State and New York City personal
income tax status of distributions by the Fund. Exempt-interest dividends from
the N.Y. Tax Free Fund are not excluded in determining New York State or New
York City franchise taxes on corporations and financial institutions.
OTHER INFORMATION CONCERNING SHARES OF THE FUNDS
NET ASSET VALUE
The net asset value of the Shares of each Fund is determined as of 12:00 noon,
Eastern time for each of the Tax Free Funds and 2:00 p.m., Eastern time for the
U.S. Government Fund, the Global Fund and the Federal Fund, on each Fund
Business Day, by dividing the value of a Fund's net assets (i.e., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued) by the number of its shares outstanding at the time the
determination is made. The portfolio securities of each Fund are valued at their
amortized cost pursuant to Rule 2a-7 under the 1940 Act, certain requirements of
which are summarized under "Additional Information on Investment Policies and
Techniques." 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 these 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. 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, and consideration of
certain actions before such deviation exceeds 1/2 of 1%. Income earned on a
Fund's investments is accrued daily and the Net Income, as defined under
"Distributions and Dividends" below, is declared each Fund Business Day as a
dividend. See "Determination of Net Asset Value" in the Statement of Additional
Information for further information regarding determination of net asset value
and the procedures to be followed to stabilize the net asset value at $1.00 per
share.
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DISTRIBUTIONS AND DIVIDENDS
The net income of the Vista Shares is determined each Fund Business Day (and
on such other days as the Trustees deem necessary in order to comply with Rule
22c-1 under the 1940 Act). This determination is made once during each such day
as of 12:00 noon, Eastern time for each of the Tax Free Funds and 2:00 p.m.,
Eastern time for the U.S. Government Fund, the Global Fund and the Federal Fund.
All the net income, as defined below, of the Vista Shares so determined is
declared in shares as a dividend to shareholders of record at the time of such
determination. Shares begin accruing dividends on the day they are purchased.
Dividends are distributed monthly on or about the last business day of each
month (or on such other date in each month as the shareholder's Shareholder
Servicing Agent may designate as the dividend distribution date with respect to
a particular shareholder). Unless a shareholder elects to receive dividends in
cash (subject to the policies of the shareholder's Shareholder Servicing Agent),
dividends are distributed in the form of additional shares at the rate of one
share (and fractions thereof) for each one dollar (and fractions thereof) of
dividend income.
For this purpose, the net income of the Vista Shares (from the time of the
immediately preceding determination thereof) shall consist of all income
accrued, including the accretion of discounts, except for the Tax Free Funds,
less the amortization of any premium on the portfolio assets of such Fund, less
all actual and accrued expenses determined in accordance with generally accepted
accounting principles. As noted above, securities are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value for the
purposes of complying with the 1940 Act. This valuation method will continue to
be used until such time as the Trustees determine that it does not constitute
fair value for such purposes.
Since the net income of the Vista Shares is declared as a dividend each time
its net income is determined, the net asset value per share (i.e., the value of
its net assets divided by the number of its shares outstanding) is expected to
remain at $1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of a shareholder's investment,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in his account.
It is expected that the Vista Shares will have a positive net income at the
time of each determination thereof. If for any reason the net income determined
at any time is a negative amount, which could occur, for instance, upon default
by an issuer of a portfolio security, the Fund would first offset the negative
amount with respect to each shareholder account from the dividends declared
during the month with respect to each such account. If, and to the extent that
such negative amount exceeds such declared dividends at the end of the month,
the number of outstanding shares will be reduced by treating each shareholder as
having contributed to the capital of the Fund that number of full and fractional
shares in the account of such shareholder which represents his proportion of the
amount of such excess. Each shareholder will be deemed to have agreed to such
contribution in these circumstances by his investment. Thus, the net asset value
per share will be maintained at a constant $1.00.
DISTRIBUTION PLANS AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted Distribution Plans ("Distribution Plans") in
accordance with Rule 12b-1 under the 1940 Act, after having concluded that there
is a reasonable likelihood that the Distribution Plans will benefit each of the
Vista Shares and its respective shareholders.
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Each Distribution Plan provides that each Fund (other than the Global Fund)
shall pay distribution fees (the "Basic Distribution Fee"), including payments
to the Distributor, at an annual rate not to exceed 0.20% for the Vista Shares
of the Tax Free Funds and 0.10% for Vista Shares of the U.S. Government Fund and
the Federal Fund of the average daily net assets for distribution services.
There is no Distribution Plan for the Global Fund. Since the Basic Distribution
Fee is not directly tied to its expenses, the amount of Basic Distribution Fees
paid by each of the Vista Shares during any year may be more or less than actual
expenses incurred pursuant to the Distribution Plan. 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 such as those described in the next paragraph, by
which a distributor's compensation is directly linked to its expenses). However,
the Vista Shares are not liable for any distribution expenses incurred in excess
of the Basic Distribution Fee paid. The Trustees have also adopted distribution
plans for the Premier Shares of the Tax Free Fund and the U.S. Government Fund.
Such plans are identical in all material respects to the Distribution Plans
described above, except that the basic Distribution Fees under such plans may
not exceed 0.20% of the Tax Free Fund's Premier Share's average daily net
assets, and 0.10% of the U.S. Government Fund's Premier Shares average daily net
assets. No class of shares of a Fund will make payments or be liable for any
distribution expenses incurred by the other class of shares of such Fund.
Under the Distribution Plan, the Tax Free Funds are permitted to pay an
additional fee at an annual rate not to exceed 0.05% of its average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with print or electronic media advertising in connection with the
sale of Fund shares. When such expenses are incurred, the maximum compensation
paid by the Fund under the Distribution Plan would be at an annual rate of 0.25%
of its average daily net assets.
The Distribution and Sub-Administration Agreement dated April 15, 1994, (the
"Distribution Agreement"), provides that the Distributor will act as the
principal underwriter of each Fund's shares and bear the expenses of printing,
distributing and filing prospectuses and statements of additional information
and reports used for sales purposes, and of preparing and printing sales
literature and advertisements not paid for by the Distribution Plan. In
addition, the Distributor will provide certain sub-administration services,
including providing officers, clerical staff and office space. The Distributor
currently receives a fee for sub-administration from each Fund at an annual rate
equal to 0.05% of each Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Other funds which have investment
objectives similar to those of the Funds, but which do not pay some or all of
such fees from their assets, may offer a higher return, although investors
would, in some cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses of the Funds incurred in
connection with organizing new series of the Trust and certain other ongoing
expenses of the Trust. The Distributor may, from time to time, waive all or a
portion of the fees payable to it by each Fund under the Distribution and
Sub-Administration Agreement.
EXPENSES
Each of the Funds intends to pay all or its pro rata share of expenses,
including the compensation of the Trustees; all fees under its Distribution
Plan; governmental fees; interest charges; taxes; membership dues in the
Investment Company Institute; fees and expenses of independent accountants, of
legal
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counsel and of any transfer agent, Shareholder Servicing Agent, or dividend
disbursing agent; expenses of redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the Custodian including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
values of the Vista Shares; expenses of shareholder meetings; and the advisory
fees payable to the Adviser under the Investment Advisory Agreements, the
administration fee payable to the Administrator under the Administration
Agreement and the sub-administration fee payable to the Distributor under the
Distribution and Sub-Administration Agreement. Expenses relating to the
issuance, registration and qualification of shares of each Fund and the
preparation, printing and mailing of prospectuses for such purposes are borne by
the Fund except that the Distribution and Sub-Administration Agreement with the
Distributor requires the Distributor to pay for prospectuses which are to be
used for sales to prospective investors.
Pursuant to offering multiple classes of shares, certain expenses of the
Funds are borne by certain classes, either exclusively, or in a manner which
approximates the proportionate value received by the Class as a result of the
expense being incurred.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end, management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. The Trust has reserved the right to create and issue
additional series or classes. Each share of a series or class represents an
equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Expenses
of the Trust which are not attributable to a specific series or class are
allocated among all the series in a manner believed by management of the Trust
to be fair and equitable. Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of each series or class generally vote separately, for example to approve an
investment advisory agreement or distribution plan, but shares of all series and
classes vote together, to the extent required under the 1940 Act, in the
election or selection of Trustees and independent accountants.
Shareholders of the Vista Shares bear the fees and expenses described in
this Prospectus. Similarly, shareholders of each counterpart Premier Shares and
Institutional Shares bear the fees and expenses described in the prospectus for
such classes of Shares. The fees paid by the Vista Shares to the Distributor and
Shareholder Servicing Agent under the distribution plan and shareholder
servicing arrangements for distribution expenses and shareholder services
provided to investors by the Distributor and Shareholder Servicing Agents are
more than the respective fees paid under distribution plans and shareholder
servicing arrangements adopted for its counterpart Premier Shares. Moreover, the
Institutional Shares pay no fees under distribution plans or shareholder
servicing arrangements. As a result, at any given time, the net yield on the
Vista Shares will be approximately .10% to .25% lower then the
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yield on its counterpart Premier Shares and approximately .30% to .50% lower
than the yield on the counterpart Institutional Shares. Standardized yield
quotations will be computed separately for each class of shares of a Fund.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of each series or class or of all series
or classes when in the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Funds' Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, 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 the
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same 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. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of that series or
class.
The Trust is an entity of the type commonly known as a "Massachusetts
business 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.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated investment company, underwent a statutory reorganization
to become series of the Trust. The CA Tax Free Fund, N.Y. Tax Free Fund, Tax
Free Fund, U.S. Government Fund, Global Fund and Prime Fund are such series and,
therefore, certain information contained in this prospectus reflects the history
of those Funds, since their inception as series of MFG and the fact that certain
policies, plans and shareholder privileges continued unchanged as a result of
the reorganization.
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SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various services, including but not limited to the following: answer
customer inquiries regarding account status, history, the manner in which
purchases and redemptions of shares may be effected for each Fund or class of
shares as to which the Shareholder Servicing Agent is so acting and certain
other matters pertaining to a Fund or class of shares; 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)
monthly and year-end statements and confirmations of purchases and redemptions;
transmit, on behalf of each Fund or class of shares, proxy statements, annual
reports, updated prospectuses and other communications to shareholders; receive,
tabulate and transmit to the Funds proxies executed by shareholders with respect
to meetings of shareholders of each Fund or class of shares; vote the
outstanding shares of each Fund or class of shares whose shareholders do not
transmit executed proxies or attend shareholder meetings in the same proportion
as the votes cast by other shareholders of the Fund or class represented at the
shareholder meeting and provide such other related services as the Funds or a
shareholder may request. Shareholder Servicing Agents may be required to
register pursuant to state securities law.
For performing these services, each Shareholder Servicing Agent for the
Vista Shares and Premier Shares receives certain fees, which may be paid
periodically, determined by a formula based upon the number of accounts serviced
by such Shareholder Servicing Agent during the period for which payment is being
made, the level of activity in accounts serviced by such Shareholder Servicing
Agent during such period, and the expenses incurred by such Shareholder
Servicing Agent. The fees relating to acting as liaison to shareholders and
providing personal services to shareholders will not exceed, on an annualized
basis for each Fund's then-current fiscal year, 0.25% for the Vista Shares of
the Tax Free Funds, 0.25% for U.S. Government Fund, Global Fund and Federal
Fund, and, 0.20% for the Premier Shares of the Tax Free Funds and 0.10% for each
of the Premier Shares of the U.S. Government Fund, Global Fund and Federal Fund,
of the average daily net assets represented by shares owned during the period
for which payment is being made by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship. Each Shareholder Servicing Agent may,
from time to time, voluntarily waive a portion of the fees payable to it. As
explained above, the Institutional Shares do not pay Shareholder servicing fees.
In addition, Chase may provide other related services to the Fund for which it
may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Fund shares, receive dividends and
distributions on Fund investments, and take advantage of any services related to
an Account offered by such Shareholder Servicing Agent from time to time. All
Accounts and any related privileges or services shall be governed by the laws of
the State of New York, without regard to its conflicts of laws provisions.
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The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities such as each Fund's shares. The Trust, on behalf
of the Funds, will engage banks, including Chase and its affiliates, as
Shareholder Servicing Agents only to perform advisory, custodian, administrative
and shareholder servicing functions as described above. While the matter is not
free from doubt, the management of the Trust believes that such laws should not
preclude a bank, including a bank which acts as investment adviser, custodian or
administrator, or in all such capacities for the Trust, from acting as a
Shareholder Servicing Agent. However, possible future changes in federal law or
administrative or judicial interpretations of current or future law, could
prevent a bank from continuing to perform all or a part of its servicing
activities. If that occurred, the bank's shareholder clients would be permitted
to remain as shareholders and alternative means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
each Fund might occur and a shareholder serviced by such bank might no longer be
able to avail himself of any automatic investment or other services then being
provided by such bank. The Trust does not expect that shareholders would suffer
any adverse financial consequences as a result of these occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Trust. In this capacity, DST maintains the
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend and
capital gain distributions to shareholders, whether taken in cash or additional
shares. From time to time, DST and/or the Fund may contract with other entities
to preform certain services for the Transfer Agent. For its services as Transfer
Agent, DST receives such compensation as is from time to time agreed upon by the
Trust and DST. DST's address is 127 W. 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 compensation as is from time to time
agreed upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling each Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on each Fund's investments, maintaining books of original entry for portfolio
and Fund accounting and other required books and accounts, and calculating the
daily net asset value of shares of each Fund. Portfolio securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved by
the Trustees. The internal division of Chase which serves as the Trust's
Custodian does not determine the investment policies of the Funds or decide
which securities will be bought or sold on behalf of the Funds or otherwise have
access to or share material inside information with the internal division that
performs advisory services for the Funds.
TAX SHELTERED RETIREMENT PLANS
Shares of each Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing, and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations, 401K, and 403(b) Retirement Plans. Call or write
the Transfer Agent for more information.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
SPECIFIC FUND POLICIES AND INFORMATION
U.S. GOVERNMENT FUND. The U.S. Government Fund may engage in transactions
involving reverse repurchase agreements in an amount not to exceed 5% of the
Fund's total assets. Reverse repurchase agreements involve the sale of money
market securities held by the U.S. Government Fund with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment.
Reverse repurchase agreements have the same characteristics as borrowing
transactions by the U.S. Government Fund. During the time a reverse repurchase
agreement is outstanding, the U.S. Government Fund will maintain a segregated
custodial account containing U.S. Government or other appropriate high-grade
debt securities having a value equal to the repurchase price. Reverse repurchase
agreements are usually for seven days or less and cannot be repaid prior to
their expiration dates. For additional information regarding reverse repurchase
agreements, see "Investment Objectives, Policies and Restrictions--Investment
Policies: Reverse Repurchase Agreements" in the Statement of Additional
Information.
The U.S. Government Fund is also permitted to invest in certain specialized
U.S. Government agency securities, which often provide higher yields than are
available from the more common types of government-backed instruments. While
they may frequently offer attractive yields, the limited-activity markets of
many of these securities means that, if the U.S. Government Fund were required
to liquidate any of them, it might not be able to do so advantageously. For
additional information on these types of securities, see "Investment Objectives,
Policies and Restrictions--Investment Policies: Specialized Kinds of Government
Agency Securities" in the Statement of Additional Information.
If securities issued or guaranteed by GNMA, FNMA or FHLMC 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 to the U.S. Government
Fund of the premium, which may be particularly likely in the event of a
prepayment.
CALIFORNIA TAX FREE FUND, N.Y. TAX FREE FUND AND TAX FREE FUND. As a
non-fundamental policy, the assets of the CA Tax Free Fund, N.Y. Tax Free Fund
and the Tax Free Fund (collectively, the "Tax Free Funds") will be invested only
in Municipal Obligations that qualify under one of the following categories:
(1) Municipal bonds with remaining maturities of 397 days or less that
at the date of purchase are rated Aaa or Aa by Moody's Investors Service,
Inc. ("Moody's"), AAA or AA by Standard and Poor's Corporation ("Standard &
Poor's") or AAA or AA by Fitch Investors Service, Inc. ("Fitch"), or, if not
rated, are of comparable quality as determined by the Adviser on an ongoing
basis pursuant to general guidelines established by the Board of Trustees of
the Trust, relating to the credit evaluation of the obligor on the bonds or
of the bank issuing a guaranty or letter of credit in support of the bonds
or of any insurance issued in support of the bonds.
(2) Municipal notes with remaining maturities of 397 days or less that
at the date of purchase are rated MIG-1 or MIG-2 by Moody's, SP-1 or SP-2 by
Standard & Poor's or F-1 or F-2 by Fitch, or if not rated, are of comparable
quality as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. The principal
kinds of municipal notes include tax anticipation notes, bond anticipation
notes and
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revenue anticipation notes. Notes sold in anticipation of collection of
taxes, a bond sale or receipt of other revenues are usually general
obligations of the issuing municipality or agency.
(3) Municipal commercial paper that is rated Prime-1 by Moody's, A-1 by
Standard & Poor's or F-1 by Fitch or, if not rated, is of comparable quality
as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. Issues of
municipal commercial paper typically represent very short-term, unsecured,
negotiable promissory notes. These obligations are often issued to meet
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities
or are refinanced with long-term debt. In most cases, municipal commercial
paper is backed by letters of credit, lending agreements, note repurchase
agreements (see "Investment Objectives, Policies and
Restrictions--Investment Policies: Repurchase Agreements" in the Statement
of Additional Information) or other credit facility agreements offered by
banks or other institutions which may be called upon in the event of default
by the issuer of the commercial paper.
While Municipal Obligations satisfying the foregoing criteria may not earn
as high a level of current income as securities with longer terms or of lower
quality, those securities would generally be less liquid and subject to a higher
degree of price fluctuation than such Municipal Obligations. For descriptions of
the ratings of Standard & Poor's, Moody's and Fitch, see "Description of
Ratings" in Appendix A.
In view of the possible "concentration" of each Tax Free Fund in Municipal
Obligations secured by bank letters of credit or guarantees, an investment in a
Tax Free Fund should be made with an understanding of the characteristics of the
banking industry and the risks associated with such an investment. Banks are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and
interest rates and fees which 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 under a letter of credit. For further information concerning
variable rate demand instruments, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Variable Rate Securities and Participation
Certificates" in the Statement of Additional Information.
THE GLOBAL FUND may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof include certain U.S. Treasury obligations, consisting
of bills, notes and bonds, which principally differ only in their interest
rates, maturities and times of issuance, and obligations issued or guaranteed by
U.S. Government agencies and instrumentalities which are primarily supported by
the full faith and credit of the U.S. Treasury, such as securities of the Small
Business Administration. The Global Fund may also invest in selected securities
issued or guaranteed by the U.S. Treasury of which the principal and interest
components of such securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities Program ("STRIPS").
In addition, the Global Fund may invest in those obligations supported by (i)
the limited authority of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (ii) the authority of the
U.S. Government to purchase certain obligations of the issuer (such as
securities of the Federal National Mortgage Association), or (iii) only the
credit of the issuer. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government agencies and instrumentalities as
described in clauses
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(i), (ii) or (iii) above in the future, other than as set forth above, since it
is not obligated to do so by law. The Fund is also permitted to invest in
certain specialized U.S. Government agency securities, which often provide
higher yields than are available from the more common types of government-backed
instruments. While they may frequently offer attractive yields, the
limited-activity markets of many of these securities means that, if the Fund
were required to liquidate any of them, it might not be able to do so
advantageously.
COMMON FUND POLICIES AND OTHER INFORMATION
Other Securities. The Global 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 and are not deemed U.S.
Government securities, including "Treasury Receipts", "Treasury Investment
Growth Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). These notes and bonds are held in custody by a bank on behalf of the
owners of the receipts.
Domestic Bank Obligations. The domestic bank obligations in which the Global
Fund may invest consist of certificates of deposit, time deposits and bankers'
acceptances issued or guaranteed by U.S. banks. Such bank 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. The foreign bank obligations in which the Global
Fund may invest consist of U.S. Dollar denominated obligations issued or
guaranteed by foreign banks, including foreign branches of U.S. banks, foreign
banks and U.S. branches of foreign banks. Such bank 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.
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 Global Fund other than those of bank holding companies, include
obligations which are (i) rated Prime-I by Moody's, A-1 by Standard & Poor's or
F-1 by Fitch; or (ii) determined by the Adviser to be of comparable quality to
those rated obligations which may be purchased by the Global 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, Standard & Poor's or Fitch. The
commercial paper and other short-term obligations of U.S. bank holding companies
which may be purchased by the Global 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.
The Global Fund also may purchase floating and variable rate demand notes
and bonds, which are obligations normally having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit the Global Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Global Fund, as lender, and the borrower. The interest rates on
these notes fluctuate from time to time. The issuer of such obligations normally
has a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount
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of the obligations plus accrued interest upon a specified number of days' notice
to the holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and the borrower, it is not
contemplated that such instruments will generally be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Global Fund's
right to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and, if not so rated, the Fund may invest in them only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Global Fund may invest. The
Adviser, on behalf of the Global Fund, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations in the Fund's portfolio. The Global Fund will not invest more than
10% of the value of their respective total assets in floating or variable rate
demand obligations as to which it cannot exercise the demand feature on not more
than seven days' notice if there is no secondary market available for these
obligations, and in other securities that are not readily marketable.
Securities of Foreign Governments and Supranational Agencies. The Global
Fund may invest in obligations of supranational agencies, such as the
International Bank for Reconstruction and Development, also known as the World
Bank, which 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.
The Global Fund will limit its investments in U.S. Dollar denominated
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.
Other Investment Policies and Restrictions. The Global and Federal Funds
have adopted certain fundamental investment restrictions set forth in the
Statement of Additional Information, which include a restriction that such Fund
will not borrow money (excluding entering into reverse repurchase agreements)
except from banks and only for temporary or emergency purposes or to meet
redemption requests which might otherwise require the untimely disposition of
securities; provided that such borrowings in the aggregate may not exceed 10% of
the value of the Fund's total assets (including the amount borrowed) at the time
of such borrowing. The Global and Federal Funds will not purchase investment
securities when the Fund's outstanding borrowings exceed 5% of the value of its
respective total assets. The Global Fund may invest up to 25% of their
respective total assets in the securities of issuers in any industry. There is
no limitation on investments of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Global Fund's concentration
policy regarding the U.S. and foreign banking industries may involve certain
additional credit risks, such as defaults or downgrades, if at some future date
adverse economic conditions prevail in such industries.
The Global Fund may invest not more than 10% of their respective total
assets in repurchase agreements maturing in more than seven days or in other
nonmarketable or illiquid securities maturing in more than seven days, including
reverse repurchase agreements. The Funds, except for the Tax Free Fund, may
invest in reverse repurchase agreements which involve the sale of money market
securities held by the Fund with an agreement to repurchase the securities at an
agreed upon price, date and
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interest payment. Reverse repurchase agreements have the same characteristics as
borrowing by the Funds. During the time a reverse repurchase agreement is
outstanding, the Global Fund will maintain a segregated custodial account
containing U.S. Government or other appropriate high quality debt securities
having a value equal to the repurchase price. Reverse repurchase agreements are
usually for seven days or less and cannot be repaid prior to their expiration
dates. Repurchase Agreements involve the risk that the market value of the
Fund's portfolio securities transferred may decline below the price at which the
Fund is obligated to repurchase the securities. Further, because a reverse
repurchase agreement entered into by a Fund constitutes borrowing, it may have a
leveraging effect.
Risk Factors. Foreign bank obligations include fixed time deposits which are
payable at a stated maturity date and bear a fixed rate of interest. Generally,
fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligations. The Global Fund will
not invest more than 10% of their respective total assets in fixed time
deposits. Fixed time deposits do not have a market and therefore may be regarded
as illiquid. However, there are no contractual restrictions on the right to
transfer a beneficial interest in the deposit to a third party.
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.
Foreign securities issued by foreign governments, any of their political
subdivisions, agencies and instrumentalities, debt obligations issued by foreign
banks and their branches and commercial paper issued by foreign issuers involve
investment risks in addition to those of domestic obligations of domestic
issuers, including the possibilities that liquidity could be impaired because of
future political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less publicly available information concerning foreign issuers, that
there may be difficulties in obtaining or enforcing a judgment against a foreign
issuer (including branches) or that the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign issuers
may differ from those applicable to United States issuers. In addition, foreign
banks are not subject to examination by any U.S. Government agency or
instrumentality.
REPURCHASE AGREEMENTS. Each Fund, other than the Federal Fund, may, when
appropriate, enter into repurchase agreements (a purchase of and simultaneous
commitment to resell a security at an agreed-upon price and date which is
usually not more than seven days from the date of purchase) only with member
banks of the Federal Reserve System and security dealers believed creditworthy
by the Trustees and only if fully collateralized by U.S. Government obligations
or other securities in which such Fund is permitted to invest. In the event the
seller fails to pay the agreed-to sum on the agreed-upon delivery date, the
underlying security could be sold by a Fund, but the Fund might incur a loss in
doing so, and in certain cases may not be permitted to sell the security. As an
operating policy, such Funds,
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through their custodian bank, takes constructive possession of the collateral
underlying repurchase agreements. Additionally, procedures have been established
for such Funds to monitor, on a daily basis, the market value of the collateral
underlying all repurchase agreements to ensure that the collateral is at least
100% of the value of the repurchase agreements. Not more than 10% of the total
assets of such a Fund will be invested in securities which are subject to legal
or contractual restrictions on resale, including securities that are not readily
marketable and repurchase agreements maturing in more than seven days.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. Each Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a "forward delivery" basis, which means that the
securities will be delivered at a future date beyond the customary settlement
time. Although there is no limit as to the amount of the commitments which may
be made by a Fund to purchase securities on a "when-issued" or "forward
delivery" basis, it is expected that under normal circumstances not more than
30% of a Fund's total assets will be committed to such purchases. A Fund does
not pay for such obligations or start earning interest on them until the
contractual settlement date. Although commitments to purchase "when-issued" or
"forward delivery" securities will only be made with the intention of actually
acquiring them, these securities may be sold before the settlement date if
deemed advisable by an Adviser.
While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases. For example, when the time
comes to pay for a "when-issued" or "forward delivery" security, a Fund's
portfolio securities may have to be sold in order to meet payment obligations,
and a sale of securities to meet such obligations carries with it a greater
potential for the realization of capital gain, which is not tax-exempt. Also, if
it is necessary to sell the "when-issued" or "forward delivery" security before
delivery, a Fund may incur a loss because of market fluctuations since the time
the commitment to purchase the "when-issued" or "forward delivery" security was
made. Any gain resulting from any such sale would not be tax-exempt. For
additional information concerning these risks and other risks associated with
the purchase of "when-issued" or "forward delivery" securities as well as other
aspects of the purchase of securities on a "when-issued" or "forward delivery"
basis, see "Investment Objectives, Policies and Restrictions--Investment
Policies: When-Issued and Forward Delivery Purchases" in the Statement of
Additional Information.
STAND-BY COMMITMENTS. When a Tax Free Fund purchases Municipal Obligations,
stand-by commitments from banks with respect to such Municipal Obligations may
also be acquired. The Tax Free Funds also reserve the right to, and may in the
future, acquire stand-by commitments from broker-dealers. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at a Tax Free Fund's
option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired by a Fund with respect
to a particular Municipal Obligation held in its portfolio. Not more than 10% of
the total assets of each Tax Free Fund will be invested in Municipal Obligations
that are subject to stand-by commitments from the same bank or broker-dealer.
The Tax Free Funds intend to acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The purpose of this practice is to permit a Tax
Free Fund to be fully invested in securities, the interest on which is excluded
from gross income for federal income tax purposes, while preserving the
necessary liquidity to purchase securities on
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a "when-issued" or "forward delivery" basis, to meet unusually large redemptions
and to purchase at a later date securities other than those subject to the
stand-by commitment.
The stand-by commitments that may be entered into are subject to certain
risks, which include the inability of the issuer of the commitment to pay for
the securities at the time the commitment is exercised, the fact that the
commitment is not marketable by a Tax Free Fund, and that the maturity of the
underlying security will generally be different from that of the commitment.
Municipal Obligations with the additional security provided by a stand-by
commitment will cost a Tax Free Fund more, directly or indirectly, than
comparable securities without such a commitment, thus providing a lower yield
than would be available from such other securities. The Tax Free Funds will not
purchase Municipal Obligations with stand-by commitments from the Adviser or any
bank affiliated with the Adviser, and have no present intention of acquiring
Municipal Obligations with stand-by commitments from Shareholder Servicing
Agents or banks affiliated with Shareholder Servicing Agents. For further
information concerning stand-by commitments, see "Investment Objectives,
Policies and Restrictions-- Investment Policies: Stand-by Commitments" in the
Statement of Additional Information.
VARIABLE RATE SECURITIES AND PARTICIPATION CERTIFICATES. The variable rate
demand instruments that may be purchased by a Tax Free Fund are tax exempt
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at anytime or at specified
intervals not exceeding 397 days, in each case upon not more than 30 days'
notice. With respect to the U.S. Government Fund, certain Government securities
provide for a periodic adjustment in the interest rate paid on the instrument
and/or 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. The variable rate securities in which the
above-referenced Funds may be invested include participation certificates (and,
with respect to the U.S. Government Fund, certificates of indebtedness) issued
by a bank, insurance company or other financial institution, and in variable
rate securities owned by such institutions or affiliated organizations
("Participation Certificates"). 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. With respect to the Tax Free Funds, these instruments may
have fixed, floating or variable rates of interest, with remaining maturities of
397 days or less. If the participation interest is unrated, or has been given a
rating below that which otherwise is permissible for purchase by one of the
Funds, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trustees have determined meets the
prescribed quality standards for banks, or the payment obligation otherwise will
be collateralized by U.S. Government Securities. (See "Investment Objectives,
Policies and Restrictions--Investment Policies: Variable Rate Securities and
Participation Certificates" in the Statement of Additional Information.)
The Adviser will monitor on an on-going basis the ability of the underlying
issuers to meet their demand obligations. Although variable rate securities may
be sold by a Fund, it is intended that they be held until maturity, except under
certain specified circumstances. (See "Investment Objectives, Policies and
Restrictions--Investment Policies: Variable Rate Securities and Participation
Certificates" in the Statement of Additional Information.)
As a result of the variable rate nature of these investments, a Fund's yield
will decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest
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rates have declined. Conversely, during periods where prevailing interest rates
have increased, a Fund's yield will increase and its shareholders will have
reduced risk of capital depreciation.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolios of the
Funds will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolios of these Funds, the Advisers
seek to take advantage of market developments, yield disparities and variations
in the creditworthiness of issuers. For a description of the strategies that may
be used by each Adviser in managing the portfolios of these Funds, which may
include adjusting the average maturity of a portfolio in anticipation of a
change in interest rates, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Portfolio Management" in the Statement of
Additional Information.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Since money market instruments are generally
purchased in principal transactions, the Funds pay no brokerage commissions. For
a complete discussion of portfolio transactions and brokerage allocation, see
"Investment Objectives, Policies and Restrictions--Investment Policies:
Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information.
EFFECT OF RULE 2A-7 ON PORTFOLIO MANAGEMENT. The portfolio management of
each Fund is intended to comply with the provisions of Rule 2a-7 of the 1940 Act
(the "Rule") under which, if a Fund meets certain conditions, it may use the
"amortized cost" method of valuing its securities. Under the Rule, the maturity
of an instrument is generally considered to be its stated maturity (or in the
case of an instrument called for redemption, the date on which the redemption
payment must be made), with special exceptions for certain kinds of instruments.
Repurchase agreements and securities loan agreements are, in general, treated as
having a maturity equal to the period remaining until they can be executed.
In accordance with the provisions of the Rule, the U.S. Government Fund, the
Global Fund, and the Federal Fund must: (i) maintain a dollar weighted average
portfolio maturity (above) not in excess of 90 days (however, the U.S.
Government Fund does not plan to have a dollar weighted average portfolio
maturity in excess of 60 days); (ii) limit its investments, including repurchase
agreements, to those instruments which are denominated in U.S. dollars, which
the Board of Trustees determines present minimal credit risks, and which are of
"high quality" as determined by at least two major rating services; or, in the
case of any instrument that is split-rated or not rated, of comparable quality
as determined by the Board; and (iii) not purchase any instruments with a
remaining maturity (see above) of more than 397 days. The Rule also contains
special provisions as to the maturity of variable rate and floating rate
instruments. In accordance with the Rule, each of Tax Free Funds must (i)
maintain a dollar-weighted average portfolio maturity of 90 days or less, (ii)
purchase only instruments having remaining maturities of 397 days or less and
(iii) invest only in U.S. dollar denominated securities determined in accordance
with procedures established by the Board of Trustees to present minimal credit
risks and which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the instrument was rated only by
one such organization), or, if unrated, are of comparable quality as determined
in accordance with procedures established by the Board of Trustees.
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SPECIAL FACTORS AFFECTING
MUNICIPAL OBLIGATIONS
Investors of the N.Y. Tax Free Fund should consider carefully the special
risks inherent in investments in New York Municipal Obligations. These risks
result from the financial condition of New York State, certain of its public
bodies and municipalities and New York City. Beginning in early 1975, New York
State, New York City and other State entities faced serious financial
difficulties which jeopardized the credit standing and impaired the borrowing
abilities of such entities and contributed to high interest rates on, and lower
market prices for, debt obligations issued by them. A recurrence of such
financial difficulties or a failure of certain financial recovery programs could
result in defaults or declines in the market value of various New York Municipal
Obligations in which the Fund may invest. If there should be a default or other
financial crisis relating to New York State, New York City, a State or City
agency, or other municipality, the market value and marketability of outstanding
New York Municipal Obligations in the Fund's portfolio and the interest income
to the Fund could be adversely affected. In addition, the effects of actual and
proposed changes in Federal and State tax laws, as well as the significant
slowdown in the New York and regional economy, have added substantial
uncertainty to estimates of the State's tax revenues, which resulted in the
State's overestimate of General Fund tax receipts in the 1992 fiscal year by
$575 million. The 1992 fiscal year was the fourth consecutive year in which the
State incurred a cash-basis operating deficit in the General Fund and issued
deficit notes. The State's 1992-93 fiscal year, however, was characterized by
national and regional economies that performed better than projected in April
1992. National gross domestic product, State personal income, and employment and
unemployment in the State were estimated to have performed better than
originally projected in April 1992. After reflecting a 1992-93 year-end deposit
to the refund reserve account of $671 million, reported 1992-93 General Fund
receipts were $45 million higher than originally projected in April 1992. If not
for that year-end transaction, General Fund receipts would have been $716
million higher than originally projected. There can be no assurance that the
State will not face substantial potential budget gaps in future years. In 1990,
Moody's and S&P lowered their ratings of the State's general obligation debt
from A-1 to A and AA- to A, respectively. In addition, Moody's and S&P lowered
their ratings of New York's short-term notes from MIG-1 to MIG-2 and from SP-1 +
to SP-1, respectively. The rating changes reflected the rating agencies'
concerns about the State's financial condition, its heavy debt load and economic
uncertainties in the region. In February 1991, Moody's lowered its rating on New
York City's general obligation bonds from A to Baa1. On April 29, 1991, S&P
downgraded the City's general obligation revenue anticipation notes from SP-1 to
SP-2, citing a budget impasse at the State level that would leave the City at
risk if the State was unable to forward promised State aid before the end of the
City's fiscal year June 30. On January 6, 1992, Moody's lowered the ratings on
certain appropriation-backed debt of New York State and its agencies from A to
Baa1. On January 13, 1992, S&P lowered from A to A- the ratings of New York
State general obligation bonds. The ratings of various agency debt, State moral
obligations, contractual obligations, lease purchase obligations and State
guarantees also were lowered. A complete discussion of the risks associated with
investments in obligations of New York issuers is contained in the Statement of
Additional Information.
A number of pending court actions have been brought against or involve the
State, its agencies, or other municipal subdivisions of the State, which actions
relate to financing, the use of tax or other revenues for the payment of
obligations and claims that would require additional public expenditures.
Adverse decisions in such cases could require extraordinary appropriations or
expenditure reductions or
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both and might have a materially adverse effect on the financial condition of
the State and its agencies and municipal subdivisions. Any such adverse effect
could affect, to some extent, all municipal securities issued by the State, its
agencies, or municipal subdivisions.
To the extent that State agencies and local governments seek special State
assistance, the ability of the State to pay its obligations as they become due
or to obtain additional financing could be adversely affected, and the
marketability of notes and bonds issued by the State, its agencies, and other
governmental entities may be impaired.
Risk Factors--Investing in California Municipal Obligations. The State of
California's bond ratings were lowered from AAA to A+ by S&P from AAA to AA by
Fitch and from Aaa to Aa1 by Moody's. S&P has also placed the State of
California on Credit Watch. California is experiencing its deepest recession
since the 1930's. Risks also result from certain amendments to the California
Constitution and other statues that limit the taxing and spending authority of
California governmental entities, as well as from the general financial
condition of the State of California. These circumstances may have the effect of
impairing the ability of California issuers to pay interest on, or repay the
principal of, their municipal obligations. A more detailed discussion of this
subject is contained in the Fund's Statement of Additional Information. If in
the future an adequate supply of municipal obligations of California issuers
ceased to be available, the Fund's Board of Trustees would consider recommending
alternatives to shareholders, such as changing the Fund's investment objective
or liquidating the Fund. The Manager does not believe that the current economic
conditions in California will have a significant adverse effect on the Fund's
ability to invest in municipal obligations.
The foregoing is only a summary and is based on information from statements
relating to securities offerings of New York and California issuers. A more
detailed description of special factors affecting investments in New York and
California Municipal Obligations of which investors should be aware is set forth
in Appendices C and D to the Statement of Additional Information.
PORTFOLIO SECURITIES LENDING. Although the Funds do not intend to engage in
such activity in the ordinary course of business, each Fund (other than the Tax
Free Funds) 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 20% of the value of a Fund's total assets
(30% in the case of the U.S. Government and Federal Funds). In connection with
such loans, the Funds will receive collateral consisting of cash, cash
equivalents, U.S. Government securities or irrevocable letters of credit issued
by financial institutions. Such collateral will be maintained at all times in an
amount equal to at least 100% of the current market value plus accrued interest
of the securities loaned. The Funds can increase their income through the
investment of such collateral. The Funds continue to be entitled to the interest
payable or any dividend-equivalent payments received on a loaned security and,
in addition, 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. The Funds might experience risk
of loss if the institutions with which they have engaged in portfolio loan
transactions breach their agreements with the Funds. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
experience financial difficulty. Loans will be made only to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans justifies the risk.
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DESCRIPTION OF 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 consist of both notes and bonds.
There are five major varieties of state and municipal notes: TAX ANTICIPATION
NOTES ("TANS"); REVENUE ANTICIPATION NOTES ("RANS"); BOND ANTICIPATION NOTES
("BANS"); AND CONSTRUCTION LOAN NOTES ("CLNS").
TANS AND RANS are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
BANS are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
CLNS are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet
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its financial obligations and, in certain instances, the pledge of real and
personal property as security for payment. In the case of many Private Activity
Bonds, there is no established secondary market for their purchase or sale and
therefore they may not be readily marketable. However, Private Activity Bonds or
the participation certificates in Private Activity Bonds purchased by a Fund
will have liquidity because they will be supported by demand features to "high
quality" banks, insurance companies or other financial institutions which may be
exercised by a Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, each of the Vista Shares may use hypothetical investment
examples and performance information in advertisements, shareholder reports or
other communications to shareholders. Because such performance information is
based on historical earnings, it should not be considered as an indication or
representation of the performance of the Vista Shares in the future. From time
to time, the yield of each of the Vista Shares, as a measure of its performance,
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 other relevant indices or to rankings
prepared by independent services or other financial or industry publications,
such as Lipper Analytical Services, Inc. or the Morningstar Mutual Funds on
Disc, that monitor the performance of mutual funds. In addition, the yield of
each of the Vista Shares may be compared to the Donoghue's Money Fund
AveragesTM, compiled in the Donoghue's Money Fund Report(R), a widely recognized
independent publication that monitors the performance of money market funds.
Also, each of the Vista Shares' yield data may be 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 publications of a local or
regional nature. Each of the Vista Shares may, with proper authorization,
reprint articles written about the Vista Shares and provide them to prospective
shareholders.
Each of the Vista Shares may provide its annualized "yield" and "effective
yield" to current and prospective shareholders. The "yield" of a Fund refers to
the income generated by an investment in the Fund over a seven-day period (which
period shall be stated in any advertisement or communication with a
shareholder). This income is then "annualized", that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of investment. The
"effective yield" is calculated similarly, but when annualized the income earned
by the investment during that week is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The CA Tax Free Fund, the N.Y. Tax Free Fund and the Tax Free Fund (the "Tax
Free Funds") may also quote a "tax equivalent yield." The "tax equivalent yield"
refers to the yield that a taxable money market fund would have to generate in
order to produce an after-tax yield equivalent to that of the CA Tax Free Fund,
N.Y. Tax Free Fund or the Tax Free Fund. The use of a tax equivalent yield
allows investors to compare the yield of the CA Tax Free Fund, the income from
which is excluded for federal income tax purposes and exempt from California
State personal income taxes, the yield of the N.Y. Tax Free Fund, the income
from which is excluded for federal income tax purposes and exempt from New York
State and New York City personal income taxes, or the yield of the Tax Free Fund
which provides shareholders with income excluded for federal income tax
purposes, with yields of money market funds which are not so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of each of the Vista Shares will vary based on
interest rates, the current market value of the
44
<PAGE>
securities held in the Fund's portfolio and changes in the Fund's and the
Shares' expenses. The Adviser, the Administrator, the Distributor and each
Shareholder Servicing Agent may voluntarily waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of the
Fund's operating expenses on a month-to-month basis. These actions would have
the effect of increasing the net income (and therefore the yield) of the Vista
Shares during the period such waivers of fees or assumptions of expenses are in
effect. These factors and possible differences in the methods used to calculate
yields should be considered when comparing each of the Vista Shares' yields to
those published for other money market funds and other investment vehicles. A
Shareholder Servicing Agent may charge its customers direct fees in connection
with an investment (see "Purchases and Redemptions of Shares--Purchases") which
will have the effect of reducing the net return on the investment of customers
of that Shareholder Servicing Agent. Conversely, each of the Vista Shares 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 (see "Purchases and
Redemptions of Shares--Purchases"), 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. See the Statement of Additional
Information for further information concerning each of the Vista Shares'
calculation of yield.
OTHER INFORMATION
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially subject to the alternative
minimum tax on individuals. As a result, this legislation may affect the
availability of Municipal Obligations for investment by each of the Tax Free
Funds.
More than 25% of the assets of the Tax Free Funds may be invested in
securities to be paid from revenue of similar projects, which may cause a Fund
to be more susceptible to similar economic, political, or regulatory occurrences
(particularly with respect to the CA Tax Free Fund and the N.Y. Tax Free Fund,
since most or all of the issuers in which each Fund invests are likely to be
located in California and New York, respectively). The value of shares of the
Tax Free Funds may be subject to greater risk than those of other mutual funds
that do not permit such a practice.
The Statement of Additional Information contains more detailed information
about the Trust and the Funds, including information related to (i) each Fund's
investment policies and restrictions, (ii) risk factors associated with each
Fund's policies and investments, (iii) the Trust's Trustees, officers and the
Administrator and the Adviser, (iv) portfolio transactions and brokerage
allocation, (v) the Funds' shares, including rights and liabilities of
shareholders, and (vi) additional performance information, including the method
used to calculate yield or total rate of return quotations of each Fund. The
audited financial statements of each Fund for its last fiscal year end are
incorporated by reference in the Statement of Additional Information.
45
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS*
The ratings of Moody's, Standard & Poor's and Fitch'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
TWO 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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Bonds in the Aa category which Moody's believes possess the
strongest investment attributes are designated by the symbol Aal.
DESCRIPTION OF MOODY'S TWO HIGHEST RATINGS
OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal notes and other short-term loans are
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
- ------------
* 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.
A-1
<PAGE>
DESCRIPTION OF STANDARD & POOR'S TWO 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.
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 are
given a plus (+) designation.
SP-2 -- Satisfactory 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/A-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+").
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.
A-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.
A-2
<PAGE>
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.
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.
A-3
<PAGE>
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.
A-4
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 41932
Kansas City, MO 64141-6392
VISTA SHARES
Prospectus
and Application
- ---------------------------------------- ------------------------
INVESTMENT ADVISER AND ADMINISTRATOR * VISTA U.S. GOVERNMENT
The Chase Manhattan Bank, N.A. MONEY MARKET FUND
DISTRIBUTOR * VISTA FEDERAL
Vista Broker-Dealer Services, Inc. MONEY MARKET FUND
TRANSFER AGENT * VISTA GLOBAL
DST Systems, Inc. MONEY MARKET FUND
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen * VISTA TAX FREE
Kamin & Frankel MONEY MARKET FUND
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP * VISTA NEW YORK TAX FREE
MONEY MARKET FUND
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
* VISTA CALIFORNIA TAX FREE
MONEY MARKET FUND
December 31, 1995
<PAGE>
PROSPECTUS
VISTA(SM) TAX FREE INCOME FUND December 31, 1995
VISTA TAX FREE INCOME FUND (the "Fund") seeks to provide its shareholders
with monthly dividends which are excluded from gross income for federal income
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 (as defined at page A-1). In addition, the Fund will
use futures contracts on fixed income securities or indexes of fixed income
securities and options on such futures contracts for the purpose of protecting
(i.e., "hedging") the value of its portfolio. The Fund is a non-diversified
series of Mutual Fund Trust (the "Trust"), an open-end, management investment
company organized as a business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994, presently consisting of 11 separate series
(the "Funds"). Because the Fund is "non-diversified", more of the Fund's assets
may be concentrated in the securities of any single issuer than if the Fund was
"diversified", which may make the value of shares of the Fund more susceptible
to certain risks than shares of a diversified mutual fund.
Of course, there can be no assurance that the Fund will achieve its
investment objective. Prospective investors should carefully consider the risks
associated with an investment in the Fund. For a further discussion on the risks
associated with an investment in the Fund, see "Investment Objective and
Policies" in this Prospectus. Investors should also refer to "Additional
Information on Investment Policies and Techniques" on page 27.
THE CHASE MANHATTAN BANK, N.A. (THE "ADVISER") IS THE FUND'S INVESTMENT
ADVISER, CUSTODIAN (THE "CUSTODIAN") AND ADMINISTRATOR (THE "ADMINISTRATOR").
VISTA BROKER-DEALER SERVICES, INC. ("VBDS") IS THE FUND'S DISTRIBUTOR AND IS
UNAFFILIATED WITH CHASE. 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, N.A. 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.
Shares of the Fund are continuously offered for sale through VBDS, the
Fund's distributor (the "Distributor"). An investor should obtain from his or
her Shareholder Servicing Agent, if appropriate, and should read in conjunction
with this Prospectus, the materials provided by the Shareholder Servicing Agent
describing the procedures under which the shares of the Fund may be purchased
and redeemed through such Shareholder Servicing Agent. Investors may select
Class A or Class B shares, each with a public offering price that reflects
different sales charges and expense levels. Class A shares are offered at net
asset value plus the applicable sales charge (maximum of 4.50% of public
offering price). Class B shares are offered at net asset value without an
initial sales charge, with a maximum contingent deferred sales charge of 5% of
redemption proceeds imposed on certain redemptions made within six years of the
date of purchase This charge will decline to zero for redemptions more than six
years after initial purchase. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert into Class A shares in the eighth year
after purchase. Salespersons and any other person entitled to receive
compensation for selling or servicing shares of the Fund may receive different
compensation with respect to one particular class of shares over another in the
Fund.
For more information on the differences in these classes, see "Variable
Distribution Method," "Purchases and Redemptions of Shares" and "Conversion of
Class B Shares."
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. A Statement of
Additional Information for the Fund, dated December 31, 1995, which contains
more detailed information concerning the Fund, has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the Statement of Additional
Information without charge by contacting his Shareholder Servicing Agent, the
Distributor or the Fund.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE 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.
For information about the Fund, simply call the Vista Service Center at the
following toll-free number: 1-800-34-VISTA.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
Financial Highlights...................................................... 4
Investment Objective and Policies......................................... 5
Variable Distribution Method.............................................. 6
Management of the Fund.................................................... 7
Purchases and Redemptions of Shares....................................... 9
Tax Matters............................................................... 19
Other Information Concerning Shares of the Fund........................... 21
Shareholder Servicing Agents, Transfer Agent and Custodian................ 25
Additional Information on Investment Policies and Techniques.............. 27
Yield and Performance Information......................................... 32
Appendix A
Description of Ratings................................................ A-1
</TABLE>
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -----------------------------------------------------------------------
Maximum Initial Sales Charge imposed on Purchases (as a percentage of
offering price)*..................................................... 4.50% None
Maximum Sales Charge imposed on Reinvested Dividends................... None None
Exchange Fee........................................................... None None
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds)+........................................................... None 5%
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
- -----------------------------------------------------------------------
Investment Advisory Fee (After waiver of fees)**....................... .03% .03%
Rule 12b-1 Distribution Plan++ (After waiver of fees)**................ .20% .75%
Administration Fee..................................................... .02% .02%
Other Expenses (After waiver of fees)**
- --Sub-administration Fee............................................... .05% .05%
- --Shareholder Servicing Fee............................................ .55% .25%
- --Other Operating Expenses+++.......................................... .55% .55%
------- -------
.90% 1.65%
------- -------
------- -------
EXAMPLE:
You would pay the following expenses on a $1,000 investment in the
Fund,
assuming a 5% annual rate of return:
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1)............................................ $54 $72 $93 $151
Class B Shares:
Assumes complete redemption at end of period (2)(3)........ $ 68 $ 85 $ 113 $ 156
Assumes no redemption (3).................................. $ 17 $ 52 $ 90 $ 156
<FN>
------------
* The rules of the Securities and Exchange Commission require that the Fund's
maximum sales charge be reflected in the expense summary.
** Fees waived on a month-to-month basis.
+ The maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchases; the charge generally declines
by 1% annually thereafter (except in the fourth year), reaching zero after six
years. See "Purchases."
++ As a result of distribution fees, a long-term shareholder in the Fund may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the rules of the National Association of Securities Dealers, Inc.
+++ A shareholder may incur a $10.00 charge for certain wire redemptions.
(1) Assumes deduction at the time of purchase of the maximum 4.50% initial sales
charge, as applicable.
(2) Assumes deduction at the time of redemption of the maximum applicable contingent
deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at the
beginning of eighth year.
</FN>
</TABLE>
The purpose of the expense summary provided above is to assist investors in
understanding the various costs and expenses that a shareholder in the Fund will
bear directly or indirectly. The expense summary shows the investment advisory
fee, distribution plan fee, administration fee, sub-administration fee,
shareholder servicing fee and other operating expenses that are expected to be
incurred by the Fund after waiver of fees. Absent such waivers, the annual
investment advisory fee, distribution fee, administrative fee,
sub-administrative fee and shareholder servicing fee for the Fund would be
0.30%, 0.25%, (0.75% for Class B Shares), 0.10%, 0.05% and 0.25%. A more
complete description of the Fund's expenses, including any potential fee
waivers, is set forth herein.
THE "EXAMPLE" SET FORTH ABOVE ASSUMES ALL DIVIDENDS AND OTHER DISTRIBUTIONS
ARE REINVESTED AND THAT THE PERCENTAGES UNDER "ANNUAL FUND OPERATING EXPENSES"
REMAIN THE SAME IN YEARS SHOWN. THE "EXAMPLE" SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN SHOWN. THE ACTUAL EXPENSES INCURRED AND ATTRIBUTABLE TO
EACH CLASS OF SHARES WILL DEPEND ON SEVERAL FACTORS, INCLUDING THE LEVEL OF
AVERAGE NET ASSETS AND THE EXTENT TO WHICH A CLASS INCURS VARIABLE EXPENSES,
SUCH AS TRANSFER AGENCY COSTS.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Class A share and one Class B share for 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 Statement of Additional Information.
The financial statements and notes, as well as the financial information set
forth in the table below for each of the five years ended August 31, 1995, 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 Annual Report by contacting the Fund or their Shareholder
Servicing Agent.
<TABLE>
TAX FREE INCOME FUND
<CAPTION>
YEAR 11/4/93** YEAR 11/1/93
ENDED THROUGH ENDED THROUGH YEAR ENDED OCTOBER 31,
8/31/95 8/31/94+ 8/31/95 8/31/94+ ------------------------------------------------
------- --------- ------- -------- 1993 1992 1991 1990 1989
CLASS B CLASS B CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- --------- ------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.......................... $11.65 $ 12.51 $11.70 $ 12.70 $ 11.52 $ 11.12 $ 10.43 $ 10.58 $ 10.63
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income........ 0.498 0.423 0.585 0.475 0.662 0.731 0.727 0.723 0.756
Net Gains or Losses in
Securities (both realized
and unrealized)........... 0.140 (0.707) 0.147 (0.847 ) 1.412 0.556 0.693 (0.094) 0.006
------- --------- ------- -------- ------- ------- -------- ------- -------
Total from Investment
Operations.................. 0.638 (0.284) 0.732 (0.372 ) 2.074 1.287 1.420 0.629 0.762
LESS DISTRIBUTIONS:
Dividends from net investment
income...................... 0.518 0.423 0.582 0.475 0.662 0.731 0.726 0.726 0.759
Distributions from capital
gains....................... -- 0.153 -- 0.153 0.237 0.156 -- 0.055 0.053
------- --------- ------- -------- ------- ------- -------- ------- -------
Total Distributions.......... 0.518 0.576 0.582 0.628 0.899 0.887 0.726 0.781 0.812
Net Asset Value, End of
Period.......................... $11.77 $ 11.65 $11.85 $ 11.70 $ 12.70 $ 11.52 $ 11.12 $ 10.43 $ 10.58
------- --------- ------- -------- ------- ------- -------- ------- -------
------- --------- ------- -------- ------- ------- -------- ------- -------
Total Return(1)................. 5.70% (2.35%) 6.53% (2.99%) 18.72% 11.99% 13.98% 6.18% 7.48%
RATIOS/SUPPLEMENTAL DATA........
Net Assets, End of Period
(000 omitted)............... $14,265 $11,652 $88,783 $98,054 $83,672 $17,548 $5,425 $3,973 $3,196
Ratio of Expenses to Average
Net Assets.................. 1.61% 1.47% 0.85% 0.58% 0.23% 0.00% 0.04% 0.12% 0.00%
Ratio of Net Income to
Average Net Assets.............. 4.31% 3.95% 5.07% 4.75% 5.25% 6.26% 6.71% 6.86% 7.06%
Ratio of expenses without
waivers and assumption of
expenses to Average Net
Assets...................... 1.97% 1.81% 1.47% 1.29% 1.20% 2.34% 4.04% 2.50% 2.50%
Ratio of net investment
income without waivers and
assumption of expenses to
Average Net Assets.............. 3.95% 3.61% 4.45% 4.03% 4.28% 3.92% 2.71% 4.48% 4.56%
Portfolio Turnover Rate...... 233% 258% 233% 258% 149% 266% 211% 89% 257%
<CAPTION>
9/4/87*
TO
1988 10/31/87
CLASS A CLASS A
SHARES SHARES
-------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.......................... $ 10.08 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income........ 0.738 0.059
Net Gains or Losses in
Securities (both realized
and unrealized)........... 0.603 0.021
-------- --------
Total from Investment
Operations...................... 1.341 0.080
LESS DISTRIBUTIONS:
Dividends from net investment
income...................... 0.791 --
Distributions from capital
gains....................... -- --
-------- --------
Total Distributions.......... 0.791 --
Net Asset Value, End of
Period.......................... $ 10.63 $ 10.08
-------- --------
-------- --------
Total Return(1)................. 13.83% 5.41%
RATIOS/SUPPLEMENTAL DATA........
Net Assets, End of Period
(000 omitted)............... $1,197 $101
Ratio of Expenses to Average
Net Assets.................. 0.00% 0.00% #
Ratio of Net Income to
Average Net Assets.......... 7.50% 7.35% #
Ratio of expenses without
waivers and assumption of
expenses to Average Net
Assets...................... 2.00% 2.00% #
Ratio of net investment
income without waivers and
assumption of expenses to
Average Net Assets.......... 5.50% 5.35% #
Portfolio Turnover Rate...... 422% 94%
<FN>
- ------------
# Periods less than one year have been annualized.
* Commencement of operations.
** Commencement of offering of shares.
+ In 1994 the Tax Free Income Fund changed its fiscal year-end from October 31
to August 31.
</FN>
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of the Fund is to provide
its shareholders with monthly dividends which are excluded from gross income for
federal income tax purposes, as well as to protect the value of its
shareholders' investment.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing primarily (i.e., at least 80% of its assets under normal conditions)
in Municipal Obligations (as defined on page 31). The Fund will also use futures
contracts on fixed income securities or indexes of fixed income securities and
options on such futures contracts for the purpose of protecting (i.e.,
"hedging") the value of its portfolio. These 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 reserves the right to invest up to 20% of the value of its total
assets in securities the interest on which, constitutes a preference item and,
therefore, may be subject to the federal alternative minimum tax on individuals.
As a temporary defensive measure during times of adverse market conditions,
assets of the Fund may be held in cash or invested in certain short-term
obligations, the interest income from which may be taxable to shareholders as
ordinary income for federal income tax purposes. See "Tax Matters".
THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END INVESTMENT COMPANY SUCH AS
THE FUND, WHICH INVESTS IN FIXED INCOME SECURITIES, CHANGES AS THE GENERAL
LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE VALUE OF A
PORTFOLIO CAN BE EXPECTED TO RISE. CONVERSELY, WHEN INTEREST RATES RISE, THE
VALUE OF A PORTFOLIO CAN BE EXPECTED TO DECLINE.
As a fundamental policy, the Fund, during periods of normal market
conditions, 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 and, therefore, will not be subject to the federal alternative
minimum tax on individuals. In addition, as a non-fundamental policy, all of the
Fund's investments will be made in obligations that satisfy certain ratings and
other criteria. For descriptions of such criteria and of the types of short-term
instruments, such as futures contracts and options thereon, in which the Fund
may invest, as well as further information concerning the investment policies
and techniques of the Fund, see "Additional Information on Investment Policies
and Techniques". In addition, the Statement of Additional Information includes a
further discussion of futures and option contracts to be entered into by the
Fund. Although the Fund will enter into futures and option contracts for hedging
purposes only, the use of such instruments does involve transaction costs and
certain risks, which are discussed in the Statement of Additional Information.
Except for the fundamental policy referred to above, shareholder approval is
not required to change any of the investment policies described above, the
investment objective or the policies described in "Additional Information on
Investment Policies and Techniques".
5
<PAGE>
VARIABLE DISTRIBUTION METHOD
The primary differences between the classes lie in their sales charge
structures, and ongoing expenses, as summarized below. Each class has distinct
advantages and disadvantages depending on the investor. Investors should
carefully consider the attributes of a class before investing.
<TABLE>
<CAPTION>
CONTINGENT
INITIAL DEFERRED DISTRIBUTION OTHER
SALES CHARGE SALES CHARGE AND SERVICE FEES INFORMATION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Class A.......... Maximum of 4.50% None Distribution Fee Initial Sales
of public of 0.25%; Service Charge reduced in
offering price Fee of 0.25% certain
circumstances
Class B.......... None Maximum Distribution Fee Shares convert to
contingent of 0.75%; Service Class A shares,
deferred sales Fee of 0.25% and thus pay
charge of 5% of lower
redemption distribution
proceeds fees, in the
declines to 0% eighth year
after 6 years after issuance
</TABLE>
FACTORS TO CONSIDER
The classes of shares have several different attributes relating to sales
charges and expenses. These attributes are discussed more fully below. In
choosing a class of shares to purchase, investors should
consider the sales charges and ongoing expenses of each class.
SALES CHARGES--Class A shares are sold at net asset value plus an initial
sales charge of up to a maximum of 4.50% of the public offering price.
Class B shares have no initial sales charge; however, a contingent deferred
sales charge will be imposed on redemptions made within six years of purchase.
The amount of this contingent deferred sales charge will be 5% of the redemption
proceeds on redemptions in the first year after purchase, declining to zero for
redemptions made more than six years after purchase. However, this contingent
deferred sales charge will not apply to redemptions of shares representing
capital appreciation on Fund assets and reinvestment of dividends or capital
gain distributions. 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.
REDUCTIONS OF CLASS A SALES CHARGES--As explained more fully in "Purchases
and Redemptions of Shares," certain purchases of Class A shares in amounts
exceeding $100,000 are eligible for reduced initial sales charges. In
determining which classes to purchase, investors should consider any reductions
in initial sales charges on Class A shares for which they may be eligible.
ONGOING ANNUAL EXPENSES--Class A and Class B each have an annual shareholder
servicing fee of 0.25% of average daily net assets. Class A has an annual
distribution fee under Rule 12b-1 of 0.25% of its average daily net assets,
while Class B has an annual distribution fee under Rule 12b-1 of 0.75% of its
average daily net assets. Moreover, other operating 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.
6
<PAGE>
Investors should carefully consider these ongoing annual expenses, along
with initial or contingent deferred sales charges in choosing between classes.
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.
OTHER INFORMATION
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of Fund shares rather than
another.
MANAGEMENT OF THE FUND
THE ADVISER
The Chase Manhattan Bank, N.A. ("Chase" or the "Adviser") manages the assets
of the Fund pursuant to an Investment Advisory Agreement dated October 25, 1994.
Subject to such policies as the Board of Trustees may determine, the Adviser
makes investment decisions for the Fund. Pamela Hunter, Vice President of the
Adviser, is responsible for the day-to-day management of the Fund's portfolio.
Ms. Hunter, who has been managing the fund since inception in 1987, joined Chase
in 1980, is part of a team providing fixed income strategy, trading and product
development. For its services under the Investment Advisory Agreement, the
Adviser is entitled to receive an annual fee computed daily and paid monthly
based at an annual rate equal to 0.30% of the Fund's average daily net assets.
The Adviser may, from time to time, voluntarily waive all or a portion of its
fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase.
7
<PAGE>
Upon consummation of the Bank Merger, the Adviser will continue to be a
wholly-owned subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. The Adviser 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. The Adviser 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. The Adviser and its affiliates
may sell U.S. Government obligations and municipal obligations to, and purchase
them from, other investment companies sponsored by the Distributor or affiliates
of the Distributor. The Adviser 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 the
Adviser 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. The Adviser 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 the Adviser, including the division that performs services for the
Fund as Custodian, or in the possession of any affiliate of the Adviser.
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.
THE ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator of the Fund. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. The Administrator is
entitled to receive from the Fund a fee computed daily and paid monthly at an
annual rate equal to 0.10% of the Fund's average daily net assets. The
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable to it under the Administration Agreement. The Administrator shall
not have any responsibility or authority for the Fund's investments, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement with the Fund, as described below, without
violating the federal banking law commonly known as the Glass-Steagall Act. The
Act generally bars banks from publicly underwriting or distributing certain
securities.
Based on the advice of its counsel, Chase believes that the Court's
decision, and these other decisions of banking regulators, permit it to serve as
investment adviser to a registered, open-end investment company.
8
<PAGE>
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, the Adviser
believes, based on advice of counsel, that it may serve as Shareholder Servicing
Agent and/or Custodian to the Fund and render the services described below and
as set forth in the shareholder servicing agreement and Custodian Agreement, as
an appropriate, incidental national banking function and as a proper adjunct to
its serving as investment adviser and administrator to the Fund.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. The Administrator,
on the advice of its counsel believes that it may render the services described
in its Administration Agreement without violating the Glass-Steagall Act or
other applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, shareholder servicing, custodial
or other administrative services for the Fund. If that occurred, the Fund's
Board of Trustees promptly would seek to obtain for the Fund the services of
another qualified adviser, shareholder servicing agent, custodian or
administrator, as necessary. Although no assurances can be given, the Fund
believes that, if necessary, the transfer to a new adviser, shareholder
servicing agent, custodian or administrator could be accomplished without undue
disruption to the Fund's operations.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
Class A shares are sold to investors subject to an initial sales charge.
Class B shares of the Fund are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and a contingent deferred
sales charge payable upon certain redemptions. Class B shares automatically
convert to Class A shares in the eighth year after issuance. See "Variable
Distribution Method."
Both classes of shares of the Fund 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 Vista Broker-Dealer Services,
Inc., at the public offering price which is computed once daily as of the close
of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on
each business day during which the Exchange is open for trading ("Fund Business
Day"). (See "Other Information Concerning Shares of the Fund-Net Asset Value").
The public offering price of Class A shares is the next determined net asset
value, plus applicable initial sales charge. Orders received by Dealers prior to
the New York Stock Exchange closing time are confirmed at the offering price
effective at the close of such Exchange, provided the order is received by the
Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and only Class A share
certificates will be issued upon request. Management reserves the right to
refuse to sell shares of the Fund to any person.
9
<PAGE>
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 calendar days. In addition, redemption
of shares purchased by periodic automatic investment will not be allowed for 7
calendar days.
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 reduced minimum initial purchase amounts and 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 (see "Shareholder Servicing Agents, Transfer Agent
and Custodian -- Shareholder Servicing Agents"), which will have the effect of
increasing the net return on the investment of customers of that Shareholder
Servicing Agent.
WHEN PLACING ORDERS, INVESTORS SHOULD SPECIFY WHETHER THE ORDER IS FOR CLASS
A OR CLASS B SHARES. ALL SHARE PURCHASES THAT FAIL TO SPECIFY A CLASS WILL
AUTOMATICALLY BE INVESTED IN CLASS A SHARES.
MINIMUM INVESTMENTS
The Fund has established minimum initial and additional investments for the
purchase of Fund Shares. The minimums detailed below vary by the type of
accounting being established:
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM INITIAL INVESTMENT
- ------------------------------------------------------------- --------------------------
<S> <C>
Individual................................................... $2,500(1)
Individual Retirement Account (IRA).......................... $1,000(2)
Spousal IRA.................................................. $ 250
SEP-IRA...................................................... $1,000(2)
Purchase Accumulation Plan................................... $ 250(3)
Payroll Deduction Program.................................... $ 100(4)
(401K, 403B, Keogh)
<FN>
- ------------
(1) Employees of the Adviser and its affiliates, and Qualified Persons as
defined in "Purchases of Class A Shares at Net Asset Value", are eligible
for a $1,000 minimum initial investment.
(2) A $250 minimum initial investment is allowed if the new account is
established with a $100 minimum monthly Systematic Investment Plan as
described below.
(3) Account must be established with a $200 minimum monthly Systematic
Investment Plan as described below.
(4) A $25 minimum monthly investment must be established through an automated
payroll cycle.
</FN>
</TABLE>
The minimum additional investment is $100 for all types of accounts.
SYSTEMATIC INVESTMENT PLAN. A shareholder may establish a monthly investment
plan by which investments are automatically made to his/her Vista Fund account
through Automatic Clearing House
10
<PAGE>
(ACH) deductions from a checking account. The minimum monthly investment through
this plan is $100. Shareholders may choose either to have these investments made
during the first or third week each month. Please note that your initial ACH
transactions may take up to 10 days from the receipt of your request to be
established.
Shareholders electing to start this Systomatic Investment Plan when opening
an account should complete Section 8 of the account application. Current
shareholders may begin a Systematic Investment Plan at any time by sending a
signed letter with signature guarantee to the Vista Service Center, P.O. Box
419392, Kansas City, MO 64141-6392. The letter should contain your Vista Fund
account number, the desired amount and cycle of the systematic investment, and
must include a voided check from the checking account from which debtis are to
be made. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of the national securities exchange. Please note
that a notary public cannot provide signature guarantees.
INITIAL SALES CHARGES--CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value, plus any applicable initial sales charge, which will vary with the size
of the purchase as shown in the following table:
<TABLE>
<CAPTION>
CONCESSION
SALES CHARGE TO DEALERS
-------------------- ----------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------------------------------ -------- -------- ----------
<S> <C> <C> <C>
Less than $100,000........................ 4.50 4.71 4.00
$100,000 to $249,999...................... 3.75 3.90 3.25
$250,000 to $499,999...................... 2.50 2.56 2.25
$500,000 to $999,999...................... 2.00 2.04 1.75
$1,000,000 to $2,499,999.................. -- -- 0.75
$2,500,000 to $9,999,999.................. -- -- 0.50
$10,000,000 to $49,999,999................ -- -- 0.25
$50,000,000 and over...................... -- -- 0.15
</TABLE>
The initial sales charge on Class A shares varies with the size of the
purchase as shown above. The reduced charges apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person", which term
includes, among others, an individual, spouse and children under the age of 21,
or a Trustee or other fiduciary of a Trust estate or fiduciary account. The
Distributor may compensate Dealers for sales of $1,000,000 or more from its own
resources and/or the Distribution Plan.
Upon notice to Dealers with whom it has sales agreements, VBDS may reallow
up to the full applicable sales charge and such Dealer may therefore be deemed
an "underwriter" under the Securities Act of 1933, as amended, during such
periods. For the three-year period commencing July 19, 1993, for activities in
maintaining and servicing accounts of customers invested in the Fund, Associated
Securities Corp. ("Associated Securities") may receive payments from the Adviser
based, in part, on the amount of the aggregate asset values of the Fund (and
other Vista funds) in the accounts of shareholders attributable to Associated
Securities and the length of time such assets are in such accounts.
In addition, under an arrangement between Associated Securities and the
Distributor, Associated Securities will be entitled to receive either 50% or 70%
of the difference between the total front-end sales
11
<PAGE>
load, or in the case of Class B shares 4.00%, and that portion paid to selling
group member broker-dealers.
To the extent permitted by applicable SEC and NASD regulations, the
Distributor may, from time to time, provide promotional incentives to certain
Dealers whose representatives have sold or are expected to sell significant
amounts of the Fund or other Funds in the Trust. At various times the
Distributor may implement programs under which a Dealer's sales force may be
eligible to win cash or awards for certain sales efforts or under which the
Distributor will reallow an amount not exceeding the total applicable initial
sales charges on the sales of Class A shares or the Maximum Contingent Deferred
Sales charge of Class B shares generated by the Dealer during such programs to
any Dealer that sponsors sales contests or recognition programs conforming to
criteria established by the Distributor or participates in sales programs
sponsored by the Distributor. The Distributor may provide marketing services to
Dealers with whom it has sales agreements, consisting of written informational
material relating to sales incentive campaigns conducted by such Dealers for
their representatives.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE
SHAREHOLDERS AS OF NOVEMBER 30, 1990
Shareholders of record of any Vista Fund as of November 30, 1990, may
purchase shares of the Fund at Net Asset Value without an initial sales charge
for as long as they continue to own shares of any Vista Fund, provided there is
no change in account registration. However, once a shareholder closes his or her
account by redeeming all shares, he or she will lose this privilege after 30
days. This provision applies to accounts registered in the name of the
shareholder and his or her spouse and children under 21 and for IRAs in their
names.
SHAREHOLDERS WHO ARE ELIGIBLE PERSONS
There is no initial sales charge on Class A Shares purchased by the
following "Eligible Persons:"
a) Active or retired Trustees, Directors, officers, partners or
employees (including their spouses, children, siblings and parents) of the
Adviser, Distributor, Transfer Agency or any affiliates or subsidiaries
thereof.
b) Employees (including their spouses and children under 21) of Dealers
having a selected dealers agreement with the distributor.
c) Any qualified retirement plan or IRA established for the benefit of a
person in (a) or (b).
QUALIFIED AND OTHER RETIREMENT PLANS
No initial sales charge will apply to the purchase of Class A Shares of the
Fund by:
a) An investor seeking to invest the proceeds of a qualified retirement
plan, where a portion of the plan was invested in Vista.
b) Any qualified retirement plan with 250 or more participants.
c) An individual participant in a tax-qualified plan making a tax-free
rollover or transfer of assets from the plan in which the adviser of the
Fund serves as Trustee or custodian of the plan or manages some portion of
the plan's assets.
12
<PAGE>
PURCHASES THROUGH INVESTMENT ADVISERS, BROKERS OR FINANCIAL PLANNERS
Purchase of Class A shares of the Fund may be made with no initial sales
charge through an investment adviser, broker, or financial planner who charges a
fee for their services. Purchase 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 pre-approved and purchases are placed through
an omnibus account with the Fund or (ii) by clients of such investment advisor
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,
including but not limited to those defined in section 401(a), 403(b) or 457 of
the Internal Revenue Code or rabbi trusts.
Investors may incur a fee if they effect transactions through a broker or
agent.
PURCHASES THROUGH A BANK AS FIDUCIARY
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 (i.e., exercises investment authority with respect to
such accounts), provided that appropriate notification of such fiduciary
relationship is reported at the time of the investment to the Fund, the
distributor or the Transfer Agent.
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.
REDUCED INITIAL SALES CHARGES ON CLASS A SHARES
CUMULATIVE QUANTITY DISCOUNT. Class A shares of the Fund may be purchased by
any person at a reduced initial sales charge which is determined by (a)
aggregating the dollar amount of the new purchase and the greater of the
purchaser's total (i) net asset value or (ii) cost of any shares acquired and
still held in the Fund, or any other Vista Fund, including any Vista money
market Fund acquired by exchange for which a sales charge had been incurred and
(b) applying the initial sales charge applicable to such aggregate dollar value.
The privilege of the cumulative quantity discount is subject to modification or
discontinuance at any time with respect to all Class A shares purchased
thereafter.
GROUP PURCHASES. An individual who is a member of a qualified group (as
hereinafter defined) may also purchase Class A shares of the Fund at the reduced
sales charge applicable to the group taken as a whole. The reduced initial sales
charge is based upon the aggregate dollar value of Class A shares previously
purchased and still owned by the group plus the securities currently being
purchased and is determined as stated above under "Cumulative Quantity
Discount". For example, if members of the group had previously invested and
still held $90,000 of Class A shares and now were investing $15,000, the initial
sales charge would be 3.75% on the $15,000 purchase. In order to obtain such
discount, the purchaser or investment dealer must provide the Transfer Agent
with sufficient information, including the purchaser's total cost, at the time
of purchase to permit verification that the purchaser qualifies for a cumulative
quantity discount, and confirmation of the order is subject to such
verification. Information concerning the current initial sales charge applicable
to a group may be obtained by contacting the Transfer Agent.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Class A shares at a discount and
(iii) satisfies uniform criteria which
13
<PAGE>
enables the Distributor to realize economies of scale in its costs of
distributing Class A shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Fund and the members, must agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced or no cost to
the Distributor, and must seek to arrange for payroll deduction or other bulk
transmission of investments of the Fund. This privilege is subject to
modification or discontinuance at any time with respect to all Class A shares
purchased thereafter.
STATEMENT OF INTENTION. Investors in Class A shares may also 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 Vista Fund (or if a
fund has only one class, shares of such fund), including shares of any Vista
money market Fund acquired by exchange from a fund which charged an initial
sales charge, during a 13-month period. The sales charge is based on the total
amount to be invested in Class A shares during the 13-month period. All Class A
or other qualifying shares of these Funds currently owned by the investor will
be credited as purchases (at their current offering prices on the date the
Statement is signed) toward completion of the Statement. A 90-day back-dating
period can be used to include earlier purchases at the investor's cost. The
13-month period would then begin on the date of the first purchase during the
90-day period. No retroactive adjustment will be made if purchases exceed the
amount indicated in the Statement. A SHAREHOLDER MUST NOTIFY THE TRANSFER AGENT
OR DISTRIBUTOR WHENEVER A PURCHASE IS BEING MADE PURSUANT TO A STATEMENT.
The Statement is not a binding obligation on the investor to purchase the
full amount indicated; however, on the initial purchase, if required (or
subsequent purchases if necessary), 5% of the dollar amount specified in the
Statement will be held in escrow by the Transfer Agent in Class A shares
registered in the shareholder's name in order to assure payment of the proper
sales charge. If total purchases pursuant to the Statement (less any
dispositions and exclusive of any distributions on such shares automatically
reinvested) are less than the amount specified, the investor will be requested
to remit to the Transfer Agent an amount equal to the difference between the
sales charge paid and the sales charge applicable to the aggregate purchases
actually made. If not remitted within 20 days after written request, an
appropriate number of escrowed shares will be redeemed in order to realize the
difference. This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereunder. Reinvested dividend and
capital gain distributions are not counted towards satisfying the Statement.
REINSTATEMENT PRIVILEGE. Class A shareholders have a one time privilege of
reinstating their investment in the Fund, subject to the terms of exchange (see
"Exchange Privilege") at net asset value next determined. A written request for
reinstatement must be received by the Transfer Agent within 30 calendar days of
the redemption, accompanied by payment for the shares (not in excess of the
redemption). This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereafter.
EXCHANGES FOR CLASS A SHARES OF OTHER VISTA FUNDS. Class A shares of the
Fund may be obtained without an initial sales charge through exchanges for Class
A shares of other Vista Funds. See "Exchange Privilege." In addition, Class B
shareholders who have redeemed Class B shares and paid a contingent deferred
sales charge in connection with such redemption may purchase Class A shares with
no initial sales charge (in an amount not exceeding the redemption proceeds) if
the purchase occurs within 30 days of the redemption of the Class B shares.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES
The public offering price of Class B Shares is the next determined net asset
value, and no initial sales charge is imposed. However, a contingent deferred
sales charge is imposed upon certain redemptions of Class B shares.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption by the applicable percentage shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
REDEMPTION DURING NET ASSET VALUE AT REDEMPTION
- ------------------------------------------------------------- -----------------------------
<S> <C>
1st Year Since Purchase...................................... 5%
2nd Year Since Purchase...................................... 4%
3rd Year Since Purchase...................................... 3%
4th Year Since Purchase...................................... 3%
5th Year Since Purchase...................................... 2%
6th Year Since Purchase...................................... 1%
7th Year Since Purchase...................................... 0%
</TABLE>
Redemptions of Class B shares are not subject to a contingent deferred sales
charge to the extent that the value of such shares represents: (i) capital
appreciation of Fund assets; (ii) reinvestment of dividends or capital gain
distributions; or (iii) shares redeemed more than six years after their
purchase. In determining the applicability and rate of any contingent deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares representing capital appreciation, next of shares representing the
reinvestment of dividends and capital gains distributions and finally of other
shares held by the shareholder for the longest period of time.
The holding period of Class B shares acquired through an exchange with
another Vista Fund will be calculated from the date that the Class B shares were
initially acquired in one of the other Vista Funds and those Class B shares
being redeemed will be considered to represent capital appreciation or dividend
and capital gain distribution reinvestments in other funds to the extent
applicable and then of shares held for the longest period of time. As a result,
the contingent deferred sales charge imposed should be at the lowest possible
rate. The amount of any contingent deferred sales charge imposed will reduce the
gain or increase the loss on the amount realised on redemption for purposes of
federal income taxes.
The amount of any contingent deferred sales charge will be paid to VBDS.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
for Class B shares will be waived for certain exchanges and for redemptions in
connection with the Fund's systematic redemption plan. 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 death of the shareholder; (ii) a redemption in connection with a Minimum
Required Distribution from an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code; (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, as described on page 17; (iv)
distributions from a qualified plan upon retirement; (v) a redemption resulting
from an over-contribution to an IRA; and (vi) a redemption of an account balance
under $500, as described on page 17.
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<PAGE>
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares (and thus be subject to the lower
expenses borne by Class A shares) in the eighth year after the date of purchase,
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion 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 occurs. If any exchanges of Class B shares during the
eight-year period occurred, the holding period for the shares exchanged will be
counted toward the eight-year period. At the time of the conversion the net
asset value per share of the Class A shares may be higher or lower than the net
asset value per share of the Class B shares; as a result, depending on the
relative net asset values per share a shareholder may receive fewer or more
Class A shares than the number of Class B shares converted.
The Fund reserves the right to cease offering Class B shares for sale at any
time or reject any order for the purchase of Class B shares and to cease
offering any services provided by a Shareholder Servicing Agent.
For further information as to how to direct a Shareholder Servicing Agent to
purchase shares of the Fund, an investor should contact his Shareholder
Servicing Agent.
Due to the conversion feature of Class B shares, certificates will not be
issued and all shares will be held in book entry form.
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their account at
any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent subject to any
applicable contingent deferred sales charges for Class B shares. The proceeds of
a redemption normally will be paid on the next Fund Business Day after a
redemption request has been received by the Fund, but in any event within seven
days. The forwarding of proceeds from redemption of shares which were recently
purchased by check may be delayed up to 15 days. A shareholder may redeem his
shares by authorizing his Shareholder Servicing Agent, Dealer or its agent to
redeem such shares, which the Shareholder Servicing Agent, Dealer or its agent
must do on a timely basis. The signature of both shareholders is required for
any written redemption requests from a joint account. In addition, a redemption
request may be deferred for up to 15 calendar days if the Transfer Agent has
been notified of a change in either the address or the bank account registration
previously listed in the Fund's records.
Class B shares are sold without an initial sales charge but are subject to a
contingent deferred sales charge if shares are redeemed within six years of
purchase. Class B shares are redeemed in the following order: (i) shares
representing capital appreciation; (ii) shares acquired by reinvestment of
dividends and capital gains distributions; and (iii) shares purchased and held
on a first-in/first-out basis. As a result, the amount of the charge is
determined as a percentage of the lesser of the current market value or the cost
of the shares being redeemed.
If a redeeming shareholder owns shares of both Class A and Class B, unless
the shareholder specifically requests otherwise, the Class A shares will be
redeemed before any Class B shares.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions
16
<PAGE>
of shares are taxable events on which the shareholder may recognize a gain or a
loss. Although the Fund 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 under the Investment Company Act of 1940, as amended
(the "1940 Act") committing it to pay in cash all redemptions by a shareholder
of record up to the amounts specified by the rule (approximately $250,000).
The payment of redemption requests may be wired directly to a previously
designated domestic commercial bank account or mailed to the shareholder's
address of record. For the protection of shareholders, all telephone redemption
requests in excess of $25,000 will be wired directly to such previously
designated bank account. Normally, redemption payments will be transmitted on
the next business day following receipt of the request (provided it is made
prior to 4:00 p.m. Eastern time on any day redemptions may be made). Redemption
payments requested by telephone may not be available in a previously designated
bank account for up to four days. There is a $10.00 charge for each federal
funds wire transaction. If no share certificates have been issued, a wire
redemption may be requested by telephone or wire to the Vista Service Center.
For telephone redemptions, call the Vista Service Center at (800) 34-VISTA.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act if an emergency exists.
SYSTEMATIC REDEMPTION PLAN--CLASS A SHARES. A shareholder owning $10,000 or
more of the Class A shares of the Fund as determined by the then current net
asset value may provide for the payment monthly or quarterly of at least $100
from his account. A sufficient number of full and fractional Class A shares will
be redeemed so that the designated payment is received on approximately the 1st
day of the month following the end of the selected payment period.
SYSTEMATIC REDEMPTION PLAN--CLASS B SHARES. A shareholder owning $20,000 or
more of the Class B shares of the Fund as determined by the then current net
asset value may also provide for the payment monthly or quarterly of amounts
from his account, subject to limits described below.
No contingent deferred sales charge will be imposed on such withdrawals for
Class B shares. The minimum monthly or quarterly withdrawal amounts will be $200
and $400 for Class B shares. In addition, a Class B shareholder may not withdraw
an amount exceeding 12% annually of his or her "Initial Account Value" for Class
B shares--i.e., the value of the Fund account at the time the shareholder elects
to participate in the systematic redemption plan. A Class B shareholder's
participation in the systematic redemption plan will terminate automatically if
the shareholder's Initial Account Value (adjusted upward for the net asset value
of Class B shares acquired after the election to participate in the systematic
redemption plan) less aggregate redemptions other than under the systematic
redemption plan falls below $20,000.
For further information as to how to direct a Shareholder Servicing Agent to
redeem shares of the Fund, a shareholder should contact his Shareholder
Servicing Agent.
REDEMPTION OF ACCOUNTS OF LESS THAN $500. The Fund may redeem the shares of
any shareholder, if at such time, the aggregate net asset value of the shares in
such shareholder's account is less than $500. In the event of any such
redemption, a shareholder will receive at least 60 days notice
17
<PAGE>
prior to the redemption. In the event the Fund redeems Class B shares pursuant
to this provision, no contingent deferred sales charge will be imposed.
EXCHANGE PRIVILEGE
Shareholders may exchange, at respective net asset value, Class A and Class
B shares of the Fund for Class A and Class B shares of the other Vista Funds,
respectively, in accordance with the terms of the then current prospectus of the
Fund being acquired. No initial sales charge is imposed on the Class A shares
being acquired, and no contingent deferred sales charge is imposed on the Class
B shares being redeemed, through an exchange. However, contingent deferred sales
charges may apply to redemptions of Class B shares acquired through an exchange.
The prospectus of the other Vista Fund into which shares are being exchanged
should be read carefully prior to any exchange and retained for future
reference. Under the Exchange Privilege, Class A or Class B shares of the Fund
also may be exchanged for shares of such other Vista Funds only if those Funds
and their shares are registered in the states where the exchange may legally be
made. Shares of the Fund may only be exchanged into the same class of another
Vista Fund and only 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 other Funds in the Trust, or any exchange directly from one of such Vista
money market Funds will be done at relative net asset value plus the appropriate
sales charge. An exchange of Class B shares into any of the Vista money market
Funds other than the Class B shares of the Prime Money Market Fund will be
treated as a redemption-- and therefore subject to the conditions of the
contingent deferred sales charge--and a subsequent purchase. Class B shares of
any Vista non-money market Fund may be exchanged into the Class B shares of the
Prime Money Market Fund in order to continue the aging of the initial purchase
of such shares while maintaining a stable net asset value. This exchange will
not be subject to a Contingent Deferred Sales Charge unless those shares are
later redeemed. The Class B shares of the Prime Money Market Fund carry the same
Distribution and Sub-Administration Fee, and Shareholder and Fund Servicing Fee
as the Class B shares of the non-money market Funds. Redemptions of shares
acquired through an exchange will be subject to the applicable contingent
deferred 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 through an
exchange transaction are purchased on the redemption date, but such purchase may
be delayed by either Fund up to five business days if the Fund determines that
it would be disadvantaged by an immediate transfer of the proceeds. This
privilege may be amended or terminated at any time without notice. Arrangements
have been made for the acceptance of instructions by telephone to exchange
shares if certain preauthorizations or indemnifications are accepted and on
file. Further information and telephone exchange forms are available from the
Transfer Agent.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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 a Fund in a year or three in a calendar quarter will be charged
$5.00 administration fee per each such exchange.
18
<PAGE>
GENERAL
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in this Prospectus are not available
until a completed and signed account application has been received by the
Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application. To provide evidence of
telephone instructions, the Transfer Agent will record telephone conversations
with shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of the Fund and depositing and withdrawing
monies from the bank account specified in the Bank Account Registration section
of the shareholder's latest account application or as otherwise properly
specified to the Fund in writing. Shareholders agree to release and hold
harmless the Fund, the Adviser, the Administrator, any Shareholder Servicing
Agent or sub-agent and broker-dealer, and the officers, directors, employees and
agents thereof against any claim, liability, loss, damage and expense for any
act or failure to act in connection with Fund shares, any related investment
account, any privileges or services selected in connection with such investment
account, or any written or oral instructions or requests with respect thereto,
or any written or oral instructions or requests from someone claiming to be a
shareholder if the Fund or any of the above-described parties follow
instructions which they reasonably believe to be genuine and act in good faith
by complying with the procedures that have been established for Fund accounts
and services.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with his own tax advisers as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund in
his own state and locality and the possible applicability of a federal
alternative minimum tax to a portion of the distributions of the Fund.
The Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Fund is treated as a "regulated
investment company" and all of its taxable income, if any, is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on the amounts so distributed. If for
any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to
19
<PAGE>
tax at regular corporate rates without any deduction for distributions to its
shareholders, and such distributions will be taxable to shareholders to the
extent of the Fund's current and accumulated earnings and profits.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as the Fund (and each other series of the Trust) qualifies
as a regulated investment company under the Code.
Distributions by the Fund of its tax-exempt interest income (net of
expenses) are designated as "exempt-interest dividends" which are excluded from
gross income for regular federal income tax purposes. In accordance with the
investment objectives of the Fund, it is expected that most or all of the net
investment income of the Fund will be attributable to interest from Municipal
Obligations, although from time to time a portion of the portfolio of the Fund
may be invested in short-term taxable obligations since the preservation of
capital and the maintenance of liquidity are important aspects of the Fund's
investment objective. As a result, most or all of the dividends paid out of the
Fund's net investment income will be designated "exempt-interest dividends". The
percentage of such dividends so designated will be applied uniformly to all such
dividends from the Fund made during each fiscal year and may differ from the
actual percentage for any particular month.
Although excluded from gross income for regular federal income tax purposes,
exempt-interest dividends, together with other tax-exempt interest, are required
to be reported on shareholders' federal income tax returns, and are taken into
account in determining the portion, if any, of Social Security benefits which
must be included in gross income for federal income tax purposes. In addition,
exempt-interest dividends paid out of interest on certain Municipal Obligations
that may be purchased by the Fund will be treated as a tax preference item for
both individual and corporate shareholders potentially subject to an alternative
minimum tax ("AMT"), and all exempt-interest dividends will be included in
computing a corporate shareholder's adjusted current earnings, upon which is
based a separate corporate preference item which may be subject to AMT and to
the environmental superfund tax. Interest on indebtedness incurred, or
continued, to purchase or carry shares of the Fund is not deductible. Further,
entities or persons who may be "substantial users" (or persons related to
"substantial users") of facilities financed by certain types of Municipal
Obligations should consult with their own tax advisers before purchasing shares
of the Fund.
Distributions by the Fund of any taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes, but
do not qualify for the dividends-received deduction for corporations.
Distributions by the Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time a shareholder has held his shares.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
20
<PAGE>
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year, including any portions which constitute ordinary income
dividends, capital gain dividends and exempt-interest dividends, will be sent to
the Fund's shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be disallowed to the extent of any
exempt-interest dividends received on such shares and (to the extent not
disallowed) will be treated as a long-term capital loss to the extent of any
capital gain dividends received on such shares. All or a portion of any loss
realized upon a taxable disposition of shares of the Fund may be disallowed if
other shares of the Fund are purchased within 30 days before or after such
disposition.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. Generally, shareholders are subject to backup
withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. Shareholders of
the Fund may be exempt from state and local taxes on exempt-interest dividends
paid out of interest on Municipal Obligations of the state and/or municipalities
of the state in which they reside but may be subject to state and local tax on
exempt-interest dividends paid out of interest on Municipal Obligations of other
jurisdictions.
No gain or loss will be recognized by a shareholder as a result of a
conversion from Class B shares to Class A shares.
OTHER INFORMATION CONCERNING SHARES OF THE FUND
NET ASSET VALUE
The net asset value of a class of shares of the Fund is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), on each Fund Business Day, by dividing the net assets
attributable to that class by the number of its shares outstanding. Values of
assets in the Fund's portfolio are determined on the basis of their market or
other fair value, as described in the Statement of Additional Information. A
share's net asset value is effective for orders received by a Shareholder
Servicing Agent prior to its calculation and received by the Distributor prior
to the close of business, usually 4:00 p.m. Eastern time, on the Fund Business
Day on which such net asset value is determined.
The per share net asset value of Class B shares of the Fund will generally
be lower than that of the Class A shares because of the higher expenses borne by
the Class B shares. The net asset values per share of Class A and Class B differ
due to differing allocations of class-specific expenses.
21
<PAGE>
NET INCOME, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Income dividends are declared daily and paid monthly. The net investment
income for a class of shares consists of the interest income earned on its
portfolio, less expenses. In computing the Fund's interest income, premiums are
not amortized or discounts accrued on long-term debt securities in its
portfolio, except as required for federal income tax purposes. The Fund will
distribute its net realized short-term and long-term capital gains, if any, to
its shareholders at least annually. Dividends paid on Class A and Class B shares
are calculated at the same time and in the same manner. In general, dividends on
Class B shares are expected to be lower than those on Class A shares due to the
higher distribution expenses, and certain other expenses borne by the Class B
shares.
The Fund intends to make additional distributions to the extent necessary to
avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains of mutual funds imposed by Section 4982 of the
Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
shareholder may elect to receive dividends and capital gains distributions from
the Fund in either cash or additional shares.
DISTRIBUTION PLANS AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted Distribution Plans (the "Distribution Plans") for
both Class A and Class B shares in accordance with Rule 12b-1 under the 1940
Act, after having concluded that there is a reasonable likelihood that the
Distribution Plans for each class will benefit that class and its respective
shareholders.
The Class A Distribution Plan provides that the Fund shall pay distribution
fees including payments to the Distributor, at an annual rate not to exceed
0.20% of its average daily net assets for distribution services. The Class B
Distribution Plan provides that the Fund shall pay distribution fees including
payments to the Distributor, at an annual rate not to exceed 0.75% of its
average annual net assets for distribution services. Some payments under the
Distribution Plans may be used to compensate broker-dealers with trail or
maintenance commissions in amounts not to exceed 0.20% annualized of the asset
value of Class A shares, or 0.25% annualized of the average net asset value of
Class B shares, maintained in the Fund by such broker-dealers' customers. Trail
or maintenance commissions on Class B shares will be paid to Broker-Dealers
beginning in the 13th month following the purchase of such Class B shares. Since
the distribution fees are not directly tied to expenses, the amount of
distribution fees paid by the 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 compensation
is directly linked to its expenses). With respect to Class B shares, because of
the 0.75% annual limitation on the compensation paid to the Distributor during a
fiscal year, compensation relating to a large portion of the commissions
attributable to sales of Class B shares in any one year will be paid by the Fund
to the Distributor in fiscal years subsequent thereto. In determining whether to
purchase Class B shares, investors should consider that daily 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 entitled to exclusive voting rights with respect to
matters concerning its Distribution Plan.
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<PAGE>
Under its Distribution Plan, the Class A shares are also permitted to pay an
additional fee at an annual rate not to exceed 0.05% of its average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with print or electronic media advertising in connection with the
sale of Fund shares. When such expenses are incurred, in the future, the maximum
compensation paid by the Class A shares under the Class A Distribution Plan
would be at an annual rate of 0.25% of its average daily net assets.
The Distribution and Sub-Administration Agreement dated April 15, 1994 (the
"Distribution Agreement"), provides that the Distributor will act as the
principal underwriter of the Fund's shares and 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. In
addition, the Distributor will provide certain sub-administration services,
including providing officers, clerical staff and office space. The Distributor
currently receives a fee for sub-administration from the Fund at an annual rate
equal to 0.05% of the Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Other funds which have investment
objectives similar to those of the Fund, but which do not pay some or all of
such fees from their assets, may offer a higher return, although investors
would, in some cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses of the Fund incurred in
connection with organizing new series of the Trust and certain other ongoing
expenses of the Trust. The Distributor may, from time to time, waive all or a
portion of the fees payable to it under the Distribution Agreement.
The Fund will pay all of its pro rata share of the foregoing expenses of the
Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
sub-administration fees payable under the Distribution and Sub-Administration
Agreement. In addition, each class will pay those expenses allocable to the
class, including: shareholder servicing fees and expenses; expenses of
preparing, printing and mailing prospectuses, reports, notices, and proxy
statements to shareholders and government offices or agencies; expenses of
shareholder meetings; expenses relating to the registration and qualification of
shares of the particular class and the preparation, printing and mailing of
prospectuses for such purposes (except that the Distribution and
Sub-Administration Agreement requires the Distributor to pay for prospectuses
which are to be used for sales to prospective investors).
EXPENSES
The expenses each of the Funds of the Trust include the compensation of its
Trustee; registration fees; interest charges; taxes; fees and expenses of
independent accountants, of legal counsel and of any transfer agent, custodian,
registrar or dividend disbursing agent of the Trust Portfolio; insurance
premiums; and expenses of calculating the net asset value of, and the net income
on the shares of the Fund.
The Fund will pay all of its pro rata share of the foregoing expenses of the
Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
sub-administration fees payable under the Distribution and Sub-Administration
Agreement. In addition, each class will pay those expenses allocable to the
class,
23
<PAGE>
including: shareholder servicing fees and expenses; expenses of preparing,
printing and mailing prospectuses, reports, notices, and proxy statements to
shareholders and government offices or agencies; expenses of shareholder
meetings; expenses relating to the registration and qualification of shares of
the particular class and the preparation, printing and mailing of prospectuses
for such purposes (except that the Distribution and Sub-Administration Agreement
requires the Distributor to pay for prospectuses which are to be used for sales
to prospective Investors).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end, management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. Because the Fund is "non-diversified", more of the Fund's
assets may be concentrated in the securities of any single issuer than if the
Fund was "diversified", which may make the value of the shares in a fund more
susceptible to certain risks than shares of a diversified mutual fund.
The Trust has reserved the right to create and issue additional series and
classes. Each share of a series or class including Class A and Class B,
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 pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of Class A and Class B generally vote separately, for example to approve
distribution plans, but shares of all series or classes vote together, to the
extent required under the 1940 Act, in the election or selection of Trustees and
independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of Class A or Class B or of all series or
classes when in the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Funds' Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, 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. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same 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. Shareholders of each series or class,
including Class A and Class B, would be entitled to share pro rata in the net
assets of that series or class available for distribution to shareholders upon
liquidation of the Fund or that series or class.
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The Trust reserves the right to create and issue a number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series (except for differences
among any classes of shares of any series).
The Trust is an entity of the type commonly known as a "Massachusetts
business 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.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated investment company, underwent a statutory reorganization
to become series of the Trust. The Fund is such a series and, therefore, certain
information contained in this prospectus reflects the history of the Fund since
its inception as a series of MFG and the fact that certain policies, plans and
shareholder privileges continued unchanged as a result of the reorganization.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various 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) monthly and year-end statements
and confirmations of purchases and redemptions; transmit, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other communications
to shareholders of the Fund; receive, tabulate and transmit to the Fund proxies
executed by shareholders with respect to meetings of shareholders of the Fund;
and provide such other related services as the Fund or a shareholder may
request. Shareholder Servicing Agents may be required to register pursuant to
state securities law.
For performing these services, each Shareholder Servicing Agent receives
certain fees, which may be paid periodically, determined by a formula based upon
the number of accounts serviced by such Shareholder Servicing Agent during the
period for which payment is being made, the level of activity in
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accounts serviced by such Shareholder Servicing Agent during such period, and
the expenses incurred by such Shareholder Servicing Agent. The fees relating to
acting as liaison to shareholders and providing personal services to
shareholders will not exceed, on an annual basis, 0.25% of the average daily net
assets of each class of the Fund represented by shares owned during the period
for which payment is being made by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship. Each Shareholder Servicing Agent may,
from time to time, voluntarily waive all or a portion of the fees payable to it.
In addition, Chase may provide other related services to the Fund for which it
may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Class A or Class B shares, receive
dividends and distributions on Fund investments, and take advantage of any
services related to an Account offered by such Shareholder Servicing Agent from
time to time. All Accounts and any related privileges or services shall be
governed by the laws of the State of New York, without regard to its conflicts
of laws provisions.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities, such as the Fund's shares. The Trust, on behalf
of the Fund, will engage banks, including the Adviser Administrator, as
Shareholder Servicing Agents, only to perform advisory, custodial,
administrative and shareholder servicing functions as described above. While the
matter is not free from doubt, Trust management believes that such laws should
not preclude a bank, including a bank which acts as investment adviser,
custodian or administrator, or in all such capacities, for the Fund, from acting
as a Shareholder Servicing Agent. However, possible future changes in federal
law or administrative or judicial interpretations of current or future law,
could prevent a bank from continuing to perform all or part of its servicing
activities. If that occurred, the bank's shareholder clients would be permitted
to remain Fund shareholders and alternative means for continuing the servicing
of such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder serviced by such bank might no longer be
able to avail himself of any automatic investment or other services then being
provided by such bank. The Fund does not expect that shareholders would suffer
any adverse financial consequences as a result of these occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund. In this capacity, DST maintains the
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend and
capital gain distributions to shareholders, whether taken in cash or additional
shares. From time to time, DST and/or the Fund may contract with other entities
to perform certain services for the Transfer Agent. For its services as Transfer
Agent, DST receives such compensation as is from time to time agreed upon by the
Trust and DST. DST's address is 127 W. 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets
of the Fund for which Chase receives compensation as is from time to time agreed
upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's
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investments, maintaining books of original entry for portfolio and Fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of the Fund. Portfolio securities and cash may be held by
sub-custodian banks if such arrangements are reviewed and approved by the
Trustees. The internal division of Chase which serves as the Fund's Custodian
does not determine the investment policies of the Fund or decide which
securities will be bought or sold on behalf of the Fund or otherwise have access
to or share material inside information with the internal division that performs
advisory services for the Fund.
TAX-SHELTERED RETIREMENT PLANS
Shares of the Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing, and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations, 401(k) and 403(b) Retirement Plans. Call or write
the Transfer Agent for more information.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
As a non-fundamental policy, all of the investments of the Fund will be made
in the following:
(1) Tax-exempt securities which are rated AAA, AA, A or BBB by Standard
& Poor's or are rated Aaa, Aa, A or Baa by Moody's, or rated AAA, AA, A, or
BBB by Fitch, or which are unrated but are considered by the Adviser,
pursuant to general guidelines established by the Board of Trustees of the
Trust, to have essentially the same characteristics and qualities as
securities having such ratings.
(2) Tax-exempt notes of issuers having an issue of outstanding Municipal
Obligations rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or
Baa by Moody's or rated FIN-1+, FIN-1, FIN-2, FIN-3 by Fitch or which are
guaranteed by the U.S. Government or which are rated MIG-1 or MIG-2 by
Moody's;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(4) Commercial paper which is rated A-1 or A-2 by Standard & Poor's or
Prime-1 or Prime-2 by Moody's or Finch-1, Finch-2 by Fitch (or which is
unrated but which is considered by the Adviser, pursuant to general
guidelines established by the Board of Trustees of the Trust, to have
essentially the same characteristics and qualities as commercial paper
having such ratings), obligations (including certificates of deposit,
bankers' acceptances and repurchase agreements) of banks with $1 billion of
assets, and cash.
Securities rated Baa by Moody's or BBB by Standard & Poor's have speculative
characteristics. For descriptions of the ratings of Standard & Poor's and
Moody's of Municipal Obligations permitted as investments, see "Description of
Ratings" in Appendix A.
With respect to those Municipal Obligations which are not rated by a major
rating agency, greater reliance is placed upon the Adviser's judgment, analysis
and experience than would be the case if such Municipal Obligations were rated.
In evaluating the creditworthiness of an issue, whether rated or unrated, the
Adviser may take into consideration, among other things, the issuer's financial
resources, its
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sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management, and regulatory matters.
Although higher quality tax-exempt securities may produce lower yields, they
are generally more marketable. To protect the capital of its shareholders under
adverse market conditions, the Fund may from time to time deem it prudent to
purchase higher quality securities or taxable short-term obligations, with a
resultant decrease in yield or increase in the proportion of taxable income.
The Fund may invest more than 25% of its assets in industrial revenue bonds
(i.e., bonds issued by various state and local agencies to finance various
projects). Dividends of the Fund attributable to interest on certain private
activity bonds in which the Fund may invest will constitute a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. However, as stated in the "Investment Objective and Policies"
section of this Prospectus, the Fund will not invest more than 20% of its total
assets in securities the interest on which is includable in gross income for
federal income tax purposes or constitutes a preference item and, therefore, may
be subject to the federal alternative minimum tax on individuals. The Fund also
may invest more than 25% of its assets in revenue bonds issued for housing,
electric utilities and hospitals (subject to the restriction that it may not
invest more than 25% of its assets in any one such industry), at times when the
relative value of issues of such a type is considered by the Adviser to be more
favorable than that of other available types of issues. Therefore, investors
should also be aware of the risks associated with these investments.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. As a result of the
impossibility of precisely predicting demand for mortgages from the proceeds of
such an issue, there is a risk that the proceeds of the issue will be in excess
of demand, which would result in early retirement of the bonds by the issuer.
Moreover, such housing revenue bonds depend for their repayment upon the cash
flow from the underlying mortgages, which cannot be precisely predicted when the
bonds are issued. Any difference in the actual cash flow from such mortgages
from the assumed cash flow could have an adverse impact upon the ability of the
issuer to make scheduled payments of principal and interest on the bonds, or
could result in early retirement of the bonds. Additionally, such bonds depend
in part for scheduled payments of principal and interest upon reserve funds
established from the proceeds of the bonds, assuming certain rates of return on
investment of such reserve funds. If the assumed rates of return are not
realized because of changes in interest rate levels or for other reasons, the
actual cash flow for scheduled payments of principal and interest on the bonds
may be inadequate.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by environmental
considerations (particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, effect of energy conservation and
difficulty of the capital market to absorb utility debt.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. A hospital's gross
receipts and net income available to service its debt are influenced by demand
for hospital services, the ability of the hospital to provide the services
required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses,
confidence in the hospital, service area economic developments, competition,
availability and expense of malpractice insurance, Medicaid and Medicare
funding, and possible federal or state legislation limiting the rates of
increase of hospital charges.
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WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. The Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a "forward delivery" basis, which means that the
securities will be delivered at a future date beyond the customary settlement
time. Although there is no limit as to the amount of the commitments which may
be made by the Fund to purchase securities on a "when-issued" or "forward
delivery" basis, it is expected that under normal circumstances not more than
30% of the Fund's total assets will be committed to such purchases. The Fund
does not pay for such obligations or start earning interest on them until the
contractual settlement date. Although commitments to purchase "when-issued" or
"forward delivery" securities will only be made with the intention of actually
acquiring them, these securities may be sold before the settlement date if
deemed advisable by the Adviser.
While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases. For example, when the time
comes to pay for a "when-issued" or "forward delivery" security, the Fund's
portfolio securities may have to be sold in order to meet payment obligations,
and a sale of securities to meet such obligations carries with it a greater
potential for the realization of capital gain, which is not tax-exempt. Also, if
it is necessary to sell the "when-issued" or "forward delivery" security before
delivery, the Fund may incur a loss because of market fluctuations since the
time the commitment to purchase the "when-issued" or "forward delivery" security
was made. Any gain resulting from any such sale would not be tax-exempt. For
additional information concerning these risks and other risks associated with
the purchase of "when-issued" or "forward delivery" securities as well as other
aspects of the purchase of securities on a "when-issued" or "forward delivery"
basis, see "Investment Objectives, Policies and Restrictions--Investment
Policies: When-Issued and Forward Delivery Purchases" in the Statement of
Additional Information.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolio of the
Fund will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolio of the Fund, the Adviser seeks
to take advantage of market developments, yield disparities and variations in
the creditworthiness of issuers. For a description of the strategies that may be
used by the Adviser in managing the portfolio of the Fund, which may include
adjusting the average maturity of a portfolio in anticipation of a change in
interest rates, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Portfolio Management" in the Statement of
Additional Information.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may invest its assets in
derivative and related instruments subject only to the Fund's investment
objective and policies and the requirement that, to avoid leveraging, 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.
The value of some derivative or similar instruments in which the Fund
invests may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--the ability of
Fund to successfully utilize these instruments may depend in part upon the
ability of the Adviser to forecast interest rates and other economic factors
correctly. If the Adviser incorrectly forecasts such factors and has taken
positions in derivative or similar instruments contrary to prevailing market
trends, the Fund could be exposed to the risk of a loss. THE FUND MIGHT NOT
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EMPLOY ANY OR ALL OF THE INSTRUMENTS DESCRIBED HEREIN, AND NO ASSURANCE CAN BE
GIVEN THAT ANY STRATEGY USED WILL SUCCEED.
To the extent permitted by the investment objectives and policies of the
Fund, and as described more fully in the Fund's Statement of Additional
Information, the Fund may:
. purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with securities,
other options or derivative instruments);
. enter into futures contracts and options on futures contracts;
. purchase and sell mortgage-backed and asset-backed securities; and
. purchase and sell structured products.
RISK FACTORS
As explained more fully in the Statement of Additional Information, there
are a number of risks associated with the use of derivatives and related
instruments, including:
. THERE CAN BE NO GUARANTEE THAT THERE WILL BE A CORRELATION BETWEEN
PRICE MOVEMENTS IN A HEDGING VEHICLE AND IN THE FUND ASSETS BEING HEDGED. As
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. This risk is particularly acute in
the case of "cross-hedges" between currencies.
. THE ADVISER MAY INCORRECTLY 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.
. 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 OR 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, the Fund may experience a loss.
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OTHER INSTRUMENTS. 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 bond.
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.
DESCRIPTION OF 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 consist of both notes and bonds.
There are four major varieties of state and municipal notes: Tax Anticipation
Notes ("TANs"); Revenue Anticipation Notes ("RANs"); Bond Anticipation Notes
("BANs"); and Construction Loan Notes ("CLNs").
TANS AND RANS are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
BANS are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
CLNS are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
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In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many Private Activity Bonds, there is no established
secondary market for their purchase or sale and therefore they may not be
readily marketable. However, Private Activity Bonds or the participation
certificates in Private Activity Bonds purchased by a Fund will have liquidity
because they will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions which may be exercised by a
Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
historical earnings, it should not be considered as an indication or
representation of the performance of any classes of the Fund in the future. From
time to time, the performance and yield of the classes of Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of the Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in local or regional publications, may also be used in comparing the performance
and yield of the Fund or its classes. Additionally, the Fund may, with proper
authorization, reprint articles written about the Fund and provide them to
prospective shareholders.
The Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in the
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 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.
The Fund may provide "yield" quotations in addition to total rate of return
quotations. The "yield" quotations of the Fund will be based upon a hypothetical
net investment income earned by the
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Fund over a thirty day or one month period (which period shall be stated in any
advertisement or communication with a shareholder). The "yield" is then
"annualized" by assuming that the income generated over the period will be
generated over a one year period. A "yield" quotation, unlike a total rate of
return quotation, does not reflect changes in investment value.
The Fund may also quote a "tax equivalent yield" which refers to the yield
that a taxable income fund would have to generate in order to produce an
after-tax yield equivalent to that of the Fund at a given tax rate. The use of a
tax equivalent yield allows investors to compare the yield of the Fund, the
income from which is excluded from gross income for federal income tax purposes
with yields of income funds which are not so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yields and the net asset values of classes of shares
of the Fund will vary based on interest rates, the current market value of the
securities held in the Fund's portfolio and changes in the Fund's expenses. The
Adviser, the Shareholder Servicing Agent, the Administrator or the Distributor
have all voluntarily agreed to waive a portion of their fees on a month-to-month
basis. In addition, the Distributor may assume a portion of the Fund's operating
expenses on a month-to-month basis. These actions have the effect of increasing
the net income (and therefore the yield and total rate of return) of the Fund
during the period such waivers are in effect. These factors and possible
differences in the methods used to calculate the yield and total rate of return
should be considered when comparing the yields or total rates of return of the
classes of shares of the Fund to yields and total rates of return published for
other investment companies and other investment vehicles (including different
classes of shares). The Fund 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 (see "Purchases and Redemptions of Shares -- Purchases"), 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.
See the Statement of Additional Information for further information concerning
the calculation of the yields or total rates of return quotations for classes of
shares of the Fund.
The Fund generally will include performance data for both classes of Fund
shares in any advertisements or promotional materials including Fund performance
data.
OTHER INFORMATION
The net asset value of shares of the Fund changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested at lower yields can be expected to
decline. Although changes in the value of the portfolio securities of the Fund
subsequent to their acquisition are reflected in their net asset values, such
changes will not affect the income received by them from such securities. Debt
securities with longer maturities such as those intended for investment by the
Fund generally tend to produce higher yields and are subject to greater market
fluctuation as a result of changes in interest rates than debt securities with
shorter maturities. Since available yields vary over time, no specific level of
income can ever be assured. The dividends paid on shares of the Fund will
increase or decrease in relation to the income received by the Fund from its
investments, which will in any case be reduced by the Fund's expenses before
being distributed to its shareholders.
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially
33
<PAGE>
subject to the alternative minimum tax on individuals. As a result, this
legislation may affect the availability of Municipal Obligations for investment
by the Fund.
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 the Fund to be more
susceptible to similar economic, political, or regulatory occurrences. The value
of shares of the Fund may be subject to greater risk than those of other mutual
funds that do not permit such a practice. Moreover, as the similarity in issuers
increases, the potential for fluctuation of the net asset value of the shares of
the Fund also increases.
The Statement of Additional Information contains more detailed information
about the Trust and the Fund, including information related to (i) the Fund's
investment policies and restrictions, (ii) risk factors associated with Fund's
policies and investments, (iii) the Trust's Trustees, officers and the
Administrator and the Adviser, (iv) portfolio transactions, (v) the Funds'
shares, including rights and liabilities of shareholders, and (vi) additional
performance information, including the method used to calculate yield or total
rate of return quotations of the Fund. The audited financial statements for the
Fund for its last fiscal year end are incorporated by reference in the Statement
of Additional Information.
34
<PAGE>
APPENDIX A
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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment 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
- ------------
* 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.
A-1
<PAGE>
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
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.
A-2
<PAGE>
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/A-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+").
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.
A-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.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 41932
Kansas City, MO 64141-6392
TAX FREE
INCOME FUND
- ---------------------------------------- ------------------------
INVESTMENT ADVISER AND ADMINISTRATOR Prospectus
The Chase Manhattan Bank, N.A. and Application
DISTRIBUTOR
Vista Broker-Dealer Services, Inc.
TRANSFER AGENT
DST Systems, Inc.
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen
Kamin & Frankel
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
December 31, 1995
<PAGE>
PROSPECTUS
VISTASM NEW YORK TAX FREE INCOME FUND
December 31, 1995
VISTA NEW YORK TAX FREE INCOME FUND (the "Fund") seeks to provide its
shareholders with monthly dividends which are excluded from gross income for
federal income 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 by investing primarily (i.e., at least 80% of its assets in normal
conditions) in New York Municipal Obligations (as defined at page A-1) as well
as by using futures contracts on fixed income securities or indexes of fixed
income securities and options on such futures contracts for the purpose of
protecting (i.e., "hedging") the value of its portfolio. The Fund is a
non-diversified series of Mutual Fund Trust (the "Trust"), an open-end
management investment company organized as a business trust under the laws of
the Commonwealth of Massachusetts on February 4, 1994, presently consisting of
11 separate series (the "Funds"). Because the Fund is "non-diversified", more of
the Fund's assets may be concentrated in the securities of any single issuer
than if the Fund was "diversified", which may make the value of shares of the
Fund more susceptible to certain risks than shares of a diversified mutual fund.
Of course, there can be no assurance that the Fund will achieve its
investment objective. Prospective investors should carefully consider the risks
associated with an investment in the Fund. For a further discussion on the risks
associated with an investment in the Fund, see "Investment Objective and
Policies" in this Prospectus. Investors should also refer to "Additional
Information on Investment Policies and Techniques " on page 27.
The Chase Manhattan Bank, N.A. (the "Adviser") is the Fund's investment
adviser, custodian (the "Custodian") and administrator (the "Administrator").
Vista Broker-Dealer Services, Inc. ("VBDS") is the Fund's distributor and is
unaffiliated with Chase. 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, N.A. 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.
Shares of the Fund are continuously offered for sale through VBDS, the
Fund's distributor (the "Distributor"). An investor should obtain from his or
her Shareholder Servicing Agent, if appropriate, and should read in conjunction
with this Prospectus, the materials provided by the Shareholder Servicing Agent
describing the procedures under which the shares of the Fund may be purchased
and redeemed through such Shareholder Servicing Agent. Investors may select
Class A or Class B shares, each with a public offering price that reflects
different sales charges and expense levels. Class A shares are offered at net
asset value plus the applicable sales charge (maximum of 4.50% of public
offering price). Class B shares are offered at net asset value without an
initial sales charge, with a maximum contingent deferred sales charge of 5% of
redemption proceeds imposed on certain redemptions made within six years of the
date of purchase. This charge will decline to zero for redemptions more than six
years after initial purchase. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert into Class A shares in the eighth year
after purchase. Salespersons and any other person entitled to receive
compensation for selling or servicing shares of the Fund may receive different
compensation with respect to one particular class of shares over another in the
Fund.
For more information on the differences in these classes, see "Variable
Distribution Method," "Purchases and Redemptions of Shares" and "Conversion of B
Shares."
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. A Statement of
Additional Information for the Fund, dated December 31, 1995 which contains more
detailed information concerning the Fund, has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. An
investor may obtain a copy of the Statement of Additional Information without
charge by contacting his or her Shareholder Servicing Agent, the Distributor, or
the Fund.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE 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.
For information about the Fund, simply call the Vista Service Center at the
following toll-free number: 1-800-34-VISTA.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
Expense Summary.......................................................... 3
Financial Highlights..................................................... 4
Investment Objective and Policies........................................ 5
Management of the Fund................................................... 7
Purchases and Redemptions of Shares...................................... 9
Tax Matters.............................................................. 19
Other Information Concerning Shares of the Fund.......................... 21
Shareholder Servicing Agents, Transfer Agent and Custodian............... 25
Additional Information on Investment Policies and Techniques............. 27
Yield and Performance Information........................................ 33
Appendix A
Description of Ratings............................................... A-1
</TABLE>
2
<PAGE>
<TABLE>
EXPENSE SUMMARY
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
- ------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases (as a percentage of offering
price)*........................................................................ 4.50% None
Maximum Sales Charge Imposed on Reinvested Dividends........................... None None
Exchange Fee................................................................... None None
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds)+..................................................................... None 5%
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
AS A
PERCENTAGE
OF NET ASSETS
------------------
<S> <C> <C>
Investment Advisory Fee (After waiver of fees)**............................... .20% .20%
Rule 12b-1 Distribution Plan Fee++ (After waiver of fees)**.................... .20% .75%
Administration Fee............................................................. .07% .07%
Other Expenses (After waiver of fees)
- --Sub-administration Fee....................................................... .05% .05%
- --Shareholder Servicing Fee.................................................... .05% .25%
- --Other Operating Expenses+++.................................................. .33% .33%
------- -------
0.90% 1.65%
------- -------
------- -------
EXAMPLE:
You would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual rate of return:
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1).................................................. $53 $69 $ 87 $ 140
Class B Shares:
Assuming complete redemption at end of period(2)(3)................ 68 85 113 166
Assuming no redemption(3).......................................... 17 52 90 166
<FN>
- ------------
* The rules of the Securities and Exchange Commission require that the Fund's
maximum sales charge be reflected in the expense summary.
** Fees waived on a month-to-month basis.
+ The maximum 5% contingent 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 "Purchases."
++ As a result of distribution fees, a long-term shareholder in the Fund may
pay more than the economic equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities Dealers,
Inc.
+++ A shareholder may incur a $10.00 charge for certain wire redemptions.
(1) Assumes deduction at the time of purchase of the maximum 4.50% initial
sales charge, as applicable.
(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of eighth year.
</FN>
</TABLE>
The purpose of the expense summary provided above is to assist investors in
understanding the various costs and expenses that a shareholder in the Fund will
bear directly or indirectly. The expense summary shows the investment advisory
fee, distribution plan fee, administrative fee, sub-administrative fee,
shareholder servicing fee and other operating expenses expected to be incurred
by the Fund during the fiscal year. Absent such waivers, the annual investment
advisory fee, distribution plan fee, administration fee, sub-administration fee
and shareholder servicing agent fee for the Fund would be 0.30%, 0.25% (0.75%
for Class B shares), 0.10%, 0.05% and 0.25%, respectively, of the Fund's average
net assets. A more complete description of the Fund's expenses, including any
potential fee waivers, is set forth herein.
THE "EXAMPLE" SET FORTH ABOVE ASSUMES ALL DIVIDENDS AND OTHER DISTRIBUTIONS
ARE REINVESTED AND THAT THE PERCENTAGES UNDER "ANNUAL FUND OPERATING EXPENSES"
REMAIN THE SAME IN THE YEARS SHOWN. THE "EXAMPLE" SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN SHOWN. THE ACTUAL EXPENSES INCURRED AND ATTRIBUTABLE TO
EACH CLASS OF SHARES WILL DEPEND ON SEVERAL FACTORS, INCLUDING THE LEVEL OF
AVERAGE NET ASSETS AND THE EXTENT TO WHICH A CLASS INCURS VARIABLE EXPENSES,
SUCH AS TRANSFER AGENCY COSTS.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Class A share and one Class B 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 Statement of
Additional Information. The financial statements and notes, as well as the
financial information set forth in the table below for each of the five years
ended August 31, 1995, 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 Annual Report by contacting
the Fund or their Shareholder Servicing Agent.
<TABLE>
NEW YORK TAX FREE INCOME FUND
<CAPTION>
11/4/93** 11/1/93
YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED OCTOBER 31,
8/31/95 8/31/94+ 8/31/95 8/31/94+ ------------------------------------------------
---------- ---------- ---------- --------- 1993 1992 1991 1990 1989
CLASS B CLASS B CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- --------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value,
Beginning of Period..... $ 11.27 $ 12.11 $ 11.30 $ 12.27 $ 11.18 $ 11.24 $ 10.48 $ 10.60 $ 10.62
Income from Investment
Operations
Net Investment
Income.............. 0.485 0.419 0.570 0.473 0.592 0.473 0.635 0.671 0.739
Net Gains or Losses in
Securities (both
realized and
unrealized)......... 0.162 (0.543) 0.167 (0.688 ) 1.281 0.274 0.762 (0.100) 0.045
---------- ---------- ---------- --------- -------- ------- ------- ------- -------
Total from
Investment
Operations......... 0.647 (0.124) 0.737 (0.215 ) 1.873 0.747 1.397 0.571 0.784
Less Distributions
Dividends from net
investment
income.............. 0.507 0.433 0.567 0.472 0.591 0.473 0.635 0.672 0.741
Distributions from
capital gains....... -- 0.283 -- 0.283 0.194 0.334 0.000 0.020 0.063
---------- ---------- ---------- --------- -------- ------- ------- ------- -------
Total
Distributions...... 0.507 0.716 0.567 0.755 0.785 0.807 0.635 0.692 0.804
Net Asset Value, End of
Period................... $ 11.41 $ 11.27 $ 11.47 $ 11.30 $ 12.27 $ 11.18 $ 11.24 $ 10.48 $ 10.60
---------- ---------- ---------- --------- -------- ------- ------- ------- -------
---------- ---------- ---------- --------- -------- ------- ------- ------- -------
Total Return(1).......... 5.99% (1.11%) 6.82% (1.81 %) 17.31% 8.57% 13.68% 5.56% 7.69%
Ratios/Supplemental Data
Net Assets, End of
Period
(000 omitted)......... $ 10,633 $ 7,234 $104,168 $103,113 $120,809 $48,420 $24,062 $20,413 $17,545
Ratio of Expenses to
Average Net
Assets.............. 1.61% 1.51% 0.85% 0.76 % 0.75% 0.75% 0.76% 0.71% 0.20%
Ratio of Net Investment
Income to Average Net
Assets.............. 4.35% 4.28% 5.11% 4.89 % 4.86% 5.74% 5.85% 6.34% 6.90%
Ratio of expenses
without waivers and
assumption of expenses
to Average Net
Assets................ 1.87% 1.76% 1.37% 1.25 % 1.11% 1.41% 1.71% 1.68% 2.30%
Ratio of net investment
income without waivers
and assumption of
expenses to Average
Net Assets............ 4.09% 4.03% 4.59% 4.40 % 4.50% 5.08% 4.90% 5.38% 4.81%
Portfolio Turnover
Rate.................. 122% 162% 122% 162 % 150% 280% 353% 143% 286%
<CAPTION>
9/8/87* TO
1988 10/31/87
CLASS A CLASS A
SHARES SHARES
------- ----------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value,
Beginning of Period..... $10.08 $10.00
Income from Investment
Operations
Net Investment
Income.............. 0.701 0.053
Net Gains or Losses in
Securities (both
realized and
unrealized)......... 0.590 0.027
------- -----
Total from
Investment
Operations......... 1.291 0.080
Less Distributions
Dividends from net
investment
income.............. 0.751 0.000
Distributions from
capital gains....... 0.000 0.000
Total
Distributions...... 0.751 0.000
Net Asset Value, End of
Period................... $10.62 $10.08
Total Return(1).......... 13.24 % 5.41%
Ratios/Supplemental Data
Net Assets, End of
Period
(000 omitted)......... $5,557 $ 101
Ratio of Expenses to
Average Net
Assets................ 0.00 % 0.00%#
Ratio of Net Investment
Income to Average Net
Assets................ 7.16 % 7.49%#
Ratio of expenses
without waivers and
assumption of expenses
to Average Net
Assets................ 1.50 % 1.50%#
Ratio of net investment
income without waivers
and assumption of
expenses to Average
Net Assets............ 5.66 % 5.99%#
Portfolio Turnover
Rate.................. 362 % 90%
<FN>
- ------------
# 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.
</FN>
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE --The investment objective of the Fund is to provide
its shareholders with monthly dividends which are excluded from gross income for
federal income 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.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing primarily (i.e., at least 80% of its assets in normal conditions) in
New York Municipal Obligations (as defined at page 32) or in territories and
political sub-divisions of the U.S. Government deemed to be exempt from federal,
state and local income taxes such as Guam, Puerto Rico and the Virgin Islands as
well as by using futures contracts on fixed income securities or indexes of
fixed income securities and options on such futures contracts for the purpose of
protecting (i.e., "hedging") the value of its portfolio. These 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.
Although the Fund seeks to invest all of its assets in the obligations
described in the preceding paragraph, market conditions may from time to time
limit the availability of such obligations. During periods when the Fund is
unable to purchase obligations described in the preceding paragraph, it will, as
a temporary measure, seek to invest its total assets in municipal obligations,
the interest on which would be excluded from gross income for federal income tax
purposes, but would be subject to New York State and New York City personal
income taxes. The Fund reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which constitutes a preference
item and, therefore, may be subject to the federal alternative minimum tax on
individuals. Also, as a temporary defensive measure during times of adverse
market conditions, assets of the Fund may be held in cash or invested in certain
short-term obligations, the interest income from which may be taxable to
shareholders as ordinary income for federal and New York State and New York City
income tax purposes. See "Tax Matters."
THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END INVESTMENT COMPANY SUCH AS
THE FUND, WHICH INVESTS IN FIXED INCOME SECURITIES, CHANGES AS THE GENERAL
LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE VALUE OF A
PORTFOLIO CAN BE EXPECTED TO RISE. CONVERSELY, WHEN INTEREST RATES RISE, THE
VALUE OF A PORTFOLIO CAN BE EXPECTED TO DECLINE.
As a fundamental policy, the Fund, during periods of normal market
conditions, will have at least 80% of its assets invested in obligations the
interest on which, in the opinion of bond counsel, is excluded from gross income
for federal income tax purposes, does not constitute a preference item and,
therefore, will not be subject to the federal alternative minimum tax on
individuals and is exempt from New York State and New York City personal income
taxes. In addition, as a non-fundamental policy, all of the Fund's assets will
only be invested in obligations that qualify under certain ratings and other
criteria. For descriptions of such criteria and of the types of short-term
instruments, such as futures contracts and options thereon, in which the Fund
may invest, as well as additional information regarding the investment policies
and techniques of the Fund and of special factors affecting investments in New
York Municipal Obligations of which investors should be aware, see "Additional
Information on Investment Policies and Techniques." In addition, the Statement
of Additional Information includes a further discussion of futures and option
contracts to be entered into by the Fund. Although the Fund will enter into
futures and option contracts for hedging purposes only, the use of such
instruments does involve transaction costs and certain risks, which are
discussed in the Statement of Additional Information.
Except for the fundamental policy referred to above, shareholder approval is
not required to change any of the investment policies described above, the
investment objective or the policies described in "Additional Information on
Investment Policies and Techniques".
5
<PAGE>
VARIABLE DISTRIBUTION METHOD
The primary differences between the classes lie in their sales charge
structures, and ongoing expenses, as summarized below. Each class has distinct
advantages and disadvantages depending on the investor. Investors should
carefully consider the attributes of a class before investing.
<TABLE>
<CAPTION>
INITIAL CONTINGENT DEFERRED DISTRIBUTION AND
SALES CHARGE SALES CHARGE SERVICE FEES OTHER INFORMATION
------------ ------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Class A......... Maximum of None Distribution Fee Initial Sales Charge
4.50% of of 0.25%; reduced in certain
public Service Fee of circumstances
offering 0.25%
price
Class B......... None Maximum contingent Distribution Fee Shares convert to Class
deferred sales of 0.75%; A shares, and thus pay
charge of 5% of Service Fee of lower distribution
redemption 0.25% fees, in the eighth
proceeds declines year after issuance
to 0 after 6
years
</TABLE>
FACTORS TO CONSIDER
The classes of shares have several different attributes relating to sales
charges and expenses. These attributes are discussed more fully below. In
choosing a class of shares to purchase, investors should consider the sales
charges and ongoing expenses of each class.
SALES CHARGES -- Class A shares are sold at net asset value plus an initial
sales charge of up to a maximum of 4.50% of the public offering price.
Class B shares have no initial sales charge; however, a contingent deferred
sales charge will be imposed on redemptions made within six years of purchase.
The amount of this contingent deferred sales charge will be 5% of the redemption
proceeds on redemptions in the first year after purchase, declining to zero for
redemptions made more than six years after purchase. However, this contingent
deferred sales charge will not apply to redemptions of shares representing
capital appreciation on Fund assets and reinvestment of dividends or capital
gains distributions. 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.
REDUCTIONS OF CLASS A SALES CHARGES -- As explained more fully in "Purchases
and Redemptions of Shares," certain purchases of Class A shares in amounts
exceeding $100,000 are eligible for reduced initial sales charges. In
determining which classes to purchase, investors should consider any reductions
in initial sales charges on Class A shares for which they may be eligible.
ONGOING ANNUAL EXPENSES -- Class A and Class B each have an annual
shareholder servicing fee of 0.25% of average daily net assets. Class A has an
annual distribution fee under Rule 12b-1 of 0.25% of its average daily net
assets, while Class B has an annual distribution fee under Rule 12b-1 of 0.75%
of its average daily net assets. Moreover, other operating 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.
6
<PAGE>
Investors should carefully consider these ongoing annual expenses, along
with initial or contingent deferred sales charges in choosing between classes.
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.
OTHER INFORMATION
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of Fund shares rather than
another.
MANAGEMENT OF THE FUND
ADVISER
The Chase Manhattan Bank, N.A. ("Chase" or the "Adviser") manages the assets of
the Fund pursuant to an Investment Advisory Agreement dated October 25, 1994.
Subject to such policies as the Board of Trustees may determine, the Adviser
makes investment decisions for the Fund. Pamela Hunter, Vice President of the
Adviser, is responsible for the day-to-day management of the Fund's portfolio.
Ms. Hunter, who has managed the Fund since inception in 1987, joined Chase in
1980, is part of a team providing fixed income strategy, trading and product
development. For its services under the Investment Advisory Agreement, the
Adviser is entitled to receive an annual fee computed daily and paid monthly
based at an annual rate equal to 0.30% of the Fund's average daily net assets.
The Adviser may, from time to time, voluntarily waive all or a portion of its
fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
7
<PAGE>
CERTAIN RELATIONSHIPS AND ACTIVITIES. The Adviser 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. The Adviser 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. The Adviser and its affiliates
may sell U.S. Government obligations and municipal obligations to, and purchase
them from, other investment companies sponsored by the Distributor or affiliates
of the Distributor. The Adviser 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 the
Adviser 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. The Adviser 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 the Adviser, including the division that performs services for the
Fund as Custodian, or in the possession of any affiliate of the Adviser.
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.
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator of the Fund. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. The Administrator is
entitled to receive from the Fund a fee computed daily and paid monthly at an
annual rate equal to 0.10% of the Fund's average daily net assets. The
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable to it under the Administration Agreement. The Administrator shall
not have any responsibility or authority for the Fund's investments, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement with the Fund, as described below, without
violating the federal banking law commonly known as the Glass-Steagall Act. The
Act generally bars banks from publicly underwriting or distributing certain
securities.
Based on the advice of its counsel, Chase believes that the Court's decision
and these other decisions of banking regulators, permit it to serve as
investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, the Adviser
believes, based on advice of counsel, that it may serve as Shareholder Servicing
Agent and/or Custodian to the Fund and render the services described below and
as set forth in the shareholder servicing
8
<PAGE>
agreement and Custodian Agreement, as an appropriate, incidental national
banking function and as a proper adjunct to its serving as investment adviser
and administrator to the Fund.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. Chase, on the
advice of its counsel, nevertheless believes that it may render the services
described in its Administration Agreement without violating the Glass-Steagall
Act or other applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, shareholder servicing, custodial
or other administrative services for the Fund. If that occurred, the Fund's
Board of Trustees promptly would seek to obtain for the Fund the services of
another qualified adviser, shareholder servicing agent, custodian or
administrator, as necessary. Although no assurances can be given, the Fund
believes that, if necessary, the transfer to a new adviser, shareholder
servicing agent, custodian or administrator could be accomplished without undue
disruption to the Fund's operations.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
Class A shares are sold to investors subject to an initial sales charge.
Class B shares of the Fund are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and a contingent deferred
sales charge payable upon certain redemptions. Class B shares automatically
convert to Class A shares in the eighth year after issuance. See "Variable
Distribution Method."
Both classes of shares of the Fund 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 Vista Broker-Dealer Services,
Inc., at the public offering price which is computed once daily as of the close
of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on
each business day during which the Exchange is open for trading ("Fund Business
Day"). (See "Other Information Concerning Shares of the Fund-Net Asset Value").
The public offering price of Class A shares is the next determined net asset
value, plus applicable initial sales charge. Orders received by Dealers prior to
the New York Stock Exchange closing time are confirmed at the offering price
effective at the close of such Exchange, provided the order is received by the
Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and only Class A share
certificates will be issued upon request. Management reserves the right to
refuse to sell shares of the Fund to any person.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 calendar days. In addition, redemption
of shares purchased by periodic automatic investment will not be allowed for 7
calendar days.
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 reduced minimum initial purchase amounts and limitations on the
amounts of subsequent transactions, with respect to such services. Certain
Shareholder Servicing Agents may
9
<PAGE>
(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 (see
"Shareholder Servicing Agents, Transfer Agent and Custodian -- Shareholder
Servicing Agents"), which will have the effect of increasing the net return on
the investment of customers of that Shareholder Servicing Agent.
WHEN PLACING ORDERS, INVESTORS SHOULD SPECIFY WHETHER THE ORDER IS FOR CLASS
A OR CLASS B SHARES. ALL SHARE PURCHASES THAT FAIL TO SPECIFY A CLASS WILL
AUTOMATICALLY BE INVESTED IN CLASS A SHARES.
MINIMUM INVESTMENTS
The Fund has established minimum initial and additional investments for the
purchase of Fund Shares. The minimums detailed below vary by the type of account
being established:
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM INITIAL INVESTMENT
- ----------------------------------------------- --------------------------
<S> <C>
Individual..................................... $2,500(1)
Individual Retirement Account (IRA)............ $1,000(2)
Spousal IRA.................................... $ 250
SEP-IRA........................................ $1,000(2)
Purchase Accumulation Plan..................... $ 250(3)
Payroll Deduction Program...................... $ 100(4)
(401K, 403B, Keogh)
<FN>
- ------------
(1) Employees of the Adviser and its affiliates, and Qualified Persons as
defined in "Purchases of Class A Shares at Net Asset Value", are eligible
for a $1,000 minimum initial investment.
(2) A $250 minimum initial investment is allowed if the new account is
established with a $100 minimum monthly Systematic Investment Plan as
described below.
(3) Account must be established with a $200 minimum monthly Systematic
Investment Plan as described below.
(4) A $25 minimum monthly investment must be established through an automated
payroll cycle
</FN>
</TABLE>
The minimum additional investment is $100 for all types of accounts
SYSTEMATIC INVESTMENT PLAN A shareholder may establish a monthly investment
plan by which investments are automatically made to his/her Vista Fund account
through Automatic Clearing House (ACH) deductions from a checking account. The
minimum monthly investment through this plan is $100. Shareholders may choose
either to have these investments made during the first or third week each month.
Please note that your initial ACH transactions may take up to 10 days from the
receipt of your request to be established.
Shareholders electing to start this Systematic Investment Plan when opening
an account should complete Section 8 of the account application. Current
shareholders may begin a Systematic Investment Plan at any time by sending a
signed letter with signature guarantee to the Vista Service Center, P.O. Box
419392, Kansas City, MO 64141-6392. The letter should contain your Vista Fund
account number, the desired amount and cycle of the systematic investment, and
must include a voided check from the checking account from which debits are to
be made. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of the national securities exchange. Please note
that a notary public cannot provide signature guarantee.
10
<PAGE>
INITIAL SALES CHARGES--CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value, plus any applicable initial sales charge, which will vary with the size
of the purchase as shown in the following table:
<TABLE>
<CAPTION>
CONCESSION
SALES CHARGE TO DEALERS
-------------------- -----------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------------------------------ -------- -------- -----------
<S> <C> <C> <C>
Less than $100,000........................ 4.50 4.71 4.00
$100,000 to $249,999...................... 3.75 3.90 3.25
$250,000 to $499,999...................... 2.50 2.56 2.25
$500,000 to $999,999...................... 2.00 2.04 1.75
$1,000,000 to $2,499,999.................. -- -- 0.75
$2,500,000 to $9,999,999.................. -- -- 0.50
$10,000,000 to $49,999,999................ -- -- 0.25
$50,000,000 and over...................... -- -- 0.15
</TABLE>
The initial sales charge on Class A shares varies with the size of the
purchase as shown above. The reduced charges apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person", which term
includes, among others, an individual, spouse and children under the age of 21,
or a Trustee or other fiduciary of a Trust estate or fiduciary account. The
Distributor may compensate Dealers for sales of $1,000,000 or more from it own
resources and/or the Distribution Plan.
Upon notice to Dealers with whom it has sales agreements, VBDS may reallow
up to the full applicable initial sales charge on Class A shares and such Dealer
may therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended, during such periods. For the three-year period commencing July 19,
1993, for activities in maintaining and servicing accounts of customers invested
in the Fund, Associated Securities Corp. ("Associated Securities") may receive
payments from the Adviser based, in part, on the amount of the aggregate asset
values of the Fund (and other Vista Funds) in the accounts of shareholders
attributable to Associated Securities and the length of time such assets are in
such accounts.
In addition, under an arrangement between Associated Securities and the
Distributor, Associated Securities will be entitled to receive either 50% or 70%
of the difference between the total front-end sales load, or in the case of
Class B shares 4.00%, and that portion paid to selling group member broker-
dealers.
To the extent permitted by applicable SEC and NASD regulations, the
Distributor may, from time to time, provide promotional incentives to certain
Dealers whose representatives have sold or are expected to sell significant
amounts of the Fund or other Funds in the Trust. At various times the
Distributor may implement programs under which a Dealer's sales force may be
eligible to win cash or awards for certain sales efforts or under which the
Distributor will reallow an amount not exceeding the total applicable on Class A
shares sales charges on the sales of Class A shares or the Maximum Contingent
Deferred Sales Charge of Class B shares generated by the Dealer during such
programs to any Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor or participates in sales
programs sponsored by the Distributor. The Distributor may provide marketing
services to Dealers with whom it has sales agreements, consisting of written
informational material relating to sales incentive campaigns conducted by such
Dealers for their representatives.
11
<PAGE>
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE
SHAREHOLDERS AS OF NOVEMBER 30, 1990
Shareholders of record of any Vista Fund as of November 30, 1990, may
purchase shares of the Fund at Net Asset Value without an initial sales charge
for as long as they continue to own shares of any Vista Fund, provided there is
no change in account registration. However, once a shareholder closes his or her
account by redeeming all shares, he or she will lose this privilege after 30
days. This provision applies to accounts registered in the name of the
shareholder and his or her spouse and children under 21 and for IRAs in their
names.
SHAREHOLDERS WHO ARE ELIGIBLE PERSONS
There is no initial sales charge on Class A Shares purchased by the
following "Eligible Persons:"
a) Active or retired Trustees, Directors, officers, partners or
employees (including their spouses, children, siblings and parents) of the
Adviser, Distributor, Transfer Agency or any affiliates or subsidiaries
thereof.
b) Employees (including their spouses and children under 21) of Dealers
having a selected dealers agreement with the distributor.
c) Any qualified retirement plan or IRA established for the benefit of
a person in (a) or (b).
QUALIFIED AND OTHER RETIREMENT PLANS
No initial sales charge will apply to the purchase of Class A Shares of the
Fund by:
a) An investor seeking to invest the proceeds of a qualified retirement
plan, where a portion of the plan was invested in Vista.
b) Any qualified retirement plan with 250 or more participants.
c) An individual participant in a tax-qualified plan making a tax-free
rollover or transfer of assets from the plan in which the adviser of the
Fund serves as Trustee or custodian of the plan or manages some portion of
the plan's assets.
PURCHASES THROUGH INVESTMENT ADVISERS, BROKERS OR FINANCIAL PLANNERS
Purchases of Class A Shares of the Fund may be made with no initial sales
charge through an investment adviser, broker, or financial planner who charges a
fee for their 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 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,
including but not limited to those defined in section 401(a), 403(b) or 457 of
the Internal Revenue Code or rabbi trusts.
Investors may incur a fee if they effect transactions through a broker or
agent.
PURCHASES THROUGH A BANK AS FIDUCIARY
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 (i.e., exercises
12
<PAGE>
investment authority with respect to such accounts), provided that appropriate
notification of such fiduciary relationship is reported at the time of the
investment to the Fund, the distributor or the Transfer Agent.
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.
REDUCED INITIAL SALES CHARGES ON CLASS A SHARES
CUMULATIVE QUANTITY DISCOUNT. Class A Shares of the Fund may be purchased by
any person at a reduced initial sales charge which is determined by (a)
aggregating the dollar amount of the new purchase and the greater of the
purchaser's total (i) net asset value or (ii) cost of any shares acquired and
still held in the Fund, or any other Vista Fund, including any Vista money
market Fund acquired by exchange for which a sales charge had been incurrred and
(b) applying the initial sales charge applicable to such aggregate dollar value.
The privilege of the cumulative quantity discount is subject to modification or
discontinuance at any time with respect to all Class A shares purchased
thereafter.
GROUP PURCHASES. An individual who is a member of a qualified group (as
hereinafter defined) may also purchase shares of the Fund at the reduced sales
charge applicable to the group taken as a whole. The reduced initial sales
charge is based upon the aggregate dollar value of Class A shares previously
purchased and still owned by the group plus the securities currently being
purchased and is determined as stated above under "Cumulative Quantity
Discount". For example, if members of the group had previously invested and
still held $90,000 of Class A shares and now were investing $15,000, the initial
sales charge would be 3.75% on the $15,000 purchase. In order to obtain such
discount, the purchaser or investment dealer must provide the Transfer Agent
with sufficient information, including the purchaser's total cost, at the time
of purchase to permit verification that the purchaser qualifies for a cumulative
quantity discount, and confirmation of the order is subject to such
verification. Information concerning the current initial sales charge applicable
to a group may be obtained by contacting the Transfer Agent.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Class A shares at a discount and
(iii) satisfies uniform criteria which enables the Distributor to realize
economies of scale in its costs of distributing Class A shares. A qualified
group must have more than 10 members, must be available to arrange for group
meetings between representatives of the Fund and the members, must agree to
include sales and other materials related to the Fund in its publications and
mailings to members at reduced or no cost to the Distributor, and must seek to
arrange for payroll deduction or other bulk transmission of investments of the
Fund. This privilege is subject to modification or discontinuance at any time
with respect to all Class A shares purchased thereafter.
STATEMENT OF INTENTION. Investors in Class A shares may also qualify for
reduced 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 Vista Fund, (or if a Fund has only
one class, shares of such fund) including shares of any Vista money market Fund,
acquired in Class A shares by exchange from a Fund which charged an initial
sales charge, during a 13-month period. The sales charge is based on the total
amount invested 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
13
<PAGE>
period would then begin on the date of the first purchase during the 90-day
period. No retroactive adjustment will be made if purchases exceed the amount
indicated in the Statement. A SHAREHOLDER MUST NOTIFY THE TRANSFER AGENT OR
DISTRIBUTOR WHENEVER A PURCHASE IS BEING MADE PURSUANT TO A STATEMENT.
The Statement is not a binding obligation on the investor to purchase the
full amount indicated; however, on the initial purchase, if required (or
subsequent purchases if necessary), 5% of the dollar amount specified in the
Statement will be held in escrow by the Transfer Agent in Class A shares
registered in the shareholder's name in order to assure payment of the proper
sales charge. If total purchases pursuant to the Statement (less any
dispositions and exclusive of any distributions on such shares automatically
reinvested) are less than the amount specified, the investor will be requested
to remit to the Transfer Agent an amount equal to the difference between the
sales charge paid and the sales charge applicable to the aggregate purchases
actually made. If not remitted within 20 days after written request, an
appropriate number of escrowed shares will be redeemed in order to realize the
difference. This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereunder. Reinvested dividend and
capital gain distributions are not counted toward satisfying the Statement.
REINSTATEMENT PRIVILEGE. Class A shareholders have a one time privilege of
reinstating their investment in the Fund, subject to the terms of exchange (see
"Exchange Privilege") at net asset value next determined. A written request for
reinstatement must be received by the Transfer Agent within 30 days of the
redemption, accompanied by payment for the shares (not in excess of the
redemption). This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereafter.
EXCHANGES FOR CLASS A SHARES OF OTHER VISTA FUNDS. Class A shares of the
Fund may be obtained without an initial sales charge through exchanges for Class
A shares of other Vista Funds. See "Exchange Privilege." In addition, Class B
shareholders who have redeemed Class B shares and paid a contingent deferred
sales charge in connection with such redemption may purchase Class A shares with
no initial sales charge (in an amount not exceeding the redemption proceeds) if
the purchase occurs within 30 calendar days of the redemption of the Class B
shares.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES
The public offering price of Class B shares is the next determined net asset
value, and no initial sales charge is imposed. However, a contingent deferred
sales charge is imposed upon certain redemptions of Class B shares.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption by the applicable percentage shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF NET
REDEMPTION DURING ASSET VALUE AT REDEMPTION
- ---------------------------------- ----------------------------------
<S> <C>
1st Year Since Purchase........... 5%
2nd Year Since Purchase........... 4%
3rd Year Since Purchase........... 3%
4th Year Since Purchase........... 3%
5th Year Since Purchase........... 2%
6th Year Since Purchase........... 1%
7th Year Since Purchase........... 0%
</TABLE>
Redemptions of Class B shares are not subject to a contingent deferred sales
charge to the extent that the value of such shares represents: (a) capital
appreciation of Fund assets; (ii) reinvestment of dividends or capital gain
distributions; or (iii) shares redeemed more than six years after their
purchase. In determining the applicability and rate of any contingent deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares representing capital appreciation, next of shares representing the
reinvestment of dividends and capital gains distributions and finally of other
shares held by the shareholder for the longest period of time.
The holding period of Class B shares acquired through an exchange with
another Vista Fund will be calculated from the date that the Class B shares were
initially acquired in one of the other Vista Funds and those Class B shares
being redeemed will be considered to represent capital appreciation or dividend
and capital gain distribution reinvestments in other funds to the extent
applicable and then of shares held for the longest period of time. As a result,
the contingent deferred sales charge imposed should be at the lowest possible
rate. The amount of any contingent deferred sales charge imposed will reduce the
gain or increase the loss on the amount realized on redemption for purposes of
federal income taxes.
The amount of any contingent deferred sales charge will be paid to VBDS.
SALES CHARGE WAIVER--CLASS B SHARES. The contingent deferred sales charge
for Class B shares will be waived for certain exchanges and for redemptions in
connection with the Fund's systematic redemption plan. 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 death of the shareholder; (ii) a redemption in connection with a Minimum
Required Distribution from an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code (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, as described on page 17; (iv)
distributions from a qualified plan upon retirement; (v) a redemption resulting
from an over-contribution to an IRA; and (vi) a redemption of an account balance
under $500, as described on page 17.
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<PAGE>
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares (and thus be subject to the lower
expenses borne by Class A shares) in the eighth year after the date of purchase,
together with the pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion 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 occurs. If any exchanges of Class B shares during the
eight-year period occurred, the holding period for the shares exchanged will be
counted toward the eight-year period. At the time of the conversion the net
asset value per share of the Class A shares may be higher or lower than the net
asset value per share of the Class B shares; as a result, depending on the
relative net asset values per share, a shareholder may receive fewer or more
Class A shares than the number of Class B shares converted.
The Fund reserves the right to cease offering Class B shares for sale at any
time or reject any order for the purchase of Class B shares and to cease
offering any services provided by a Shareholder Servicing Agent.
Due to the conversion feature of Class B shares, certificates will not be
issued and all shares will be held in book entry form.
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their account at
any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent subject to any
applicable contingent deferred sales charge for Class B shares. The proceeds of
a redemption normally will be paid on the next Fund Business Day after a
redemption request has been received by the Fund, but in any event within seven
days. The forwarding of proceeds from redemption of shares which were recently
purchased by check may be delayed up to 15 days. A shareholder may redeem his
shares by authorizing his Shareholder Servicing Agent, Dealer or its agent to
redeem such shares, which the Shareholder Servicing Agent, Dealer or its agent
must do on a timely basis. The signature of both shareholders is required for
any written redemption requests from a joint account. In addition, a redemption
request may be deferred for up to 15 calendar days if the Transfer Agent has
been notified of a change in either the address or the bank account registration
previously listed in the Fund's records.
Class B shares are sold without an initial sales charge but are subject to a
contingent deferred sales charge if shares are redeemed within six years of
purchase. Class B shares are redeemed in the following order: (i) shares
representing capital appreciation; (ii) shares acquired by reinvestment of
dividends and capital gains distributions; and (iii) shares purchased and held
on a first-in/first-out basis. As a result, the amount of the charge is
determined as a percentage of the lesser of the current market value or the cost
of the shares being redeemed.
If a redeeming shareholder owns shares of both Class A and Class B, unless
the shareholder specifically requests otherwise, the Class A shares will be
redeemed before any Class B shares.
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<PAGE>
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions of shares are taxable events on which
the shareholder may recognize a gain or a loss. The Fund retains the right to
pay the redemption price of shares in kind with securities (instead of cash).
However, the Trust has filed an election under Rule 18f-l under 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)
The payment of redemption requests may be wired directly to a previously
designated domestic commercial bank account or mailed to the shareholder's
address of record. For the protection of shareholders, all telephone redemption
requests in excess of $25,000 will be wired directly to such previously
designated bank account. Normally, redemption payments will be transmitted on
the next business day following receipt of the request (provided it is made
prior to 4:00 p.m. Eastern time on any day redemptions may be made). Redemption
payments requested by telephone may not be available in a previously designated
bank account for up to four days. There is a $10.00 charge for each federal
Funds wire transaction. If no share certificates have been issued, a wire
redemption may be requested by telephone or wire to the Vista Service Center.
For telephone redemptions, call the Vista Service Center at (800) 34-VISTA.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
SYSTEMATIC REDEMPTION PLAN--CLASS A SHARES. A shareholder owning $10,000 or
more of the Class A shares of the Fund as determined by the then current net
asset value may provide for the payment monthly or quarterly of at least $100
from his account. A sufficient number of full and fractional Class A shares will
be redeemed so that the designated payment is received on approximately the 1st
day of the month following the end of the selected payment period.
SYSTEMATIC REDEMPTION PLAN--CLASS B SHARES. A shareholder owning $20,000 or
more of the Class B shares of the Fund as determined by the then current net
asset value may also provide for the payment monthly or quarterly of amounts
from his account, subject to limits described below.
No contingent deferred sales charge will be imposed on such withdrawals for
Class B shares. The minimum monthly or quarterly withdrawal amounts will be $200
and $400 for Class B shares. In addition, a Class B shareholder may not withdraw
an amount exceeding 12% annually of his or her "Initial Account Value" for Class
B shares--i.e., the value of the Fund account at the time the shareholder elects
to participate in the systematic redemption plan. A Class B shareholder's
participation in the systematic redemption plan will terminate automatically if
the shareholder's Initial Account Value (adjusted upward for the net asset value
of Class B shares acquired after the election to participate in the systematic
redemption plan) less aggregate redemptions other than under the systematic
redemption plan falls below $20,000.
REDEMPTION OF ACCOUNTS OF LESS THAN $500. The Fund may redeem the shares of
any shareholder, if at such time, the aggregate net asset value of the shares in
such shareholder's account is less than $500. In the event of any such
redemption, a shareholder 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 contingent deferred sales charge will be imposed.
17
<PAGE>
EXCHANGE PRIVILEGE
Shareholders may exchange, at respective net asset value, Class A and Class
B shares of the Fund for Class A and Class B shares of the other Vista Funds,
which has a similar class of shares in accordance with the terms of the then
current prospectus of the Fund being acquired. No initial sales charge is
imposed on the Class A Shares being acquired, and no contingent deferred sales
charge is imposed on the Class B shares being redeemed, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares acquired through an exchange. The prospectus of the other Vista Fund into
which shares are being exchanged should be read carefully prior to any exchange
and retained for future reference. Under the Exchange Privilege, shares of the
Fund may be exchanged for shares of such other Vista Funds only if those Funds
are registered in the states where the exchange may legally be made. Shares of
the Fund may only be exchanged into another Vista 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 other Funds in the Trust, or any exchange directly from one of such Vista
money market Funds will be done at relative net asset value plus the appropriate
sales charge. An exchange of Class B shares into any of the Vista money market
Funds other than the Class B shares of the Prime Money Market Fund will be
treated as a redemption-- and therefore subject to the conditions of the
contingent deferred sales charge--and a subsequent purchase. Class B shares of
any Vista non-money market Fund may be exchanged into the Class B shares of the
Prime Money Market Fund in order to continue the aging of the initial purchase
of such shares while maintaining a stable net asset value. This exchange will
not be subject to a Contingent Deferred Sales Charge unless those shares are
later redeemed. The Class B shares of the Prime Money Market Fund carry the same
Distribution and Sub-Administration Fee, and Shareholder and Fund Servicing Fee
as the Class B shares of the non-money market Funds. Redemptions of shares
acquired through an exchange will be subject to the applicable contingent
deferred 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 through an
exchange transaction are purchased on the Redemption Date, but such purchase may
be delayed by either Fund up to five business days if the Fund determines that
it would be disadvantaged by an immediate transfer of the proceeds. This
privilege may be amended or terminated at any time without notice. Arrangements
have been made for the acceptance of instructions by telephone to exchange
shares if certain preauthorizations or indemnifications are accepted and on
file. Further information and telephone exchange forms are available from the
Transfer Agent.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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 a Fund in a year or three in a calendar quarter will be charged
$5.00 administration fee per each such exchange.
18
<PAGE>
GENERAL
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in this Prospectus are not available
until a completed and signed account application has been received by the
Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application. To provide evidence of
telephone instructions, the Transfer Agent will record telephone conversations
with shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of the Fund and depositing and withdrawing
monies from the bank account specified in the Bank Account Registration section
of the shareholder's latest account application or as otherwise properly
specified to the Fund in writing. Shareholders agree to release and hold
harmless the Fund, the Adviser, the Administrator, any Shareholder Serving Agent
or sub-agent and broker-dealer, and the officers, directors, employees and
agents thereof against any claim, liability, loss, damage and expense for any
act or failure to act in connection with Fund shares, any related investment
account, any privileges or services selected in connection with such investment
account, or any written or oral instructions or requests with respect thereto,
or any written or oral instructions or requests from someone claiming to be a
shareholder if the Fund or any of the above-described parties follow
instructions which they reasonably believe to be genuine and act in good faith
by complying with the procedures that have been established for Fund accounts
and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
The Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in the bank account specified in the Bank Account
Registration, or for any written requests for additional account services made
after a shareholder has submitted an initial account application to the Fund.
The Fund may also refuse to accept or carry out any transaction that does not
satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with his
19
<PAGE>
own tax advisers as to the tax consequences of an investment in the Fund,
including the status of distributions from the Fund in his own state and
locality and the possible applicability of a federal alternative minimum tax to
a portion of the distributions of the Fund.
The Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Fund is treated as a "regulated
investment company" and all of its taxable income, if any, is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on the amounts so distributed. If for
any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to its shareholders, and
such distributions will be taxable to shareholders to the extent of the Fund's
current and accumulated earnings and profits.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as the Fund (and each other series of the Trust) qualifies
as a regulated investment company under the Code.
Distributions by the Fund of its tax-exempt interest income (net of
expenses) are designated as "exempt-interest dividends" which are excluded from
gross income for regular federal income tax purposes. In accordance with the
investment objectives of the Fund, it is expected that most or all of the net
investment income of the Fund will be attributable to interest from Municipal
Obligations, although from time to time a portion of the portfolio of the Fund
may be invested in short-term taxable obligations since the preservation of
capital and the maintenance of liquidity are important aspects of the Fund's
investment objective. As a result, most or all of the dividends paid out of the
Fund's net investment income will be designated "exempt-interest dividends". The
percentage of such dividends so designated will be applied uniformly to all such
dividends from the Fund made during each fiscal year and may differ from the
actual percentage for any particular month.
Although excluded from gross income for regular federal income tax purposes,
exempt-interest dividends, together with other tax-exempt interest, are required
to be reported on shareholders' federal income tax returns, and are taken into
account in determining the portion, if any, of Social Security benefits which
must be included in gross income for federal income tax purposes. In addition,
exempt-interest dividends paid out of interest on certain Municipal Obligations
that may be purchased by the Fund will be treated as a tax preference item for
both individual and corporate shareholders potentially subject to an alternative
minimum tax ("AMT"), and all exempt-interest dividends will be included in
computing a corporate shareholder's adjusted current earnings, upon which is
based a separate corporate preference item which may be subject to AMT and to
the environmental superfund tax. Interest on indebtedness incurred, or
continued, to purchase or carry shares of the Fund is not deductible. Further,
entities or persons who may be "substantial users" (or persons related to
"substantial users") of facilities financed by certain types of Municipal
Obligations should consult with their own tax advisers before purchasing shares
of the Fund.
Distributions by the Fund of any taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes, but
do not qualify for the dividends-received deduction for corporations.
Distributions by the Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time a shareholder has held his shares.
20
<PAGE>
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year, including any portions which constitute ordinary income
dividends, capital gain dividends and exempt-interest dividends, will be sent to
the Fund's shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be disallowed to the extent of any
exempt-interest dividends received on such shares and (to the extent not
disallowed) will be treated as a long-term capital loss to the extent of any
capital gain dividends received on such shares. All or a portion of any loss
realized upon a taxable disposition of shares of the Fund may be disallowed if
other shares of the Fund are purchased within 30 days before or after such
disposition.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. Generally, shareholders are subject to backup
withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. To the extent
that exempt-interest dividends from the Fund are paid out of interest on New
York Municipal Obligations, the dividends will also be exempt from New York
State and New York City personal income taxes for a New York individual resident
shareholder. The annual tax information statements referred to above, when sent
to shareholders of the Fund, will indicate the New York State and New York City
personal income tax status of distributions by the Fund. Exempt-interest
dividends from the Fund are not excluded in determining New York State or New
York City franchise taxes on corporations and financial institutions.
No gain or loss will be recognized by a shareholder as a result of a
conversion from Class B shares to Class A shares.
OTHER INFORMATION CONCERNING SHARES OF THE FUND
NET ASSET VALUE
The net asset value of a class of shares of the Fund is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), on each Fund Business Day, by dividing the net assets
attributable to that class by the number of its shares outstanding. Values of
assets in the Fund's portfolio are determined on the basis of their market or
other fair value, as described in the Statement of Additional Information. A
share's net asset value is effective for orders received by a Shareholder
Servicing Agent prior to its calculation and received by the Distributor prior
to the close of
21
<PAGE>
business, usually 4:00 p.m. Eastern time, on the Fund Business Day on which such
net asset value is determined.
The per share net asset value of Class B shares of the Fund will generally
be lower than that of the Class A shares because of the higher expenses borne by
the Class B shares. The net asset values per share of Class A and Class B differ
due to differing allocations of class-specific expenses.
NET INCOME, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Income dividends are declared daily and paid monthly. The Fund's net
investment income consists of the interest income for a class of shares earned
on its portfolio, less allocated expenses. In computing the interest income,
premiums are not amortized or discounts accrued on long-term debt securities in
its portfolio, except as required for federal income tax purposes. The Fund will
distribute its net realized short-term and long-term capital gains, if any, to
its shareholders at least annually. Dividends paid on Class A and Class B shares
are calculated at the same time and in the same manner. 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.
The Fund intends to make additional distributions to the extent necessary to
avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains of mutual funds imposed by Section 4982 of the
Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
shareholder of either class may elect to receive dividends and capital gains
distributions from the Fund in either cash or additional shares of that class.
DISTRIBUTION PLANS AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted Distribution Plans (the "Distribution Plans") for
both Class A and Class B shares in accordance with Rule 12b-1 under the 1940
Act, after having concluded that there is a reasonable likelihood that the
Distribution Plans for each class will benefit that class and its respective
shareholders.
The Class A Distribution Plan provides that the Fund shall pay distribution
fees including payments to the Distributor, at annual rates not to exceed 0.20%
of its average daily net assets for distribution services. The Class B
Distribution Plan provides that the Fund shall pay distribution fees including
payments to the Distributor, at an annual rate not to exceed 0.75% of its
average annual net assets for distribution services. Some payments under the
Distribution Plans may be used to compensate broker-dealers with trail or
maintenance commissions in amounts not to exceed 0.20% annualized of the asset
value of the Class A shares, or 0.25% annualized of the average net asset value
of the Class B shares maintained in the Fund by such broker-dealers' customers.
Trail or maintenance commissions on Class B shares will be paid to
Broker-Dealers beginning in the 13th month following the purchase of such Class
B shares. Since the distribution fees are not directly tied to expenses, the
amount of distribution fees paid by the 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
compensation is directly linked to its expenses). With respect to Class B
shares, because of the 0.75% annual limitation on the compensation paid to the
Distributor during a fiscal year, compensation relating to a large portion of
the commissions attributable to sales of Class B shares in any one year will be
paid by the Fund to the Distributor in fiscal years subsequent thereto. In
determining whether to purchase Class B shares, investors should consider that
22
<PAGE>
daily 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 entitled to exclusive voting rights with respect to
matters concerning its Rule 12b-1 Distribution Plan.
Under its Distribution Plan, the Class A shares are also permitted to pay an
additional fee at an annual rate not to exceed 0.05% of its average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with print or electronic media advertising in connection with the
sale of Fund shares. When such expenses are incurred, the maximum compensation
paid by the Class A shares under the Distribution Plan would be at an annual
rate of 0.25% of its average daily net assets.
The Distribution and Sub-Administration Agreement dated April 15, 1994 (the
"Distribution Agreement"), provides that the Distributor will act as the
principal underwriter of the Fund's shares and 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. In
addition, the Distributor will provide certain sub-administration services,
including providing officers, clerical staff and office space. The Distributor
currently receives a fee for sub-administration from the Fund at an annual rate
equal to 0.05% of the Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Other funds which have investment
objectives similar to those of the Fund, but which do not pay some or all of
such fees from their assets, may offer a higher return, although investors
would, in some cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses of the Fund incurred in
connection with organizing new series of the Trust and certain other ongoing
expenses of the Trust. The Distributor may, from time to time, waive all or a
portion of the fees payable to it under the Distribution Agreement.
EXPENSES
The expenses of each of the Funds of the Trust include the compensation of
its Trustees; registration fees; interest charges; taxes; fees and expenses of
independent accountants, of legal counsel and of any transfer agent, custodian,
registrar or dividend disbursing agent of the Trust; insurance premiums; and
expenses of calculating the net asset value of, and the net income on the shares
of the Fund.
The Fund will pay all of its pro rata share of the foregoing expenses of the
Trust, including membership dues in the Investment Company Institute,
administrative fees payable under the Fund's Administration Agreement, and
sub-administration fees payable under the Distribution and Sub-Administration
Agreement. In addition, each class will pay those expenses allocable to the
class, including: shareholder servicing fees and expenses; expenses of
preparing, printing and mailing prospectuses, reports, notices, and proxy
statements to shareholders and government offices or agencies; expenses of
shareholder meetings; expenses relating to the registration and qualification of
shares of the particular class and the preparation, printing and mailing of
prospectuses for such purposes (except that the Distribution and
Sub-Administration Agreement requires the Distributor to pay for prospectuses
which are to be used for sales to prospective investors).
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<PAGE>
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. Because the Fund is "non-diversified", more of the assets
of the Fund may be concentrated in the securities of any single issuer than if
the Fund was "diversified", which may make the value of the shares in a fund
more susceptible to certain risks than shares of a diversified mutual fund.
The Trust has reserved the right to create and issue additional series and
classes. Each share of a series or class including Class A and Class B
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 pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted. Shares
of Class A and Class B generally vote separately, for example to approve
distribution plans, but shares of all series or classes vote together, to the
extent required under the 1940 Act, in the election or selection of Trustees and
independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of each Class A or Class B or of all
series or classes when in the judgment of the Trustees it is necessary or
desirable to submit matters for a shareholder vote. A Trustee of the Trust may,
in accordance with certain rules of the Securities and Exchange Commission, be
removed from office when the holders of record of not less than two-thirds of
the outstanding shares either present a written declaration to the Funds'
Custodian or vote in person or by proxy at a meeting called for this purpose. In
addition, 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. Finally, the Trustees shall, in
certain circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same 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. Shareholders of each series or class
including Class A and Class B, would be entitled to share pro rata in the net
assets of that series or class available for distribution to shareholders upon
liquidation of the Fund or that series or class.
The Trust reserves the right to create and issue a number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series (except for differences
among any classes of shares of any series).
The Trust is an entity of the type commonly known as a "Massachusetts
business 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.
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The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated Investment Company, underwent a statutory reorganization
to become series of the Trust. The Fund is such a series and, therefore, certain
information contained in this prospectus reflects the history of the Fund since
its inception as a series of MFG and the fact that certain policies, plans and
shareholder privileges continued unchanged as a result of the reorganization.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers
perform various services, including but not limited to the following: answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by a Shareholder Servicing Agent) quarterly and year-end
statements and confirmations of purchases and redemptions; transmit, on behalf
of the Fund, proxy statements, annual reports, updated prospectuses and other
communications to shareholders of the Fund; receive, tabulate and transmit to
the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request. Shareholder Servicing Agents may be required to
register pursuant to state securities law.
For performing these services, each Shareholder Servicing Agent receives
certain fees, which may be paid periodically, determined by a formula based upon
the number of accounts serviced by such Shareholder Servicing Agent during the
period for which payment is being made, the level of activity in accounts
serviced by such Shareholder Servicing Agent during such period, and the
expenses incurred by such Shareholder Servicing Agent. The fees relating to
acting as liaison to shareholders and providing personal services to
shareholders will not exceed, on an annual basis, 0.25% of the average daily net
assets of each class of the Fund represented by shares owned during the period
for which payment is being made by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship. Each Shareholder Servicing Agent may,
from time to time, voluntarily waive all or a portion of the fees payable to it.
In addition, Chase may provide other related services to the Fund for which it
may recieve compensation.
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The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Class A or Class B shares, receive
dividends and distributions on Fund investments, and take advantage of any
services related to an Account offered by such Shareholder Servicing Agent from
time to time. All Accounts and any related privileges or services shall be
governed by the laws of the State of New York, without regard to its conflicts
of law provisions.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities, such as the Fund's shares. The Trust, on behalf
of the Fund, will engage banks, including the Adviser and Custodian and the as
Shareholder Servicing Agents, only to perform advisory, custodial,
administrative and servicing functions as described above. While the matter is
not free from doubt, Trust management believes that such laws should not
preclude a bank, including a bank which acts as investment adviser, custodian or
administrator, or in all such capacities, for the Fund, from acting as a
Shareholder Servicing Agent. However, possible future changes in federal law or
administrative or judicial interpretations of current or future law, could
prevent a bank from continuing to perform all or part of its servicing
activities. If that occurred, the bank's shareholder clients would be permitted
to remain Fund shareholders and alternative means for continuing the servicing
of such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder serviced by such bank might no longer be
able to avail himself of any automatic investment or other services then being
provided by such bank. The Fund does not expect that shareholders would suffer
any adverse financial consequences as a result of these occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund. In this capacity, DST maintains
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend and
capital gain distributions to shareholders, whether taken in cash or additional
shares. From time to time, DST and/or the Fund may contract with other entities
to perform certain services for the Transfer Agent. For its services as Transfer
Agent, DST receives such compensation as is from time to time agreed upon by the
Trust and DST. DST's address is 127 W. 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets
of the Fund for which Chase receives compensation as is from time to time agreed
upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
Fund accounting and other required books and accounts, and calculating the daily
net asset value of shares of the Fund. Portfolio securities and cash may be held
by sub-custodian banks if such arrangements are reviewed and approved by the
Trustees. The internal division of Chase which serves as the Fund's Custodian
does not determine the investment policies of the Fund or decide which
securities will be bought or sold on behalf of the Fund or otherwise have access
to or share material inside information with the internal division that performs
advisory services for the Fund.
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TAX-SHELTERED RETIREMENT PLANS
Shares of the Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing, and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations, 401(k) and 403(b) Retirement Plans. Call or write
the Transfer Agent for more information.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
As a non-fundamental policy, all of the investments of the Fund will be made
in the following:
(1) Tax-exempt securities which are rated AAA, AA, A or BBB by Standard
& Poor's or are rated Aaa, Aa, A or Baa by Moody's, or rated AAA, AA, A, BBB
by Fitch, or which are unrated but are considered by the Adviser, pursuant
to general guidelines established by the Board of Trustees of the Trust, to
have essentially the same characteristics and qualities as securities having
such ratings.
(2) Tax-exempt notes of issuers having an issue of outstanding Municipal
Obligations rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or
Baa by Moody's or rated FIN-1+, FIN-1, FIN-2, FIN-3 by Fitch, or which are
guaranteed by the U.S. Government or which are rated MIG-1 or MIG-2 by
Moody's;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(4) Commercial paper which is rated A-1 or A-2 by Standard & Poor's or
Prime-1 or Prime-2 by Moody's or Finch-1, Finch-2 by Fitch, (or which is
unrated but which is considered by the Adviser, pursuant to general
guidelines established by the Board of Trustees of the Trust, to have
essentially the same characteristics and qualities as commercial paper
having such ratings), obligations (including certificates of deposit,
bankers' acceptances and repurchase agreements) of banks with $1 billion of
assets, and cash.
Securities rated Baa by Moody's or BBB by Standard & Poor's have speculative
characteristics. For descriptions of the ratings of Standard & Poor's and
Moody's of Municipal Obligations permitted as investments, see "Description of
Ratings" in Appendix A.
With respect to those Municipal Obligations which are not rated by a major
rating agency, greater reliance is placed upon the Adviser's judgment, analysis
and experience than would be the case if such Municipal Obligations were rated.
In evaluating the creditworthiness of an issue, whether rated or unrated, the
Adviser may take into consideration, amon other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management, and regulatory matters.
Although higher quality tax-exempt securities may produce lower yields, they
are generally more marketable. To protect the capital of its shareholders under
adverse market conditions, the Fund may from time to time deem it prudent to
purchase higher quality securities or taxable short-term obligations, with a
resultant decrease in yield or increase in the proportion of taxable income.
The Fund may invest more than 25% of its assets in industrial revenue bonds
(i.e., bonds issued by various state and local agencies to finance various
projects). Dividends of the Fund attributable to interest on certain private
activity bonds in which the Fund may invest will constitute a preference item
and,
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therefore, may be subject to the federal alternative minimum tax on individuals.
However, as stated in the "Investment Objectives and Policies" section of this
Prospectus, the Fund will not invest more than 20% of its total assets in
securities the interest on which is includable in gross income for federal
income tax purposes or constitutes a preference item and, therefore, may be
subject to the federal alternative minimum tax on individuals. The Fund also may
invest more than 25% of its assets in revenue bonds issued for housing, electric
utilities and hospitals (subject to the restriction that it may not invest more
than 25% of its assets in any one such industry), at times when the relative
value of issues of such a type is considered by the Adviser to be more favorable
than that of other available types of issues. Therefore, investors should also
be aware of the risks associated with these investments.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. As a result of the
impossibility of precisely predicting demand for mortgages from the proceeds of
such an issue, there is a risk that the proceeds of the issue will be in excess
of demand, which would result in early retirement of the bonds by the issuer.
Moreover, such housing revenue bonds depend for their repayment upon the cash
flow from the underlying mortgages, which cannot be precisely predicted when the
bonds are issued. Any difference in the actual cash flow from such mortgages
from the assumed cash flow could have an adverse impact upon the ability of the
issuer to make scheduled payments of principal and interest on the bonds, or
could result in early retirement of the bonds. Additionally, such bonds depend
in part for scheduled payments of principal and interest upon reserve funds
established from the proceeds of the bonds, assuming certain rates of return on
investment of such reserve funds. If the assumed rates of return are not
realized because of changes in interest rate levels or for other reasons, the
actual cash flow for scheduled payments of principal and interest on the bonds
may be inadequate.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by environmental
considerations(particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, effect of energy conservation and
difficulty of the capital market to absorb utility debt.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. A hospital's gross
receipts and net income available to service its debt are influenced by demand
for hospital services, the ability of the hospital to provide the services
required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses,
confidence in the hospital, service area economic developments, competition,
availability and expense of malpractice insurance, Medicaid and Medicare
funding, and possible federal or state legislation limiting the rates of
increase of hospital charges.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. The Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a "forward delivery" basis, which means that the
securities will be delivered at a future date beyond the customary settlement
time. Although there is no limit as to the amount of the commitments which may
be made by the Fund to purchase securities on a "when-issued" or "forward
delivery" basis, it is expected that under normal circumstances not more than
30% of the Fund's total assets will be committed to such purchases. The Fund
does not pay for such obligations or start earning interest on them until the
contractual settlement date. Although commitments to purchase "when-issued" or
"forward delivery" securities will only be made with the intention of actually
acquiring them, these securities may be sold before the settlement date if
deemed advisable by the Adviser.
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While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases. For example, when the time
comes to pay for a "when-issued" or "forward delivery" security, the Fund's
portfolio securities may have to be sold in order to meet payment obligations,
and a sale of securities to meet such obligations carries with it a greater
potential for the realization of capital gain, which is not tax-exempt. Also, if
it is necessary to sell the "when-issued" or "forward delivery" security before
delivery, the Fund may incur a loss because of market fluctuations since the
time the commitment to purchase the "when-issued" or "forward delivery" security
was made. Any gain resulting from any such sale would not be tax-exempt. For
additional information concerning these risks and other risks associated with
the purchase of "when-issued" or "forward delivery" securities as well as other
aspects of the purchase of securities on a "when-issued" or "forward delivery"
basis, see "Investment Objectives, Policies and Restrictions--Investment
Policies: When-Issued and Forward Delivery Purchases" in the Statement of
Additional Information.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolio of the
Fund will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolio of the Fund, the Adviser seeks
to take advantage of market developments, yield disparities and variations in
the creditworthiness of issuers. For a description of the strategies that may be
used by the Adviser in managing the portfolio of the Fund, which may include
adjusting the average maturity of a portfolio in anticipation of a change in
interest rates, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Portfolio Management" in the Statement of
Additional Information.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. For a complete discussion of portfolio transactions
and brokerage allocation, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may invest its assets in
derivative and related instruments subject only to the Fund's investment
objective and policies and the requirement that, to avoid leveraging, 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.
The value of some derivative or similar instruments in which the Fund
invests may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--the ability of
Fund to successfully utilize these instruments may depend in part upon the
ability of the Adviser to forecast interest rates and other economic factors
correctly. If the Adviser incorrectly forecasts such factors and has taken
positions in derivative or similar instruments contrary to prevailing market
trends, the Fund could be exposed to the risk of a loss. THE FUND MIGHT NOT
EMPLOY ANY OR ALL OF THE INSTRUMENTS DESCRIBED HEREIN, AND NO ASSURANCE CAN BE
GIVEN THAT ANY STRATEGY USED WILL SUCCEED.
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To the extent permitted by the investment objectives and policies of the
Fund, and as described more fully in the Fund's Statement of Additional
Information, the Fund may:
. purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with securities,
other options or derivative instruments);
. enter into futures contracts and options on futures contracts;
. purchase and sell mortgage-backed and asset-backed securities; and
. purchase and sell structured products.
RISK FACTORS
As explained more fully in the Statement of Additional Information, there
are a number of risks associated with the use of derivatives and related
instruments, including:
. THERE CAN BE NO GUARANTEE THAT THERE WILL BE A CORRELATION BETWEEN
PRICE MOVEMENTS IN A HEDGING VEHICLE AND IN THE FUND ASSETS BEING HEDGED. As
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. This risk is particularly acute in
the case of "cross-hedges" between currencies.
. THE ADVISER MAY INCORRECTLY 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.
. 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 OR 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, the Fund may experience a loss.
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OTHER INSTRUMENTS. 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 bond.
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.
SPECIAL FACTORS AFFECTING
NEW YORK MUNICIPAL OBLIGATIONS
Investors of the Fund should consider carefully the special risks inherent
in investments in New York Municipal Obligations. These risks result from the
financial condition of New York State, certain of its public bodies and
municipalities and New York City. Beginning in early 1975, New York State, New
York City and other State entities faced serious financial difficulties which
jeopardized the credit standing and impaired the borrowing abilities of such
entities and contributed to high interest rates on, and lower market prices for,
debt obligations issued by them. A recurrence of such financial difficulties or
a failure of certain financial recovery programs could result in defaults or
declines in the market value of various New York Municipal Obligations in which
the Fund may invest. If there should be a default or other financial crisis
relating to New York State, New York City, a State or City agency, or other
municipality, the market value and marketability of outstanding New York
Municipal Obligations in the Fund's portfolio and the interest income to the
Fund could be adversely affected.
In addition, the effects of actual and proposed changes in Federal and State
tax laws, as well as the significant slowdown in the New York and regional
economy, have added substantial uncertainty to estimates of the State's tax
revenues, which resulted in the State's overestimate of General Fund tax
receipts in the 1992 fiscal year by $575 million. The 1992 fiscal year was the
fourth consecutive year in which the State incurred a cash-basis operating
deficit in the General Fund and issued deficit notes. The State's 1992-93 fiscal
year, however, was characterized by national and regional economies that
performed better than projected in April 1992. National gross domestic product,
State personal income, and employment and unemployment in the State were
estimated to have performed better than originally projected in April 1992.
After reflecting a 1992-93 year-end deposit to the refund reserve account of
$671 million, reported 1992-93 General Fund receipts were $45 million higher
than originally projected in April 1992. If not for that year-end transaction,
General Fund receipts would have been $716 million higher than originally
projected. There can be no assurance that the State will not face substantial
potential budget gaps in future years. In 1990, Moody's and S&P lowered their
ratings of the State's general obligation debt from A-1 to A and AA- to A,
respectively. In addition, Moody's and S&P lowered their ratings of New York's
short-term notes from MIG-1 to MIG-2 and from SP-1+ to SP-1, respectively. The
rating changes reflected the rating agencies' concerns about the State's
financial condition, its heavy debt load and economic uncertainties in the
region. In February 1991, Moody's lowered its rating on New York City's general
obligation bonds from A to Baa1. On April 29, 1991, S&P downgraded the City's
general obligation revenue anticipation notes from SP-1 to SP-2, citing a budget
impasse at the State level that would leave the City at risk if the State was
unable to forward promised State aid before the end of the City's fiscal year
June 30. On January 6, 1992, Moody's lowered the ratings on certain
appropriation-backed debt of New York State and its agncies from A to Baa1. On
January 13, 1992, S&P lowered from A to A- the ratings of New York State general
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obligation bonds. The ratings of various agency debt, State moral obligations,
contractual obligations, lease purchase obligations and State guarantees also
were lowered. A complete discussion of the risks associated with investments in
obligations of New York issuers is contained in the Statement of Additional
Information.
A number of pending court actions have been brought against or involve the
State, its agencies, or other municipal subdivisions of the State, which actions
relate to financing, the use of tax or other revenues for the payment of
obligations and claims that would require additional public expenditures.
Adverse decisions in such cases could require extraordinary appropriations or
expenditure reductions or both and might have a materially adverse effect on the
financial condition of the State and its agencies and municipal subdivisions.
Any such adverse effect could affect, to some extent, all municipal securities
issued by the State, its agencies, or municipal subdivisions.
To the extent that State agencies and local governments seek special State
assistance, the ability of the State to pay its obligations as they become due
or to obtain additional financing could be adversely affected, and the
marketability of notes and bonds issued by the State, its agencies, and other
governmental entities may be impaired.
The foregoing is only a summary and is based on information from statements
relating to securities offerings of New York issuers. A more detailed
description of special factors affecting investments in New York Municipal
Obligations of which investors should be aware is set forth in Appendix B to the
Statement of Additional Information.
DESCRIPTION OF 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 consist of both notes and bonds.
There are five major varieties of state and municipal notes: TAX ANTICIPATION
NOTES ("TANS"); REVENUE ANTICIPATION NOTES ("RANS"); BOND ANTICIPATION NOTES
("BANS"); AND CONSTRUCTION LOAN NOTES ("CLNS").
TANS AND RANS are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
BANS are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
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CLNS are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many Private Activity Bonds, there is no established
secondary market for their purchase or sale and therefore they may not be
readily marketable. However, Private Activity Bonds or the participation
certificates in Private Activity Bonds purchased by a Fund will have liquidity
because they will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions which may be exercised by a
Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
historical earnings, it should not be considered as an indication or
representation of the performance of any classes of the Fund in the future. From
time to time, the performance and yield of classes of the Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of the Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall
33
<PAGE>
Street Journal and The New York Times, or in local or regional publications, may
also be used in comparing the performance and yield of the Fund or its classes.
Additionally, the Fund may, with proper authorization, reprint articles written
about the Fund and provide them to prospective shareholders.
The Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in the
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 and yield 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.
The Fund may provide "yield" quotations in addition to total rate of return
quotations. The "yield" quotations of the Fund will be based upon a hypothetical
net investment income earned by the Fund over a thirty day or one month period
(which period shall be stated in any advertisement or communication with a
shareholder). The "yield" is then "annualized" by assuming that the income
generated over the period will be generated over a one year period. A "yield"
quotation, unlike a total rate of return quotation, does not reflect changes in
net asset value.
The Fund may also quote a "tax equivalent yield" which refers to the yield
that a taxable income fund would have to generate in order to produce an
after-tax yield equivalent to that of the Fund at a given effective tax rate.
The use of a tax equivalent yield allows investors to compare the yield of the
Fund, the income from which is excluded from gross income for federal income tax
purposes is exempt from New York State and New York City personal income taxes,
with yields of income funds which are not so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yields and the net asset values of the classes of
shares of the Fund will vary based on interest rates, the current market value
of the securities held in the Fund's portfolio and changes in the Fund's
expenses. The Adviser, the Shareholder Servicing Agent, the Administrator or the
Distributor have all voluntarily agreed to waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of the
Fund's operating expenses on a month-to-month basis. These actions have the
effect of increasing the net income (and therefore the yield and total rate of
return) of the classes of shares of the Fund during the period such waivers are
in effect. These factors and possible differences in the methods used to
calculate the yields and total rates of return should be considered when
comparing the yields or total rates of return of the classes of shares of the
Fund to yields and total rates of return published for other investment
companies and other investment vehicles (including different classes of shares).
The Fund 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 (see
"Purchases and Redemptions of Shares -- Purchases"), 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. See the Statement
of Additional Information for further information concerning the calculation of
the yields or total rates of return quotations for classes of shares of the
Fund.
34
<PAGE>
The Fund generally will include performance data for both classes of Fund
shares in any advertisements or promotional materials including Fund performance
data.
OTHER INFORMATION
The net asset value of shares of the Fund changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested at lower yields can be expected to
decline. Although changes in the value of the portfolio securities of the Fund
subsequent to their acquisition are reflected in their net asset values, such
changes will not affect the income received by them from such securities. Debt
securities with longer maturities such as those intended for investment by the
Fund generally tend to produce higher yields and are subject to greater market
fluctuation as a result of changes in interest rates than debt securities with
shorter maturities. Since available yields vary over time, no specific level of
income can ever be assured. The dividends paid on shares of the Fund will
increase or decrease in relation to the income received by the Fund from its
investments, which will in any case be reduced by the Fund's expenses before
being distributed to its shareholders.
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially subject to the alternative
minimum tax on individuals. As a result, this legislation may affect the
availability of Municipal Obligations for investment by the Fund.
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 the Fund to be more
susceptible to similar economic, political, or regulatory occurrences in New
York State. The value of shares of the Fund may be subject to greater risk than
those of other mutual funds that do not permit such a practice. Moreover, as the
similarity in issuers increases, the potential for fluctuation of the net asset
value of the shares of the Fund also increases.
The Statement of Additional Information contains more detailed information
about the Trust and the Fund, including information related to (i) the Fund's
investment policies and restrictions, (ii) risk factors associated with Fund's
policies and investments, (iii) the Trust's Trustees, officers and the
Administrator and the Adviser, (iv) portfolio transactions, (v) the Funds'
shares, including rights and liabilities of shareholders, and (vi) additional
performance information, including the method used to calculate yield or total
rate of return quotations of the Fund. The audited financial statements for the
Fund for its last fiscal year end are incorporated by reference in the Statement
of Additional Information.
35
<PAGE>
APPENDIX A
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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment 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:
- ------------
* 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.
A-1
<PAGE>
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
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,
A-2
<PAGE>
"AAA/A-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+").
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.
A-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.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 41932
Kansas City, MO 64141-6392
NEW YORK
TAX FREE
INCOME FUND
- ---------------------------------------- ------------------------
INVESTMENT ADVISER AND ADMINISTRATOR Prospectus
The Chase Manhattan Bank, N.A. and Application
DISTRIBUTOR
Vista Broker-Dealer Services, Inc.
TRANSFER AGENT
DST Systems, Inc.
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen
Kamin & Frankel
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
December 31, 1995
<PAGE>
PROSPECTUS
VISTASM CALIFORNIA INTERMEDIATE TAX FREE FUND
December 31, 1995
VISTA CALIFORNIA INTERMEDIATE TAX FREE FUND (the "Fund") seeks to provide
its shareholders with as high a level of current income exempt from both federal
income taxes and California State personal income taxes as is consistent with
prudent investment management and the preservation of shareholders' capital. The
Fund generally concentrates its investments in intermediate term obligations of
the State of California, its local governments and political subdivisions. The
Fund is a diversified series of Mutual Fund Trust (the "Trust"), an open-end
management investment company organized as a business trust under the laws of
the Commonwealth of Massachusetts on February 4, 1994, presently consisting of
11 separate series (the "Funds").
Of course, there can be no assurance that the Fund will achieve its
investment objective. Prospective investors should carefully consider the risks
associated with an investment in the Fund. For a further discussion on the risks
associated with an investment in the Fund, see "Investment Objective and
Policies" in this Prospectus. Investors should also refer to "Additional
Information on Investment Policies, Techniques and Risk Factors" on page 23.
The Chase Manhattan Bank, N.A., is the Fund's investment adviser (the
"Adviser") administrator (the "Administrator") and custodian (the "Custodian").
VISTA BROKER-DEALER SERVICES, INC. ("VBDS") IS THE FUND'S DISTRIBUTOR (THE
"DISTRIBUTOR"), AND IS UNAFFILIATED WITH CHASE. 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, N.A. 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.
Shares of the Fund are continuously offered for sale through VBDS at the net
asset value per share next determined plus a varying sales charge depending on
the amount of the purchase, to investors who are customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association with which the Fund has entered into a shareholder
servicing agreement (collectively, "Shareholder Servicing Agents"), and selected
securities brokers or financial institutions (collectively, "Dealers") which
have entered into Selected Dealer Agreements with the Distributor. The Fund has
a distribution plan and may incur distribution expenses, as described herein, at
an annual rate, not to exceed 0.25% of its average daily net assets. An investor
should obtain from his Shareholder Servicing Agent, if appropriate, and should
read in conjunction with this Prospectus, the materials provided by the
Shareholder Servicing Agent describing the procedures under which the shares of
the Fund may be purchased and redeemed through such Shareholder Servicing Agent.
Fund shares may be redeemed by shareholders at the net asset value next
determined on any Fund Business Day as hereinafter defined.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. A Statement of
Additional Information for the Fund, dated December 31, 1995 which contains more
detailed information concerning the Fund, has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. An
investor may obtain a copy of the Statement of Additional Information without
charge by contacting his Shareholder Servicing Agent, the Distributor or the
Fund.
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.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
For information about the Fund, simply call the Vista Service Center at the
following toll-free number: 1-800-34-VISTA.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary.................................................................. 3
Financial Highlights............................................................. 4
Investment Objective and Policies................................................ 5
Management of the Fund........................................................... 6
Purchases and Redemptions of Shares.............................................. 8
Tax Matters...................................................................... 15
Other Information Concerning Shares of the Fund.................................. 17
Shareholder Servicing Agents, Transfer Agent and Custodian....................... 21
Additional Information on Investment Policies, Techniques and Risk Factors....... 23
Yield and Performance Information................................................ 29
Appendix A
Description of Ratings....................................................... A-1
</TABLE>
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge imposed on Purchase (as a percentage of offering price)*........ 4.50%
Maximum Sales Charge imposed on Reinvested Dividends (as a percentage of offering
price)............................................................................... None
Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)**................ None
Exchange Fee......................................................................... None
<CAPTION>
AS A
PERCENTAGE
ANNUAL FUND OPERATING EXPENSES OF NET ASSETS
- -------------------------------------------------------------------------------- -------------
<S> <C>
Investment Advisory Fee (After waiver of Fees)***............................... .00%
Rule 12b-1 Distribution Plan Fee+ (After waiver of fees) ***.................... .00%
Administration Fee (After waiver of fees)***.................................... .00%
Other Expenses
- --Sub-Administration Fee........................................................ .05%
- --Shareholder Servicing Agent Fee++ (Absent waiver of fees)***.................. .00%
- --Other Operating Expenses...................................................... .55%
---
Total Fund Operating Expenses................................................... .60%
---
---
EXAMPLE:
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of:
1 year...................................................................... $ 51
3 years..................................................................... 63
5 years..................................................................... 77
10 years.................................................................... 117
- ------------
<CAPTION>
<S> <C>
* The rules of the Securities and Exchange Commission require that the Fund's maximum sales
charge be reflected in the expense summary.
** A shareholder may incur a $10.00 charge for certain wire redemptions.
*** Fees waived on a month-to-month basis.
+ As a result of 12b-1 fees, a long-term shareholder in the Fund may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the rules of the
National Association of Securities Dealers, Inc.
++ Shareholder Servicing Agents may provide various services to their customers and charge
fees for these services.
</TABLE>
The purpose of the expense summary provided above is to assist investors in
understanding the various costs and expenses that a shareholder in the Fund will
bear directly or indirectly. The expense summary shows the investment advisory
fee, distribution plan fee, administrative fee, sub-administrative fee,
shareholder servicing agent fee and other operating expenses expected to be
incurred by the Fund during the fiscal year after waiver of fees. These waivers
may be changed at any time by the Fund. The Fund does not anticipate exceeding
total Fund Operating Expenses of 1.18%; however, in the event that total Fund
Operating Expenses exceed this level, the Fund will notify shareholders in the
next account statement. Absent such waivers, the annual investment advisory fee,
distribution plan fee, administration fee, sub-administration fee and
shareholder servicing agent fees for the Fund would be 0.30%, 0.25%, 0.10%,
0.05% and .25%, respectively, of the Fund's average net assets. A more complete
description of the Fund's expenses, including any fee waivers, is set forth
herein.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<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 Statement of Additional Information.
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 also
included in the Annual Report to Shareholders.
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE TAX FREE FUND
<S> <C> <C> <C>
9/1/94 11/1/93 7/15/93*
THROUGH THROUGH THROUGH
8/31/95 8/31/94+ 10/31/93
------- -------- --------
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 Tax Free Money Market Fund changed its fiscal year-end
from October 31 to August 31.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide its
shareholders with as high a level of current income exempt from both federal
income taxes and California personal income taxes as is consistent with prudent
investment management and the preservation of shareholders' capital. The Fund
generally concentrates its investments in intermediate term 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 personal income taxes of the State of California and is not subject to
the alternative minimum tax for noncorporate investors ("California Municipal
Securities"). The Fund's investments have an average maturity of 10 years or
less. There can be no assurance that the Fund will achieve its objective.
INVESTMENT POLICIES -- The Fund, under normal market conditions, as a matter
of fundamental policy, will invest at least 80% of the value of its net assets
in California Municipal Securities (as defined above) or in territories and
political sub-divisions of the U.S. Government deemed to be exempt from Federal,
state and local income taxes, such as Guam, Puerto Rico and the Virgin Islands.
Thus it is possible, although not anticipated, that up to 20% of the Fund's net
assets could be invested in municipal securities issued by states other than
California and political subdivisions thereof, in municipal securities issued by
California and political subdivisions thereof which are subject to the
alternative minimum tax, and/or in other taxable obligations. Such investments
must, in the Adviser's judgement, be of at least comparable quality to the
California Municipal Securities in which the Fund may invest. These 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.
For temporary defensive purposes only, the Fund may invest (i) more than 20%
of the value of its net assets (which could be up to 100%) in fixed or variable
rate obligations, the interest on which is subject to federal income taxes and
(ii) more than 20% of the value of its net assets (which could be up to 100%) in
instruments the interest on which is exempt from federal income taxes but is not
exempt from California taxes. Such temporary investments in taxable obligations
include but are not limited to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; high quality corporate bonds and
debentures; repurchase agreements secured by U.S. Government securities;
commercial paper (within the top two grades of the rating services); and
obligations of U.S. banks with assets of $500 million or more ("Temporary
Investments").
The municipal securities purchased by the Fund will be rated, at the time of
purchase, generally within the following categories of ratings of Standard &
Poor's Corporation ("S&P") (AAA, AA, A, BBB for bonds and notes; SP-1+, SP-1,
SP-2, SP-3 for short-term notes; and A-1, A-2 for commercial paper); or Moody's
Investor's Services, Inc. ("Moody's") (Aaa, Aa, A, Baa for bonds, MIG-1, MIG-2,
MIG-3 for notes; VMIG-1, VMIG-2, VMIG-3 for short-term floating rate notes; and
Prime-1, Prime-2 for commercial paper, or of Fitch Investor's Services, Inc.
Municipal Division ("Fitch") (AAA, AA, A, BBB for bonds; FIN-1+, FIN-1, FIN-2,
FIN-3 for notes; Fitch-1, Fitch-2 for commercial paper). Such securities are
generally deemed to be "investment grade" municipal securities. When the
Investment advisor deems it prudent and appropriate, up to 20% of the Fund's
assets may be invested in unrated securities deemed suitable by the Adviser as
delegated by the Trust's Board of Trustees. See Appendix A for description of
the ratings of S&P, Moody's and Fitch.
THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END INVESTMENT COMPANY SUCH AS
THE FUND, WHICH INVESTS IN FIXED INCOME SECURITIES, CHANGES AS THE GENERAL
LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE VALUE OF A
PORTFOLIO CAN BE EXPECTED TO RISE. CONVERSELY, WHEN INTEREST RATES RISE, THE
VALUE OF A PORTFOLIO CAN BE EXPECTED TO DECLINE.
Except for the fundamental policy referred to above, shareholder approval is
not required to change any of the investment policies described above, the
investment objective or the policies described in "Additional Information on
Investment Policies, Techniques and Risk Factors".
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MANAGEMENT OF THE FUND
ADVISER
The Chase Manhattan Bank, N.A. (the "Adviser") manages the assets of the
Fund pursuant to an Investment Advisory Agreement dated October 25, 1994.
Subject to such policies as the Board of Trustees may determine, the Adviser
makes investment decisions for the Fund. Pamela Hunter, Vice President of the
Adviser, is responsible for the day-to-day management of the Fund's portfolio.
Ms. Hunter, who has been managing the Fund since its inception in 1993, and
joined Chase in 1980, is part of a team providing fixed income strategy, trading
and product development. For its services under the Investment Advisory
Agreement, the Adviser is entitled to receives an annual fee computed daily and
paid monthly based at an annual rate equal to 0.30% of the Fund's average daily
net assets. The Adviser may, from time to time, voluntarily waive all or a
portion of its fees payable under the Advisory Agreement.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. The Adviser 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. The Adviser 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. The Adviser and its
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affiliates may sell U.S. Government obligations and municipal obligations to,
and purchase them from, other investment companies sponsored by the Distributor
or affiliates of the Distributor. The Adviser 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 the Adviser 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. The
Adviser 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 the Adviser, including the division that performs
services for the Fund as Custodian, or in the possession of any affiliate of the
Adviser. 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.
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator of the Fund. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. The Administrator is
entitled to receive from the Fund a fee computed daily and paid monthly at an
annual rate equal to 0.10% of the Fund's average daily net assets. The
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable to it under the Administration Agreement. The Administrator shall
not have any responsibility or authority for the Fund's investments, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement with the Fund, as described below, without
violating the federal banking law commonly known as the Glass-Steagall Act. The
Act generally bars banks from publicly underwriting or distributing certain
securities.
Based on the advice of its counsel, Chase believes that the Court's
decision, and other decisions of federal banking regulators, permit it to serve
as investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, the Adviser
believes, based on advice of counsel, that it may serve as Shareholder Servicing
Agent and/or Custodian to the Fund and render the services described below and
as set forth in the shareholder servicing agreement and Custodian Agreement, as
an appropriate, incidental national banking function and as a proper adjunct to
its serving as investment adviser and administrator to the Fund.
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Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. The Administrator,
on the advice of its counsel, believes that it may render the services described
in its Administration Agreement without violating the Glass-Steagall Act or
other applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, shareholder servicing, custodial
or other administrative services for the Fund. If that occurred, the Fund's
Board of Trustees promptly would seek to obtain for the Fund the services of
another qualified adviser, shareholder servicing agent, custodian or
administrator, as necessary. Although no assurances can be given, the Fund
believes that, if necessary, the transfer to a new adviser, shareholder
servicing agent, custodian or administrator could be accomplished without undue
disruption to the Fund's operations.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
Shares of the Fund 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 Vista Broker-Dealer Services, Inc. at the public
offering price which is computed once daily as of the close of trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time) on each business day
during which the Exchange is open for trading ("Fund Business Day"). (See "Other
Information Concerning Shares of the Fund-Net Asset Value"). The public offering
price is the next determined net asset value after an order is received, plus a
varying sales charge, as shown below. Orders received by Dealers prior to the
New York Stock Exchange closing time are confirmed at the offering price
effective at the close of such Exchange, provided the order is received by the
Transfer Agent prior to its close of business. Dealers are responsible for
forwarding orders for the purchase of shares on a timely basis. Fund shares
normally will be maintained in book entry form and share certificates will be
issued only on request. Management reserves the right to refuse to sell shares
of the Fund to any person.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check or periodic automatic investment, redemptions will not be allowed
until the investment being redeemed has been in the account for 15 calendar
days.
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
programs and "sweep" checking programs. Each Shareholder Servicing Agent may
establish its own terms and conditions, including reduced minimum initial
purchase amounts and 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 (see
"Shareholder Servicing Agents, Transfer Agent and Custodian -- Shareholder
Servicing Agents"), which will have the effect of increasing the net return on
the investment of customers of that Shareholder Servicing Agent.
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MINIMUM INVESTMENTS
The Fund has established minimum initial and additional investments for the
purchase of Fund Shares. The minimums detailed below vary by the type of account
being established.
ACCOUNT TYPE MINIMUM INITIAL INVESTMENT
- ----------------------------------------------- --------------------------
Individual..................................... $2,500(1)
Individual Retirement Account (IRA)............ $1,000(2)
Spousal IRA.................................... $ 250
SEP-IRA........................................ $1,000(2)
Purchase Accumulation Plan..................... $ 250(3)
Payroll Deduction Program...................... $ 100(4)
(401K, 403B, Keogh)
- ------------
(1) Employees of the Adviser and its affiliates, and Qualified Persons as
defined in "Purchases of Shares at Net Asset Value", are eligible for a
$1,000 minimum initial investment.
(2) A $250 minimum initial investment is allowed if the new account is
established with a $100 minimum monthly Systematic Investment Plan as
described below.
(3) Account must be established with a $200 minimum monthly Systematic
Investment Plan as described below.
(4) A $25 minimum monthly investment must be established through an automated
payroll cycle
The minimum additional investment is $100 for all types of accounts.
SYSTEMATIC INVESTMENT PLAN. A shareholder may establish a monthly investment
plan by which investments are automatically made to his/her Vista Fund account
through Automatic Clearing House (ACH) deductions from a checking account. The
minimum monthly investment through this plan is $100. Shareholders may choose
either to have these investments made during the first or third week each month.
Please note that your initial ACH transactions may take up to 10 days from the
receipt of your request to be established.
Shareholders electing to start this Systematic Investment Plan when opening
an account should complete Section 8 of the account application. Current
shareholders may begin a Systematic Investment Plan at any time by sending a
signed letter with signature guarantee to the Vista Service Center, P.O. Box
419392, Kansas City, MO 64141-6392. The letter should contain your Vista Fund
account number, the desired amount and cycle of the systematic investment, and
must include a voided check from the checking account from which debits are to
be made. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of the national securities exchange. Please note
that a notary public cannot provide signature guarantees.
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SALES CHARGES
CONCESSION
SALES CHARGE TO DEALERS
-------------------- -----------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------------------------------ -------- -------- -----------
Less than $100,000........................ 4.50 4.71 4.00
$100,000 to $249,999...................... 3.75 3.90 3.25
$250,000 to $499,999...................... 2.50 2.56 2.25
$500,000 to $999,999...................... 2.00 2.04 1.75
$1,000,000 to $2,499,999.................. -- -- 0.75
$2,500,000 to $9,999,999.................. -- -- 0.50
$10,000,000 to $49,999,999................ -- -- 0.25
$50,000,000 and over...................... -- -- 0.15
The sales charge varies with the size of the purchase as shown above. The
reduced charges apply to the aggregate of purchases of the Fund made at one time
by "any person", which term includes an individual, spouse and children under
the age of 21, or a Trustee or other fiduciary of a Trust estate or fiduciary
account. The Distributor may compensate Dealers for sales of $1,000,000 or more
from its own resources and/or the Distribution Plan.
Upon notice to Dealers with whom it has sales agreements, Vista
Broker-Dealer Services, Inc. may reallow up to the full applicable sales charge
and such Dealer may therefore be deemed an "underwriter" under the Securities
Act of 1933, as amended, during such periods. For the three-year period
commencing July 19, 1993, for activities in maintaining and servicing accounts
of customers invested in the Fund, Associated Securities Corp. ("Associated
Securities") may receive payments from the Adviser based, in part, on the amount
of the aggregate asset values of the Fund (and other Vista Funds) in the
accounts of shareholders attributable to Associated Securities and the length of
time such assets are in such accounts.
In addition, under an arrangement between Associated Securities and the
Distributor, Associated Securities will be entitled to receive either 50% or 70%
of the difference between the total front-end sales load and that portion paid
to certain selling group member brokers-dealers.
To the extent permitted by applicable SEC and NASD regulations, the
Distributor may, from time to time, provide promotional incentives to certain
Dealers whose representatives have sold or are expected to sell significant
amounts of the Fund or other Funds in the Trust. At various times the
Distributor may implement programs under which a Dealer's sales force may be
eligible to win cash or awards for certain sales efforts or under which the
Distributor will reallow an amount not exceeding the total applicable sales
charges on the sales generated by the Dealer during such programs to any Dealer
that sponsors sales contests or recognition programs conforming to criteria
established by the Distributor or participates in sales programs sponsored by
the Distributor. The Distributor may provide marketing services to Dealers with
whom it has sales agreements, consisting of written informational material
relating to sales incentive campaigns conducted by such Dealers for their
representatives.
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PURCHASES OF SHARES AT NET ASSET VALUE
SHAREHOLDERS AS OF NOVEMBER 30, 1990
Shareholders of record of any Vista fund as of November 30, 1990, may
purchase shares of the Fund at Net Asset Value without an initial sales charge
for as long as they continue to own shares of any Vista Fund, provided there is
no change in account registration. However, once a shareholder closes his or her
account by redeeming all shares, he or she will lose this privilege after 30
days. This provision applies to accounts registered in the name of the
shareholder and his or here spouse and children under 21 and for IRAs in their
names.
SHAREHOLDERS WHO ARE ELIGIBLE PERSONS
There is no initial sales charge on Shares purchased by the following
"Eligible Persons."
a) Active or retired Trustees, Directors, officers, partners or
employees (including their spouses, children, siblings and parents) of the
Adviser, Distributor, Transfer Agency or any affiliates or subsidiaries
thereof.
b) Employees (including their spouses and children under 21) of Dealers
having a selected dealers agreement with the distributor.
c) Any qualified retirement plan or IRA established for the benefit of a
person in (a) or (b).
QUALIFIED AND OTHER RETIREMENT PLANS
No initial sales charge will apply to the purchase of Shares of the Fund by:
a) An investor seeking to invest the proceeds of a qualified retirement
plan, where a portion of the plan was invested in Vista.
b) Any qualified retirement plan with 250 or more participants.
c) An individual participant in a tax-qualified plan making a tax-free
rollover or transfer of assets from the plan in which the adviser of the
Fund serves as Trustee or custodian of the plan or manages some portion of
the plan's assets.
PURCHASES THROUGH INVESTMENT ADVISERS, BROKERS OR FINANCIAL PLANNERS
Purchase of Class A shares of the Fund may be made with no initial sales
charge through an investment adviser, broker or financial planner who charges a
fee for their services. Purchase 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 pre-approved and purchases are placed through
an omnibus account with the Fund or (ii) by clients of such investment adviser
or financial planner who place trades for their own accounts, if such accounts
are linked to a master account of such investment adviser or financial planner
on the books and records of the broker or agent. Such purchases may be made for
retirement and deferred compensation plans and trusts used to fund those plans,
including but not limited to those defined in section 401(a), 403 (b) or 457 of
the Internal Revenue Code or rabbi trusts.
Investors may incur a fee if they effect transactions through a broker or
agent.
PURCHASES THROUGH A BANK AS FIDUCIARY
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 (i.e., exercises investment authority with respect to such
accounts), provided that appropriate notification of such fiduciary relationship
is reported at the time of the investment to the Fund, the distributor or the
Transfer Agent.
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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.
REDUCED SALES CHARGES
CUMULATIVE QUANTITY DISCOUNT. Shares of the Fund may be purchased by any
person at a reduced sales charge which is determined by (a) aggregating the
dollar amount of the new purchase and the greater of the purchaser's total (i)
net asset value or (ii) cost of any shares acquired and still held in the Fund,
or any Vista Fund, including any Vista money market Fund acquired by exchange
for which a sales charge had been incurred and (b) applying the sales charge
applicable to such aggregate. The privilege of the cumulative quantity discount
is subject to modification or discontinuance at any time with respect to all
shares purchased thereafter.
GROUP PURCHASES. An individual who is a member of a qualified group (as
hereinafter defined) may also purchase shares of the Fund at the reduced sales
charge applicable to the group taken as a whole. The reduced sales charge is
based upon the aggregate dollar value of shares previously purchased and still
owned by the group plus the securities currently being purchased and is
determined as stated above under "Cumulative Quantity Discount". For example, if
members of the group had previously invested and still held $90,000 of Fund
shares and now were investing $15,000, the sales charge would be 3.75% on the
$15,000 purchase. In order to obtain such discount, the purchaser or investment
dealer must provide the Transfer Agent with sufficient information, including
the purchaser's total cost, at the time of purchase to permit verification that
the purchaser qualifies for a cumulative quantity discount, and confirmation of
the order is subject to such verification. Information concerning the current
sales charge applicable to a group may be obtained by contacting the Transfer
Agent.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enables the Distributor to realize
economies of scale in its costs of distributing shares. A qualified group must
have more than 10 members, must be available to arrange for group meetings
between representatives of the Fund and the members, must agree to include sales
and other materials related to the Fund in its publications and mailings to
members at reduced or no cost to the Distributor, and must seek to arrange for
payroll deduction or other bulk transmission of investments of the Fund. This
privilege is subject to modification or discontinuance at any time with respect
to all shares purchased thereafter.
STATEMENT OF INTENTION. Investors may also qualify for reduced sales charges
by signing a Statement of Intention (the "Statement"). This enables the investor
to aggregate purchases of the Fund with purchases of shares of any other Vista
Fund, including shares of any Vista money market Fund acquired by exchange from
a Fund which charged an initial sales charge, during a 13-month period. The
sales charge is based on the total amount to be invested during the 13-month
period. All shares of these Funds currently owned by the investor will be
credited as purchases (at their current offering prices on the date the
Statement is signed) toward completion of the Statement. A 90-day back-dating
period can be used to include earlier purchases at the investor's cost. The
13-month period would then begin on the date of the first purchase during the
90-day period. No retroactive adjustment will be made if purchases exceed the
amount indicated in the Statement. A SHAREHOLDER MUST NOTIFY THE TRANSFER AGENT
OR DISTRIBUTOR WHENEVER A PURCHASE IS BEING MADE PURSUANT TO A STATEMENT.
The Statement is not a binding obligation on the investor to purchase the
full amount indicated; however, on the initial purchase, if required (or
subsequent purchases if necessary), 5% of the dollar amount specified in the
Statement will be held in escrow by the Transfer Agent in shares registered in
the shareholder's name in order to assure payment of the proper sales charge. If
total purchases pursuant to the Statement (less any dispositions and exclusive
of any distributions on such shares automatically
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<PAGE>
reinvested) are less than the amount specified, the investor will be requested
to remit to the Transfer Agent an amount equal to the difference between the
sales charge paid and the sales charge applicable to the aggregate purchases
actually made. If not remitted within 20 days after written request, an
appropriate number of escrowed shares will be redeemed in order to realize the
difference. This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereunder. Reinvested dividend and
capital gain distributions are not counted toward satisfying the Statement.
REINSTATEMENT PRIVILEGE. Shareholders have a one time privilege of
reinstating their investment in the Fund, subject to the terms of exchange (see
"Exchange Privilege") at net asset value next determined. A written request for
reinstatement must be received by the Transfer Agent within 30 calendar days of
the redemption, accompanied by payment for the shares (not in excess of the
redemption). This privilege is subject to modification or discontinuance at any
time with respect to all shares purchased thereafter. For further information as
to how to direct a Shareholder Servicing Agent to purchase shares of the Fund,
an investor should contact his Shareholder Servicing Agent.
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their account at
any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
or Dealer and transmitted to and received by the Transfer Agent. The proceeds of
a redemption normally will be paid on the next Fund Business Day after a
redemption request has been received by the Fund, but in any event within seven
days. The forwarding of proceeds from redemption of shares which were recently
purchased by check may be delayed up to 15 days. A shareholder may redeem his
shares by authorizing his Shareholder Servicing Agent, Dealer or its agent to
redeem such shares, which the Shareholder Servicing Agent, Dealer or its agent
must do on a timely basis. The signature of both shareholders is required for
any written redemption requests from a joint account. In addition, a redemption
request may be deferred for up to 15 calendar days if the Transfer Agent has
been notified of a change in either the address or the bank account registration
previously listed in the Fund's records.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemptions of shares are taxable events on which
the shareholder may recognize a gain or a loss. Although the Fund 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).
The payment of redemption requests may be wired directly to a previously
designated domestic commercial bank account or mailed to the shareholder's
address of Record. For the protection of shareholders, all telephone redemption
requests in excess of $25,000 will be wired directly to such previously
designated bank account. Normally, redemption payments will be transmitted on
the next business day following receipt of the request (provided it is made
prior to 4:00 p.m. Eastern time on any day redemptions may be made). Redemption
payments requested by telephone may not be available in a previously designated
bank account for up to four days. There is a $10.00 charge for each federal
funds wire transaction. If no share certificates have been issued, a wire
redemption may be requested by telephone or wire to the Vista Service Center.
For telephone redemptions, call the Vista Service Center at (800) 34-VISTA.
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<PAGE>
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
SYSTEMATIC REDEMPTION PLAN. A shareholder owning $10,000 or more of the
shares of the Fund as determined by the then current net asset value may provide
for the payment monthly or quarterly of any requested dollar amount (subject to
limits) from his account. A sufficient number of full and fractional shares will
be redeemed so that the designated payment is received on approximately the 1st
day of the month following the end of the selected payment period.
REDEMPTION OF ACCOUNTS OF LESS THAN $500. The Fund may redeem the shares of
any shareholder, if at such time, the aggregate net asset value of the shares in
such shareholder's account is less than $500. In the event of any such
redemption, a shareholder will receive at least 60 days notice prior to the
redemption.
EXCHANGE PRIVILEGE
Shareholders may exchange, at respective net asset value, shares of the Fund
for shares of the other Vista Mutual Funds, in accordance with the terms of the
then current prospectus of the Fund being acquired. The prospectus of the other
Vista Fund into which shares are being exchanged should be read carefully prior
to any exchange and retained for future reference. Under the Exchange Privilege,
shares of the Fund may be exchanged for shares of such other Vista Funds only if
those Funds are registered in the states where the exchange may legally be made.
Shares of the Fund may only be exchanged into another Vista 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 other Funds in the Trust, or any exchange
directly from one of such money market Funds 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 up to five business days if the Fund determines that
it would be disadvantaged by an immediate transfer of the proceeds. This
privilege may be amended or terminated at any time without notice. Arrangements
have been made for the acceptance of instructions by telephone to exchange
shares if certain preauthorizations or indemnifications are accepted and on
file. Further information and telephone exchange forms are available from the
Transfer Agent.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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 a Fund in a year or three in a calendar quarter will be charged
$5.00 administration fee per each such exchange.
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GENERAL
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in this Prospectus are not available
until a completed and signed account application has been received by the
Transfer Agent. Telephonic transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in section 5 of the Account Application. To provide evidence of
telephone instructions, the Transfer Agent will record telephone conversations
with shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such procedures, it may be liable for losses due to unauthorized or
fraudulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of the Fund and depositing and withdrawing
monies from the bank account specified in the Bank Account Registration section
of the shareholder's latest account application or as otherwise properly
specified to the Fund in writing. Shareholders agree to release and hold
harmless the Fund, the Adviser, the Administrator, any Shareholder Serving Agent
or sub-agent and broker-dealer, and the officers, directors, employees and
agents thereof against any claim, liability, loss, damage and expense for any
act or failure to act in connection with Fund shares, any related investment
account, any privileges or services selected in connection with such investment
account, or any written or oral instructions or requests with respect thereto,
or any written or oral instructions or requests from someone claiming to be a
shareholder if the Fund or any of the above-described parties follow
instructions which they reasonably believe to be genuine and act in good faith
by complying with the reasonable procedures that have been established for Fund
accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
The Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in the bank account specified in the Bank Account
Registration, or for any written requests for additional account services made
after a shareholder has submitted an initial account application to the Fund.
The Fund may also refuse to accept or carry out any transaction that does not
satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to noncorporate investors
and is for general information only. A prospective investor, including a
corporate investor, should also review the more
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detailed discussion of federal income tax considerations relevant to the Fund
that is contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax advisers as to the tax
consequences of an investment in the Fund, including the status of distributions
from the Fund in his own state and locality and the possible applicability of a
federal alternative minimum tax to a portion of the distributions of the Fund.
The Fund intends to qualify each year and elect to be treated as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Fund is treated as a "regulated
investment company" and all of its taxable income, if any, is distributed to its
shareholders in accordance with the timing requirements imposed by the Code, it
will not be subject to federal income tax on the amounts so distributed. If for
any taxable year the Fund does not qualify for the treatment as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to its shareholders, and
such distributions will be taxable to shareholders to the extent of the Fund's
current and accumulated earnings and profits.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as the Fund (and each other series of the Trust) qualifies
as a regulated investment company under the Code.
Distributions by the Fund of its tax-exempt interest income (net of
expenses) are designated as "exempt-interest dividends" which are excluded from
gross income for regular federal income tax purposes. In accordance with the
investment objectives of the Fund, it is expected that most or all of the net
investment income of the Fund will be attributable to interest from Municipal
Obligations, although from time to time a portion of the portfolio of the Fund
may be invested in short-term taxable obligations since the preservation of
capital and the maintenance of liquidity are important aspects of the Fund's
investment objective. As a result, most or all of the dividends paid out of the
Fund's net investment income will be designated "exempt-interest dividends". The
percentage of such dividends so designated will be applied uniformly to all such
dividends from the Fund made during each fiscal year and may differ from the
actual percentage for any particular month.
Although excluded from gross income for regular federal income tax purposes,
exempt-interest dividends, together with other tax-exempt interest, are required
to be reported on shareholders' federal income tax returns, and are taken into
account in determining the portion, if any, of Social Security benefits which
must be included in gross income for federal income tax purposes. In addition,
exempt-interest dividends paid out of interest on certain Municipal Obligations
that may be purchased by the Fund will be treated as a tax preference item for
both individual and corporate shareholders potentially subject to an alternative
minimum tax ("AMT"), and all exempt-interest dividends will be included in
computing a corporate shareholder's adjusted current earnings, upon which is
based a separate corporate preference item which may be subject to AMT and to
the environmental superfund tax. Interest on indebtedness incurred, or
continued, to purchase or carry shares of the Fund is not deductible. Further,
entities or persons who may be "substantial users" (or persons related to
"substantial users") of facilities financed by certain types of Municipal
Obligations should consult with their own tax advisers before purchasing shares
of the Fund.
Distributions by the Fund of any taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes, but
do not
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qualify for the dividends-received deduction for corporations. Distributions by
the Fund of the excess, if any, of its net long-term capital gain over its net
short-term capital loss are designated as capital gain dividends and are taxable
to shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his shares.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those investors purchasing shares just prior to an
ordinary income dividend or capital gain dividend will be taxed on the entire
amount of the dividend received, even though the net asset value per share on
the date of such purchase reflected the amount of such dividend.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year, including any portions which constitute ordinary income
dividends, capital gain dividends and exempt-interest dividends, will be sent to
the Fund's shareholders promptly after the end of each year.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be disallowed to the extent of any
exempt-interest dividends received on such shares and (to the extent not
disallowed) will be treated as a long-term capital loss to the extent of any
capital gain dividends received on such shares. All or a portion of any loss
realized upon a taxable disposition of shares of the Fund may be disallowed if
other shares of the Fund are purchased within 30 days before or after such
disposition.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. Generally, shareholders are subject to backup
withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. To the extent
that exempt-interest dividends from the Fund are paid out of interest on
California Municipal Obligations, the dividends will also be exempt from
California personal income taxes for a California individual resident
shareholder.
OTHER INFORMATION CONCERNING SHARES OF THE FUND
NET ASSET VALUE
The net asset value of the Fund is 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.), on each Fund Business Day, by
deducting the amount of the Fund's liabilities from the value of its assets and
dividing the difference by the number of its shares outstanding. Values of
assets in the Fund's portfolio are determined on the basis of their market or
other fair value, as described in the Statement of
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Additional Information. A share's net asset value is effective for orders
received by a Shareholder Servicing Agent prior to its calculation and received
by the Distributor prior to the close of business, usually 4:00 p.m. Eastern
time, on the Fund Business Day on which such net asset value is determined.
NET INCOME, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Income dividends are declared daily and paid monthly. The Fund's net
investment income consists of the interest income earned on its portfolio, less
expenses. In computing the Fund's interest income, premiums are not amortized or
discounts accrued on long-term debt securities in its portfolio, except as
required for federal income tax purposes. The Fund will distribute its net
capital gains, if any, to its shareholders at least annually.
The Fund intends to make additional distributions to the extent necessary to
avoid application of the 4% nondeductible excise tax on certain undistributed
income and net capital gains of mutual funds imposed by Section 4982 of the
Code.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
shareholder may elect to receive dividends and capital gains distributions from
the Fund in either cash or additional shares.
DISTRIBUTION PLAN AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act, after having concluded that there
is a reasonable likelihood that the Distribution Plan will benefit the Fund and
its shareholders.
The Distribution Plan provides that the Fund shall pay distribution fees
(the "Basic Distribution Fee"), including payments to the Distributor, at an
annual rate not to exceed 0.20% of its average daily net assets for distribution
services. Some payments under the Plan may be used to compensate broker-dealers
with trail or maintenance commissions in an amount not to exceed 0.20%
annualized, of the assets maintained in the Fund by such broker-dealers'
customers. Since the Basic Distribution Fee is not directly tied to expenses,
the amount of Basic Distribution Fee paid by the Fund during any year may be
more or less than actual expenses incurred pursuant to the Distribution Plan.
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 such as
those described in the next paragraph, by which a distributor's compensation is
directly linked to its expenses). However, the Fund is not liable for any
distribution expenses incurred in excess of the Basic Distribution Fee paid.
Under the Distribution Plan, the Fund is also permitted to pay an additional
fee at an annual rate not to exceed 0.05% of its average daily net assets in
anticipation of, or as reimbursement for, expenses incurred in connection with
print or electronic media advertising in connection with the sale of Fund
shares. When such expenses are incurred, the maximum compensation paid by the
Fund under the Distribution Plan would be at an annual rate of 0.25% of its
average daily net assets.
The Distribution and Sub-Administration Agreement dated April 15, 1994 (the
"Distribution Agreement"), provides that the Distributor will act as the
principal underwriter of the Fund's shares and 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
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advertisements not paid for by the Distribution Plan. In addition, the
Distributor will provide certain sub-administration services, including
providing officers, clerical staff and office space. The Distributor currently
receives a fee for sub-administration from the Fund at an annual rate equal to
0.05% of the Fund's average daily net assets, on an annualized basis for the
Fund's then-current fiscal year. Other funds which have investment objectives
similar to those of the Fund, but which do not pay some or all of such fees from
their assets, may offer a higher return, although investors would, in some
cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses of the Fund incurred in
connection with organizing new series of the Trust and certain other ongoing
expenses of the Trust. The Distributor may, from time to time, waive all or a
portion of the fees payable to it under the Distribution Agreement.
EXPENSES
The Fund intends to pay all of its pro rata share of the Trust's expenses,
including the compensation of the Trustees; all fees under the Distribution Plan
(see "Purchases and Redemptions of Shares -- Distribution Plan and Agreement");
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute; fees and expenses of independent accountants, of legal
counsel and of any transfer agent, shareholder servicing agent and dividend
disbursing agent; expenses of distributing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
reports, notices, proxy statements and reports to shareholders and to
governmental officers and commissions; expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance premiums;
fees and expenses of the custodian, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of calculating
the net asset value of the Fund; expenses of shareholder meetings; and the
advisory fee payable to the Adviser under the Investment Advisory Agreement, the
administrative fee payable to the Administrator under the Administration
Agreement and the sub-administration fee payable to the Distributor under the
Distribution and Sub-Administration Agreement. Expenses relating to the
issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes are borne by
the Fund except that the Distribution and Sub-Administration Agreement with the
Distributor requires the Distributor to pay for prospectuses which are to be
used for sales to prospective investors.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. 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 pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth below. Shareholders are entitled to one vote
for each whole share held, and each fractional share shall be entitled to a
proportionate fractional vote, except that Trust shares held in the treasury of
the Trust shall not be voted. Shares of each series or class generally vote
separately, for example to approve investment advisory agreements, but shares of
all series or classes vote together, to
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the extent required under the 1940 Act, in the election or selection of Trustees
and independent accountants.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of each series or class or of all series
or classes whenin the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Funds' Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, 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 the
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same 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. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of that series or
class.
The Trust is an entity of the type commonly known as a "Massachusetts
business 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.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's Shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated investment company, underwent a statutory reorganization
to become series of the Trust. The Fund is such a series and, therefore, certain
information contained in this prospectus reflects the history of the Fund since
its inception as a series of MFG and the fact that certain policies, plans and
shareholder privileges continued unchanged as a result of the reorganization.
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SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various services, including but not limited to the following: answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by a Shareholder Servicing Agent) quarterly and year-end
statements and confirmations of purchases and redemptions; transmit, on behalf
of the Fund, proxy statements, annual reports, updated prospectuses and other
communications to shareholders of the Fund; receive, tabulate and transmit to
the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request. Shareholder Servicing Agents may be required to
register pursuant to state securities law.
For performing these services, each Shareholder Servicing Agent receives
fees, which may be paid periodically, determined by a formula based upon the
number of accounts serviced by such Shareholder Servicing Agent during the
period for which payment is being made, the level of activity in accounts
serviced by such Shareholder Servicing Agent during such period, and the
expenses incurred by such Shareholder Servicing Agent. The fees relating to
acting as liaison to shareholders and providing personal services to
shareholders will not exceed, on an annual basis, 0.25% of the average daily net
assets of the Fund represented by shares owned during the period for which
payment is being made by investors for whom such Shareholder Servicing Agent
maintains a servicing relationship. This fee does not cover transfer agency
expenses. Each Shareholder Servicing Agent may, from time to time, voluntarily
waive all or a portion of the fees payable to it. In addition, Chase may provide
other related services to the Fund for which it may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Fund shares, receive dividends and
distributions on Fund investments, and take advantage of any services related to
an Account offered by such Shareholder Servicing Agent from time to time. All
Accounts and any related privileges or services shall be governed by the laws of
the State of New York, without regard to its conflicts of laws provisions.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities, such as the Fund's shares. The Trust, on behalf
of the Fund, will engage banks, including the Adviser and Custodian and the
Administrator as Shareholder Servicing Agents, only to perform advisory,
custodial, administrative and shareholder servicing functions as described
above. While the matter is not free from doubt, Trust
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management believes that such laws should not preclude a bank, including a bank
which acts as investment adviser, custodian or administrator, or in all such
capacities, for the Fund, from acting as a Shareholder Servicing Agent. However,
possible future changes in federal law or administrative or judicial
interpretations of current or future law, could prevent a bank from continuing
to perform all or part of its servicing activities. If that occurred, the bank's
shareholder clients would be permitted to remain Fund shareholders and
alternative means for continuing the servicing of such shareholders would be
sought. In such event, changes in the operation of the Fund might occur and a
shareholder serviced by such bank might no longer be able to avail himself of
any automatic investment or other services then being provided by such bank. The
Fund does not expect that shareholders would suffer any adverse financial
consequences as a result of these occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Fund. In this capacity, DST maintains the
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend and
capital gain distributions to shareholders, whether taken in cash or additional
shares. From time to time, DST and/or the Fund may contract with other entities
to perform certain services for the Transfer Agent. For its services as Transfer
Agent, DST receives such compensation as is from time to time agreed upon by the
Trust and DST. DST's address is 127 W. 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets
of the Fund for which Chase receives compensation as is from time to time agreed
upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
Fund accounting and other required books and accounts, and calculating the daily
net asset value of shares of the Fund. Portfolio securities and cash may be held
by sub-custodian banks if such arrangements are reviewed and approved by the
Trustees. The internal division of Chase which serves as the Fund's Custodian
does not determine the investment policies of the Fund or decide which
securities will be bought or sold on behalf of the Fund or otherwise have access
to or share material inside information with the internal division that performs
advisory services for the Fund.
TAX-SHELTERED RETIREMENT PLANS
Shares of the Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing, and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations, 401(k) and 403(b) Retirement Plans. Call or write
the Transfer Agent for more information.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
In addition to its investment objective, the Fund has adopted certain other
investment restrictions which, unless otherwise noted as being matters of
operating policy, may not be changed without approval by majority vote of the
Fund's shareholders as defined in the Investment Company Act of 1940 (the "1940
Act"). The most important of these other restrictions are set forth below.
Additional restrictions are discussed in the Statement of Additional
Information.
The Fund, may not with respect to at least 75% of its total assets, invest
more than 5% of its assets in the securities of any one issuer (except the U.S.
Government, its agencies and instrumentalities), including issuers of repurchase
agreements, or purchase more than 10% of the outstanding voting securities of
any one issuer.
Except as described below, the Fund does not engage in borrowing of any
kind. The Fund, however, is authorized to borrow money up to 10% of the value of
its total assets from banks on a temporary basis for extraordinary or emergency
purposes, provided that no purchases of securities are made by the Fund while
any such borrowings exceed 5% of the value of the Fund's total assets. To secure
authorized borrowings, the Fund is authorized to pledge securities limited to
pledges of securities having a market value at the time of pledge not exceeding
10% of the value of its total assets.
The Fund may not, as a matter of operating policy, purchase a restricted
security or a security which is not readily marketable, if as a result of such
purchase more than 10% of the Fund net assets would be invested in such
securities.
The Fund may not purchase any securities which would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall not apply
to municipal securities or governmental guarantees of municipal securities or to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and provided, further, that for the purpose of this
restriction only, industrial development bonds that are considered to be issued
by nongovernmental users shall not be deemed to be municipal securities.
Each state and each political subdivision, agency or instrumentality of such
state, including California, and each multi-state agency of which a state is a
member, including California, is a separate "issuer" as that term is used in
this Prospectus. The non-government user of facilities financed by industrial
development or pollution control bonds is also considered as a separate issuer.
In certain circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee. Municipal
securities which are the subject of an advance refunding escrow or trust
agreement are considered to be obligations of the original issuer rather than
the refunding trustee or escrow agent.
As a non-fundamental policy, all of the investments of the Fund will be made
in the following:
(1) Tax-exempt securities which are rated AAA, AA, A or BBB by Standard
& Poor's or are rated Aaa, Aa, A or Baa by Moody's, or rated AAA, AA, A, BBB
by Fitch, or which are unrated but are considered by the Adviser, pursuant
to general guidelines established by the Board of Trustees of the Trust, to
have essentially the same characteristics and qualities as securities having
such ratings;
(2) Tax-exempt notes of issuers having an issue of outstanding Municipal
Obligations rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or
Baa by Moody's or rated FIN-1+,
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FIN-1, FIN-2, FIN-3 by Fitch, or which are guaranteed by the U.S. Government
or which are rated MIG-1 or MIG-2 by Moody's;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(4) Commercial paper which is rated A-1 or A-2 by Standard & Poor's or
Prime-1 or Prime-2 by Moody's or Finch-1, Finch-2 by Fitch, (or which is
unrated but which is considered by the Adviser, pursuant to general
guidelines established by the Board of Trustees of the Trust, to have
essentially the same characteristics and qualities as commercial paper
having such ratings), obligations (including certificates of deposit,
bankers' acceptances and repurchase agreements) of banks with $1 billion of
assets, and cash.
Securities rated Baa by Moody's or BBB by Standard & Poor's have speculative
characteristics. For descriptions of the ratings of Standard & Poor's and
Moody's of Municipal Obligations permitted as investments, see "Description of
Ratings" in Appendix A.
With respect to those Municipal Obligations which are not rated by a major
rating agency, greater reliance is placed upon the Adviser's judgment, analysis
and experience than would be the case if such Municipal Obligations were rated.
In evaluating the creditworthiness of an issue, whether rated or unrated, the
Adviser may take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management, and regulatory matters.
Although higher quality tax-exempt securities may produce lower yields, they
are generally more marketable. To protect the capital of its shareholders under
adverse market conditions, the Fund may from time to time deem it prudent to
purchase higher quality securities or taxable short-term obligations, with a
resultant decrease in yield or increase in the proportion of taxable income.
The Fund may invest more than 25% of its assets in industrial revenue bonds
(i.e., bonds issued by various state and local agencies to finance various
projects). Dividends of the Fund attributable to interest on certain private
activity bonds in which the Fund may invest will constitute a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. However, as stated in the "Investment Objectives and Policies"
section of this Prospectus, the Fund will not invest more than 20% of its total
assets in securities the interest on which is includable in gross income for
federal income tax purposes or constitutes a preference item and, therefore, may
be subject to the federal alternative minimum tax on individuals. The Fund also
may invest more than 25% of its assets in revenue bonds issued for housing,
electric utilities and hospitals (subject to the restriction that it may not
invest more than 25% of its assets in any one such industry), at times when the
relative value of issues of such a type is considered by the Adviser to be more
favorable than that of other available types of issues. Therefore, investors
should also be aware of the risks associated with these investments.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. As a result of the
impossibility of precisely predicting demand for mortgages from the proceeds of
such an issue, there is a risk that the proceeds of the issue will be in excess
of demand, which would result in early retirement of the bonds by the issuer.
Moreover, such housing revenue bonds depend for their repayment upon the cash
flow from the underlying mortgages, which cannot be precisely predicted when the
bonds are issued. Any difference in the actual cash flow from such mortgages
from the assumed cash flow could have an adverse impact upon the ability of the
issuer to make scheduled
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<PAGE>
payments of principal and interest on the bonds, or could result in early
retirement of the bonds. Additionally, such bonds depend in part for scheduled
payments of principal and interest upon reserve funds established from the
proceeds of the bonds, assuming certain rates of return on investment of such
reserve funds. If the assumed rates of return are not realized because of
changes in interest rate levels or for other reasons, the actual cash flow for
scheduled payments of principal and interest on the bonds may be inadequate.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by environmental
considerations (particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, effect of energy conservation and
difficulty of the capital market to absorb utility debt.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. A hospital's gross
receipts and net income available to service its debt are influenced by demand
for hospital services, the ability of the hospital to provide the services
required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses,
confidence in the hospital, service area economic developments, competition,
availability and expense of malpractice insurance, Medicaid and Medicare
funding, and possible federal or state legislation limiting the rates of
increase of hospital charges.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. The Fund may purchase and sell
municipal securities on a "when-issued" and "delayed delivery" basis. These
transactions are subject to market fluctuations and the value of the investment
at delivery may be more or less than the purchase price. Since the Fund relies
on the buyer or seller, as the case may be, to consummate the transaction,
failure by the other party to complete the tranasction may result in the Fund
missing the opportunity to obtain a price or yield the Adviser considers to be
advantageous. When the Fund is the buyer in such a transaction, however, it will
maintain, in a segregated account with its custodian, cash or high-grade
marketable securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. Although the Fund will generally
purchase municipal securities on a when-issued basis with the intention of
acquiring such investments, it may sell such investments before the settlement
date if it is deemed advisable. The Fund will not receive income pending the
delivery or settlement of securities purchased on a "when-issued" or "delayed
delivery" basis. To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for its portfolio consistent with its investment objective and policies and not
for the purpose of investment leverage.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may invest its assets in
derivative and related instruments subject only to the Fund's investment
objective and policies and the requirement that, to avoid leveraging, 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.
The value of some derivative or similar instruments in which the Fund
invests may be particularly sensitive to changes in prevailing interest rates or
other economic factors, and--like other investments of the Fund--the ability of
the Fund to successfully utilize these instruments may depend in part upon the
ability of the Adviser to forecast interest rates and other economic factors
correctly. If the Adviser incorrectly forecasts such factors and has taken
positions in derivative or similar instruments contrary to
25
<PAGE>
prevailing market trends, the Fund could be exposed to the risk of a loss. THE
FUND MIGHT NOT EMPLOY ANY OR ALL OF THE INSTRUMENTS DESCRIBED HEREIN, AND NO
ASSURANCE CAN BE GIVEN THAT ANY STRATEGY USED WILL SUCCEED.
To the extent permitted by the investment objectives and policies of the
Fund, and as described more fully in the Fund's Statement of Additional
Information, the Fund may:
. purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with securities,
other options or derivative instruments);
. enter into futures contracts and options on futures contracts;
. purchase and sell mortgage-backed and asset-backed securities; and
. purchase and sell structured products.
RISK FACTORS
As explained more fully in the Statement of Additional Information, there
are a number of risks associated with the use of derivatives and related
instruments, including:
. THERE CAN BE NO GUARANTEE THAT THERE WILL BE A CORRELATION BETWEEN
PRICE MOVEMENTS IN A HEDGING VEHICLE AND IN THE FUND ASSETS BEING HEDGED. As
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. This risk is particularly acute in
the case of "cross-hedges" between currencies.
. THE ADVISER MAY INCORRECTLY 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.
. 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 OR 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, the Fund may experience a loss.
26
<PAGE>
OTHER INSTRUMENTS. 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 bond.
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.
PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard
to the length of time a security has been held, and the frequency of portfolio
transactions (the turnover rate) will vary from year to year depending on market
conditions. The rate of portfolio turnover is not a limiting factor when the
Adviser deems it desirable to purchase or sell securities. The annual rate of
portfolio turnover for the Fund is generally not anticipated to exceed 100%.
High portfolio turnover of 100% or more may increase short-term capital gains,
which are taxable as ordinary income to shareholders.
SPECIAL RISK FACTORS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Since the Fund invests primarily in obligations of California issuers, the
marketability and market value of these obligations may be affected by certain
California constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives. The ability of the Fund to
achieve its objectives is affected by the ability of municipal issuers to meet
their payment obligations. Problems which may arise in the foregoing areas and
which are not resolved could adversely affect the various California issuers'
abilities to meet their financial obligations.
The State of California's bond ratings were lowered from AAA to A+ by S&P
from AAA to AA by Fitch and from Aaa to Aa1 by Moody's. S&P has also placed the
State of California on Credit Watch. California is experiencing its deepest
recession since the 1930's. Risks also result from certain amendments to the
California Constitution and other statues that limit the taxing and spending
authority of California governmental entities, as well as from the general
financial condition of the State of California. These circumstances may have the
effect of impairing the ability of California issuers to pay interest on, or
repay the principal of, their municipal obligations. A more detailed discussion
of this subject is contained in the Fund's Statement of Additional Information.
If in the future an adequate supply of municipal obligations of California
issuers ceased to be available, the Fund's Board of Trustees would consider
recommending alternatives to shareholders, such as changing the Fund's
investment objective or liquidating the Fund. The Manager does not believe that
the current economic conditions in California will have a significant adverse
effect on the Fund's ability to invest in municipal obligations.
TAXATION OF SHAREHOLDERS--CALIFORNIA INCOME TAXES. California law relating
to taxation of regulated investment companies was generally conformed to federal
law effective January 1, 1992. It is anticipated that federal exempt interest
dividends paid by the California Fund and derived from interest on bonds which,
when held by an individual, would be exempt from California personal income
taxation
27
<PAGE>
under the laws of California, will also be exempt from California personal
income tax. California does not treat tax-exempt interest as a tax preference
item for purposes of its personal alternative minimum tax. To the extent a
Fund's dividends are derived from interest on debt obligations other than
California municipal securities, such dividends will be subject to California
state income tax even though the dividends may be excludable from gross income
for federal income tax purposes. To the extent dividends paid to shareholders
are derived from taxable interest or from capital gains, such dividends will not
be exempt from California income tax.
DESCRIPTION OF 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). "California Municipal Obligations" are Municipal Obligations of the State
of California 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 California State personal income taxes.
Municipal Obligations consist of both notes and bonds. There are four major
varieties of state and municipal notes: Tax Anticipation Notes ("TANs"); Revenue
Anticipation Notes ("RANs"); Bond Anticipation Notes ("BANs"); and Construction
Loan Notes ("CLNs").
TANS AND RANS are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
BANS are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
CLNS are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities,
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<PAGE>
towns and other governmental units. The principal of, and interest on, revenue
bonds are payable from the income of specific projects or authorities and
generally are not supported by the issuer's general power to levy taxes. In some
cases, revenues derived from specific taxes are pledged to support payments on a
revenue bond.
In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many Private Activity Bonds, there is no established
secondary market for their purchase or sale and therefore they may not be
readily marketable. However, Private Activity Bonds or the participation
certificates in Private Activity Bonds purchased by a Fund will have liquidity
because they will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions which may be exercised by a
Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based on
historical earnings, it should not be considered as an indication or
representation of the performance of the Fund in the future. From time to time,
the performance and yield of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives, unmanaged investment
accounts, including savings accounts, or other similar products and to stock or
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Fund 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 the Fund. Additionally, the
Fund may, with proper authorization, reprint articles written about the Fund and
provide them to prospective shareholders.
The Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in the
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
29
<PAGE>
gains distributions declared during such period. The average annual total rate
of return and yield figures will assume payment of the maximum sales load.
The Fund may provide "yield" quotations in addition to total rate of return
quotations. The "yield" quotations of the Fund will be based upon a hypothetical
net investment income earned by the Fund over a thirty day or one month period
(which period shall be stated in any advertisement or communication with a
shareholder). The "yield" is then "annualized" by assuming that the income
generated over the period will be generated over a one year period. A "yield"
quotation, unlike a total rate of return quotation, does not reflect changes in
the value of securities.
The Fund may also quote a "tax equivalent yield" which refers to the yield
that a taxable income fund would have to generate in order to produce an
after-tax yield equivalent to that of the Fund at a given effective tax rate.
The use of a tax equivalent yield allows investors to compare the yield of the
Fund, the income from which is excluded from gross income for federal income tax
purposes and which is exempt from California State personal income taxes, with
yields of income funds which are not so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield and the net asset value of the Fund will vary
based on interest rates, the current market value of the securities held in the
Fund's portfolio and changes in the Fund's expenses. In addition, the Adviser,
the Shareholder Servicing Agent, the Administrator and the Distributor have all
voluntarily agreed to waive a portion of their fees on a month-to-month basis.
In addition, the Distributor may assume a portion of the Fund's operating
expenses on a month-to-month basis. These actions have the effect of increasing
the net income (and therefore the yield and total rate of return) of the Fund
during the period such waivers are in effect. These factors and possible
differences in the methods used to calculate the yield and total rate of return
should be considered when comparing the yield or total rate of return of the
Fund to yields and total rates of return published for other investment
companies and other investment vehicles. The Fund 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 (see "Purchases and Redemptions of
Shares -- Purchases"), 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. See the Statement of Additional
Information for further information concerning the calculation of the Fund's
yield or total rate of return quotations.
OTHER INFORMATION
The net asset value of shares of the Fund changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
can be expected to rise. Conversely, when interest rates rise, the value of a
portfolio can be expected to decline. Although changes in the value of the
portfolio securities of the Fund subsequent to their acquisition are reflected
in the Fund's net asset values, such changes will not affect the income received
by such securities. Debt securities with longer maturities such as those
intended for investment by the Fund generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities
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<PAGE>
with shorter maturities. Since available yields vary over time, no specific
level of income can ever be assured. The dividends paid on shares of the Fund
will increase or decrease in relation to the income received by the Fund from
its investments, which will in any case be reduced by the Fund's expenses before
being distributed to its shareholders.
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially subject to the alternative
minimum tax on individuals. As a result, this legislation may affect the
availability of Municipal Obligations for investment by the Fund.
The Statement of Additional Information contains more detailed information
about the Trust and the Fund, including information related to (i) the Fund's
investment policies and restrictions, (ii) risk factors associated with Fund's
policies and investments, (iii) the Trust's Trustees, officers and the
Administrator and the Adviser, (iv) portfolio transactions, (v) the Funds'
shares, including rights and liabilities of shareholders, and (vi) additional
performance information, including the method used to calculate yield or total
rate of return quotations of the Fund. The audited financial statements for the
Fund for its last fiscal year end are incorporated by reference in the Statement
of Additional Information.
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<PAGE>
APPENDIX A
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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment 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:
- ------------
* 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.
A-1
<PAGE>
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
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,
A-2
<PAGE>
"AAA/A-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+").
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.
A-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.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
<PAGE>
<PAGE>
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
CALIFORNIA
INTERMEDIATE
TAX FREE FUND
- ---------------------------------------- ------------------------
Prospectus
and Application
INVESTMENT ADVISER AND ADMINISTRATOR
The Chase Manhattan Bank, N.A.
DISTRIBUTOR
Vista Broker-Dealer Services, Inc.
TRANSFER AGENT
DST Systems, Inc.
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen
Kamin & Frankel
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
December 31, 1995
VCI-I
<PAGE>
PROSPECTUS
DECEMBER 31, 1995
VISTA(SM) PRIME MONEY MARKET FUND
CLASS B SHARES
Mutual Fund Trust (the "Trust") is an open-end investment management company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994 presently consisting of 11 separate series.
Under a multiple distribution system the money market funds may be offered
through three separate classes of shares (the "Shares"). The Vista Prime Money
Market Fund (the "Prime Fund" or the "Fund") is available only to qualified
institutional investors through the Premier Shares and the Institutional Shares.
In addition the Prime Fund is available to investors through Class B Shares.
Class B Shares of the Fund are available via exchange only to current investors
in those Vista Funds offering Class B Shares. Currently that includes Vista Tax
Free Income Fund, Vista New York Tax Free Income Fund, Vista U.S. Government
Income Fund, Vista Balanced Fund, Vista Capital Growth Fund, Vista Growth and
Income Fund, Vista Global Fixed Income Fund, Vista International Equity Fund,
Vista Small Cap Equity Fund, Vista European Fund, Vista Japan Fund and Vista
Southeast Asian Fund. Class B Shares are an alternative method of sales in which
the investor does not pay an initial sales commission but is subject to a
declining contingent deferred sales charge payable at the time of redemption.
This prospectus pertains solely to Class B Shares. Premier Shares and
Institutional Shares of the Fund are described in and sold under a separate
prospectus.
The Fund's investment objective is to seek maximum current income consistent
with the preservation of capital and maintenance of liquidity, through
investments in (i) U.S. Dollar denominated high quality commercial paper and
other high quality 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets, or such
other U.S. or foreign commercial banks which are judged by the Fund's investment
adviser to meet comparable credit criteria; (iv) securities issued or guaranteed
by the U.S. Government or by agencies and instrumentalities thereof; and (v)
repurchase agreements.
CLASS B SHARES OF THE PRIME FUND CARRY THE SAME 0.75% DISTRIBUTION FEE AS
OTHER VISTA B SHARES. INVESTORS SHOULD BE AWARE THAT THIS FUND IS MADE AVAILABLE
FOR EXCHANGE PURPOSES ONLY AND THAT THE YIELD ON THESE SHARES WILL BE
SUBSTANTIALLY LOWER THAN OTHER CLASSES OF SHARES IN THE SAME FUND.
AN INVESTMENT IN THE FUND IS 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. THERE CAN BE NO ASSURANCE THAT THE
FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
VISTA BROKER-DEALER SERVICES, INC. ("VBDS") IS THE FUND'S DISTRIBUTOR AND IS
UNAFFILIATED WITH THE CHASE MANHATTAN BANK, N.A. ("CHASE"). INVESTMENTS IN THE
FUND ARE SUBJECT TO RISK-- INCLUDING POSSIBLE LOSS OF PRINCIPAL--AND MAY
FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, CHASE OR ANY OF ITS AFFILIATES AND ARE NOT
FEDERALLY 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.
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.
<PAGE>
The shares of the Fund are continuously offered for sale without a sales
load through VBDS, the Fund's distributor (the "Distributor"), only to current
investors in Class B Shares of Vista Funds, as described herein, who are
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association with which the Trust has entered
into a shareholder servicing agreement (collectively, "Shareholder Servicing
Agents") or securities brokers or certain financial institutions which have
entered into Selected Dealer Agreements with the Distributor. An investor should
obtain from his Shareholder Servicing Agent, if applicable, and should read in
conjunction with this Prospectus, the materials provided by the Shareholder
Servicing Agent describing the procedures under which Class B Shares may be
purchased and redeemed through such Shareholder Servicing Agent. Shares may be
redeemed by shareholders at the net asset value next determined on any Fund
Business Day as hereinafter defined.
This Prospectus sets forth concisely information concerning the Fund and its
Class B Shares that a prospective investor ought to know before investing. A
Statement of Additional Information for the Class B Shares dated December 31,
1995 containing more detailed information about the Fund has been filed with the
Securities and Exchange Commission, and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the Statement of Additional
Information for the Class B Shares without charge by contacting the Distributor
or the Shareholder Servicing Agent.
Shares of the Fund purchased via exchange continue to age based on the
initial purchase date of Class B shares. Shares redeemed from the Fund will be
subject to the applicable contingent deferred sales charge based on the original
Fund purchased and the original date of purchase. There is a maximum contingent
sales charge of 5% of redemption proceeds imposed on certain redemptions made
within six years of the date of purchase. This charge will decline to zero for
redemptions more than six years after the initial purchase. Class B Shares have
higher ongoing expenses than other classes of money market funds, but
automatically convert to Class A Shares approximately eight years after
purchase.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
For information about the Class B Shares, simply call the Vista Service
Center at the following toll-free number 1-800-34-VISTA.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Summary................................................. 3
Financial Highlights............................................ 4
Investment Objectives and Policies.............................. 5
Management of the Fund.......................................... 5
Purchase and Redemption of Shares............................... 8
Tax Matters..................................................... 12
Other Information Concerning Shares of the Fund................. 13
Shareholder Servicing Agents, Transfer Agent and Custodian...... 17
Additional Information on Investment Policies and Techniques.... 19
Yield and Performance Information............................... 25
Other Information............................................... 26
</TABLE>
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
PRIME FUND
-------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS B SHARES
- ----------------------------------------------------------------------- -------------------
Maximum Contingent Deferred Sales Charge (as a percentage of
redemption proceeds)................................................ 5.00%
Annual Fund Operating Expenses+
- -----------------------------------------------------------------------
(As a percentage of
average net assets)
Investment Advisory Fee (After Waiver of Fees)*........................ 0.10%
Rule 12b-1 Distribution Plan Fee (After Waiver of Fees)*............... 0.75%
Administration Fee (After Waiver of Fees)*............................. 0.04%
Other Expenses
--Sub-Administration Fee............................................ 0.05%
--Shareholder Servicing and Fund Servicing Fees (After Waiver of
Fees)*............................................................ 0.00%
--Other Operating Expenses++ (After Assumption of Expenses)......... 0.53%
---
Total Fund Operating Expenses.......................................... 1.47%
---
---
Example:
You would pay the following expenses on a $1,000 investment in the
Fund, assuming a 5% annual rate of return:
<CAPTION>
ONE THREE FIVE TEN
Class B Shares: YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Assumes complete redemption at end of period(1)............... $67 $80 $ 104 $ 176
Assumes no redemption......................................... 15 46 80 176
</TABLE>
- ------------
(1) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
+ Absent certain waivers, the annual investment advisory fees and
administration fees would be 0.10% and 0.05%, respectively, for the Fund's
average net assets. Absent certain waivers, the shareholder servicing and
fund servicing fees for the Class B Shares of the Fund would be 0.35%for the
Fund's average net assets. Shareholder Servicing Agents may provide various
services to their customers and charge additional fees for these services.
Fees for activities in connection with serving as liaison to, and providing
personal services to, holders of Class B Shares are not paid pursuant to a
12b-1 plan and will not exceed the NASD's maximum fee of 0.25% for these
types of activities.
++ A $10.00 charge may be incurred for certain wire redemptions.
* Fees waived on a month-to-month basis.
The expense summary is intended to assist investors in understanding the
various costs and expenses that a shareholder in any class of shares of the
Prime Fund will bear directly or indirectly. The expense summary shows the
investment advisory fee, administrative fee, sub-administration fee and
shareholder servicing and fund servicing fee expected to be incurred by each
class of shares of the Fund, after certain waivers of fees.
More complete descriptions of each class of Shares' expenses, including any
fee waivers, are set forth herein or in the prospectus for such class of Shares.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF A CLASS OF SHARES OF THE FUND; THE FUND IS NEW AND ACTUAL
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<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 Statement of Additional Information.
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.
<TABLE>
VISTA PRIME MONEY MARKET FUND
<CAPTION>
B SHARES
---------------------
<S> <C> <C>
YEAR 4/21/94*
ENDED THROUGH
8/31/95 8/31/94+
--------- ---------
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 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 classes of shares.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVE-- The investment objective of the Prime Fund is to seek
to provide maximum current income consistent with preservation of capital and
maintenance of liquidity. The investment objective of the Fund may not be
changed unless approved by the holders of a majority of the Fund's outstanding
shares.
INVESTMENT POLICIES-- The Fund seeks to achieve its investment objective by
investing in (i) U.S. Dollar denominated 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) U.S. Dollar denominated obligations
issued or guaranteed by U.S. banks with total assets exceeding $1 billion and by
the 75 largest foreign commercial banks (including obligations of foreign
branches of such banks) in terms of total assets as reported in recognized
financial publications, or such other U.S. or foreign commercial banks which are
judged by the Adviser to meet comparable credit standing criteria; (iv)
securities issued or guaranteed as to principal and interest by the U.S.
Government or by agencies or instrumentalities thereof; and (v) repurchase
agreements related to these securities. The securities in which the Fund
invests, described in greater detail under "Additional Information on Investment
Policies and Techniques," will be of high quality and present minimal credit
risks. To the extent that the Prime Fund is invested in STRIPS (see "Additional
Information on Investment Policies and Techniques--Prime Fund"), those
securities may be subject to greater fluctuation of market value than other
securities in which the Prime Fund invests. There can be no assurance that the
Prime Fund will achieve its investment objective.
The Fund may purchase the securities of issuers in foreign countries.
However, all of such Fund's investments will be in U.S. Dollar denominated
securities with remaining maturities of 397 days or less. Securities in which
the Prime Fund will invest may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value. Certain instruments
issued or guaranteed by issuers, including the U.S. Government or agencies
thereof, which have a variable rate of interest readjusted no less frequently
than annually are deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate. The dollar weighted average maturity
of the Fund will be 60 days or less.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
MANAGEMENT OF THE FUND
ADVISER
THE CHASE MANHATTAN BANK, N.A. (the "Adviser") manages the assets of the
Fund pursuant to an Investment Advisory Agreement dated October 25, 1994.
Subject to such policies as the Board of Trustees may determine, the Adviser
makes investment decisions for the Fund. For its services under the Investment
Advisory Agreement, the Adviser receives an annual fee computed daily and paid
monthly at an annual rate equal to .10% of the Fund's average daily net assets.
Chase may, from time to time, voluntarily waive all or a portion of the fees
payable to it under the Investment Advisory Agreements.
5
<PAGE>
The Adviser, 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. Its headquarters are at One Chase Manhattan Plaza, New York,
NY 10081. The Adviser, including its predecessor organizations, has over 100
years of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. 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 Trust's 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 Distributor
or affiliates of the Distributor. The Adviser 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 the Adviser 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 on behalf of any Fund.
The Adviser 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 Adviser or in the possession of any
affiliate of such Adviser, including the division of Chase 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 for direct mail promotion of various Chase
product lines.
6
<PAGE>
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator ("Administrator") of
the Trust. The Administrator provides certain administrative services,
including, among other responsibilities, coordinating relationships with
independent contractors and agents; preparing for signature by officers and
filing of certain documents required for compliance with applicable laws and
regulations; preparing financial statements; arranging for the maintenance of
books and records; and providing office facilities necessary to carry out the
duties thereunder. The Administrator receives from the Fund a fee computed daily
and paid monthly at an annual rate equal to 0.05% of the Fund's average daily
net assets. However, the Administrator may, from time to time, voluntarily waive
all or a portion of its fees payable under the Administration Agreement. The
Administrator, pursuant to the terms of the Administration Agreement, shall not
have any responsibility or authority for the Fund's investments, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the advice of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement described below without violating the federal
banking law commonly known as the Glass-Steagall Act. The Act generally bars
banks from publicly underwriting or distributing certain securities.
Based on the advice of its counsel, the Adviser believes that court
decisions and decisions and interpretations of federal banking regulators permit
it to serve as investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, Chase
believes, based on advice of its counsel, that it may serve as shareholder
servicing agent to the Fund and render the services described in the shareholder
servicing agreements, and Chase believes, based on advice of its counsel, that
it may serve as Custodian to the Trust and render the services set forth in the
Custodian Agreement, as appropriate, incidental national banking functions and
as proper adjunct to its serving as investment adviser and administrator to the
Fund.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. Chase, on the
advice of its counsel, believes that it may render the services described in its
Administration Agreement without violating the Glass-Steagall Act or other
applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent Chase from
continuing to perform investment advisory, shareholder servicing, custodian or
other administrative services for the Fund. If that occurred, the Trust's Board
of Trustees promptly would seek to obtain for the Fund the services of another
qualified adviser, shareholder servicing agent, custodian or administrator, as
necessary. Although no assurances can be given, the Trust believes that, if
necessary, the switch to a new adviser, shareholder servicing agent, custodian
or administrator could be accomplished without undue disruption to the Fund's
operations.
7
<PAGE>
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASE AND REDEMPTION OF SHARES
PURCHASES
Class B Shares of the Prime Fund are continuously offered for sale via
exchange from Class B shares of any Vista Fund (as used herein, "Vista Funds"
includes all series of both the Trust and Mutual Fund Group, an affiliated
investment company, of which Chase is the adviser and VBDS in the distributor)
offering such shares without an initial sales load at the net asset value next
determined through Vista Broker-Dealer Services, Inc. after an order is received
and accepted by a Shareholder Servicing Agent, and if it is transmitted prior to
2:00 pm, Eastern Time, on any business day during which the New York Stock
Exchange and the Adviser are open for trading ("Fund Business Day"). (See "other
Information Concerning Shares of the Fund-Net Asset Value"). Shares of the Fund
may only be acquired via exchange from the same class of an existing Vista Fund
and only if the account registrations are identical. No contingent deferred
sales charge is imposed on the Class B Shares being disposed of in the exchange
into the Fund. However, a contingent deferred sales charge based on the original
share's purchase date may be applied to redemptions of the Fund.
CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES
The offering price of Class B shares is the next determined net asset value,
and no initial sales charge is imposed. However, a contingent deferred sales
charge is imposed upon certain redemptions of Class B shares.
The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption by the applicable percentage shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF NET
REDEMPTION DURING ASSET VALUE AT REDEMPTION
- -------------------------------------------------------------- -----------------------------
<S> <C>
1st Year Since Purchase....................................... 5%
2nd Year Since Purchase....................................... 4%
3rd Year Since Purchase....................................... 3%
4th Year Since Purchase....................................... 3%
5th Year Since Purchase....................................... 2%
6th Year Since Purchase....................................... 1%
7th Year Since Purchase....................................... 0%
</TABLE>
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
for Class B shares will be waived for certain exchanges and for redemptions in
connection with the Fund's systematic withdrawal plan. 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 death of the shareholder; (ii) a redemption in connection with a Minimum
Required Distribution from an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code (iii) redemptions made
8
<PAGE>
from an IRA, Keogh or custodial account under section 403(b) of the Internal
Revenue Code through an established Systematic Redemption Plan, as described on
page 10; (iv) distributions from a qualified plan upon retirement; (v) a
redemption resulting from an over-contribution to an IRA; and (vi) a redemption
of an account balance under $500, as described on page 10.
CONVERSION OF CLASS B SHARES. A shareholder's Class B shares will
automatically convert to Class A shares (and thus be subject to the lower
expenses borne by Class A shares) approximately eight years after the date of
purchase, together with the pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The
conversion will be effected at the relative net asset values per share of the
two classes on the first business day of the month in which the eighth
anniversary of the original purchase occurs. If any exchanges of Class B shares
during the eight-year period occurred, the holding period for the shares
exchanged will be counted toward the eight-year period.
Shareholder Servicing Agents may offer services to their customers,
including specialized procedures for the purchase and redemption of Shares, such
as pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs. Each Shareholder Servicing Agent may establish its own terms,
conditions and charges, including limitations on the amounts of transactions,
with respect to such services. Charges for these services may include fixed
annual fees, transaction fees, account maintenance fees and minimum account
balance requirements. The effect of any such fees will be to reduce the yield on
the investment of customers of that Shareholder Servicing Agent. Conversely,
certain Shareholder Servicing Agents may (although they are not required by the
Fund 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 (see "Shareholder Servicing Agents, Transfer
Agent and Custodian--Shareholder Servicing Agents"), which will have the effect
of increasing the yield on the investment of customers of that Shareholder
Servicing Agent.
The Fund reserves the right to cease offering shares for sale at any time,
to reject any order for the purchase of shares and to cease offering any
services provided by a Shareholder Servicing Agent. Fund shares will be
maintained in book entry form, and no certificates representing shares owned
will be issued to shareholders.
REDEMPTIONS
Shareholder may redeem all or any portion of the shares in their account on
any Fund Business Day at the net asset value next determined after a redemption
request in proper form is furnished by the shareholder to his Shareholder
Servicing Agent and transmitted by it to and received by the Fund's Transfer
Agent. Therefore, redemptions will be effected on the same day the redemption
order is received only if such order is received prior to 2:00 p.m., Eastern
time on any Fund Business Day. Shares which are redeemed earn dividends up to
and including the day prior to the day the redemption is effected. The proceeds
of a redemption will be paid in federal funds normally on the Fund Business Day
the redemption is effected, but in any event within seven days. A shareholder
who is a customer of a Shareholder Servicing Agent may redeem his Shares by
authorizing his Shareholder Servicing Agent or its agent to redeem such shares,
which the Shareholder Servicing Agent or its agent must do on a timely basis.
The signature of both shareholders is required for any written redemption
requests from a joint account. In addition, a redemption request may be deferred
for up to 15 calendar days if the Transfer
9
<PAGE>
Agent has been notified of a change in either the address or the bank account
registration previously listed in the Fund records. Redemption of Class B shares
are not subject to a contingent deferred sales charge to the extent that the
value of such shares represent: (i) reinvestment of dividends or capital gain
distributions; or (ii) shares redeemed more than six years after their purchase.
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing the reinvestment of dividends and capital gains distributions and
finally of other shares held by the shareholder for the longest period of time.
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 and those Class B shares being redeemed will be considered to represent
capital appreciation or dividend and capital gain distribution reinvestments in
other funds to the extent applicable and then of shares held for the longest
period of time. As a result, the contingent deferred sales charge imposed should
be at the lowest possible rate. The amount of any contingent deferred sales
charge imposed will reduce the gain or increase the loss on the amount realized
on redemption for purposes of federal income taxes.
The amount of any contingent deferred sales charge will be paid to VBDS.
The value of shares of the Fund redeemed may be more or less than the
shareholder's cost, depending on portfolio performance during the period the
shareholder owned his shares. Redemption of shares are taxable events on which
the shareholder may recognize a gain or loss. Although the Fund 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 (in most cases approximately $250,000).
The payment of redemption requests may be wired or mailed directly to a
previously designated domestic commercial bank account. However, all telephone
redemption requests in excess of $25,000 will be wired directly to such
previously designated bank account, for the protection of shareholders.
Normally, redemption payments will be transmitted on the next business day
following receipt of the request (provided it is made prior to 2:00 p.m.,
Eastern time on any day redemptions may be made). Redemption payments requested
by telephone may not be available in a previously designated bank account for up
to four days. A wire redemption may be requested by telephone or wire to the
Vista Service Center. For telephone redemptions, call the Vista Service Center
at (800) 34-VISTA.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
SYSTEMATIC REDEMPTION PLAN--CLASS B SHARES. A shareholder owning $20,000 or
more of the Class B shares of the Fund as determined by the then current net
asset value may also provide for the payment monthly or quarterly of amounts
from his account, subject to limits described below.
No contingent deferred sales charge will be imposed on such withdrawals for
Class B shares. The minimum monthly or quarterly withdrawal amounts will be $200
and $400 for Class B shares. In addition, a Class B shareholder may not withdraw
an amount exceeding 12% annually of his or her "Initial Account Value" for Class
B shares--i.e., the value of the Fund account at the time the shareholder elects
to participate in the systematic redemption plan. A Class B shareholder's
participation
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in the systematic redemption plan will terminate automatically if the
shareholder's Initial Account Value (adjusted upward for the net asset value of
Class B shares acquired after the election to participate in the systematic
redemption plan) less aggregate redemptions other than under the systematic
redemption plan falls below $20,000.
For further information as to how to direct a Shareholder Servicing Agent to
redeem shares of the Fund, a shareholder should contact his Shareholder
Servicing Agent.
REDEMPTION OF ACCOUNTS OF LESS THAN $500. The Fund may redeem the shares of
any shareholder, if at such time, the aggregate net asset value of the shares in
such shareholder's account is less than $500. In the event of any such
redemption, a shareholder 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 contingent deferred sales charge will be imposed.
EXCHANGE PRIVILEGES
Shareholders of the Class B Shares of the Fund may exchange such shares at
relative net asset value for Class B Shares of any of the Class B Shares of the
other Vista Funds, in accordance with the terms of the then-current prospectus
of the fund being acquired. The prospectus of the Vista Mutual Fund into which
shares are being exchanged should be read carefully prior to any exchange and
retained for future reference. Under the Exchange Privilege, Shares of the Fund
may be exchanged for shares of other funds of the Trust only if those funds are
registered in the states where the exchange may legally be made. In addition,
the account registration for the Vista Fund into which shares of the Fund are
being exchanged must be identical to that of the account registration for the
Fund from which shares are being redeemed. 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 up to five business days if the Fund determines
that it would be disadvantaged by an immediate transfer of the proceeds. This
privilege may be amended or terminated at any time without notice. Arrangements
have been made for the acceptance of instructions by telephone to exchange
shares if certain preauthorizations or indemnifications are accepted and on
file. Further information and telephone exchange forms are available from the
Transfer Agent.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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
involving a Fund in a year or three in a calendar quarter will be charged $5.00
administration fee per each such exchange.
GENERAL
The Fund has established certain procedures and restrictions, subject to
change from time to time, for redemption, and exchange orders, including
procedures for accepting telephone instructions and effecting automatic
investments and redemptions. The Fund's Transfer Agent may defer acting on a
shareholder's instructions until it has received them in proper form. In
addition, the privileges described in this Prospectus are not available until a
completed and signed account application for the original fund purchased has
been received by the Fund's Transfer Agent. Telephone transaction privileges are
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made available to shareholders automatically upon opening an account unless the
privilege is declined in section 6 of the original Account Application. Because
Class B Shares are available only via exchange any account privileges
established on the original fund application will be carried over to the new
Prime Fund B Share account. To provide evidence of telephone instructions, the
Transfer Agent will record telephone conversations with shareholders. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. In the event the Fund does not employ such procedures, it
may be liable for losses due to unauthorized or fraudulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agents are authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming shares of the Fund and depositing and withdrawing
monies from the bank account specified in the Bank Account Registration section
of the shareholder's latest account application or as otherwise properly
specified to the Fund in writing. Shareholders agree to release and hold
harmless the Funds, the Adviser, the Administrator, any Shareholder Servicing
Agent or sub-agent and broker-dealer, and the officers, directors, employees and
agents thereof against any claim, liability, loss, damage and expense for any
act or failure to act in connection with Fund shares, any related investment
account, any privileges or services selected in connection with such investment
account, or any written or oral instructions or requests with respect thereto,
or any written or oral instructions or requests from someone claiming to be a
shareholder if the Fund or any of the above-described parties follow
instructions which they reasonably believe to be genuine and act in good faith
by complying with the reasonable procedures that have been established for Fund
accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
The Fund may also establish and revise from time to time account minimums
and transactions or amount restrictions on exchanges, redemptions, or other
transactions permitted in connection with shareholder accounts. The Fund may
also 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 the bank account specified in the Bank Account Registration, or for
any written requests for additional account services made after a shareholder
has submitted an initial account application to the Fund. The Fund may refuse to
accept or carry out any transaction that does not satisfy any restrictions then
in effect.
TAX MATTERS
A prospective investor should review the more detailed discussion of federal
income tax considerations relevant to the Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with his own tax advisers as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund in
his own state and locality.
The Trust intends to qualify the Fund each year and elect that such Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). If the Fund qualifies as
a "regulated investment company" and all of its taxable income, if any, is
distributed to its shareholders in accordance with the timing requirements
imposed by
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the Code, it will not be subject to federal income tax on the amounts so
distributed. If for any taxable year the Fund does not qualify for the treatment
as a regulated investment company, all of its taxable income will be subject to
tax at regular corporate rates without any deduction for distributions to its
shareholders, and such distributions will be taxable to shareholders to the
extent of the Fund's current and accumulated earnings and profits.
The Trust is organized as a Massachusetts business trust and, under current
law, the Trust is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as the Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by the Fund of its taxable ordinary income (net of expenses)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are generally taxable to shareholders as ordinary income.
Such distributions are treated as dividends for federal income tax purposes, but
do not qualify for the dividends-received deduction for corporations.
Distributions by the Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time a shareholder has held his shares. The Fund will seek to
avoid recognition of capital gains.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the calendar year, including any portions which constitute ordinary
income dividends, capital gains dividends and exempt interest dividends will be
sent to each shareholder of the Fund promptly after the end of each calendar
year.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. Generally, shareholders are subject to backup
withholding if they have not provided the Fund with a correct taxpayer
identification number and certain required certifications.
OTHER INFORMATION CONCERNING SHARES OF THE FUNDS
NET ASSET VALUE
The net asset value of the shares of the the Prime Fund is determined as of
2:00 p.m., Eastern time, on each Fund Business Day (and on such other days as
the Trustees deem necessary in order to comply with Rule 22c-1 under the 1940
Act), by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) by the number of its shares outstanding at the time the determination
is made. The portfolio securities of the Fund are valued at their amortized cost
pursuant to Rule 2a-7 under the 1940 Act, certain requirements of which are
summarized under "Additional Information on Investment Policies and Techniques."
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. 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, and consideration
of certain actions before such deviation exceeds 1/2 of
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1%. Income earned on the Fund's investments is accrued daily and the net income,
as defined under "Distributions and Dividends" below, is declared each Fund
Business Day as a dividend. See "Determination of Net Asset Value" in the
Statement of Additional Information for further information regarding
determination of net asset value and the procedures to be followed to stabilize
the net asset value at $1.00 per share.
DISTRIBUTIONS AND DIVIDENDS
The net income of the Fund is determined each Fund Business Day. This
determination is made once during each such day as of 2:00 p.m., Eastern time.
All the net income, as defined below, of the Class B Shares so determined is
declared in shares as a dividend to shareholders of record at the time of such
determination. Shares begin accruing dividends on the day they are purchased.
Dividends are distributed monthly on or about the last business day of each
month (or on such other date in each month as the shareholder's Shareholder
Servicing Agent may designate as the dividend distribution date with respect to
a particular shareholder). Unless a shareholder elects to receive dividends in
cash (subject to the policies of the shareholder's Shareholder Servicing Agent),
dividends are distributed in the form of additional shares at the rate of one
share (and fractions thereof) for one dollar (and fractions thereof) of dividend
income.
For this purpose, the net income of the Prime Fund (from the time of the
immediately preceding determination thereof) shall consist of all income
accrued, including the accretion of discounts, less the amortization of any
premium on the portfolio assets of the Fund, less all actual and accrued
expenses determined in accordance with generally accepted accounting principles.
As noted above, securities are valued at amortized cost, which the Trustees have
determined in good faith constitutes fair value for the purposes of complying
with the 1940 Act. This valuation method will continue to be used until such
time as the Trustees determine that it does not constitute fair value for such
purposes.
Since the net income of the Fund is declared as a dividend each time its net
income is determined, the net asset value per share (i.e., the value of its net
assets divided by the number of its shares outstanding) is expected to remain at
$1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of a shareholder's investment,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in his account.
It is expected that the Fund will have a positive net income at the time of
each determination thereof. If for any reason the net income determined at any
time is a negative amount, which could occur, for instance, upon default by an
issuer of a portfolio security, the Fund would first offset the negative amount
with respect to each shareholder account from the dividends declared during the
month with respect to each such account. If and to the extent that such negative
amount exceeds such declared dividends at the end of the month, the number of
outstanding shares will be reduced by treating each shareholder as having
contributed to the capital of the Fund that number of full and fractional shares
in the account of such shareholder which represents his proportion of the amount
of such excess. Each shareholder will be deemed to have agreed to such
contribution in these circumstances by his investment. Thus, in almost all
circumstances the net asset value per share will be maintained at a constant
$1.00.
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DISTRIBUTION PLANS AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted a Distribution Plan (the "Distribution Plan") for
Class B shares in accordance with Rule 12-1 under the 1940 Act, after having
concluded that there is a reasonable likelihood that the Distribution Plan will
benefit the class and it respective shareholders.
The Class B Distribution Plan provides that the Fund shall pay distribution
fees including payments to the Distributor, at an annual rate not to exceed
0.75% of its average daily net assets for distribution services. Some payments
under the Distribution Plan may be used to compensate broker-dealers with trail
or maintenance commissions in amounts not to exceed 0.25% annualized of the
average net asset value of the Class B shares maintained in the Fund by such
broker-dealer's customers. Trail or maintenance commissions on Class B shares
will be paid to broker-dealers in the 13th month following the purchase of such
Class B shares. Since the distribution fees are not normally tied to expenses,
the amount of distribution fees paid by the Fund during any year may be more or
less than actual expenses incurred pursuant to the Distribution Plan. For this
reason, this type of distribution fee arrangement is characterized by the staff
of the Securities and Exchange Commission as the "compensation variety" (in
contrast to "reimbursement" arrangements by which a distributor's compensation
is directly linked to its expenses). With respect to the Class B shares, because
of the 0.75% annual limitation on the compensation paid to the Distributor
during a fiscal year, compensation relating to a large portion of the
commissions attributable to sales of Class B shares in any one year will be
accrued and paid by the Fund to the Distributor in fiscal years subsequent
thereto.
The Distribution and Sub-Administration Agreement dated April 15, 1994
provides that the Distributor will act as the principal underwriter of shares of
the Fund and bear the expenses of printing, distributing and filing prospectuses
and statements of additional information and reports used for sales purposes,
and of preparing and printing sales literature and advertisements not paid for
by the Distribution Plan. In addition, the Distributor will provide certain
sub-administration services, including providing officers, clerical staff and
office space. While there is no sales load, the Distributor receives a fee from
the Fund for sub-administration services at an annual rate equal to 0.05% of the
Fund's average daily net assets, on an annualized basis for the Fund's
then-current fiscal year. Other funds which have investment objectives similar
to those of the Fund, but which do not pay some or all of such fees from their
assets, may offer a higher return, although investors would, in some cases, be
required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its sub-administration fee to
pay for certain expenses incurred in connection with organizing new series or
classes of the Trust and certain other ongoing expenses of the Trust.
EXPENSES
The Prime Fund intends to pay all or its pro rata share of expenses,
including the compensation of the Trustees; governmental fees; interest charges;
taxes; membership dues in the Investment Company Institute; fees and expenses of
independent accountants, of legal counsel and of any transfer agent, Shareholder
Servicing Agent, or dividend disbursing agent; expenses of redeeming shares and
servicing shareholder accounts; expenses of preparing, printing and mailing
prospectuses, reports, notices, proxy
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statements and reports to shareholders and to governmental officers and
commissions; expenses connected with the execution, recording and settlement of
portfolio security transactions; insurance premiums; fees and expenses of the
Custodian including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating the net asset value of the Fund;
expenses of shareholder meetings; and the advisory fees payable to the Adviser
under the Investment Advisory Agreement, the administration fee payable to the
Administrator under the Administration Agreement and the sub-administration fee
payable to the Distributor under the Distribution and Sub-Administration
Agreement. Expenses relating to the issuance, registration and qualification of
shares of the Fund and the preparation, printing and mailing of prospectuses for
such purposes are borne by the Fund or the Shares except that the Distribution
and Sub-Administration Agreement with the Distributor requires the Distributor
to pay for prospectuses which are to be used for sales to prospective investors.
Pursuant to offering multiple classes of shares, certain expenses of the
Fund are borne by certain classes, either exclusively, or in a manner which
approximates the proportionate value received by the class as a result of the
expense being incurred.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. The Trust has reserved the right to create and issue
additional series or classes. Each share of a series or class represents an
equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Expenses
of the Trust which are not attributable to a specific series or class are
allocated among all the series in a manner believed by management of the Trust
to be fair and equitable. Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that shares held in the treasury of the Trust shall not be voted. Shares of each
series or class generally vote separately, for example to approve an investment
advisory agreement or distribution plan, but shares of all series and classes
vote together, to the extent required under the 1940 Act, in the election or
selection of Trustees and independent accountants.
Shareholders of the Class B Shares of the Prime Fund bear the fees and
expenses described in this Prospectus. Similarly, shareholders of the
counterpart Premier and Institutional Shares bear the fees and expenses
described in the appropriate prospectus for such class of Shares. Class B shares
pay ongoing distribution fees of 0.75% and shareholder servicing fees of .25%.
These expenses are the result of higher ongoing expenses incurred in conjunction
with Class B shares. As a result, at any given time the net yield on the Class B
shares will be approximately 1.02% lower than the yield on the counterpart
Premier Shares and 1.20% lower than the Institutional Shares. The Institutional
Shares pay no fees under shareholder servicing arrangements. Standardized yield
quotations will be computed separately for each class of Shares of the Fund.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class or of all series and
classes when in the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in
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accordance with certain rules of the Securities and Exchange Commission, be
removed from office when the holders of record of not less than two-thirds of
the outstanding shares either present a written declaration to the Trust's
Custodian or vote in person or by proxy at a meeting called for this purpose. In
addition, 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 the outstanding shares of the Trust. Finally, the Trustees shall, in
certain circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same series 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. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of that series or
class.
The Trust is an entity of the type commonly known as a "Massachusetts
business 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 exists and the Fund itself is unable to meet its
obligations.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated investment company, underwent a statutory reorganization
to become series of the Trust. The Fund is such a series and, therefore, certain
information contained in this prospectus reflects the history of the Fund since
its inception as a series of MFG and the fact that certain policies, plans and
shareholder privileges continued unchanged as a result of reorganization.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
perform various 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 class of shares as
to which the Shareholder Servicing Agent is so acting and certain other matters
pertaining to the Fund or class of shares; assist shareholders in designating
and changing dividend options, account designations and
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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) monthly and year-end statements and confirmations
of purchases and redemptions; transmit, on behalf of the Fund or class of
shares, proxy statements, annual reports, updated prospectuses and other
communications to shareholders; receive, tabulate and transmit to the Fund
proxies executed by shareholders with respect to meetings of shareholders of the
Fund or class of shares; vote the outstanding shares of the Fund or class of
shares whose shareholders do not transmit executed proxies or attend shareholder
meetings in the same proportion as the votes cast by other shareholders of the
Fund or class represented at the shareholder meeting as to which such
Shareholder Servicing Agent is the agent of record and provide such other
related services as the Funds or a shareholder may request. Shareholder
Servicing Agents may be required to register pursuant to state securities law.
For performing these services, each Shareholder Servicing Agent for the
Class B Shares receives certain fees, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. The fees
relating to acting as liaison to Shareholders and providing personal services to
shareholders will not exceed, on an annualized basis for each Fund's
then-current fiscal year, 0.25% for the Class B Shares of the Prime Fund of the
average daily net assets represented by shares owned during the period for which
payment is being made by investors for whom such Shareholder Servicing Agent
maintains a servicing relationship. Each Shareholder Servicing Agent may, from
time to time, voluntarily waive a portion of the fees payable to it. As
explained above, the Institutional Shares do not pay shareholder servicing fees.
In addition, Chase may provide other related services to the Fund for which it
may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Fund shares, receive dividends and
distributions on Fund investments, and take advantage of any services related to
an Account offered by such Shareholder Servicing Agent from time to time. All
Accounts and any related privileges or services shall be governed by the laws of
the State of New York, without regard to its conflicts of laws provisions.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities such as the Fund's shares. The Trust, on behalf
of the Fund, will engage banks, including Chase and its affiliates, as
Shareholder Servicing Agents only to perform advisory, custodian, administrative
and shareholder servicing functions as described above. While the matter is not
free from doubt, the management of the Trust believes that such laws should not
preclude a bank, including a bank which acts as investment adviser, custodian or
administrator, or in all such capacities for the Trust, from acting as a
Shareholder Servicing Agent. However, possible future changes in federal law or
administrative or judicial interpretations of current or
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future law, could prevent a bank from continuing to perform all or a part of its
servicing activities. If that occurred, the bank's shareholder clients would be
permitted to remain as shareholders and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trust does not expect that shareholders
would suffer any adverse financial consequences as a result of these
occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Trust. For its services as Transfer Agent,
DST receives such compensation as is from time to time agreed upon by the Trust
and DST. DST's address is 210 W. 10th Street, Kansas City, MO 64105. In this
capacity, DST maintains the account records of all shareholders in the Funds,
including statement preparation and mailing. DST is also responsible for
disbursing dividend distributions to shareholders. From time to time, DST and/or
the Fund may contract with other entities to perform certain services for the
Transfer Agent.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the assets
of the Fund for which
Chase receives compensation as is from time to time agreed upon by the Trust and
Chase. The Custodian's responsibilities include safeguarding and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Fund's investments,
maintaining books of original entry for portfolio and Fund accounting and other
required books and accounts, and calculating the daily net asset value of shares
of the Fund. Portfolio securities and cash may be held by sub-custodian banks if
such arrangements are reviewed and approved by the Trustees. The internal
division of Chase which serves as the Trust's Custodian does not determine the
investment policies of the Fund or decide which securities will be bought or
sold on behalf of the Funds or otherwise have access to or share material inside
information with the internal division that performs advisory services for the
Fund.
TAX SHELTERED RETIREMENT PLANS
Shares of the Prime Fund are offered in connection with the following
qualified prototype retirement plans: IRA, Rollover IRA, SEP-IRA,
Profit-Sharing, and Money Purchase Pension Plans which can be adopted by
self-employed persons ("Keogh") and by corporations, and 403(b) Retirement
Plans. Call or write the Transfer Agent for more information.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
The Prime Fund may invest in U.S. Government securities issued or guaranteed
as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof include certain U.S. Treasury obligations, consisting
of bills, notes and bonds, which principally differ only in their interest
rates, maturities and times of issuance, and obligations issued or guaranteed by
U.S. Government agencies and
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instrumentalities which are primarily supported by the full faith and credit of
the U.S. Treasury, such as securities of the Small Business Administration. The
Fund may also invest in selected securities issued or guaranteed by the U.S.
Treasury of which the principal and interest components of such securities are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities Program ("STRIPS"). In addition, the Fund may invest in
those obligations supported by
(i) the limited authority of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association), (ii) the authority of
the U.S. Government to purchase certain obligations of the issuer (such as
securities of the Federal National Mortgage Association), or (iii) only the
credit of the issuer. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government agencies and instrumentalities as
described in clauses (i), (ii) or (iii) above in the future, other than as set
forth above, since it is not obligated to do so by law. The Fund is also
permitted to invest in certain specialized U.S. Government agency securities,
which often provide higher yields than are available from the more common types
of government-backed instruments. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
the Fund were required to liquidate any of them, it might not be able to do so
advantageously. The Fund has no current intension to actively trade in STRIPS.
OTHER SECURITIES. 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 and are not deemed U.S. Government
securities, including "Treasury Receipts", "Treasury Investment Growth Receipts"
("TIGR's") and "Certificates of Accrual on Treasury Securities" ("CATS"). These
notes and bonds are held in custody by a bank on behalf of the owners of the
receipts.
DOMESTIC BANK OBLIGATIONS. The domestic bank obligations in which the Fund
may invest consist of certificates of deposit, time deposits and bankers'
acceptances issued or guaranteed by U.S. banks. Such bank 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. The foreign bank obligations in which the Fund may
invest consist of U.S. Dollar denominated obligations issued or guaranteed by
foreign banks, including foreign branches of U.S. banks, foreign banks and U.S.
branches of foreign banks. Such bank 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.
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 Fund, other than those of bank holding companies, include
obligations which are (i) rated Prime-I by Moody's, A-1 by Standard & Poor's or
F-1 by Fitch; or (ii) determined by the Adviser to be of comparable quality to
those rated obligations which may be purchased by the 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, Standard & Poor's or Fitch. The
commercial paper and other short-term obligations of U.S. bank holding companies
which may be purchased by the Fund include obligations issued or guaranteed by
bank holding companies with total assets exceeding $1 billion. For purposes of
the size standards with respect
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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.
The Prime Fund also may purchase floating and variable rate demand notes and
bonds, which are obligations normally having stated maturities in excess of 397
days, but which permit the holder to demand payment of principal at any time, or
at specified intervals not exceeding 397 days, in each case upon not more than
30 days' notice. Variable rate demand notes include master demand notes which
are obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders of such obligations. The interest rate on a floating rate
demand obligation is based on a known lending rate, such as a bank's prime rate,
and is adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and the borrower, it is not
contemplated that such instruments will generally be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and, if not so rated, the Fund may invest in them only if the Adviser determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which the Fund may invest. The Adviser, on behalf of the
Fund, will consider on an ongoing basis the creditworthiness of the issuers of
the floating and variable rate demand obligations in the Fund's portfolio. The
Fund will not invest more than 10% of the value of its total assets in floating
or variable rate demand obligations as to which it cannot exercise the demand
feature on not more than seven days' notice if there is no secondary market
available for these obligations, and in other securities that are not readily
marketable. In addition, the Fund will not trade in variable rate demand notes
that have interest rate caps except with respect to usury considerations.
Securities of Foreign Governments and Supranational Agencies. The Prime Fund
may invest up to 25% of its total assets in obligations of supranational
agencies, such as the International Bank for Reconstruction and Development,
also known as the World Bank, which 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. For a discussion
of the risks associated in investment in these securities, see "Risk Factors"
below.
The Prime Fund will limit its investments in U.S. Dollar denominated 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.
Repurchase Agreements. The Fund may, when appropriate, enter into repurchase
agreements (a purchase of and simultaneous commitment to resell a security at an
agreed-upon price and date which is
21
<PAGE>
usually not more than seven days from the date of purchase) only with member
banks of the Federal Reserve System and security dealers believed creditworthy
by the Trustees and only if fully collateralized by U.S. Government obligations
or other securities in which the Fund is permitted to invest. In the event the
seller fails to pay the agreed-to sum on the agreed-upon delivery date, the
underlying security could be sold by the Fund, but the Fund might incur a loss
in doing so, and in certain cases may not be permitted to sell the security. As
an operating policy, the Fund, through its custodian bank, takes constructive
possession of the collateral underlying repurchase agreements. Additionally,
procedures have been established for the Fund to monitor, on a daily basis, the
market value of the collateral underlying all repurchase agreements to ensure
that the collateral is at least 100% of the value of the repurchase agreements.
Not more than 10% of the total assets of the Fund will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days.
When-Issued or Forward Delivery Purchases. The Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a "forward delivery" basis, which means that the
securities will be delivered at a future date beyond the customary settlement
time. Although there is no limit as to the amount of the commitments which may
be made by the Fund to purchase securities on a "when-issued" or "forward
delivery" basis, it is expected that under normal circumstances not more than
30% of the Fund's total assets will be committed to such purchases. The Fund
does not pay for such obligations or start earning interest or receiving income
on them until the contractual settlement date. Although commitments to purchase
"when-issued" or "forward delivery" securities will only be made with the
intention of actually acquiring them, these securities may be sold before the
settlement date if deemed advisable by an Adviser.
While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases and have the effect of
leveraging. For example, when the time comes to pay for a "when-issued" or
"forward delivery" security, the Fund's portfolio securities may have to be sold
in order to meet payment obligations, and a sale of securities to meet such
obligations carries with it a greater potential for the realization of capital
gain. Also, if it is necessary to sell the "when-issued" or "forward delivery"
security before delivery, the Fund may incur a loss because of market
fluctuations since the time the commitment to purchase the "when-issued" or
"forward delivery" security was made. For additional information concerning
these risks and other risks associated with the purchase of "when-issued" or
"forward delivery" securities as well as other aspects of the purchase of
securities on a "when-issued" or "forward delivery" basis, including the
establishment of a segregated account, see "Investment Objective, Policies and
Restrictions--Investment Policies: When-Issued and Forward Delivery Purchases"
in the Statement of Additional Information.
Other Investment Policies and Restrictions. The Prime Fund has adopted
certain fundamental investment restrictions set forth in the Statement of
Additional Information, which include a restriction that the Fund will not
borrow money (including entering into reverse repurchase agreements) except from
banks and only for temporary or emergency purposes or to meet redemption
requests which might otherwise require the untimely disposition of securities;
provided that such borrowings in the aggregate may not exceed 10% of the value
of the Fund's total assets (including the amount borrowed) at the time of such
borrowing. The Fund will not purchase investment securities when the Fund's
outstanding
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borrowings exceed 5% of the value of its total assets. The Fund may invest up to
25% of its total assets in the securities of issuers in any industry, provided
that there is no limitation on investments of obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. The Prime Fund's
concentration policy regarding the U.S. and foreign banking industries may
involve certain additional credit risks, such as defaults or downgrades, if at
some future date adverse economic conditions prevail in such industries.
The Prime Fund may invest not more than 10% of its total assets in
repurchase agreements maturing in more than seven days or in other nonmarketable
or illiquid securities maturing in more than seven days, including reverse
repurchase agreements. Reverse repurchase agreements involve the sale of money
market securities held by the Fund with an agreement to repurchase the
securities at an agreed upon price, date and interest payment. Reverse
repurchase agreements have the same characteristics as borrowing by the Fund.
During the time a reverse repurchase agreement is outstanding, the Fund will
maintain a segregated custodial account containing U.S. Government or other
appropriate high quality debt securities having a value equal to the repurchase
price. Reverse repurchase agreements are usually for seven days or less and
cannot be repaid prior to their expiration dates.
The Prime Fund, in the normal course of business, does not intend to engage
in the lending of its securities, but it 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 Fund's
total assets. In connection with such loans, the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of credit
issued by financial institutions. Such collateral will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. The Fund can increase its income through the investment of
such collateral. The Fund continues to be entitled to the interest payable on
the loaned security and, in addition, receives interest on the amount of the
loan. Such loans will be terminable at any time upon specified notice. The Fund
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made only to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
Risk Factors. Foreign bank obligations include fixed time deposits which are
payable at a stated maturity date and bear a fixed rate of interest. Generally,
fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligations. The Prime Fund will
not invest more than 10% of its total assets in fixed time deposits. Fixed time
deposits do not have a market and therefore may be regarded as illiquid.
However, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party.
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
23
<PAGE>
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.
Foreign securities issued by foreign governments, any of their political
subdivisions, agencies and instrumentalities, debt obligations issued by foreign
banks and their branches and commercial paper issued by foreign issuers involve
investment risks in addition to those of domestic obligations of domestic
issuers, including the possibilities that liquidity could be impaired because of
future political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less publicly available information concerning foreign issuers, that
there may be difficulties in obtaining or enforcing a judgment against a foreign
issuer (including branches) or that the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign issuers
may differ from those applicable to United States issuers. In addition, foreign
banks are not subject to examination by any U.S. Government agency or
instrumentality.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolio of the
Fund will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolio of the Fund, the Adviser seeks
to take advantage of market developments, yield disparities and variations in
the creditworthiness of issuers. For a description of the strategies that may be
used by the Adviser in managing the portfolio of the Fund, which may include
adjusting the average maturity of a portfolio in anticipation of a change in
interest rates, see "Investment Objective, Policies and Restrictions--Investment
Policies: Portfolio Management" in the Statement of Additional Information.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Since money market instruments are generally
purchased in principal transactions, the Fund rarely pays brokerage commissions.
For a complete discussion of portfolio transactions and brokerage allocation,
see "Investment Objective, Policies and Restrictions-- Investment Policies:
Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information.
EFFECT OF RULE 2A-7 ON PORTFOLIO MANAGEMENT. The portfolio management of the
Fund is intended to comply with the provisions of Rule 2a-7 under the 1940 Act
(the "Rule") under which, if a Fund meets certain conditions, it may use the
"amortized cost" method of valuing its securities. Under the Rule, the maturity
of an instrument is generally considered to be its stated maturity (or in the
case of an instrument called for redemption, the date on which the redemption
payment must be made), with special exceptions for certain kinds of instruments.
Repurchase agreements and securities loan agreements are, in general, treated as
having a maturity equal to the period remaining until they can be executed.
In accordance with the provisions of the Rule, the Prime Fund must: (i)
maintain a dollar weighted average portfolio maturity (see above) not in excess
of 90 days; however the Fund does not plan to have
24
<PAGE>
a dollar weighted average portfolio maturity in excess of 60 days; (ii) limit
its investments, including repurchase agreements, to those instruments which are
denominated in U.S. dollars, which the Board of Trustees determines present
minimal credit risks, and which are of "high quality" as determined by at least
two major rating services; or, in the case of any instrument that is split-rated
or not rated, of comparable qualify as determined by the Board; and (iii) not
purchase any instruments with a remaining maturity (see above) of more than 397
days. The Rule also contains special provisions as to the maturity of variable
rate and floating rate instruments.
PORTFOLIO SECURITIES LENDING. Although the Fund does not intend to engage in
such activity in the ordinary course of business, the Fund is permitted to lend
its securities to broker-dealers and other institutional investors in order to
generate additional income. Such loans of portfolio securities may not exceed
30% of the value of the Fund's total assets. In connection with such loans, the
Fund will receive collateral consisting of cash, cash equivalents, U.S.
Government securities or irrevocable letters of credit issued by financial
institutions. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value plus accrued interest of the
securities loaned. The Fund can increase its income through the investment of
such collateral. The Fund continues to be entitled to the interest payable or
any dividend-equivalent payments received on a loaned security and, in addition,
receive interest on the amount of the loan. Such loans will be terminable at any
time upon specified notice. The Fund might experience risk of loss if the
institutions with which they have engaged in portfolio loan transactions breach
their agreements with the Fund. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower experience financial difficulty.
Loans will be made only to firms deemed by the Adviser to be of good standing
and will not be made unless, in the judgment of the Adviser, the consideration
to be earned from such loans justifies the risk.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Class B Shares may use hypothetical investment
examples and performance information in advertisements, shareholder reports or
other communications to shareholders. Because such performance information is
based on historical earnings, it should not be considered as an indication or
representation of the performance of the Class B Shares in the future. From time
to time, the yield of the Class B Shares, as a measure of its performance, 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 other relevant indices or to rankings prepared by
independent services or other financial or industry publications, such as Lipper
Analytical Services, Inc., or the Morningstar Mutual Funds on Disc, that monitor
the performance of mutual funds. In addition, the yield of the Class B Shares
may be compared to the IBC/Donoghue's Money Fund AveragesTM, compiled in the
Money Fund Report (R), as published by IBC/Donoghue Inc., a widely recognized
independent publication that monitors the performance of money market funds.
Also, the Class B Shares' yield data may be 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 publications of a local or
regional nature. The Prime Fund may, with proper authorization, reprint articles
written about the Fund and provide them to prospective shareholders.
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<PAGE>
The Fund may provide its annualized "yield" and "effective yield" to current
and prospective shareholders. The "yield" of a fund refers to the income
generated by an investment in the fund over a seven-day period (which period
shall be stated in any advertisement or communication with a shareholder). This
income is then "annualized", that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of investment. The "effective yield" is
calculated similarly, but when annualized the income earned by the investment
during that week is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of the Fund will vary based on interest rates,
the current market value of the securities held in the Fund's portfolio and
changes in the Fund's and the Shares' expenses. In addition, the Adviser, the
Administrator and each Shareholder Servicing Agent may voluntarily waive a
portion of their fees on a month-to-month basis. These actions would have the
effect of increasing the net income (and therefore the yield) of the Class B
Shares during the period such waivers are in effect. These factors and possible
differences in the methods used to calculate yields should be considered when
comparing the Class B Shares' yields to those published for other money market
funds and other investment vehicles. A Shareholder Servicing Agent may charge
its customers direct fees in connection with an investment (see "Purchases and
Redemptions of Shares--Purchases") which will have the effect of reducing the
net return on the investment of customers of that Shareholder Servicing Agent.
Conversely, the Class B Shares 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 (see "Purchases and Redemptions of Shares--Purchases"), 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. See
the Statement of Additional Information for further information concerning the
Fund's calculation of yield.
OTHER INFORMATION
The Statement of Additional Information contains more detailed information
about the Trust and the Prime Fund, including information related to (i) the
Fund's investment policies and restrictions,
(ii) risk factors associated with the Fund's policies and investments, (iii) the
Trust's Trustees, officers and the Administrator and the Adviser, (iv) portfolio
transactions and brokerage allocation, (v) the Fund's shares, including rights
and liabilities of shareholders, and (vi) additional performance information,
including the method used to calculate yield or total rate of return quotations
of the Fund. The audited financial statements for the Fund for its last fiscal
year end are incorporated by reference in the Statement of Additional
Information.
26
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 41932
Kansas City, MO 64141-6392
B SHARES
Prospectus
- ---------------------------------------- ------------------------
INVESTMENT ADVISER AND ADMINISTRATOR * VISTA PRIME
The Chase Manhattan Bank, N.A. MONEY MARKET FUND
DISTRIBUTOR
Vista Broker-Dealer Services, Inc.
TRANSFER AGENT
DST Systems, Inc.
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen
Kamin & Frankel
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
December 31, 1995
<PAGE>
PROSPECTUS
December 31, 1995
VISTASM
PREMIER SHARES
Mutual Fund Trust (the "Trust") is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994, presently consisting of 11 separate series
(the "Fund" or the "Funds"). Under a multi-class distribution system, the money
market Funds may be offered through three separate classes of shares (the
"Shares"). The Premier Shares, which are offered only to institutional
investors, are offered through the Vista Tax Free Money Market Fund, Vista U.S.
Government Money Market Fund, Vista Global Money Market Fund, Vista Treasury
Plus Money Market Fund, Vista Federal Money Market Fund and Vista Prime Money
Market Fund (the "Premier Shares") and are described in and offered pursuant to
this Prospectus. Of the Funds offered in this prospectus, only the Vista Tax
Free Money Market Fund is considered "non-diversified," and may invest more than
5% of its Fund's assets in the obligations of a single issuer. This may make the
value of shares of a Fund more susceptible to certain risks than shares of a
diversified mutual fund. Each Fund offered through this prospectus has a
different investment objective, as follows:
VISTA TAX FREE MONEY MARKET FUND ("Tax Free Fund") seeks 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, through investments primarily in short-term municipal obligations.
VISTA U.S. GOVERNMENT MONEY MARKET FUND ("U.S. Government Fund") seeks to
provide as high a level of current income as is consistent with the preservation
of capital and maintenance of liquidity, through investments in obligations
issued or guaranteed by the U.S. Treasury, agencies of the U.S. Government or
instrumentalities that have been established or sponsored by the U.S. Government
and repurchase agreements collateralized by such securities.
VISTA GLOBAL MONEY MARKET FUND ("Global Fund") seeks to provide maximum current
income consistent with preservation of capital and maintenance of liquidity
through investments in U.S. Dollar denominated commercial paper, obligations of
foreign governments, obligations guaranteed by U.S. banks, and securities issued
by the U.S. Government or its agencies.
VISTA TREASURY PLUS MONEY MARKET FUND ("Treasury Fund") seeks to provide maximum
current income consistent with the preservation of capital and maintenance of
liquidty through investments in (I) obligations issued by the U.S. Treasury and,
(ii) repurchase agreements fully collateralized by such U.S. Treasury
obligations.
VISTA FEDERAL MONEY MARKET FUND ("Federal Fund") seeks to provide current income
consistent with the preservation of capital and the maintenance of liquidty,
through investments in obligations issued or guaranteed as to principal and
interest by the U.S. Government or by U.S. Government agencies or
instrumentalities, the interest income from which, under current federal law,
generally may not be subject to state or local income taxes. The Federal Fund is
structured to provide shareholders with income which is exempt from state and
local income taxes.
VISTA PRIME MONEY MARKET FUND ("Prime Fund") seeks to provide maximum current
income consistent with the preservation of capital and the maintenance of
liquidty through investments in U.S. Dollar denominated high quality commercial
paper and other high quality short-term obligations; obligations of foreign
governments and supranational agencies; U.S. Dollar denominated obligations
issued or guaranteed by U.S. banks; securities issued or guaranteed by the U.S.
Government or by agencies and instrumentalities thereof; and repurchase
agreements.
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.
<PAGE>
AN INVESTMENT IN EACH FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THERE CAN BE NO ASSURANCE THAT THE
FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES.
VISTA BROKER-DEALER SERVICES, INC. ("VBDS") IS THE FUNDS' DISTRIBUTOR AND IS
UNAFFILIATED WITH CHASE. INVESTMENTS IN THE FUNDS 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, N.A. OR
ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY 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.
The Premier Shares are continuously offered for sale without a sales load
through VBDS, the Fund's distributor (the "Distributor"), only to institutional
investors who are customers of a financial institution, such as a federal or
state-chartered bank, trust company or savings and loan association with which
the Trust has entered into a shareholder servicing agreement (collectively,
"Shareholder Servicing Agents") or securities brokers or certain financial
institutions which have entered into Selected Dealer Agreements with the
Distributor. Each of the Premier Shares, other than the Global Fund, the
Treasury Fund, the Federal Fund and the Prime Fund has a distribution plan and
may incur distribution expenses, at an annual rate, not to exceed a specified
percentage of its average daily net assets. An investor should obtain from his
Shareholder Servicing Agent, if applicable, and should read in conjunction with
this Prospectus, the materials provided by the Shareholder Servicing Agent
describing the procedures under which Premier Shares may be purchased and
redeemed through such Shareholder Servicing Agent. Shares may be redeemed by
shareholders at the net asset value next determined on any Fund Business Day as
hereinafter defined.
This Prospectus sets forth concisely information concerning each Fund and
its Premier Shares that a prospective investor ought to know before investing. A
Statement of Additional Information for the Premier Shares dated December 31,
1995 containing more detailed information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the Statement of Additional
Information for the Premier Shares without charge by contacting the Distributor
or the Shareholder Servicing Agent.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
For information about each of the Premier Shares, simply call the Vista
Service Center at 1-800-34-VISTA.
2
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Expense Summary.............................................. 4
Financial Highlights......................................... 5
Investment Objectives and Policies........................... 11
Vista Tax Free Money Market Fund........................... 11
Vista U.S. Government Money Market Fund.................... 12
Vista Global Money Market Fund............................. 12
Vista Treasury Plus Money Market Fund...................... 13
Vista Federal Money Market Fund............................ 14
Vista Prime Money Market Fund.............................. 15
Management of the Funds...................................... 16
Purchases and Redemptions of Shares.......................... 18
Tax Matters.................................................. 22
Other Information Concerning Shares of the Funds............. 24
Shareholder Servicing Agents, Transfer Agent and Custodian... 28
Additional Information on Investment Policies and
Techniques................................................... 30
Common Fund Policies and Information......................... 33
Yield and Performance Information............................ 40
Appendix A--Description of Ratings........................... A-1
3
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
TAX FREE
TREASURY MONEY MARKET GLOBAL MONEY
FUND FEDERAL FUND PRIME FUND FUND U.S. GOVERNMENT MONEY MARKET FUND
------------ ------------ ------------ ------------ MARKET FUND ------------
PREMIER PREMIER PREMIER PREMIER --------------------- PREMIER
SHARES SHARES SHARES SHARES PREMIER SHARES SHARES
------------ ------------ ------------ ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
INVESTMENT ADVISORY
FEE (AFTER WAIVER OF
FEES)*............... 0.05% 0.10% 0.10% 0.10% 0.10% .10%
RULE 12B-1
DISTRIBUTION PLAN FEE
(AFTER WAIVER OF
FEES)*............... N/A N/A N/A 0.10% 0.10% N/A
ADMINISTRATION FEE
(AFTER WAIVER OF
FEES)*............... 0.00% 0.05% 0.04% 0.05% 0.05% .05%
OTHER EXPENSES
--SUB-ADMINISTRATION
FEE (AFTER WAIVER
OF FEES)*......... 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
--SHAREHOLDER
SERVICING AND FUND
SERVICING FEES
(AFTER WAIVER OF
FEES)+*........... 0.20% 0.19% 0.17% 0.16% 0.17% 0.17%
--OTHER OPERATING
EXPENSES++........ 0.20% 0.11% 0.09% 0.14% 0.08% 0.08%
TOTAL FUND OPERATING
EXPENSES............ 0.50% 0.50% 0.45% 0.60% 0.55% 0.45%
-- -- -- --- --- ---
-- -- -- --- --- ---
<CAPTION>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in a Fund, assuming (1) 5% annual return and (2)
redemption at the end of:
<S> <C> <C> <C> <C> <C> <C>
1 year.......... $ 5 $ 5 $ 5 $ 6 $ 6 $ 5
3 years......... 16 16 14 19 18 14
5 years......... 28 27 25 33 31 25
10 years........ 63 62 57 75 69 57
</TABLE>
- ------------
* Fees waived on a month-to-month basis.
+ Shareholder Servicing Agents may provide various services to their customers
and charge additional fees for these services. The Shareholder Servicing and
Fund Servicing Fees include fees for activities in connection with serving as
liaison for holders of Premier Shares and in providing personal services to
such shareholders as well as other ministerial and servicing activities. Fees
for the activities in connection with serving as liaison to, and providing
personal services to, holders of Premier Shares will not exceed the NASD's
maximum fee of 0.25% for these types of activities. The other ministerial and
servicing activities provided for the Fund include: assisting in processing
purchase and redemption transactions; transmitting and receiving funds in
connection with purchase and redemption orders; preparing and providing
periodic statements showing account balances; and preparing and transmitting
proxy statements and other periodic reports and communications from the Trust
to customers.
++ A shareholder may incur $10.00 charge for certain wire redemptions.
The expense summary is intended to assist investors in understanding the
various costs and expenses that a shareholder in any class of shares of each
Fund will bear directly or indirectly. The expense summary shows the investment
advisory fee, distribution fee, administrative fee, sub-administrative fee and
shareholder servicing agent fee expected to be incurred by Premier Shares of
each Fund, after waiver of fees.
Absent certain waivers, the annual investment advisory fees, administration
fees and sub-administration fees would be 0.10%, 0.05% and 0.05%, respectively,
for each of Fund's average net assets. Absent certain waivers, the distribution
fees for the Premier Shares of the Tax Free Fund and the U.S. Government Fund
would be 0.20% and 0.10%, respectively, of each Fund's average net assets. These
percentages include the potential expense reimbursement to the Distributor for
print and electronic media advertising of up to 0.05%. There is no Distribution
Plan for the Premier Shares of the Global Fund, the Federal Fund or the Prime
Fund.
Absent certain waivers, the shareholder servicing and fund servicing fees for
the Premier Shares of the Tax Fee Fund would be 0.30% of the average net assets
and 0.20% of the average net assets for the Premier Shares of each of the
remaining Funds.
As a result of the distribution fees, long-term investors may pay more than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. ("NASD"). More complete
descriptions of each Class of shares' expenses, including any fee waivers, are
set forth herein or in the prospectus for such class of Shares.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF A CLASS OF SHARES OF A FUND; ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provide 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 Statement of Additional Information.
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, whose reports thereon is included in the Annual Report
to shareholders.
TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
PREMIER SHARES
-------------------------------------------------------------
YEAR 11/1/93 YEAR ENDED OCTOBER 31, 7/18/90*
ENDED THROUGH ---------------------------- THROUGH
8/31/95 8/31/94++ 1993 1992 1991 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
-------- ---------- -------- -------- -------- ---------
Total from Investment Operations.......... 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
Total Distributions....................... 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+................. 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The tables set forth below provide 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 Statement of Additional Information.
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
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>
U.S. GOVERNMENT MONEY MARKET FUND(1)
-----------------------------------------------------------------------------------------------------------
PREMIER SHARES
-----------------------------------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 1
YEAR 11/1/93 YEAR ENDED THROUGH YEAR ENDED JUNE 30, YEAR ENDED SEPTEMBER 30,
ENDED THROUGH OCTOBER 31, OCT. 31,* ---------------------------- ---------------------------
8/31/95 8/31/94++ 1993 1992 1992 1991 1990(2) 1989 1988 1987
-------- --------- ----------- --------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <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 $ 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 0.083 0.065 0.058
Total from
Investment
Operations... 0.052 0.027 0.027 0.010 0.041 0.068 0.075 0.083 0.065 0.058
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income....... 0.052 0.027 0.027 0.010 0.041(3) 0.068 0.075 0.083 0.065 0.058
Total
Distributions... 0.052 0.027 0.027 0.010 0.041 0.068 0.075 0.083 0.065 0.058
NET ASSET VALUE,
END OF
PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 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% 6.34% 6.54% 5.78%
RATIOS/SUPPLEMENTAL
DATA
Net Assets,
End of Period
(000 omitted) $763,609 $545,999 $1,069,704 $ 108,505 $78,795 $193,398 $63,774 $84,752 $79,541 $82,068
Ratio of
Expenses to
Average Net
Assets+...... 0.55% 0.55% 0.55% 0.58% 0.57% 0.57% 0.72% 0.70% 0.67% 0.64%
Ratio of Net
Income to
Average Net
Assets+...... 5.22% 3.13% 2.66% 2.87% 4.10% 6.76% 7.46% 8.31% 6.54% 5.78%
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% -- -- -- --
<CAPTION>
1986 1985 1984
------- ------- ------
<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........ 0.062 0.072 0.083
Total from
Investment
Operations... 0.062 0.072 0.083
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income....... 0.062 0.072 0.083
Total
Distributions. 0.062 0.072 0.083
NET ASSET VALUE,
END OF
PERIOD......... $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN.... 6.24% 7.13% 6.25%
RATIOS/SUPPLEME
DATA
Net Assets,
End of Period
(000 omitted) $86,475 $14,523 $3,991
Ratio of
Expenses to
Average Net
Assets+...... 0.68% 1.03% 1.54%
Ratio of Net
Income to
Average Net
Assets+...... 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. The new portfolio is named Vista U.S.
Government Money Market Fund. In connection with its reorganization, shares
of the Trinity Government Fund were reorganized as Premier Shares of the
Vista U.S. Government Money Market Fund at $1 per share. In addition, net
assets of the former Vista U.S. Government Money Market Fund consisting of
both Vista and Premier Shares were reorganized as Vista shares and Premier
shares of the new Vista U.S. Government Money Market Fund, at $1 per share.
The per share data and ratios for the period prior to January 1, 1993 relate
to the Trinity Government 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The tables set forth below provide 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 Statement of Additional Information.
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
periods ended August 31, 1995, 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, 1992 have been audited by other
independent accountants.
<TABLE>
<CAPTION>
GLOBAL MONEY MARKET FUND(1)
- -------------------------------------------------------------------------------------------------------------
PREMIER SHARES
------------------------------------
FOR THE PERIOD
YEAR 11/1/93 JANUARY 1, 1993*
ENDED THROUGH THROUGH OCTOBER
8/31/95 8/31/94++ 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................................................. 0.053 0.029 0.026
-------- -------- -----
Total from Investment Operations...................................... 0.053 0.029 0.026
LESS DISTRIBUTIONS:
Dividends from net investment income.................................. 0.053 0.029 0.026
-------- -------- -----
Total Distributions................................................... 0.053 0.029 0.026
NET ASSET VALUE, END OF PERIOD.......................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- -----
-------- -------- -----
TOTAL RETURN+........................................................... 5.43% 2.97% 2.61%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted)............................... $473,456 $483,130 $606,939
Ratio of Expenses to Average Net Assets+.............................. 0.42% 0.45% 0.45%
Ratio of Net Investment Income to Average Net Assets+................. 5.26% 3.52% 3.03%
Ratio of expenses without waivers and assumption of expenses to
Average Net Assets+................................................. 0.51% 0.53% 0.47%
Ratio of net investment income without waivers and assumption of
expenses to Average Net Assets+..................................... 5.17% 3.44% 2.92%
</TABLE>
- ------------
+ Periods less than one year have been annualized.
++ In 1994 the Global Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering of shares.
(1) Trinity Money Market Fund and Vista Global Money Market Fund each
reorganized as a new portfolio of Mutual Fund Group effective January 1,
1993 in a tax-free reorganization. The new portfolio was named Vista Global
Money Market Fund. In connection with its reorganization, shares of the
Trinity Money Market Fund were reorganized as Vista Shares of Vista Global
Money Market Fund, and shares of the former Vista Global Money Market Fund
were reorganized as Premier Shares. The per share data and ratios for the
period prior to the reorganization relate to the Trinity Money Market Fund.
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 Statement of Additional Information.
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.
<TABLE>
<CAPTION>
VISTA TREASURY PLUS MONEY MARKET
- ----------------------------------------------------------------------------------------------
YEAR 4/22/94**
ENDED THROUGH
8/31/95 8/31/94
---------- ---------------
PREMIER
SHARES
----------------------------
<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 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 operations.
** Commencement of offering shares.
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 Statement of Additional Information.
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.
<TABLE>
<CAPTION>
VISTA FEDERAL MONEY MARKET
- --------------------------------------------------------------------------------------------
YEAR 4/22/94**
ENDED THROUGH
8/31/95 8/31/94
---------- ---------
PREMIER
SHARES
----------------------
<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 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 of 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 operations.
** Commencement of offering shares.
9
<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 Statement of Additional Information.
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.
<TABLE>
<CAPTION>
VISTA PRIME MONEY MARKET
- --------------------------------------------------------------------------------------------
YEAR 11/15/93*
ENDED THROUGH
8/31/95 8/31/94+
---------- ---------
PREMIER
SHARES
----------------------
<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 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 of 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.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
VISTA TAX FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the Tax Free Fund is to
provide its shareholders with 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 the maintenance of liquidity. The investment
objective of the Tax Free Fund may not be changed unless approved by the holders
of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The Tax Free Fund seeks to achieve its investment
objective by investing in short-term, fixed rate and variable rate Municipal
Obligations (as defined at page 39). The Municipal Obligations in which the Fund
invests will be of high quality and present minimal credit risks. Although the
Tax Free Fund does not anticipate doing so in normal circumstances to a
significant extent, it may hold uninvested cash reserves, which would adversely
affect its yield.
Although the Tax Free Fund will attempt to invest 100% of its assets in
Municipal Obligations, it reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which is includable in gross
income for federal income tax purposes or which constitutes a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. The Tax Free Fund may invest more than 25% of its assets in
Municipal Obligations secured by bank letters of credit or guarantees. In view
of this possible "concentration" in these Municipal Obligations with bank credit
support, an investment in the Tax Free Fund shares should be made with an
understanding of the characteristics of the banking industry and the potential
risks associated with such an investment. All investments of the Tax Free Fund
will mature or will be deemed to mature within 397 days from the date of
acquisition and the average maturity of the Fund's portfolio (on a
dollar-weighted basis) will be 90 days or less. The maturities of variable rate
demand instruments held in the Tax Free Fund's portfolio will be deemed to be
the longer of the demand period or the period remaining until the next interest
rate adjustment, although the stated maturities may be in excess of 397 days.
As a fundamental policy, the Tax Free Fund, during periods of normal market
conditions, 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 and, therefore, will not be subject to the federal alternative
minimum tax on individuals.
As a non-fundamental policy, the assets of the Tax Free Fund will only be
invested in obligations that satisfy certain ratings and other criteria. For
descriptions of these criteria and of certain types of investments that may be
purchased by the Tax Free Fund, including variable rate demand instruments,
"when-issued" securities and stand-by commitments, as well as further
information regarding the investment policies and techniques of the Tax Free
Fund, see "Additional Information on Investment Policies and Techniques".
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
11
<PAGE>
VISTA U.S. GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the U.S. Government Fund
is to provide its shareholders with as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
The investment objective of the U.S. Government Fund may not be changed unless
approved by the holders of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The U.S. Government Fund seeks to achieve its
investment objective by investing at least 80% of its assets in obligations that
are issued or guaranteed by the U.S. Treasury, by agencies of the U.S.
Government, and by instrumentalities that have been established or sponsored by
the U.S. Government, and in repurchase agreements collateralized by U.S.
Government obligations or other securities in which the U.S. Government Fund is
permitted to invest. The U.S. Government obligations in which such Fund invests
will be of high quality and present minimal credit risk. Although the U.S.
Government Fund does not anticipate doing so in normal circumstances, it may
hold uninvested cash reserves, which would adversely affect its yield. Neither
the United States nor any of its agencies insures or guarantees the market value
of shares of the U.S. Government Fund.
U.S. Treasury securities are backed by the "full faith and credit" of the
U.S. Government. Other U.S. Government obligations may or may not be 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.
Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. Government agencies which issue or guarantee securities backed by the
"full faith and credit" of the U.S. Government include the Government National
Mortgage Association ("GNMA"), the Farmer's Home Administration and the Small
Business Administration. The U.S. Government agencies and instrumentalities that
issue or guarantee securities not backed by the "full faith and credit" of the
U.S. Government include, but are not limited to the Federal Farm Credit System,
the Federal Land Banks, the Federal Intermediate Credit Banks, the Bank for
Cooperatives, the Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
The U.S. Government Fund intends to hold its portfolio securities to
maturity. Historically, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities have involved little risk of loss of
interest or principal, if held to maturity. All investments of the U.S.
Government Fund will mature or will be deemed to mature within 397 days from the
date of acquisition. In addition, the U.S. Government Fund intends to have a
dollar weighted average maturity of its portfolio securities of 60 days or less.
Securities in which the U.S. Government Fund will invest may not earn as high a
level of current income as long term or lower quality securities.
Shareholder approval is required to change any of the investment policies
discussed above or in "Additional Information on Investment Policies and
Techniques".
VISTA GLOBAL MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Global Fund is to
seek to provide maximum current income consistent with preservation of capital
and maintenance of liquidity. The investment objective of the Global Fund may
not be changed unless approved by the holders of a majority of the Fund's
outstanding shares.
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INVESTMENT POLICIES-- The Global Fund seeks to achieve its investment
objective by investing in (i) U.S. Dollar denominated 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets as
reported in recognized financial publications, or such other U.S. or foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria; (iv) securities issued or guaranteed as to principal and
interest by the U.S. Government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which
the Global Fund invests, described in greater detail under "Additional
Information on Investment Policies and Techniques," will be of high quality and
present minimal credit risks. To the extent that the Global Fund is invested in
STRIPS (see "Additional Information on Investment Policies and
Techniques--Global Fund"), those securities may be subject to greater
fluctuation of market value than other securities in which the Global Fund
invests. There can be no assurance that the Global Fund will achieve its
investment objective.
It is anticipated that, in normal circumstances, the Global Fund's assets
will include securities of issuers in at least three countries, including the
United States. However, all of such Fund's investments will be in U.S. Dollar
denominated securities with remaining maturities of 397 days or less. Securities
in which the Global Fund will invest may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value. Certain
instruments issued or guaranteed by issuers, including the U.S. Government or
agencies thereof, which have a variable rate of interest readjusted no less
frequently than annually are deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate. The dollar weighted
average maturity of the Global Fund will be 90 days or less.
VISTA TREASURY PLUS MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Treasury Fund is to
seek to provide maximum current income consistent with preservation of capital
and maintenance of liquidity. The investment objective of the Treasury Fund may
not be changed unless approved by the holders of a majority of the Treasury
Fund's outstanding shares.
INVESTMENT POLICIES-- The Treasury Fund seeks to achieve its investment
objective by investing in obligations issued by the U.S. Treasury, including
U.S. Treasury bills, bonds and notes. In addition, the Treasury Fund will seek
to enhance its yield by investing in repurchase agreements which are fully
collateralized by U.S. Treasury obligations.
All of the Treasury Fund's investments will be in U.S. dollar-denominated
securities with remaining maturities of 397 days or less. The dollar weighted
average maturity of the Fund will be 60 days or less.
The Treasury Fund may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government, including U.S.
Treasury bills, bonds, and notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund may also invest in
selected securities issued by the U.S. Treasury of which the principal and
interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). These obligations are usually issued at a discount to their "face
value" and because of the manner in which principal and interest are returned
may exhibit greater price volatility than more conventional debt securities. The
Treasury Fund's investments in these securities will
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be limited to U.S. Treasury Receipts and "interest only" stripped securities
that have been issued or guaranteed by the U.S. Government and are registered
under the STRIPS program.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA FEDERAL MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Federal Fund is to
seek maximum current income consistent with the preservation of capital and
maintenance of liquidity. The investment objective of the Federal Fund may not
be changed unless approved by the holders of a majority of the Federal Fund's
outstanding shares.
INVESTMENT POLICIES-- The Federal Fund seeks to achieve its investment
objective by investing primarily in direct obligations of the U.S. Treasury with
remaining maturities of 13 months or less such as Treasury Bills and Notes. The
fund may also from time to time invest in obligations with remaining maturities
of 13 months or less issued or guaranteed as to principal and interest by
certain agencies or instrumentalities of the U.S. Government, such as the Farm
Credit System Financial Assistance Corporation, Federal Financing Bank, General
Services Administration, Federal Home Loan Banks, Farm Credit System, Tennessee
Valley Authority and the Student Loan Marketing Association. Income on direct
investments in U.S. Treasury securities and obligations of the aforementioned
agencies and instrumentalities is generally not subject to state and local
income taxes by reason of federal law.
Shareholders in a particular state that imposes an income tax should
determine through consultation with their own tax advisors whether such interest
income, when distributed by the Federal 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
"Tax Matters". Due to state income tax considerations, the Federal Fund will not
enter into repurchase agreements.
All of the Federal Fund's investments will have remaining maturities of 397
days or less. The dollar weighted average maturity of the Fund will be 90 days
or less.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Federal Fund. The Federal Fund may from time to time engage in portfolio
trading for liquidity purposes in order to enhance its yield, or if otherwise
deemed advisable. In selling portfolio securities prior to maturity, the Federal
Fund may realize a price higher or lower than that paid to acquire such
securities, depending upon whether interest rates have increased or decreased
since its acquisition.
The Federal Fund may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government including U.S.
Treasury Bills, Bonds, and Notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Federal Fund may also
invest in selected securities issued by the U.S. Treasury of which the principal
and interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). These obligations are usually issued at a discount to their "face
value" and because of the manner in which principal and interest are returned
may exhibit greater price volatility than more conventional debt securities. The
Federal Fund's investments in these securities will be limited to U.S. Treasury
Receipts and "interest only" stripped securities that have been issued or
guaranteed by the U.S. Government which are registered under the STRIPS program.
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To the extent permissible by federal and state law, the Federal Fund is
structured to provide shareholders with income that is exempt or excluded from
taxation at the state and local level. Substantially all dividends paid to
shareholders residing in certain states will be exempt or excluded from state
income tax. Many states, by statute, judicial decision or administrative action,
have taken the position that dividends of a regulated investment company such as
the Federal Fund that are attributable to interest obligations of the U.S.
Treasury and certain U.S. Government agencies and instrumentalities are the
functional equivalent of interest from such obligations and are, therefore,
exempt from state and local income taxes. Investors should be aware of the
application of their state and local laws to investments in the Federal Fund.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Prime Fund is to seek
to provide maximum current income consistent with preservation of capital and
maintenance of liquidity. The investment objective of the Prime Fund may not be
changed unless approved by the holders of a majority of the Prime Fund's
outstanding shares.
INVESTMENT POLICIES-- The Prime Fund seeks to achieve its investment
objective by investing in (i) U.S. Dollar denominated 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets as
reported in recognized financial publications, or such other U.S. or foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria; (iv) securities issued or guaranteed as to principal and
interest by the U.S. Government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which
the Prime Fund invests, described in greater detail under "Additional
Information on Investment Policies and Techniques," will be of high quality and
present minimal credit risks. To the extent that the Prime Fund is invested in
STRIPS (see "Additional Information on Investment Policies and Techniques--Prime
Fund"), those securities may be subject to greater fluctuation of market value
than other securities in which the Prime Fund invests. There can be no assurance
that the Prime Fund will achieve its investment objective.
The Prime Fund may purchase the securities of issuers in foreign countries.
However, all of the Prime Fund's investments will be in U.S. Dollar denominated
securities with remaining maturities of 397 days or less. Securities in which
the Prime Fund will invest may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value. Certain instruments
issued or guaranteed by issuers, including the U.S. Government or agencies
thereof, which have a variable rate of interest readjusted no less frequently
than annually are deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate. The dollar weighted average maturity
of the Prime Fund will be 60 days or less.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
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MANAGEMENT OF THE FUNDS
ADVISER
THE CHASE MANHATTAN BANK, N.A. manages the assets of the Treasury Fund and the
Federal Fund pursuant to Investment Advisory Agreements dated April 15, 1994
and, the Tax Free Fund, the U.S. Government Fund, the Global Fund and the Prime
Fund pursuant to Investment Advisory Agreements dated October 25. Subject to
such policies as the Board of Trustees may determine, the Adviser makes
investment decisions for each Fund. For its services under the Investment
Advisory Agreements, the Adviser receives 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 may, from time to time, voluntarily waive all or a portion of the
fees payable to it under the Investment Advisory Agreements.
The Adviser, 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. Its headquarters is at One Chase Manhattan Plaza, New York, NY
10081. The Adviser, including its predecessor organizations, has over 100 years
of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. 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 Distributor or affiliates of
the Distributor. The Adviser 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 the
Adviser 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 on behalf of any Fund. The adviser
has informed the Funds that in making its investment decisions, it does not
obtain or use material inside
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information in the possession of any other division or department of such
Adviser or in the possession of any affiliate of such Adviser, including the
division of Chase 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.
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator of the Trust. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. The Administrator is
entitled to receive from each Fund a fee computed daily and paid monthly at an
annual rate equal to 0.05% of such Fund's average daily net assets. However, the
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable under the Administration Agreement. The Administrator, pursuant to
the terms of the Administration Agreement, shall not have any responsibility or
authority for each Fund's investments, the determination of investment policy,
or for any matter pertaining to the distribution of Fund shares.
GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Shareholder Servicing
Agreements and Custodian Agreement described below without violating the federal
banking law commonly known as the Glass-Steagall Act. The Act generally bars
banks from publicly underwriting or distributing certain securities.
Based on the advice of its counsel, Chase believes that the Court's decision
and these other decisions of federal banking regulators permit it to serve as
investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in shareholder servicing and custodial activities. Therefore, Chase
believes, based on advice of its counsel, that it may serve as shareholder
servicing agent to the Funds and render the services described in the
shareholder servicing agreements, and Chase believes, based on advice of its
counsel, that it may serve as Custodian to the Trust and render the services set
forth in the Custodian Agreement, as appropriate, incidental national banking
functions and as proper adjunct to its serving as investment adviser and
administrator to the Funds.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. Chase, on the
advice of its counsel, believes that it may render the services described in its
Administration Agreement without violating the Glass-Steagall Act or other
applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, shareholder servicing, custodian
or other administrative services for the Funds. If that occurred, the Trust's
Board of Trustees promptly would seek to obtain for the Funds the services of
another qualified adviser, shareholder servicing agent, custodian or
administrator, as necessary. Although no assurances can be given, the Trust
believes that, if necessary, the switch to a new adviser, shareholder servicing
agent, custodian or administrator could be accomplished without undue disruption
to the Funds' operations.
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In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
The Premier Shares are continuously offered for sale without a sales load at the
net asset value next determined through Vista Broker-Dealer Services, Inc.
("VBDS" or the "Distributor") after an order is received and accepted by a
Shareholder Servicing Agent if it is transmitted prior to 12:00 noon, Eastern
time for the Tax Free Fund, and prior to 2:00 p.m., Eastern time for the U.S.
Government Fund, Global Fund, Treasury Fund, Federal Fund and Prime Fund on any
business day during which the New York Stock Exchange and the Adviser are open
for trading ("Fund Business Day"). (See "Other Information Concerning Shares of
the Fund--Net Asset Value"). Orders for Premier Shares received and accepted
prior to the above designated times will be entitled to all dividends declared
on such day. The minimum initial purchase is $100,000. Shareholders must
maintain a minimum account balance of $100,000 in the Premier Shares at all
times.
It is anticipated that each Premier Shares' net asset value will remain
constant at $1.00 per share and each Fund will employ specific investment
policies and procedures to accomplish this result. Shares of each Fund are being
offered exclusively to customers of a Shareholder Servicing Agent (i.e., a
financial institution, such as a federal or state-chartered bank, trust company
or savings and loan association that has entered into a shareholder servicing
agreement with the Fund) or to customers of brokers or certain financial
institutions which have entered into Selected Dealer Agreements with VBDS. An
investor may purchase Premier Shares by authorizing his Shareholder Servicing
Agent, broker or financial institution to purchase such Shares on his behalf
through the Distributor, which the Shareholder Servicing Agent, broker or
financial institution must do on a timely basis. All share purchases must be
paid for in U.S. dollars, and checks must be drawn on U.S. banks. In the event a
check used to pay for shares purchased is not honored by the bank on which it is
drawn, the purchase order will be cancelled and the shareholder will be liable
for any losses or expenses incurred by the Fund or its agents.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 calendar days. In addition, redemption
of shares purchased by periodic automatic investment will not be allowed for 7
calendar days.
Shareholder Servicing Agents may offer services to their customers,
including specialized procedures for the purchase and redemption of Premier
Shares, such as pre-authorized or systematic purchase and redemption programs
and "sweep" checking programs. Each Shareholder Servicing Agent may establish
its own terms, conditions and charges, including limitations on the amounts of
transactions, with respect to such services. Charges for these services may
include fixed annual fees, transaction fees, account maintenance fees and
minimum account balance requirements. The effect of any such fees will be to
reduce the yield on the investment of customers of that Shareholder Servicing
Agent. Conversely, certain Shareholder Servicing Agents may (although they are
not required by a Fund 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 (see "Shareholder Servicing
Agents, Transfer Agent and Custodian--Shareholder Servicing Agents"), which will
have the effect of increasing the yield on the investment of customers of that
Shareholder Servicing Agent. Shareholder Servicing Agents may also increase or
reduce the minimum dollar amount required to invest in the Funds and waive any
applicable holding periods.
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Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to enhance the yield on its assets. Accordingly, in order
to make investments which will immediately generate income, each Fund must have
federal funds available to it (i.e., monies credited to the account of such
Fund's custodian bank by a Federal Reserve Bank). Each Shareholder Servicing
Agent has agreed to provide each of the Premier Shares with federal funds for
each purchase at the time it transmits the order for such purchase to the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, his Shareholder Servicing Agent, there may be a delay
in transmitting and effecting his purchase order since his Shareholder Servicing
Agent will have to convert his check, bank draft, money order or similar
negotiable instrument into federal funds prior to effecting the purchase order.
In such case, the purchase order will be effected at the purchase price per
share next determined after the conversion to federal funds has been
accomplished. If such a delay is necessary, it is expected that in most cases it
would not be longer than two business days.
Each of the Premier Shares reserves the right to cease offering shares for
sale at any time, to reject any order for the purchase of shares and to cease
offering any services provided by a Shareholder Servicing Agent. Fund shares
will be maintained in book entry form, and no certificates representing shares
owned will be issued to shareholders.
For further information as to how to direct a Shareholder Servicing Agent to
purchase shares of a Fund, an investor should contact his or her Shareholder
Servicing Agent.
SYSTEMATIC INVESTMENT PLAN. Shareholders may establish a monthly investment
plan by which investments are automatically made to his/her Vista Fund account
through Automatic Clearing House (ACH) deductions from a checking account. The
minimum monthly investment through this plan is $1,000. Shareholders may choose
either to have these investments made during the first or third week each month.
Please note that your initial ACH transactions may take up to 10 days from the
receipt of your request to be established.
Shareholders electing to start this Systematic Investment Plan when opening
an account should complete Section 8 of the account application. Current
shareholders may begin a Systematic Investment Plan at any time by sending a
signed letter with signature guarantee to the Vista Service Center, P.O. Box
419392, Kansas City, MO 64141-6392. The letter should contain your Vista Fund
account number, the desired amount and cycle of the systematic investment, and
must include a voided check from the checking account from which debits are to
be made. A signature guarantee may be obtained from a bank, trust company,
broker-dealer or other member of the national securities exchange. Please note
that notaries public cannot provide signature guarantees.
REDEMPTIONS
Shareholders may redeem all or any portion of the shares in their account on
any Fund Business Day at the net asset value next determined after a redemption
request in proper form is furnished by the shareholder to his Shareholder
Servicing Agent and transmitted by it to and received by a Fund's Transfer
Agent. Therefore, redemptions will be effected on the same day the redemption
order is received only if such order is received prior to 12:00 noon, Eastern
time for the Tax Free Fund, and prior to 2:00 p.m., Eastern time for the U.S.
Government Fund, Global Fund, Treasury Fund, Federal Fund and Prime Fund on any
Fund Business Day. Shares which are redeemed earn dividends up to and including
the day prior to the day the redemption is effected. The proceeds of a
redemption will be paid in federal funds normally on the Fund Business Day the
redemption is effected, but in any event within seven days. The forwarding of
proceeds from redemption of shares which were recently purchased by check may be
delayed until the purchase check has cleared, which may take up to fifteen days.
A shareholder who is a customer of a Shareholder Servicing Agent may redeem his
Premier Shares by authorizing his Shareholder Servicing Agent or its agent to
redeem such shares, which the Shareholder Servicing Agent or its agent must do
on a timely basis.
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The signature of both shareholders is required for any written redemption
requests (other than those by check) from a joint account. In addition, a
redemption request may be deferred for up to 15 calendar days if the Transfer
Agent has been notified of a change in either the address or the bank account
registration previously listed in the Fund records. The value of shares of the
Fund redeemed may be more or less than the shareholder's cost, depending on
portfolio performance during the period the shareholder owned his shares.
Redemption of shares are taxable events on which the shareholder may recognize a
gain or loss.
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 under 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).
The payment of redemption requests may be wired or mailed directly to a
previously designated domestic commercial bank account. However, all telephone
redemption requests in excess of $25,000 will be wired directly to such
previously designated bank account, for the protection of shareholders.
Normally, redemption payments will be transmitted on the next business day
following receipt of the request (provided it is made prior to 12:00 noon,
Eastern time for the Tax Free Fund and prior to 2:00 p.m., Eastern time for the
U.S. Government Fund, Prime Fund, Federal Fund, Treasury Fund and Global Fund,
on any day redemptions may be made). Redemption payments requested by telephone
may not be available in a previously designated bank account for up to four
days. If no share certificates have been issued, a wire redemption may be
requested by telephone or wire to the Vista Service Center. For telephone
redemptions, call the Vista Service Center at (800) 34-VISTA.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
AUTOMATIC REDEMPTION PLAN. A shareholder owning $10,000 or more of the
shares of a Fund as determined by the then current net asset value may provide
for the payment monthly or quarterly of any requested dollar amount (subject to
limits) from his account to his order. A sufficient number of full and
fractional shares will be redeemed so that the designated payment is received on
approximately the 1st or 15th day of the month following the end of the selected
payment period.
EXCHANGE PRIVILEGES
Shareholders of the Premier Shares of the Funds may exchange at relative net
asset value among such Premier Shares of each of the Funds, and may exchange at
relative net asset value plus any applicable sales charges, for the shares of
the non-money market Vista Funds of the Trust or for the shares of the non-money
market Vista Funds of Mutual Funds Group ("MFG"), an affiliated investment
company, of which Chase is the advisor and VBDS is the distributer, in
accordance with the terms of the then-current prospectus of the Fund being
acquired. The prospectus of the Vista Fund into which shares are being exchanged
should be read carefully prior to any exchange and retained for future
reference. With respect to exchanges into a fund which charges a front-end sales
charge, such sales charge will not be applicable if the shareholder previously
acquired his Premier Shares by exchange from such fund.
Under the Exchange Privilege, Shares of a Fund may be exchanged for shares
of other funds of the Trust or MFG only if those Funds are registered in the
states where the exchange may legally be made. In addition, the account
registration for the Vista Fund (whether a Fund of the Trust or MFG) into which
shares of the Funds are being exchanged must be identical to that of the account
registration for the Fund from which shares are being redeemed. 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
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on the Redemption Date, but such purchase may be delayed by either Fund up to
five business days if the Fund determines that it would be disadvantaged by an
immediate transfer of the proceeds.
This privilege may be amended or terminated at any time without notice.
Arrangements have been made for the acceptance of instructions by telephone to
exchange shares if certain preauthorizations or indemnifications are accepted
and on file. Further information and telephone exchange forms are available from
Vista Service Center.
MARKET TIMING. The exchange privilege described in each Prospectus 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 other
circumstances where the Trustees, or Adviser believes doing so would be in the
best interest 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 a Fund in a year or three in a calendar quarter will be charged
$5.00 administration fee per each such exchange.
GENERAL
The Funds have 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 this Prospectus are not available
until a completed and signed account application has been received by the Fund's
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. To provide evidence of
telephone instructions, the Transfer Agent will record telephone conversations
with shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such procedures, it may be liable for losses due to unauthorized or
fraudulent instructions.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Funds or their agents are 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 a Fund and depositing and withdrawing monies
from the bank account specified in the Bank Account Registration section of the
shareholder's latest account application or as otherwise properly specified to
the Funds in writing. Shareholders agree to release and hold harmless the Funds,
the Adviser, the Administrator, any Shareholder Servicing Agent or sub-agent and
broker-dealer, and the officers, directors, employees and agents thereof against
any claim, liability, loss, damage and expense for any act or failure to act in
connection with Fund shares, any related investment account, any privileges or
services selected in connection with such investment account, or any written or
oral instructions or requests with respect thereto, or any written or oral
instructions or requests from someone claiming to be a shareholder if the Funds
or any of the above-described parties follow instructions which they reasonably
believe to be genuine and act in good faith by complying with the reasonable
procedures that have been established for Fund accounts and services.
Shareholders purchasing their shares through a Shareholder Servicing Agent
may not assign, transfer or pledge any rights or interest in any Fund shares or
any investment account established with a Shareholder Servicing Agent to any
other person without the prior written consent of such Shareholder Servicing
Agent, and any attempted assignment, transfer or pledge without such consent may
be disregarded.
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The Funds may also establish and revise from time to time account minimums
and transactions or amount restrictions on purchases, exchanges, redemptions,
checkwriting services, or other transactions permitted in connection with
shareholder accounts. The Funds may also 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 the bank account specified in
the Bank Account Registration, or for any written requests for additional
account services made after a shareholder has submitted an initial account
application to the Funds. The Funds may refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect.
TAX MATTERS
The following discussion is addressed primarily to individual investors and
is for general information only. A prospective investor, including a corporate
investor, should also review the more detailed discussion of federal income tax
considerations relevant to each Fund that is contained in the Statement of
Additional Information. In addition, each prospective investor should consult
with his own tax advisers as to the tax consequences of an investment in the
Funds, including the status of distributions from a Fund in his own state and
locality and the possible applicability of the federal alternative minimum tax
to a portion of the distributions of the Tax Free Fund.
The Trust intends to qualify each Fund each year and elect that each Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). If a Fund qualifies as a
"regulated investment company" and all of its taxable income, if any, is
distributed to its shareholders in accordance with the timing requirements
imposed by the Code, it will not be subject to federal income tax on the amounts
so distributed. If for any taxable year a Fund does not qualify for the
treatment as a regulated investment company, all of its taxable income will be
subject to tax at regular corporate rates without any deduction for
distributions to its shareholders, and such distributions will be taxable to
shareholders to the extent of each Fund's current and accumulated earnings and
profits.
The Trust is organized as a Massachusetts business trust and, under current
law, the Trust is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as each Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by a Fund of its taxable ordinary income (net of expenses) and
the excess, if any, of its net short-term capital gain over its net long-term
capital loss are generally taxable to shareholders as ordinary income. Such
distributions are treated as dividends for federal income tax purposes, but do
not qualify for the dividends-received deduction for corporations. Distributions
by the Tax Free Fund of its tax-exempt interest income (net of expenses) are
designated as "exempt-interest dividends" which are excluded from gross income
for regular federal income tax purposes. Distributions by a Fund of the excess,
if any, of its net long-term capital gain over its net short-term capital loss
are designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Each Fund will seek to avoid recognition of capital gains.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by a Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the calendar year, including any portions which constitute ordinary
income dividends, capital gains dividends and exempt interest dividends will be
sent to each shareholder of a Fund promptly after the end of each calendar year.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by a Fund.
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Generally, shareholders are subject to backup withholding if they have not
provided a Fund with a correct taxpayer identification number and certain
required certifications.
U.S. GOVERNMENT FUND. Shareholders of the U.S. Government Fund (other than
tax-exempt shareholders) will be subject to federal income tax on the ordinary
income dividends and any capital gains dividends from the Fund and may also be
subject to state and local taxes. The laws of some states and localities,
however, exempt from some taxes dividends such as those paid on shares of the
U.S. Government Fund to the extent such dividends are attributable to interest
from obligations of the U.S. Government and certain of its agencies and
instrumentalities. The U.S. Government Fund intends to advise their shareholders
of the proportion of their ordinary income dividends which are attributable to
such interest.
The State of New York, for example, exempts from its personal income tax
dividends such as those paid on shares of the U.S. Government Fund to the extent
such dividends are attributable to interest from obligations of the U.S.
Government and certain of its agencies and instrumentalities, provided that at
least 50% of the Fund's portfolio consists of such obligations and the Fund
complies with certain notice requirements. The New York State Department of
Taxation and Finance (like most other States) currently takes the position,
however, that certain obligations backed by the full faith and credit of the
U.S. Treasury, such as GNMA Certificates, and repurchase agreements backed by
any U.S. Government obligation, do not constitute exempt obligations of the U.S.
Government. Under present market conditions, it is expected that less than 50%
of the U.S. Government Fund's portfolio will consist of obligations which the
New York state Department of Taxation and Finance views as exempt. Accordingly,
it is likely that no portion of the dividends paid on shares of the Fund will be
exempt from New York State personal income tax.
Shareholders are urged to consult their tax advisers regarding the possible
exclusion from state and local income tax of a portion of the dividends paid on
shares of the U.S. Government Fund which is attributable to interest from
obligations of the U.S. Government and its agencies and instrumentalities.
TAX FREE FUND. In accordance with the investment objectives of the Tax Free
Fund, it is expected that most or all of the net investment income of the Fund
will be attributable to interest from Municipal Obligations, although from time
to time a portion of the portfolio of the Fund may be invested in short-term
taxable obligations since the preservation of capital and the maintenance of
liquidity are important aspects of the Fund's investment objective. As a result,
most or all of the dividends paid out of the Tax Free Fund's net investment
income will be designated "exempt-interest dividends". The percentage of such
dividends so designated will be applied uniformly to all such dividends from the
Fund made during each fiscal year and may differ from the actual percentage for
any particular month. Any dividends paid out of any net long-term or short-term
capital gains will be taxable to shareholders, although the Tax Free Fund will
seek to avoid recognition of capital gains.
Although excluded from gross income for regular federal income tax purposes,
exempt-interest dividends, together with other tax-exempt interest, are required
to be reported on shareholders' federal income tax returns, and are taken into
account in determining the portion, if any, of Social Security benefits which
must be included in gross income for federal income tax purposes. In addition,
exempt-interest dividends paid out of interest on certain Municipal Obligations
that may be purchased by the Tax Free Fund will be treated as a tax preference
item for both individual and corporate shareholders potentially subject to an
alternative minimum tax ("AMT"), and all exempt-interest dividends will be
included in computing a corporate shareholder's adjusted current earnings, upon
which is based a separate corporate preference item which may be subject to AMT
and to the environmental superfund tax.
Interest on indebtedness incurred to purchase or carry shares of the Tax
Free Fund is not deductible. Further, entities or persons who may be
"substantial users" (or persons related to "substantial users") of facilities
financed by certain types of Municipal Obligations should consult with their own
tax advisers before purchasing shares of the Tax Free Fund.
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The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. Shareholders of
the Tax Free Fund may be exempt from state and local taxes on exempt-interest
dividends paid out of interest on Municipal Obligations of the state and/or
municipalities of the state in which they reside but may be subject to state and
local tax on exempt-interest dividends paid out of interest on Municipal
Obligations of other jurisdictions.
OTHER INFORMATION CONCERNING SHARES OF THE FUNDS
NET ASSET VALUE
The net asset value of the shares of the Tax Free Fund is determined at 12:00
noon, Eastern time and the net asset value of the shares of each of the U.S.
Government Fund, the Global Fund, the Treasury Fund, the Federal Fund and the
Prime Fund is determined as of 2:00 p.m., Eastern time, on each Fund Business
Day, by dividing the value of a Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) by the number of its shares outstanding at the time the determination
is made. The portfolio securities of each Fund are valued at their amortized
cost pursuant to Rule 2a-7 under the 1940 Act, certain requirements of which are
summarized under "Additional Information on Investment Policies and Techniques."
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 these 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. 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, and
consideration of certain actions before such deviation exceed 1/2 of 1%. Income
earned on a Fund's investments is accrued daily and the Net Income, as defined
under "Distributions and Dividends" below, is declared each Fund Business Day as
a dividend. See "Determination of Net Asset Value" in the Statement of
Additional Information for further information regarding determination of net
asset value and the procedures to be followed to stabilize the net asset value
at $1.00 per share.
DISTRIBUTIONS AND DIVIDENDS
The net income of the Premier Shares is determined each Fund Business Day
(and on such other days as the Trustees deem necessary in order to comply with
Rule 22c-1 under the 1940 Act). This determination is made once during each such
day as of 12:00 noon, Eastern time for the Tax Free Fund and as of 2:00 p.m.,
Eastern time for the U.S. Government Fund, the Global Fund, the Treasury Fund,
the Federal Fund and the Prime Fund. All the net income, as defined below, of
the Premier Shares so determined is declared as a dividend to shareholders of
record at the time of such determination. Shares begin accruing dividends on the
day they are purchased. Dividends are distributed monthly on or about the last
business day of each month (or on such other date in each month as the
shareholder's Shareholder Servicing Agent may designate as the dividend
distribution date with respect to a particular shareholder). Unless a
shareholder elects to receive dividends in cash (subject to the policies of the
shareholder's Shareholder Servicing Agent), dividends are distributed in the
form of additional shares at the rate of one share (and fractions thereof) for
each one dollar (and fractions thereof) of dividend income.
For this purpose, the net income of the Premier Shares (from the time of the
immediately preceding determination thereof) shall consist of all income
accrued, including the accretion of discounts,
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except for the Tax Free Fund, less the amortization of any premium on the
portfolio assets of such Fund, less all actual and accrued expenses determined
in accordance with generally accepted accounting principles. As noted above,
securities are valued at amortized cost, which the Trustees have determined in
good faith constitutes fair value for the purposes of complying with the 1940
Act. This valuation method will continue to be used until such time as the
Trustees determine that it does not constitute fair value for such purposes.
Since the net income of the Premier Shares is declared as a dividend each
time its net income is determined, the net asset value per share (i.e., the
value of its net assets divided by the number of its shares outstanding) is
expected to remain at $1.00 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment, representing the reinvestment of dividend income, is reflected by an
increase in the number of shares in his account.
It is expected that the Premier Shares will have a positive net income at
the time of each determination thereof. If for any reason the net income
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of a portfolio security, the Fund would first offset
the negative amount with respect to each shareholder account from the dividends
declared during the month with respect to each such account. If and to the
extent that such negative amount exceeds such declared dividends at the end of
the month, the number of outstanding shares will be reduced by treating each
shareholder as having contributed to the capital of the Fund that number of full
and fractional shares in the account of such shareholder which represents his
proportion of the amount of such excess. Each shareholder will be deemed to have
agreed to such contribution in these circumstances by his investment. Thus, the
net asset value per share will be maintained at a constant $1.00.
DISTRIBUTION PLANS AND DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Trustees have adopted Distribution Plans (a "Distribution Plan") for the
Tax Free and the U.S. Government Fund in accordance with Rule 12b-1 under the
1940 Act, after having concluded that there is a reasonable likelihood that the
Distribution Plans will benefit each of the Premier Shares of those Funds and
their shareholders.
Each Distribution Plan provides that each Fund other than the Global Fund,
the Treasury Fund, the Federal Fund and the Prime Fund shall pay distribution
fees (the "Basic Distribution Fee"), including payments to the Distributor, at
an annual rate not to exceed 0.15% of the average daily net assets for the
Premier Shares of the Tax Free Fund, and 0.10% for the Premier Share of U.S.
Government Fund. There is no Distribution Plan for the Global Fund. The
Distributor may, from time to time, voluntarily waive all or a portion of its
fees payable under the Distribution Plan. Since the Basic Distribution Fee is
not directly tied to expenses, the amount of Basic Distribution Fees paid by
each of the Premier Shares during any year may be more or less than actual
expenses incurred pursuant to the Distribution Plan. 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 compensation is directly
linked to its expenses). However, the Premier Shares are not liable for any
distribution expenses incurred in excess of the Basic Distribution Fee paid. The
Trustees have also adopted distribution plans for the Vista Shares of the Tax
Free Fund, U.S. Government Fund and the Federal Fund. Such plans are identical
in all material respects to the Distribution Plan described above, except that
the Basic Distribution Fees under such plans may not exceed 0.20% of the Vista
Shares of the Tax Free Fund's average daily net assets and 0.10% of the U.S.
Government Fund's and Federal Fund's average daily net assets. Pursuant to the
Distribution Plan for the Vista Shares of the Federal Fund, Sheffield Management
Company may be paid a distribution fee of up to 0.10% of the average net assets
of the Fund. No class of shares of a Fund
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will make payments or be liable for any distribution expenses incurred by the
other class of shares of such Fund.
Under the Distribution Plan, the Tax Free Fund is permitted to pay an
additional fee at an annual rate not to exceed 0.05% of its average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with print or electronic media advertising in connection with the
sale of Fund shares. When such expenses are incurred, the maximum compensation
paid by the Tax Free[] Fund under the Distribution Plan would be at an annual
rate of 0.20% of its average daily net assets.
The Distribution and Sub-Administration Agreement dated April 15,1994 for
the Funds (the "Distribution Agreement") provides that the Distributor will act
as the principal underwriter of shares of each Fund and bear the expenses of
printing, distributing and filing prospectuses and statements of additional
information and reports used for sales purposes, and of preparing and printing
sales literature and advertisements not paid for by the Distribution Plan. In
addition, the Distributor will provide certain sub-administration services,
including providing officers, clerical staff and office space. While there is no
sales load, the Distributor receives a fee from each Fund at an annual rate
equal to 0.05% of each Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Other funds which have investment
objectives similar to those of each Fund, but which do not pay some or all of
such fees from their assets, may offer a higher return, although investors
would, in some cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses incurred in connection with
organizing new series or classes of the Trust and certain other ongoing expenses
of the Trust.
EXPENSES
Each of the Funds intends to pay all or its pro rata share of expenses,
including the compensation of the Trustees; all fees under the Distribution
Plan, if any for that Fund; governmental fees; interest charges; taxes;
membership dues in the Investment Company Institute; fees and expenses of
independent accountants, of legal counsel and of any transfer agent, Shareholder
Servicing Agent, or dividend disbursing agent; expenses of redeeming shares and
servicing shareholder accounts; expenses of preparing, printing and mailing
prospectuses, reports, notices, proxy statements and reports to shareholders and
to governmental officers and commissions; expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance premiums;
fees and expenses of the Custodian including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset values of the Funds; expenses of shareholder meetings; and the advisory
fees payable to the Adviser under the Investment Advisory Agreements, the
administration fee payable to the Administrator under the Administration
Agreement and the sub-administration fee payable to the Distributor under the
Distribution and Sub-Administration Agreement. Expenses relating to the
issuance, registration and qualification of shares of each Fund and the
preparation, printing and mailing of prospectuses for such purposes are borne by
the Fund or the Shares except that the Distribution and Sub-Administration
Agreement with the Distributor requires the Distributor to pay for prospectuses
which are to be used for sales to prospective investors.
Pursuant to offering multiple classes of shares, certain expenses of the
Funds are borne by certain classes, either exclusively, or in a manner which
approximates the proportionate value received by the class as a result of the
expense being incurred.
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DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994. The Trust has reserved the right to create and issue
additional series or classes. Each share of a series or class represents an
equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Expenses
of the Trust which are not attributable to a specific series or class are
allocated among all the series in a manner believed by management of the Trust
to be fair and equitable. Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that trust shares held in the treasury of the trust shall not be voted. Shares
of each series or class generally vote separately, for example to approve an
investment advisory agreement or distribution plan, but shares of all series and
classes vote together, to the extent required under the 1940 Act, in the
election or selection of Trustees and independent accountants.
Shareholders of the Premier Shares bear the fees and expenses described in
this Prospectus. Similarly, shareholders of each counterpart Vista Shares and
Institutional Shares bear the fees and expenses described in the appropriate
prospectus for such classes of Shares. The fees paid by each of the Premier
Shares to the Distributor and Shareholder Servicing Agent under the distribution
plan and shareholder servicing arrangements for distribution expenses and
shareholder services provided to institutional investors by the Shareholder
Servicing Agents are less than similar fees paid under distribution plans and
shareholder servicing arrangements adopted for its counterpart Vista Shares.
However, the Institutional Shares pay no fees under distribution plans or
shareholder servicing arrangements. As a result, at any given time, the net
yield on the Premier Shares will be approximately .10% to .25% higher than the
yield on the counterpart Vista Shares and approximately .18% to .28% lower than
the yield on the counterpart Institutional Shares. Standardized yield quotations
will be computed separately for each class of shares of a Fund.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class or of all series and
classes when in the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Trust's Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, 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 the
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. The Trust's Declaration of Trust provides
that, at any meeting of shareholders, a Shareholder Servicing Agent may vote any
shares as to which such Shareholder Servicing Agent is the agent of record and
which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
the same series 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. Shareholders of each series or class would
be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of that series or
class.
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The Trust is an entity of the type commonly known as a "Massachusetts
business 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 exists and the Fund itself is unable to meet its
obligations.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group ("MFG')
an affiliated investment company, underwent a statutory reorganization to become
series of the Trust. The Tax Free, U.S. Government, Global and Prime Funds are
such series and, therefore, certain information contained in this prospectus
reflects the history of those Funds since their inception as series of MFG and
the fact that certain policies, plans and shareholder privileges continued
unchanged as a result of the reorganization.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
SHAREHOLDER SERVICING AGENTS
The shareholder servicing agreement with each Shareholder Servicing Agent
provides that such Shareholder Servicing Agent will, as agent for its customers,
peform various 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 each Fund or class of
shares as to which the Shareholder Servicing Agent is so acting and certain
other matters pertaining to a Fund or class of shares; 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)
monthly and year-end statements and confirmations of purchases and redemptions;
transmit, on behalf of each Fund or class of shares, proxy statements, annual
reports, updated prospectuses and other communications to shareholders; receive,
tabulate and transmit to the Funds proxies executed by shareholders with respect
to meetings of shareholders of each Fund or class of shares; vote the
outstanding shares of each Fund or class of shares whose shareholders do not
transmit executed proxies or attend shareholder meetings in the same proportion
as the votes cast by other shareholders of the Fund or class represented at the
shareholder meeting as to which such Shareholder Servicing Agent is the agent of
record and provide such other related services as the Funds or a shareholder may
request. Shareholder Servicing Agents may be required to register pursuant to
state securities law.
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For performing these services, each Shareholder Servicing Agent for the
Vista Shares and Premier Shares receives certain fees, which may be paid
periodically, determined by a formula based upon the number of accounts serviced
by such Shareholder Servicing Agent during the period for which payment is being
made, the level of activity in accounts serviced by such Shareholder Servicing
Agent during such period, and the expenses incurred by such Shareholder
Servicing Agent. The fees relating to acting as liason to shareholders and
providing personal services to shareholders will not exceed, on an annualized
basis for each Fund's then-current fiscal year, 0.20% for the Premier Shares of
the Tax Free Fund and 0.10% for each of the Premier Shares of the U.S.
Government Fund, Global Fund, Treasury Fund, Federal Fund and Prime Fund and,
0.25% for the Vista Shares of the Tax Free Fund and 0.25% for each of the Vista
Shares of the U.S. Government Fund, Global Fund, Treasury Fund and Federal Fund
of the average daily net assets represented by shares owned during the period
for which payment is being made by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship. Each Shareholder Servicing Agent may,
from time to time, voluntarily waive a portion of the fees payable to it. As
explained above, the Institutional Shares do not pay shareholder servicing fees.
In addition, Chase may provide other related services to the Fund for which it
may receive compensation.
The Shareholder Servicing Agent, and its affiliates, agents and
representatives acting as Shareholder Servicing Agents, may establish custodial
investment accounts ("Accounts"), known as Chase Investment Accounts or by any
other name designated by a Shareholder Servicing Agent. Through such Accounts,
customers can purchase, exchange and redeem Fund shares, receive dividends and
distributions on Fund investments, and take advantage of any services related to
an Account offered by such Shareholder Servicing Agent from time to time. All
Accounts and any related privileges or services shall be governed by the laws of
the State of New York, without regard to its conflicts of laws provisions.
The Glass-Steagall Act and other applicable laws generally prohibit
federally chartered or supervised banks from publicly underwriting or
distributing certain securities such as each Fund's shares. The Trust, on behalf
of the Funds, will engage banks, including Chase and its affiliates, as
Shareholder Servicing Agents only to perform advisory, custodian, administrative
and shareholder servicing functions as described above. While the matter is not
free from doubt, the management of the Trust believes that such laws should not
preclude a bank, including a bank which acts as investment adviser, custodian or
administrator, or in all such capacities for the Trust, from acting as a
Shareholder Servicing Agent. However, possible future changes in federal law or
administrative or judicial interpretations of current or future law, could
prevent a bank from continuing to perform all or a part of its servicing
activities. If that occurred, the bank's shareholder clients would be permitted
to remain as shareholders and alternative means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
each Fund might occur and a shareholder serviced by such bank might no longer be
able to avail himself of any automatic investment or other services then being
provided by such bank. The Trust does not expect that shareholders would suffer
any adverse financial consequences as a result of these occurrences.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Trust. In this capacity, DST maintains the
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend
distributions to shareholders. From time to time, DST and/or the Funds may
contract with other entities to perform certain services for the Transfer Agent.
For its services as Transfer Agent, DST
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receives such compensation as is from time to time agreed upon by the Trust and
DST. DST's address is 127 W. 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 compensation as is from time to time
agreed upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling each Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on each Fund's investments, maintaining books of original entry for portfolio
and Fund accounting and other required books and accounts, and calculating the
daily net asset value of shares of each Fund. Portfolio securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved by
the Trustees. The internal division of Chase which serves as the Trust's
Custodian does not determine the investment policies of the Funds or decide
which securities will be bought or sold on behalf of the Funds or otherwise have
access to or share material inside information with the internal division that
performs advisory services for the Funds.
TAX SHELTERED RETIREMENT PLANS
Shares of the U.S. Government Fund and the Global Fund are offered in
connection with the following qualified prototype retirement plans: IRA,
Rollover IRA, SEP-IRA, Profit-Sharing, and Money Purchase Pension Plans which
can be adopted by self-employed persons ("Keogh") and by corporations, and
403(b) Retirement Plans. Call or write the Transfer Agent for more information.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
SPECIFIC FUND POLICIES AND INFORMATION
U.S. GOVERNMENT FUND. The U.S. Government Fund may engage in transactions
involving reverse repurchase agreements in an amount not to exceed 5% of the
Fund's total assets. Reverse repurchase agreements involve the sale of money
market securities held by the Fund with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment. Reverse
repurchase agreements have the same characteristics as borrowing transactions by
the Fund. During the time a reverse repurchase agreement is outstanding, the
Fund will maintain a segregated custodial account containing U.S. Government or
other appropriate high quality debt securities having a value equal to the
repurchase price. Reverse repurchase agreements are usually for seven days or
less and cannot be repaid prior to their expiration dates. For additional
information regarding reverse repurchase agreements, see "Investment Objectives,
Policies and Restrictions--Investment Policies: Reverse Repurchase Agreements"
in the Statement of Additional Information.
The U.S. Government Fund is also permitted to invest in U.S. Government
agency securities, which often provide higher yields than are available from the
more common types of government-backed instruments. While they may frequently
offer attractive yields, the limited-activity markets of many of these
securities means that, if the Fund were required to liquidate any of them, it
might not be able to do so advantageously. For additional information on these
types of securities, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Specialized Kinds of Government Agency
Securities" in the Statement of Additional Information.
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If securities issued or guaranteed by GNMA, FNMA or FHLMC 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 to the U.S. Government
Fund of the premium, which may be particularly likely in the event of a
prepayment.
TAX FREE FUND. As a non-fundamental policy, the assets of the Tax Free Fund
will be invested only in Municipal Obligations that qualify under one of the
following categories:
(1) Municipal bonds with remaining maturities of 397 days or less that
at the date of purchase are rated Aaa or Aa by Moody's Investors Service,
Inc. ("Moody's"), AAA or AA by Standard and Poor's Corporation ("Standard &
Poor's") or AAA or AA by Fitch Investors Service, Inc. ("Fitch"), or, if not
rated, are of comparable quality as determined by the Adviser on an ongoing
basis pursuant to general guidelines established by the Board of Trustees of
the Trust, relating to the credit evaluation of the obligor on the bonds or
of the bank issuing a guaranty or letter of credit in support of the bonds
or of any insurance issued in support of the bonds.
(2) Municipal notes with remaining maturities of 397 days or less that
at the date of purchase are rated MIG-1 or MIG-2 by Moody's, SP-1 or SP-2 by
Standard & Poor's or F-1 or F-2 by Fitch, or if not rated, are of comparable
quality as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. The principal
kinds of municipal notes include tax anticipation notes, bond anticipation
notes and revenue anticipation notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency.
(3) Municipal commercial paper that is rated Prime-1 by Moody's, A-1 by
Standard & Poor's or F-1 by Fitch or, if not rated, is of comparable quality
as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. Issues of
municipal commercial paper typically represent very short-term, unsecured,
negotiable promissory notes. These obligations are often issued to meet
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities
or are refinanced with long-term debt. In most cases, municipal commercial
paper is backed by letters of credit, lending agreements, note repurchase
agreements (see "Investment Objectives, Policies and
Restrictions--Investment Policies: Repurchase Agreements" in the Statement
of Additional Information) or other credit facility agreements offered by
banks or other institutions which may be called upon in the event of default
by the issuer of the commercial paper.
While Municipal Obligations satisfying the foregoing criteria may not earn
as high a level of current income as securities with longer terms or of lower
quality, those securities would generally be less liquid and subject to a higher
degree of price fluctuation than such Municipal Obligations. For descriptions of
the ratings of Standard & Poor's, Moody's and Fitch, see "Description of
Ratings" in Appendix A.
In view of the possible "concentration" of the Tax Free Fund in Municipal
Obligations secured by bank letters of credit or guarantees, an investment in
the Fund should be made with an understanding of the characteristics of the
banking industry and the risks associated with such an investment. Banks are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and
interest rates and fees which may be charged. The profitability of this industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing
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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 under a letter
of credit. For further information concerning variable rate demand instruments,
see "Investment Objectives, Policies and Restrictions--Investment Policies:
Variable Rate Securities and Participation Certificates" in the Statement of
Additional Information.
STAND-BY COMMITMENTS. When the Tax Free Fund purchases Municipal
Obligations, stand-by commitments from banks with respect to such Municipal
Obligations may also be acquired. The Tax Free Fund also reserves the right to,
and may in the future, acquire stand-by commitments from broker-dealers. Under a
stand-by commitment, a bank or broker-dealer agrees to purchase at such Fund's
option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired by the Fund with respect
to a particular Municipal Obligation held in its portfolio. Not more than 10% of
the total assets of the Tax Free Fund will be invested in Municipal Obligations
that are subject to stand-by commitments from the same bank or broker-dealer.
The Tax Free Fund intends to acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The purpose of this practice is to permit such
Fund to be fully invested in securities, the interest on which is excluded from
gross income for federal income tax purposes, while preserving the necessary
liquidity to purchase securities on a "when-issued" or "forward delivery" basis,
to meet unusually large redemptions and to purchase at a later date securities
other than those subject to the stand-by commitment.
The stand-by commitments that may be entered into are subject to certain
risks, which include the inability of the issuer of the commitment to pay for
the securities at the time the commitment is exercised, the fact that the
commitment is not marketable by the Tax Free Fund, and that the maturity of the
underlying security will generally be different from that of the commitment.
Municipal Obligations with the additional security provided by a stand-by
commitment will cost the Fund more, directly or indirectly, than comparable
securities without such a commitment, thus providing a lower yield than would be
available from such other securities. The Tax Free Fund will not purchase
Municipal Obligations with stand-by commitments from the Adviser or any bank
affiliated with the Adviser, and have no present intention of acquiring
Municipal Obligations with stand-by commitments from Shareholder Servicing
Agents or banks affiliated with Shareholder Servicing Agents. For further
information concerning stand-by commitments, see "Investment Objectives,
Policies and Restrictions-- Investment Policies: Stand-by Commitments" in the
Statement of Additional Information.
GLOBAL FUND. The Global Fund may invest in U.S. Government securities issued
or guaranteed as to principal and interest by the U.S. Government or by agencies
or instrumentalities thereof include certain U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are primarily
supported by the full faith and credit of the U.S. Treasury, such as securities
of the Small Business Administration. The Global Fund may also invest in
selected securities issued or guaranteed by the U.S. Treasury of which the
principal and interest components of such securities are traded independently
under the Separate Trading of Registered Interest and Principal of Securities
Program ("STRIPS"). In addition, the Fund may invest in those obligations
supported by (i) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Student Loan Marketing Association), (ii)
the authority of the U.S. Government to
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purchase certain obligations of the issuer (such as securities of the Federal
National Mortgage Association), or (iii) only the credit of the issuer. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies and instrumentalities as described in clauses (i),
(ii) or (iii) above in the future, other than as set forth above, since it is
not obligated to do so by law. The Global Fund is also permitted to invest in
certain specialized U.S. Government agency securities, which often provide
higher yields than are available from the more common types of government-backed
instruments. While they may frequently offer attractive yields, the
limited-activity markets of many of these securities means that, if the Fund
were required to liquidate any of them, it might not be able to do so
advantageously.
PRIME FUND. The Prime Fund may invest in U.S. Government securities issued
or guaranteed as to principal and interest by the U.S. Government or by agencies
or instrumentalities thereof include certain U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are primarily
supported by the full faith and credit of the U.S. Treasury, such as securities
of the Small Business Administration. The Prime Fund may also invest in selected
securities issued or guaranteed by the U.S. Treasury of which the principal and
interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). In addition, the Fund may invest in those obligations supported by
(i) the limited authority of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association), (ii) the authority of
the U.S. Government to purchase certain obligations of the issuer (such as
securities of the Federal National Mortgage Association), or (iii) only the
credit of the issuer. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government agencies and instrumentalities as
described in clauses (i), (ii) or (iii) above in the future, other than as set
forth above, since it is not obligated to do so by law. The Prime Fund is also
permitted to invest in certain specialized U.S. Government agency securities,
which often provide higher yields than are available from the more common types
of government-backed instruments. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
the Fund were required to liquidate any of them, it might not be able to do so
advantageously. The Fund has no current intension to actively trade in STRIPS.
COMMON FUND POLICIES AND INFORMATION
Other Securities. The Global and Prime 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 and are not deemed U.S.
Government securities, including "Treasury Receipts", "Treasury Investment
Growth Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). These notes and bonds are held in custody by a bank on behalf of the
owners of the receipts.
Domestic Bank Obligations. The domestic bank obligations in which the Global
and Prime Funds may invest consist of certificates of deposit, time deposits and
bankers' acceptances issued or guaranteed by U.S. banks. Such bank 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.
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Foreign Bank Obligations. The foreign bank obligations in which the Global
and Prime Funds may invest consist of U.S. Dollar denominated obligations issued
or guaranteed by foreign banks, including foreign branches of U.S. banks,
foreign banks and U.S. branches of foreign banks. Such bank 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.
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 Global and Prime Funds, other than those of bank holding
companies, include obligations which are (i) rated Prime-I by Moody's, A-1 by
Standard & Poor's or F-1 by Fitch; or (ii) determined by the Adviser to be of
comparable quality to those rated obligations which may be purchased by the
Global and Prime Funds 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,
Standard & Poor's or Fitch. The commercial paper and other short-term
obligations of U.S. bank holding companies which may be purchased by the Global
and Prime Funds 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.
The Global and Prime Funds also may purchase floating and variable rate
demand notes and bonds, which are obligations normally having stated maturities
in excess of 397 days, but which permit the holder to demand payment of
principal at any time, or at specified intervals not exceeding 397 days, in each
case upon not more than 30 days' notice. Variable rate demand notes include
master demand notes which are obligations that permit the Global and Prime Funds
to invest fluctuating amounts, which may change daily without penalty, pursuant
to direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the obligations plus
accrued interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and the borrower, it is not contemplated that
such instruments will generally be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Global and Prime Funds' right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and, if not so rated, the Fund may invest in them only if the Adviser determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which the Fund may invest. The Adviser, on behalf of the
Global and Prime Funds, will consider on an ongoing basis the creditworthiness
of the issuers of the floating and variable rate demand obligations in the
Funds' portfolio. The Global and Prime Funds will not invest more than 10% of
the value of their respective total assets in floating or variable rate demand
obligations as to which it cannot exercise the demand feature on not more than
seven days' notice if there is no secondary market available for these
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obligations, and in other securities that are not readily marketable. In
addition, the Prime Fund will not trade in variable demand notes that have
interest rate caps except with respect to usury considerations.
Securities of Foreign Governments and Supranational Agencies. The Global and
Prime Funds may invest up to 25% of their respective total assets in obligations
of supranational agencies, such as the International Bank for Reconstruction and
Development, also known as the World Bank, which 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. For a
discussion of the risks associated in investment in these securities see "Risk
Factors" below.
The Global and Prime Funds will limit its investments in U.S. Dollar
denominated 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.
Other Investment Policies and Restrictions. The Global, Treasury, Federal
and Prime Funds have adopted certain fundamental investment restrictions set
forth in the Statement of Additional Information, which include a restriction
that such Fund will not borrow money (excluding entering into reverse repurchase
agreements) except from banks and only for temporary or emergency purposes or to
meet redemption requests which might otherwise require the untimely disposition
of securities; provided that such borrowings in the aggregate may not exceed 10%
of the value of the Fund's total assets (including the amount borrowed) at the
time of such borrowing. The Global, Treasury, Federal and Prime Funds will not
purchase investment securities when the Fund's outstanding borrowings exceed 5%
of the value of its total assets. The Global and Prime Funds may invest up to
25% of their respective total assets in the securities of issuers in any
industry, provided that there is no limitation on investments of obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Global and Prime Funds' concentration policy regarding the U.S. and foreign
banking industries may involve certain additional credit risks, such as defaults
or downgrades, if at some future date adverse economic conditions prevail in
such industries.
The Global and Prime Funds may invest not more than 10% of their respective
total assets in repurchase agreements maturing in more than seven days or in
other nonmarketable or illiquid securities maturing in more than seven days,
including reverse repurchase agreements. The Funds, except for the Tax Free
Fund, may invest in reverse repurchase agreements which involve the sale of
money market securities held by the Fund with an agreement to repurchase the
securities at an agreed upon price, date and interest payment. Reverse
repurchase agreements have the same characteristics as borrowing by the Funds.
During the time a reverse repurchase agreement is outstanding, the Global Fund
will maintain a segregated custodial account containing U.S. Government or other
appropriate high quality debt securities having a value equal to the repurchase
price. Reverse repurchase agreements are usually for seven days or less and
cannot be repaid prior to their expiration dates. Reverse repurchase agreements
involve the risk that the market value of the Fund's portfolio securities
transferred may decline below the price at which the Fund is obligated to
repurchase the securities. Further, because a reverse repurchase agreement
entered into by a Fund constitutes borrowing, it may have a leveraging effect.
Risk Factors. Foreign bank obligations include fixed time deposits which are
payable at a stated maturity date and bear a fixed rate of interest. Generally,
fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon
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market conditions and the remaining maturity of the obligations. The Global and
Prime Funds will not invest more than 10% of their respective total assets in
fixed time deposits. Fixed time deposits do not have a market and therefore may
be regarded as illiquid. However, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.
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.
Foreign securities issued by foreign governments, any of their political
subdivisions, agencies and instrumentalities, debt obligations issued by foreign
banks and their branches and commercial paper issued by foreign issuers involve
investment risks in addition to those of domestic obligations of domestic
issuers, including the possibilities that liquidity could be impaired because of
future political and economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic issuers, that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less publicly available information concerning foreign issuers, that
there may be difficulties in obtaining or enforcing a judgment against a foreign
issuer (including branches) or that the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign issuers
may differ from those applicable to United States issuers. In addition, foreign
banks are not subject to examination by any U.S. Government agency or
instrumentality.
REPURCHASE AGREEMENTS. Each Fund other than the Federal Fund may, when
appropriate, enter into repurchase agreements (a purchase of and simultaneous
commitment to resell a security at an agreed-upon price and date which is
usually not more than seven days from the date of purchase) only with member
banks of the Federal Reserve System and security dealers believed creditworthy
by the Trustees and only if fully collateralized by U.S. Government obligations
or other securities in which such Fund is permitted to invest. In the event the
seller fails to pay the agreed-to sum on the agreed-upon delivery date, the
underlying security could be sold by a Fund, but the Fund might incur a loss in
doing so, and in certain cases may not be permitted to sell the security. As an
operating policy, each Fund, through its custodian bank, takes constructive
possession of the collateral underlying repurchase agreements. Additionally,
procedures have been established for the Funds to monitor, on a daily basis, the
market value of the collateral underlying all repurchase agreements to ensure
that the collateral is at least 100% of the value of the repurchase agreements.
Not more than 10% of the total assets of a Fund will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days. Repurchase agreements are considered loans under the 1940
Act.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. Each Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a
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"forward delivery" basis, which means that the securities will be delivered at a
future date beyond the customary settlement time. Although there is no limit as
to the amount of the commitments which may be made by a Fund to purchase
securities on a "when-issued" or "forward delivery" basis, it is expected that
under normal circumstances not more than 30% of a Fund's total assets will be
committed to such purchases. A Fund does not pay for such obligations or start
earning interest on them until the contractual settlement date. Although
commitments to purchase "when-issued" or "forward delivery" securities will only
be made with the intention of actually acquiring them, these securities may be
sold before the settlement date if deemed advisable by an Adviser.
While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases and have the effect of
leveraging. For example, when the time comes to pay for a "when-issued" or
"forward delivery" security, a Fund's portfolio securities may have to be sold
in order to meet payment obligations, and a sale of securities to meet such
obligations carries with it a greater potential for the realization of capital
gain, which is not tax-exempt. Also, if it is necessary to sell the "when-
issued" or "forward delivery" security before delivery, a Fund may incur a loss
because of market fluctuations since the time the commitment to purchase the
"when-issued" or "forward delivery" security was made. Any gain resulting from
any such sale would not be tax-exempt. For additional information concerning
these risks and other risks associated with the purchase of "when-issued" or
"forward delivery" securities as well as other aspects of the purchase of
securities on a "when-issued" or "forward delivery" basis, see "Investment
Objectives, Policies and Restrictions--Investment Policies: When-Issued and
Forward Delivery Purchases" in the Statement of Additional Information.
VARIABLE RATE SECURITIES AND PARTICIPATION CERTIFICATES. The variable rate
demand instruments that may be purchased by the Tax Free Fund are tax exempt
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at any time or at specified
intervals not exceeding 397 days, in each case not more than 30 days' notice.
With respect to the U.S. Government Fund, certain Government securities, provide
for a periodic adjustment in the interest rate paid on the instrument and/or
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. The variable rate securities in which the above-referenced
Funds may be invested include participation certificates (and, with respect to
the U.S. Government Fund, certificates of indebtedness) issued by a bank,
insurance company or other financial institution, and in variable rate
securities owned by such institutions or affiliated organizations
("Participation Certificates"). 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. With respect to the Tax Free Fund, these instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 397
days or less. If the participation interest is unrated, or has been given a
rating below that which otherwise is permissible for purchase by one of the
Funds, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trustees have determined meets the
prescribed quality standards for banks, or the payment obligation otherwise will
be collateralized by U.S Government securities. (See "Investment Objectives,
Policies and Restrictions--Investment Policies: Variable Rate Securities and
Participation Certificates" in the Statement of Additional Information.)
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The Adviser will monitor on an on-going basis the ability of the underlying
issuers to meet their demand obligations. Although variable rate securities may
be sold by a Fund, it is intended that they be held until maturity, except under
certain specified circumstances. (See "Investment Objectives, Policies and
Restrictions--Investment Policies: Variable Rate Securities and Participation
Certificates" in the Statement of Additional Information.)
As a result of the variable rate nature of these investments, a Fund's yield
will decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined.
Conversely, during periods where prevailing interest rates have increased, a
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolios of the
Funds will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolios of these Funds, the Adviser
seeks to take advantage of market developments, yield disparities and variations
in the creditworthiness of issuers. For a description of the strategies that may
be used by the Adviser in managing the portfolios of these Funds, which may
include adjusting the average maturity of a portfolio in anticipation of a
change in interest rates, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Portfolio Management" in the Statement of
Additional Information.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Since money market instruments are generally
purchased in principal transactions, the Funds pay no brokerage commissions. For
a complete discussion of portfolio transactions and brokerage allocation, see
"Investment Objectives, Policies and Restrictions--Investment Policies:
Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information.
EFFECT OF RULE 2A-7 ON PORTFOLIO MANAGEMENT. The portfolio management of
each Fund is intended to comply with the provisions of Rule 2a-7 under the 1940
Act (the "Rule") under which, if a Fund meets certain conditions, it may use the
"amortized cost" method of valuing its securities. Under the Rule, the maturity
of an instrument is generally considered to be its stated maturity (or in the
case of an instrument called for redemption, the date on which the redemption
payment must be made), with special exceptions for certain kinds of instruments.
Repurchase agreements and securities loan agreements are, in general, treated as
having a maturity equal to the period remaining until they can be executed.
In accordance with the provisions of the Rule, each of the Global Fund, U.S.
Government Fund, Treasury Fund, Federal Fund and Prime Fund must: (i) maintain a
dollar weighted average portfolio maturity (see above) not in excess of 90 days
(however, the U.S. Government Fund, the Treasury Fund and the Prime Fund do not
plan to have a dollar weighted portfolio maturity in excess of 60 days); (ii)
limit its investments, including repurchase agreements, to those instruments
which are denominated in U.S. dollars, which the Board of Trustees determines
present minimal credit risks, and which are of "high quality" as determined by
at least two major rating services; or, in the case of any instrument that is
split-rated or not rated, of comparable qualify as determined by the Board; and
(iii) not purchase any instruments with a remaining maturity (see above) of more
than 397 days. The Rule also contains special provisions as to the maturity of
variable rate and floating rate instruments. In accordance with
38
<PAGE>
the Rule, the Tax Free Fund must (i) maintain a dollar-weighted average
portfolio maturity of 90 days or less, (ii) purchase only instruments having
remaining maturities of 397 days or less and (iii) invest only in U.S. dollar
denominated securities determined in accordance with procedures established by
the Board of Trustees to present minimal credit risks and which are rated in one
of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated only by one such organization) or, if
unrated, are of comparable qualify as determined in accordance with procedures
established by the Board of Trustees.
PORTFOLIO SECURITIES LENDING. Although the Funds do not intend to engage in
such activity in the ordinary course of business, each Fund (other than the Tax
Free 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 20% of the value of the U.S. Government or
Global Fund's total assets and 30% of the Treasury, Federal or Prime Fund's
assets. In connection with such loans, the Funds will receive collateral
consisting of cash, cash equivalents, U.S. Government securities or irrevocable
letters of credit issued by financial institutions (or in the case of the
Treasury Fund, U.S. Treasury obligations). Such collateral will be maintained at
all times in an amount equal to at least 100% of the current market value plus
accrued interest of the securities loaned. The Funds can increase their income
through the investment of such collateral. The Funds continue to be entitled to
the interest payable or any dividend-equivalent payments received on a loaned
security and, in addition, receive interest on the amount of the loan. The Funds
might experience risk of loss if the institutions with which they have engaged
in portfolio loan transactions breach their agreements with the Funds. The risks
in lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower experience financial difficulty. Loans will be made only to firms
deemed by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans
justifies the risk.
DESCRIPTION OF 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 consist of both notes and bonds. There are five
major varieties of state and municipal notes: TAX ANTICIPATION NOTES ("TANS");
REVENUE ANTICIPATION NOTES ("RANS"); BOND ANTICIPATION NOTES ("BANS"); AND
CONSTRUCTION LOAN NOTES ("CLNS").
TANS AND RANS are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
39
<PAGE>
BANS are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
CLNS are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many Private Activity Bonds, there is no established
secondary market for their purchase or sale and therefore they may not be
readily marketable. However, Private Activity Bonds or the participation
certificates in Private Activity Bonds purchased by a Fund will have liquidity
because they will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions which may be exercised by a
Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, each of the Premier Shares may use hypothetical
investment examples and performance information in advertisements, shareholder
reports or other communications to shareholders. Because such performance
information is based on historical earnings, it should not be considered as an
indication or representation of the performance of the Premier Shares in the
future. From time to time, the yield of each of the Premier Shares, as a measure
of its performance, 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 other relevant indices or to
rankings prepared by independent services or other financial or industry
publications, such as Lipper
40
<PAGE>
Analytical Services, Inc., or the Morningstar Mutual Funds on Disc, that monitor
the performance of mutual funds. In addition, the yield of each of the Premier
Shares may be compared to the Donoghue's Money Fund AveragesTM, compiled in the
Donoghue's Money Fund Report (R), a widely recognized independent publication
that monitors the performance of money market funds. Also, each of the Premier
Shares' yield data may be 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 publications of a local or regional nature. Each
of the Premier Shares may, with proper authorization, reprint articles written
about the Premier Shares and provide them to prospective shareholders.
Each of the Premier Shares may provide its annualized "yield" and "effective
yield" to current and prospective shareholders. The "yield" of a fund refers to
the income generated by an investment in the fund over a seven-day period (which
period shall be stated in any advertisement or communication with a
shareholder). This income is then "annualized", that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of investment. The
"effective yield" is calculated similarly, but when annualized the income earned
by the investment during that week is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Tax Free Fund may also quote a "tax equivalent yield." The "tax
equivalent yield" refers to the yield that a taxable money market fund would
have to generate in order to produce an after-tax yield equivalent to that of
the Tax Free Fund. The use of a tax equivalent yield allows investors to compare
the yield of the Tax Free Fund, which provides shareholders with income excluded
for federal income tax purposes, with yields of money market funds which are not
so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of each of the Premier Shares will vary based
on interest rates, the current market value of the securities held in the Fund's
portfolio and changes in the Fund's and the Shares' expenses. In addition, the
Adviser, the Administrator and each Shareholder Servicing Agent may voluntarily
waive a portion of their fees on a month-to-month basis. These actions would
have the effect of increasing the net income (and therefore the yield) of the
Premier Shares during the period such waivers are in effect. These factors and
possible differences in the methods used to calculate yields should be
considered when comparing each of the Premier Shares' yields to those published
for other money market funds and other investment vehicles. A Shareholder
Servicing Agent may charge its customers direct fees in connection with an
investment (see "Purchases and Redemptions of Shares--Purchases") which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent. Conversely, each of the Premier Shares 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 (see "Purchases and
Redemptions of Shares--Purchases"), 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. See the Statement of Additional
Information for further information concerning each of the Premier Shares'
calculation of yield.
41
<PAGE>
OTHER INFORMATION
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially subject to the alternative
minimum tax on individuals. As a result, this legislation may affect the
availability of Municipal Obligations for investment by the Vista Tax Free Money
Market Fund.
More than 25% of the assets of the Vista Tax Free Money Market Fund 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 occurrences. The value of shares of the Fund may be subject to
greater risk than those of other mutual funds that do not permit such a
practice.
The Statement of Additional Information contains more detailed information
about the Trust and the Premier Shares, including information related to (i)
each Fund's investment policies and restrictions, (ii) risk factors associated
with each Fund's policies and investments, (iii) the Trust's Trustees, officers
and the Administrator and the Adviser, (iv) portfolio transactions and brokerage
allocation, (v) the Funds' shares, including rights and liabilities of
shareholders, and (vi) additional performance information, including the method
used to calculate yield or total rate of return quotations of such Shares. The
audited financial statements for the Fund for its last fiscal year end are
incorporated by reference in the Statement of Additional Information.
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<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS*
The ratings of Moody's, Standard & Poor's and Fitch'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 TWO
HIGHEST QUALITY 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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Bonds in the Aa category which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1.
DESCRIPTION OF MOODY'S TWO HIGHEST RATINGS
OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal notes and other short-term loans are
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
- ------------
* 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.
A-1
<PAGE>
COMMERICAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a wide range of financial markets and assured sources of alternate liquidity.
DESCRIPTION OF STANDARD & POOR'S TWO HIGHEST QUALITY 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.
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 are
given a plus (+) designation.
SP-2 -- Satisfactory 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/A-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+").
A-2
<PAGE>
COMMERCIAL PAPER RATINGS
The rating A is the highest rating and is assigned by S&P to issues that 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. Paper rated A-1 indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
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.
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.
A-3
<PAGE>
[VISTA LOGO]
[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
PREMIER
SHARES
Prospectus
and Application
- ---------------------------------------- ------------------------
INVESTMENT ADVISER AND ADMINISTRATOR * VISTA GLOBAL
The Chase Manhattan Bank, N.A. MONEY MARKET FUND
DISTRIBUTOR * VISTA PRIME
Vista Broker-Dealer Services, Inc. MONEY MARKET FUND
TRANSFER AGENT * VISTA U.S. GOVERNMENT
DST Systems, Inc. MONEY MARKET FUND
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen * VISTA TREASURY PLUS
Kamin & Frankel MONEY MARKET FUND
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP * VISTA FEDERAL
MONEY MARKET FUND
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
* VISTA TAX FREE
MONEY MARKET FUND
VPMM-1
December 31, 1995
<PAGE>
[VISTA LOGO]
INSTITUTIONAL
SHARES
Money Market Funds
Prospectus and Application
--------------------------
* VISTA GLOBAL
MONEY MARKET FUND
* VISTA PRIME
MONEY MARKET FUND
* VISTA U.S. GOVERNMENT
MONEY MARKET FUND
* VISTA TREASURY PLUS
MONEY MARKET FUND
* VISTA TAX FREE
MONEY MARKET FUND
December 31, 1995
<PAGE>
[VISTA LOGO]
Vista Service Center
P.O. Box 41932
Kansas City, MO 64141-6392
1-800-622-4273
- ----------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
The Chase Manhattan Bank, N.A.
DISTRIBUTOR
Vista Broker-Dealer Services, Inc.
TRANSFER AGENT
DST Systems, Inc.
LEGAL COUNSEL
Kramer, Levin, Naftalis, Nessen
Kamin & Frankel
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
SHAREHOLDER SERVICING AGENT & CUSTODIAN
The Chase Manhattan Bank, N.A.
<PAGE>
December 31, 1995
PROSPECTUS
VISTA(SM)
INSTITUTIONAL SHARES
Mutual Fund Trust (the "Trust") is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994, presently consisting of 11 separate series
(the "Fund" or the "Funds"). Under a multiple-class distribution system, the
money market Funds may be offered through three separate classes of shares (the
"Shares"). The Institutional Shares, which are offered only to qualified
institutional investors making an initial minimum investment of $1,000,000, are
offered through the Vista Tax Free Money Market Fund, Vista U.S. Government
Money Market Fund, Vista Global Money Market Fund Vista Treasury Plus Money
Market Fund, Vista Federal Money Market Fund and Vista Prime Money Market Fund
(the "Institutional Shares") and are described in and offered pursuant to this
Prospectus. Of the Funds offered in this prospectus, only the Vista Tax Free
Money Market Fund is considered "non-diversified", and may invest more than 5%
of its Fund's assets in the obligations of a single issuer. This may make the
value of shares of a Fund more susceptible to certain risks than shares of a
diversified mutual fund. Each Fund offered through this prospectus has a
different investment objective, as follows:
VISTA TAX FREE MONEY MARKET FUND ("Tax Free Fund") seeks 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, through investments primarily in short-term municipal obligations.
VISTA U.S. GOVERNMENT MONEY MARKET FUND ("U.S. Government Fund") seeks to
provide as high a level of current income as is consistent with the preservation
of capital and maintenance of liquidity, through investments in obligations
issued or guaranteed by the U.S. Treasury, agencies of the U.S. Government or
instrumentalities that have been established or sponsored by the U.S. Government
and repurchase agreements collateralized by such securities.
VISTA GLOBAL MONEY MARKET FUND ("Global Fund") seeks to provide maximum current
income consistent with preservation of capital and maintenance of liquidity
through investments in U.S. Dollar denominated commercial paper, obligations of
foreign governments, obligations guaranteed by U.S. banks, and securities issued
by the U.S. Government or its agencies.
VISTA TREASURY PLUS MONEY MARKET FUND ("Treasury Fund") seeks to provide maximum
current income consistent with the preservation of capital and maintenance of
liquidity through investment in (I) obligations issued by the U.S. Treasury and,
(ii) repurchase agreements fully collateralized by such U.S. Treasury
obligations.
VISTA FEDERAL MONEY MARKET FUND ("Federal Fund") seeks to provide current income
consistent with the preservation of capital and the maintenance of liquidity,
through investments in obligations issued or guaranteed as to principal and
interest by the U.S. Government or by U.S. Government agencies or
instrumentalities, the interest income from which, under current federal law,
generally may not be subject to state or local income taxes. The Federal Fund is
structured to provide shareholders with income which is exempt from state and
local income taxes.
VISTA PRIME MONEY MARKET FUND ("Prime Fund") seeks to provide maximum current
income consistent with the preservation of capital and the maintenance of
liquidity through investments in U.S. Dollar denominated high quality commercial
paper and other high quality short-term obligations; obligations of foreign
governments and supranational agencies; U.S. Dollar denominated obligations
issued or guaranteed by U.S. banks; securities issued or guaranteed by the U.S.
Government or by agencies and instrumentalities thereof; and repurchase
agreements.
VISTA BROKER-DEALER SERVICES, INC. ("VBDS") IS THE FUNDS' DISTRIBUTOR AND IS
UNAFFILIATED WITH CHASE. INVESTMENTS IN THE FUNDS 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, N.A. OR
ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY 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, AND THERE CAN BE NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE..
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.
<PAGE>
The Institutional Shares are continuously offered for sale without a sales
load through VBDS, the Fund's distributor (the "Distributor"), only to qualified
institutional investors that make an initial investment of $1,000,000. Shares
may be redeemed by shareholders at the net asset value next determined on any
Fund Business Day as hereinafter defined.
This Prospectus sets forth concisely information concerning each Fund and
its Institutional Shares that a prospective investor ought to know before
investing. A Statement of Additional Information for the Institutional Shares,
dated December 31, 1995, containing more detailed information about the Fund has
been filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information for the Institutional Shares without charge by contacting
the Fund.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
For information about each of the Institutional Shares, simply call the
Vista Service Center at 1-800-34-VISTA. Current shareholders of each Fund may
call 1-800-622-4273 for account information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Expense Summary................................................. 3
Financial Highlights............................................ 4
Investment Objectives and Policies.............................. 10
Vista Tax Free Money Market Fund.............................. 10
Vista U.S. Government Money Market Fund....................... 11
Vista Global Money Market Fund................................ 11
Vista Treasury Plus Money Market Fund......................... 12
Vista Federal Money Market Fund............................... 13
Vista Prime Money Market Fund................................. 14
Management of the Funds......................................... 15
Purchases and Redemptions of Shares............................. 17
Tax Matters..................................................... 19
Other Information Concerning Shares of the Funds................ 21
Transfer Agent and Custodian.................................... 25
Additional Information on Investment Policies and Techniques.... 25
Common Fund Policies and Information............................ 29
Appendix A--Description of Ratings.............................. A-1
</TABLE>
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
U.S.
TREASURY FEDERAL PRIME TAX FREE GOVERNMENT GLOBAL
FUND FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------------- ------------- ------------- ---------- -------------
Annual Fund Operating Expenses (as a
percentage of average net assets)
Investment Advisory Fee (After Waiver of
Fees)*..................................... 0.05% 0.10% 0.10% 0.10% 0.10% .10%
Administration Fee (After Waiver of Fees)*... 0.00% 0.05% 0.04% 0.05% 0.05% .05%
Other Expenses
--Sub-Administration Fee (After Waiver of
Fees)*................................... 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
--Other Operating Expenses+................ 0.22% 0.10% 0.08% 0.12% 0.08% 0.07%
-- -- -- -- -- --
Total Fund Operating Expenses................ 0.32% 0.30% 0.27% 0.32% 0.28% 0.27%
-- -- -- -- -- --
-- -- -- -- -- --
Example:
You would pay the following expenses on a
$1,000 investment in a Fund, assuming (1)
5% annual return and (2) redemption at
the end of:
1 year................................. $ 3 $ 3 $ 3 $ 3 $ 3 $ 3
3 years................................ 10 10 9 10 9 9
5 years................................ 18 17 15 18 16 15
10 years................................ 41 38 34 41 36 34
<FN>
- ------------
* Fees waived on a month-to month basis.
++ A $10.00 charge may be incurred for certain wire redemptions.
</FN>
</TABLE>
The expense summary is intended to assist investors in understanding the
various costs and expenses that a shareholder of each Fund will bear directly or
indirectly. The expense summary shows the investment advisory fee,
administration fee and sub-administration fee expected to be incurred by each
Fund, after waiver of fees.
Absent certain waivers, the annual investment advisory fees, administration
fees and sub-administration fees would be 0.10%, 0.05% and 0.05%, respectively,
for each of Fund's average net assets.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF A CLASS OF SHARES OF A FUND; ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
3
<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 Statement of
Additional Information. 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 tables set forth below for each of the
periods have been audited by Price Waterhouse LLP, independent accountants,
whose reports thereon is included in the Annual Report to shareholders.
<TABLE>
TAX FREE FUND
- -------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL
SHARES
-------------------
YEAR 11/1/93*
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.............................................. 0.035 0.019
Total from Investment Operations................................... 0.035 0.019
LESS DISTRIBUTIONS:
Dividends from net investment income............................... 0.035 0.019
-------- --------
Total Distributions................................................ 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+...... 0.34% 0.34%
Ratio of net investment income without waivers and assumption of
expenses to Average Net Assets+.................................. 3.45% 2.38%
<FN>
- ------------
+ 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.
</FN>
</TABLE>
4
<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 Statement of Additional Information. The
following information should be read in conjunction with the financial
statements and notes thereto which are included in the Statement of Additional
Information.
<TABLE>
U.S. GOVERNMENT FUND(1)
- --------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES
---------------------
YEAR 12/10/93*
ENDED THROUGH
8/31/95 8/31/94+
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................... $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income........................................... 0.055 0.026
-------- --------
Total from Investment Operations................................ 0.055 0.026
LESS DISTRIBUTIONS:
Dividends from net investment income............................ 0.055 0.026
-------- --------
Total Distributions............................................. 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%#
<FN>
- ------------
# 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.
(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. The new portfolio is named Vista U.S.
Government Money Market Fund. In connection with its reorganization, shares
of the Trinity Government Fund were reorganized as Premier Shares of the
Vista U.S. Government Money Market Fund at $1 per share. In addition, net
assets of the former Vista U.S. Government Money Market Fund consisting of
both Vista and Premier Shares were reorganized as Vista shares and Premier
shares of the new Vista U.S. Government Money Market Fund, at $1 per share.
The per share data and ratios for the periods prior to January 1, 1993
relate to the Trinity Government Fund.
</FN>
</TABLE>
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 Statement of Additional Information. The
following information should be read in conjunction with the financial
statements and notes thereto which are included in the Statement of Additional
Information. Shareholders can obtain a copy of this report by contacting the
Fund.
<TABLE>
GLOBAL FUND
- --------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES
----------------------
YEAR 11/4/93*
ENDED THROUGH
8/31/95 8/31/94+
---------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................... $ 1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income........................................... 0.055 0.031
---------- --------
Total from Investment Operations................................ 0.055 0.031
LESS DISTRIBUTIONS:
Dividends (from net investment income).......................... 0.055 0.031
---------- --------
Total Distributions............................................. 0.055 0.031
NET ASSET VALUE, END OF PERIOD..................................... $ 1.00 $1.00
---------- --------
---------- --------
TOTAL RETURN....................................................... 5.62 % 3.10%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted)......................... 3]$59,136 $486,461
Ratio of Expenses to Average Net Assets#........................ 0.23 % 0.26%
Ratio of Net Investment Income to Average Net Assets#........... 5.42 % 3.72%
Ratio of expenses without waivers and assumption of expenses to
Average Net Assets#................................................ 0.28 % 0.29%
Ratio of net investment income without waivers and assumption of
expenses to Average Net Assets#................................ 5.37 % 3.69%
<FN>
- ------------
# Periods less than one year have been annualized.
* Commencement of offering of shares.
+ In 1994 the Global Money Market Fund changed its fiscal year-end from October
31 to August 31.
</FN>
</TABLE>
6
<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 Statement of Additional Information.
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.
<TABLE>
TREASURY FUND
- -------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL
SHARES
------------------
4/20/94*
THROUGH
YEAR AUGUST
ENDED 31,
8/31/95 1994
------- -------
<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
Total from Investment Operations................................. 0.053 0.014
------- -------
Less 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%
<FN>
- ------------
# Periods less than one year have been annualized.
* Commencement of operations.
</FN>
</TABLE>
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 Statement of Additional Information.
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.
<TABLE>
FEDERAL FUND
- --------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL
SHARES
--------------------
4/20/94*
YEAR THROUGH
ENDED AUGUST
8/31/95 31, 1994
-------- --------
<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
Total from Investment Operations................................ 0.054 0.015
-------- --------
Less 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%
<FN>
- ------------
# Periods less than one year have been annualized.
* Commencement of operations.
** Commencement of offering shares.
</FN>
</TABLE>
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 Statement of Additional Information.
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.
<TABLE>
PRIME FUND
- --------------------------------------------------------------------------------------------
<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 Realized Loss on Securities.................................. (0.003) --
-------- -------
Total from Investment Operations................................. 0.052 0.014
-------- -------
Voluntary Capital Contribution................................... 0.003 --
-------- -------
Less dividends from net investment income............................. 0.055 0.014
Net Asset Value, End of Period........................................ $ 1.00 $ 1.005
-------- -------
-------- -------
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%
<FN>
- ------------
# 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.
</FN>
</TABLE>
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
VISTA TAX FREE MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the Tax Free Fund is to
provide its shareholders with 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 the maintenance of liquidity. The investment
objective of the Tax Free Fund may not be changed unless approved by the holders
of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The Tax Free Fund seeks to achieve its investment
objective by investing in short-term, fixed rate and variable rate Municipal
Obligations (as defined at page 34). The Municipal Obligations in which the Fund
invests will be of high quality and present minimal credit risks. Although the
Tax Free Fund does not anticipate doing so in normal circumstances to a
significant extent, it may hold uninvested cash reserves, which would adversely
affect its yield.
Although the Tax Free Fund will attempt to invest 100% of its assets in
Municipal Obligations, it reserves the right to invest up to 20% of the value of
its total assets in securities the interest on which is includable in gross
income for federal income tax purposes or which constitute a preference item
and, therefore, may be subject to the federal alternative minimum tax on
individuals. The Tax Free Fund may invest more than 25% of its assets in
Municipal Obligations secured by bank letters of credit or guarantees. In view
of this possible "concentration" in these Municipal Obligations with bank credit
support, an investment in the Tax Free Fund shares should be made with an
understanding of the characteristics of the banking industry and the potential
risks associated with such an investment. All investments of the Tax Free Fund
will mature or will be deemed to mature within 397 days from the date of
acquisition and the average maturity of the Fund's portfolio (on a
dollar-weighted basis) will be 90 days or less. The maturities of variable rate
demand instruments held in the Tax Free Fund's portfolio will be deemed to be
the longer of the demand period or the period remaining until the next interest
rate adjustment, although the stated maturities may be in excess of 397 days.
As a fundamental policy, the Tax Free Fund, during periods of normal market
conditions, 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 and, therefore, will not be subject to the federal alternative
minimum tax on individuals.
As a non-fundamental policy, the assets of the Tax Free Fund will only be
invested in obligations that satisfy certain ratings and other criteria. For
descriptions of these criteria and of certain types of investments that may be
purchased by the Tax Free Fund, including variable rate demand instruments,
"when-issued" securities and stand-by commitments, as well as further
information regarding the investment policies and techniques of the Tax Free
Fund, see "Additional Information on Investment Policies and Techniques".
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
10
<PAGE>
VISTA U.S. GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE -- The investment objective of the U.S. Government Fund
is to provide its shareholders with as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
The investment objective of the U.S. Government Fund may not be changed unless
approved by the holders of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES -- The U.S. Government Fund seeks to achieve its
investment objective by investing at least 80% of its assets in obligations that
are issued or guaranteed by the U.S. Treasury, by agencies of the U.S.
Government, and by instrumentalities that have been established or sponsored by
the U.S. Government, and in repurchase agreements collateralized by U.S.
Government obligations or other securities in which the U.S. Government Fund is
permitted to invest. The U.S. Government obligations in which such Fund invests
will be of high quality and present minimal credit risk. Although the U.S.
Government Fund does not anticipate doing so in normal circumstances, it may
hold uninvested cash reserves, which would adversely affect its yield. Neither
the United States nor any of its agencies insures or guarantees the market value
of shares of the U.S. Government Fund.
U.S. Treasury securities are backed by the "full faith and credit" of the
U.S. Government. Other U.S. Government obligations may or may not be 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.
Treasury securities include Treasury bills, Treasury notes and Treasury
bonds. Government agencies which issue or guarantee securities backed by the
"full faith and credit" of the U.S. Government include the Government National
Mortgage Association ("GNMA"), the Farmer's Home Administration and the Small
Business Administration. The U.S. Government agencies and instrumentalities that
issue or guarantee securities not backed by the "full faith and credit" of the
U.S. Government include, but are not limited to the Federal Farm Credit System,
the Federal Land Banks, the Federal Intermediate Credit Banks, the Bank for
Cooperatives, the Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
The U.S. Government Fund intends to hold its portfolio securities to
maturity. Historically, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities have involved little risk of loss of
interest or principal, if held to maturity. All investments of the U.S.
Government Fund will mature or will be deemed to mature within 397 days from the
date of acquisition. The U.S. Government Fund intends to have a dollar weighted
average maturity of its portfolio securities of 60 days or less. Securities in
which the U.S. Government Fund will invest may not earn as high a level of
current income as long term or lower quality securities.
Shareholder approval is required to change any of the investment policies
discussed above or in "Additional Information on Investment Policies and
Techniques".
VISTA GLOBAL MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Global Fund is to
seek to provide maximum current income consistent with preservation of capital
and maintenance of liquidity. The
11
<PAGE>
investment objective of the Global Fund may not be changed unless approved by
the holders of a majority of the Fund's outstanding shares.
INVESTMENT POLICIES-- The Global Fund seeks to achieve its investment
objective by investing in (i) U.S. Dollar denominated 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets as
reported in recognized financial publications, or such other U.S. or foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria; (iv) securities issued or guaranteed as to principal and
interest by the U.S. Government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which
the Global Fund invests, described in greater detail under "Additional
Information on Investment Policies and Techniques," will be within the top two
rating categories of Standard & Poor's or Moody's and present minimal credit
risks. To the extent that the Global Fund is invested in STRIPS (see "Additional
Information on Investment Policies and Techniques--Global Fund"), those
securities may be subject to greater fluctuation of market value than other
securities in which the Global Fund invests. There can be no assurance that the
Global Fund will achieve its investment objective.
It is anticipated that, in normal circumstances, the Global Fund's assets
will include securities of issuers in at least three countries, including the
United States. However, all of such Fund's investments will be in U.S. Dollar
denominated securities with remaining maturities of 397 days or less. Securities
in which the Global Fund will invest may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value. Certain
instruments issued or guaranteed by issuers, including the U.S. Government or
agencies thereof, which have a variable rate of interest readjusted no less
frequently than annually are deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate. The dollar weighted
average maturity of the Global Fund will be 90 days or less.
VISTA TREASURY PLUS MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Treasury Fund is to
seek to provide maximum current income consistent with preservation of capital
and maintenance of liquidity. The investment objective of the Fund may not be
changed unless approved by the holders of a majority of the Fund's outstanding
shares.
INVESTMENT POLICIES-- The Treasury Fund seeks to achieve its investment
objective by investing in obligations issued by the U.S. Treasury, including
U.S. Treasury bills, bonds and notes. In addition, the Treasury Fund will seek
to enhance its yield by investing in repurchase agreements which are fully
collateralized by U.S. Treasury obligations.
All of the Treasury Fund's investments will be in U.S. dollar-denominated
securities with remaining maturities of 397 days or less. The dollar weighted
average maturity of the Treasury Fund will be 60 days or less.
12
<PAGE>
The Treasury Fund may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government, including U.S.
Treasury bills, bonds, and notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund may also invest in
selected securities issued by the U.S. Treasury of which the principal and
interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). These obligations are usually issued at a discount to their "face
value" and because of the manner in which principal and interest are returned
may exhibit greater price volatility than more conventional debt securities. The
Treasury Fund's investments in these securities will be limited to U.S. Treasury
Receipts and "interest only" stripped securities that have been issued or
guaranteed by the U.S. Government and are registered under the STRIPS program.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA FEDERAL MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Federal Fund is to
seek maximum current income consistent with the preservation of capital and
maintenance of liquidity. The investment objective of the Federal Fund may not
be changed unless approved by the holders of a majority of the Federal Fund's
outstanding shares.
INVESTMENT POLICIES-- The Federal Fund seeks to achieve its investment
objective by investing primarily in direct obligations of the U.S. Treasury with
remaining maturities of 13 months or less such as Treasury Bills and Notes. The
fund may also from time to time invest in obligations with remaining maturities
of 13 months or less issued or guaranteed as to principal and interest by
certain agencies or instrumentalities of the U.S. Government, such as the Farm
Credit System Financial Assistance Corporation, Federal Financing Bank, General
Services Administration, Federal Home Loan Banks, Farm Credit System, Tennessee
Valley Authority and the Student Loan Marketing Association. Income on direct
investments in U.S. Treasury securities and obligations of the aforementioned
agencies and instrumentalities is generally not subject to state and local
income taxes by reason of federal law.
Shareholders in a particular state that imposes an income tax should
determine through consultation with their own tax advisors whether such interest
income, when distributed by the Federal Fund, will be considered by the state to
have retained exempt status, and whether the Federal Fund's capital gains and
other income, if any, when distributed will be subject to the state's income
tax. See "Tax Matters". Due to state income tax considerations, the Federal Fund
will not enter into repurchase agreements.
All of the Federal Fund's investments will have remaining maturities of 397
days or less. The dollar weighted average maturity of the Federal Fund will be
90 days or less.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares of
the Federal Fund. The Federal Fund may from time to time engage in portfolio
trading for liquidity purposes in order to enhance its yield, or if otherwise
deemed advisable. In selling portfolio securities
13
<PAGE>
prior to maturity, the Federal Fund may realize a price higher or lower than
that paid to acquire such securities, depending upon whether interest rates have
increased or decreased since its acquisition.
The Federal Fund may invest in U.S. Government securities issued or
guaranteed as to principal and interest by the U.S. Government including U.S.
Treasury Bills, Bonds, and Notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Federal Fund may also
invest in selected securities issued by the U.S. Treasury of which the principal
and interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). These obligations are usually issued at a discount to their "face
value" and because of the manner in which principal and interest are returned
may exhibit greater price volatility than more conventional debt securities. The
Federal Fund's investments in these securities will be limited to U.S. Treasury
Receipts and "interest only" stripped securities that have been issued or
guaranteed by the U.S. Government which are registered under the STRIPS program.
TO THE EXTENT PERMISSIBLE BY FEDERAL AND STATE LAW, THE FEDERAL FUND IS
STRUCTURED TO PROVIDE SHAREHOLDERS WITH INCOME THAT IS EXEMPT OR EXCLUDED FROM
TAXATION AT THE STATE AND LOCAL LEVEL. SUBSTANTIALLY ALL DIVIDENDS PAID TO
SHAREHOLDERS RESIDING IN CERTAIN STATES WILL BE EXEMPT OR EXCLUDED FROM STATE
INCOME TAX. MANY STATES, BY STATUTE, JUDICIAL DECISION OR ADMINISTRATIVE ACTION,
HAVE TAKEN THE POSITION THAT DIVIDENDS OF A REGULATED INVESTMENT COMPANY SUCH AS
THE FEDERAL FUND THAT ARE ATTRIBUTABLE TO INTEREST OBLIGATIONS OF THE U.S.
TREASURY AND CERTAIN U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES ARE THE
FUNCTIONAL EQUIVALENT OF INTEREST FROM SUCH OBLIGATIONS AND ARE, THEREFORE,
EXEMPT FROM STATE AND LOCAL INCOME TAXES. INVESTORS SHOULD BE AWARE OF THE
APPLICATION OF THEIR STATE AND LOCAL LAWS TO INVESTMENTS IN THE FEDERAL FUND.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
VISTA PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE-- The investment objective of the Prime Fund is to seek
to provide maximum current income consistent with preservation of capital and
maintenance of liquidity. The investment objective of the Prime Fund may not be
changed unless approved by the holders of a majority of the Prime Fund's
outstanding shares.
INVESTMENT POLICIES-- The Prime Fund seeks to achieve its investment
objective by investing in (i) U.S. Dollar denominated 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) U.S. Dollar
denominated obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion and by the 75 largest foreign commercial banks (including
obligations of foreign branches of such banks) in terms of total assets as
reported in recognized financial publications, or such other U.S. or foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria; (iv) securities issued or guaranteed as to principal and
interest by the U.S. Government or by agencies or instrumentalities thereof; and
(v) repurchase agreements related to these securities. The securities in which
the Prime Fund invests,
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described in greater detail under "Additional Information on Investment Policies
and Techniques," will be of high quality and present minimal credit risks. To
the extent that the Prime Fund is invested in STRIPS (see "Additional
Information on Investment Policies and Techniques--Prime Fund"), those
securities may be subject to greater fluctuation of market value than other
securities in which the Prime Fund invests. There can be no assurance that the
Prime Fund will achieve its investment objective.
The Prime Fund may purchase the securities of issuers in foreign countries.
However, all of the Prime Fund's investments will be in U.S. Dollar denominated
securities with remaining maturities of 397 days or less. Securities in which
the Prime Fund will invest may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value. Certain instruments
issued or guaranteed by issuers, including the U.S. Government or agencies
thereof, which have a variable rate of interest readjusted no less frequently
than annually are deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate. The dollar weighted average maturity
of the Prime Fund will be 60 days or less.
Although the fundamental policy referred to above may not be changed without
shareholder approval, such approval is not required to change any of the other
investment policies discussed above or in "Additional Information on Investment
Policies and Techniques".
MANAGEMENT OF THE FUNDS
ADVISER
THE CHASE MANHATTAN BANK, N.A. manages the assets of the Treasury Fund and the
Federal Fund pursuant to an Investment Advisory Agreement dated April 15, 1994
and the Tax Free Fund, U.S. Government Fund, Global Fund and Prime Fund pursuant
to Investment Advisory Agreements dated October 25, 1994. Subject to such
policies as the Board of Trustees may determine, the Adviser makes investment
decisions for each Fund. For its services under the Investment Advisory
Agreements, the Adviser 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 may, from time to time, voluntarily waive all or a portion of the
fees payable to it under the Investment Advisory Agreements.
The Adviser, 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. Its headquarters are at One Chase Manhattan Plaza, New York,
NY 10081. The Adviser, including its predecessor organizations, has over 100
years of money management experience and renders investment advisory services to
others. Also included among the Adviser's accounts are commingled trust funds
and a broad spectrum of individual trust and investment management portfolios.
These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry into
an Agreement and Plan of Merger (the "Merger Agreement") with Chemical Banking
Corporation ("Chemical"), a bank holding company, pursuant to which The Chase
Manhattan Corporation will merge with and into Chemical (the "Holding Company
Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the
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second largest bank holding company in the United States based on assets. The
consummation of the Holding Company Merger is subject to certain closing
conditions, including the approval of the shareholders of each holding company
and the receipt of certain regulatory approvals. The Holding Company Merger is
expected to be completed on or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, and is a commercial bank
offering a wide range of banking and investment services to customers throughout
the U.S. and around the world. Effective upon consummation of the Holding
Company Merger, the Adviser will be a wholly-owned subsidiary of New Chase. Upon
consummation of the Bank Merger, the Adviser will continue to be a wholly-owned
subsidiary of New Chase.
CERTAIN RELATIONSHIPS AND ACTIVITIES. 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 Distributor or affiliates of
the Distributor. The Adviser 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 the
Adviser 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 on behalf of any Fund. The adviser
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 Adviser or in the possession of any affiliate of
such Adviser, including the division of Chase 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.
ADMINISTRATOR
Pursuant to an Administration Agreement, dated April 15, 1994 (the
"Administration Agreement"), Chase serves as administrator of the Trust. The
Administrator provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents; preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations excluding those of
the securities laws of the various states; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities necessary to carry out the duties thereunder. The Administrator is
entitled to receive from each Fund a fee computed daily and paid monthly at an
annual rate equal to 0.05% of such Fund's average daily net assets. However, the
Administrator may, from time to time, voluntarily waive all or a portion of its
fees payable under the Administration Agreement. The Administrator, pursuant to
the terms of the Administration Agreement, shall not have any responsibility or
authority for each Fund's investments, the determination of investment policy,
or for any matter pertaining to the distribution of Fund shares.
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GLASS-STEAGALL ACT. Chase has received the opinion of its legal counsel that
it may provide the services described in the Investment Advisory and the
Administration Agreements, as described above, and the Custodian Agreement
described below without violating the federal banking law commonly known as the
Glass-Steagall Act. The Act generally bars banks from publicly underwriting or
distributing certain securities.
Based on the advice of its counsel, Chase believes that the Court's decision
and these other decisions of federal banking regulators permit it to serve as
investment adviser to a registered, open-end investment company.
Regarding the performance of shareholder servicing and custodial activities,
the staff of the Office of the Comptroller of the Currency, which supervises
national banks, has issued opinion letters stating that national banks may
engage in custodial activities. Therefore, Chase believes, based on advice of
its counsel, that it may serve as Custodian to the Trust and render the services
set forth in the Custodian Agreement, as appropriate, incidental national
banking functions and as proper adjunct to its serving as investment adviser and
administrator to the Funds.
Industry practice and regulatory decisions also support a bank's authority
to act as administrator for a registered investment company. Chase, on the
advice of its counsel, believes that it may render the services described in its
Administration Agreement without violating the Glass-Steagall Act or other
applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, custodian or other
administrative services for the Funds. If that occurred, the Trust's Board of
Trustees promptly would seek to obtain for the Funds the services of another
qualified adviser, custodian or administrator, as necessary. Although no
assurances can be given, the Trust believes that, if necessary, the switch to a
new adviser, custodian or administrator could be accomplished without undue
disruption to the Funds' operations.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
The Institutional Shares are continuously offered for sale without a sales load
at the net asset value next determined through Vista Broker-Dealer Services,
Inc. ("VBDS" or the "Distributor") after an order is received if it is
transmitted prior to 12:00 noon, Eastern time for the Tax Free Fund, and prior
to 2:00 p.m., Eastern time for the U.S. Government Fund, Global Fund, Treasury
Fund, Federal Fund and Prime Fund on any business day during which the New York
Stock Exchange and the Adviser are open for trading ("Fund Business Day"). (See
"Other Information Concerning Shares of the Fund--Net Asset Value"). Orders for
Institutional Shares received and accepted prior to the above designated times
will be entitled to all dividends declared on such day. The minimum initial
purchase is $1,000,000. Shareholders must maintain a minimum account balance of
$1,000,000 in the Institutional Shares at all times.
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It is anticipated that each Institutional Share's net asset value will
remain constant at $1.00 per share and each Fund will employ specific investment
policies and procedures to accomplish this result. An investor may purchase
Institutional Shares by authorizing his broker or financial institution to
purchase such Shares on his behalf through the Distributor, which the broker or
financial institution must do on a timely basis. All share purchases 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 Transfer Agent, the order will be cancelled. Any order received after the
times noted above, will not be accepted. Any funds received in connection with
late orders will be invested on the next business day. The Funds may at their
discretion reject any order for shares. The Funds also reserve the right to
suspend sales of shares to the public at any time, in response to the conditions
in the securities market or otherwise. Fund shares will be maintained in book
entry form, and no certificates representing shares owned will be issued to
shareholders.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, except those payable to an existing
shareholder who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 calendar days.
Federal regulations require that each investor provide a certified Taxpayer
Identification Number upon opening an account.
Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to enhance the yield on its assets. Accordingly, in order
to make investments which will immediately generate income, each Fund must have
federal funds available to it (i.e., monies credited to the account of such
Fund's custodian bank by a Federal Reserve Bank).
REDEMPTIONS
An investor may redeem all or any portion of the shares in his account on
any Fund Business Day at the net asset value next determined after a redemption
request in proper form is received by a Fund's Transfer Agent. Therefore,
redemptions will be effected on the same day the redemption order is received
only if such order is received prior to 12:00 noon, Eastern time for the Tax
Free Fund, and prior to 2:00 p.m., Eastern time for the U.S. Government Fund,
Global Fund, Treasury Fund, Federal Fund and Prime Fund, on any Fund Business
Day. Shares which are redeemed earn dividends up to and including the day prior
to the day the redemption is effected. The proceeds of a redemption will be paid
by wire in federal funds normally on the Fund Business Day the redemption is
effected, but in any event within seven days. Payment for redemption requests
received prior to the above-mentioned times is normally made in federal funds
wired to the redeeming shareholder on the same Business Day. Payment for
redeemed shares for which a redemption order is received after the times stated
above on a Business Day is normally made in federal funds wired to the redeeming
shareholder on the next Business Day following redemption. In order to allow
Chase to most effectively manage the Funds' portfolios, investors are urged to
make redemption requests as early in the day as possible. In making redemption
requests, the names of the registered shareholders and their account numbers
must be supplied. While the Fund 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 under the Investment Company Act of 1940, as
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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).
A wire redemption may be requested by telephone or wire to the Vista Service
Center. For telephone redemptions, call the Vista Service Center at (800)
622-4273.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
GENERAL
The Funds have established certain procedures and restrictions, subject to
change from time to time, for purchase and redemption, including procedures for
accepting telephone instructions. 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 this Prospectus are not available until a
completed and signed account application has been received by the Fund's
Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in the account application. To provide evidence of telephone
instructions, the Transfer Agent will record telephone conversations with
shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event the Fund does
not employ such procedures, it may be liable for losses due to unauthorized or
fraudulent instructions.
Shareholders agree to release and hold harmless the Funds, the Adviser, the
Administrator, any sub-agent and broker-dealer, and the officers, directors,
employees and agents thereof against any claim, liability, loss, damage and
expense for any act or failure to act in connection with Fund shares, any
related investment account, any privileges or services selected in connection
with such investment account, or any written or oral instructions or requests
with respect thereto, or any written or oral instructions or requests from
someone claiming to be a shareholder if the Funds or any of the above-described
parties follow instructions which they reasonably believe to be genuine and act
in good faith by complying with the reasonable procedures that have been
established for Fund accounts and services.
The Funds may also establish and revise from time to time account minimums
and transactions or amount restrictions on purchases, redemptions, or other
transactions permitted in connection with shareholder accounts. The Funds may
also 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 the bank account specified in the Bank Account Registration, or for
any written requests for additional account services made after a shareholder
has submitted an initial account application to the Funds. The Funds may refuse
to accept or carry out any transaction that does not satisfy any restrictions
then in effect.
TAX MATTERS
A prospective investor should review the more detailed discussion of federal
income tax considerations relevant to each Fund that is contained in the
Statement of Additional Information. In addition, each prospective investor
should consult with its own tax advisers as to the tax consequences of an
investment in the Funds, including the status of distributions from a Fund in
its own state and locality
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and the possible applicability of the federal alternative minimum tax to a
portion of the distributions of the Tax Free Fund.
The Trust intends to qualify each Fund each year and elect that each Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). If a Fund qualifies as a
"regulated investment company" and all of its taxable income, if any, is
distributed to its shareholders in accordance with the timing requirements
imposed by the Code, it will not be subject to federal income tax on the amounts
so distributed. If for any taxable year a Fund does not qualify for the
treatment as a regulated investment company, all of its taxable income will be
subject to tax at regular corporate rates without any deduction for
distributions to its shareholders, and such distributions will be taxable to
shareholders to the extent of each Fund's current and accumulated earnings and
profits.
The Trust is organized as a Massachusetts business trust and, under current
law, the Trust is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as each Fund (and each other series of the Trust)
qualifies as a regulated investment company under the Code.
Distributions by a Fund of its taxable ordinary income (net of expenses) and
the excess, if any, of its net short-term capital gain over its net long-term
capital loss are generally taxable to shareholders as ordinary income. Such
distributions are treated as dividends for federal income tax purposes, but do
not qualify for the dividends-received deduction for corporations. Distributions
by the Tax Free Fund of its tax-exempt interest income (net of expenses) are
designated as "exempt-interest dividends" which are excluded from gross income
for regular federal income tax purposes. Distributions by a Fund of the excess,
if any, of its net long-term capital gain over its net short-term capital loss
are designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has held
his shares. Each Fund will seek to avoid recognition of capital gains.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by a Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the calendar year, including any portions which constitute ordinary
income dividends, capital gains dividends and exempt interest dividends will be
sent to each shareholder of a Fund promptly after the end of each calendar year.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by a Fund. Generally, shareholders are subject to backup
withholding if they have not provided a Fund with a correct taxpayer
identification number and certain required certifications.
U.S. GOVERNMENT FUND. Shareholders of the U.S. Government Fund (other than
tax-exempt shareholders) will be subject to federal income tax on the ordinary
income dividends and any capital gains dividends from the Fund may also be
subject to state and local taxes. The laws of some states and localities,
however, exempt from some taxes dividends such as those paid on shares of the
U.S. Government Fund to the extent such dividends are attributable to interest
from obligations of the U.S. Government and certain of its agencies and
instrumentalities. The U.S. Government Fund intends to advise shareholders of
the proportion of their ordinary income dividends which are attributable to such
interest.
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Shareholders are urged to consult their tax advisers regarding the possible
exclusion from state and local income tax of a portion of the dividends paid on
shares of the U.S. Government Fund which is attributable to interest from
obligations of the U.S. Government and its agencies and instrumentalities.
TAX FREE FUND. In accordance with the investment objectives of the Tax Free
Fund, it is expected that most or all of the net investment income of the Fund
will be attributable to interest from Municipal Obligations, although from time
to time a portion of the portfolio of the Fund may be invested in short-term
taxable obligations since the preservation of capital and the maintenance of
liquidity are important aspects of the Fund's investment objective. As a result,
most or all of the dividends paid out of the Tax Free Fund's net investment
income will be designated "exempt-interest dividends". The percentage of such
dividends so designated will be applied uniformly to all such dividends from the
Fund made during each fiscal year and may differ from the actual percentage for
any particular month. Any dividends paid out of any net long-term or short-term
capital gains will be taxable to shareholders, although the Tax Free Fund will
seek to avoid recognition of capital gains.
In addition, exempt-interest dividends paid out of interest on certain
Municipal Obligations that may be purchased by the Tax Free Fund will be treated
as a tax preference item for corporate shareholders potentially subject to an
alternative minimum tax ("AMT"), and all exempt-interest dividends will be
included in computing a corporate shareholder's adjusted current earnings, upon
which is based a separate corporate preference item which may be subject to AMT
and to the environmental superfund tax.
Interest on indebtedness incurred to purchase or carry shares of the Tax
Free Fund is not deductible. Further, entities who may be "substantial users"
(or persons related to "substantial users") of facilities financed by certain
types of municipal obligations should consult with their own tax advisers before
purchasing shares of the Tax Free Fund.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in an exclusion under the
income or other tax laws of any state or local taxing authority. Shareholders of
the Tax Free Fund may be exempt from state and local taxes on exempt-interest
dividends paid out of interest on municipal obligations of the state and/or
municipalities of the state in which they are domiciled or organized but may be
subject to state and local tax on exempt-interest dividends paid out of interest
on municipal obligations of other jurisdictions.
OTHER INFORMATION CONCERNING SHARES OF THE FUNDS
NET ASSET VALUE
The net asset value of the shares of the Tax Free Fund is determined at 12:00
noon, Eastern time and the net asset value of the shares of each of the U.S.
Government Fund, the Global Fund, the Treasury Fund, the Federal Fund and the
Prime Fund is determined as of 2:00 p.m., Eastern time, on each Fund Business
Day, by dividing the value of a Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) by the number of its shares outstanding at the time the determination
is made. The portfolio securities of each Fund are valued at their amortized
cost pursuant to Rule 2a-7 under the 1940 Act, certain requirements of which are
summarized under "Additional Information on Investment Policies and Techniques."
This method increases stability in
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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 these 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.
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, and consideration of certain actions before such deviation
exceed 1/2 of 1%. Income earned on a Fund's investments is accrued daily and the
Net Income, as defined under "Distributions and Dividends" below, is declared
each Fund Business Day as a dividend. See "Determination of Net Asset Value" in
the Statement of Additional Information for further information regarding
determination of net asset value and the procedures to be followed to stabilize
the net asset value at $1.00 per share.
DISTRIBUTIONS AND DIVIDENDS
The net income of the Institutional Shares is determined each Fund Business
Day (and on such other days as the Trustees deem necessary in order to comply
with Rule 22c-1 under the 1940 Act). This determination is made once during each
such day as of 12:00 noon, Eastern time for the Tax Free Fund and as of 2:00
p.m., Eastern time for the U.S. Government Fund, the Global Fund, the Treasury
Fund, the Federal Fund and the Prime Fund. All the net income, as defined below,
of the Institutional Shares so determined is declared in shares as a dividend to
shareholders of record at the time of such determination. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly on or
about the last business day of each month. Unless a shareholder elects to
receive dividends in cash, dividends are distributed in the form of additional
shares at the rate of one share (and fractions thereof) for each one dollar (and
fractions thereof) of dividend income.
For this purpose, the net income of the Institutional Shares (from the time
of the immediately preceding determination thereof) shall consist of all income
accrued, including the accretion of discounts, except for Tax Free Fund, less
the amortization of any premium on the portfolio assets of such Fund, less all
actual and accrued expenses determined in accordance with generally accepted
accounting principles. As noted above, securities are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value for the
purposes of complying with the 1940 Act. This valuation method will continue to
be used until such time as the Trustees determine that it does not constitute
fair value for such purposes.
Since the net income of the Institutional Shares is declared as a dividend
each time its net income is determined, the net asset value per share (i.e., the
value of its net assets divided by the number of its shares outstanding) is
expected to remain at $1.00 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment, representing the reinvestment of dividend income, is reflected by an
increase in the number of shares in his account.
It is expected that the Institutional Shares will have a positive net income
at the time of each determination thereof. If for any reason the net income
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of a portfolio security, the Fund would first offset
the negative amount with respect to each shareholder account from the dividends
declared during the month with respect to each such account. If and to the
extent that such negative amount exceeds such declared dividends at the end of
the month, the number of outstanding shares will be reduced by
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treating each shareholder as having contributed to the capital of the Fund that
number of full and fractional shares in the account of such shareholder which
represents his proportion of the amount of such excess. Each shareholder will be
deemed to have agreed to such contribution in these circumstances by his
investment. Thus, the net asset value per share will be maintained at a constant
$1.00.
DISTRIBUTION AND SUB-ADMINISTRATION AGREEMENT
The Distribution and Sub-Administration Agreement dated April 15, 1994 for
the Funds (the "Distribution Agreement") provides that the Distributor will act
as the principal underwriter of shares of each Fund and 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. In
addition, the Distributor will provide certain sub-administration services,
including providing officers, clerical staff and office space. While there is no
sales load, the Distributor receives a fee from each Fund at an annual rate
equal to 0.05% of each Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Other funds which have investment
objectives similar to those of each Fund, but which do not pay some or all of
such fees from their assets, may offer a higher return, although investors
would, in some cases, be required to pay a sales charge or a redemption fee.
The Distributor has agreed to use a portion of its distribution and
sub-administration fee to pay for certain expenses incurred in connection with
organizing new series or classes of the Trust and certain other ongoing expenses
of the Trust.
EXPENSES
Each of the Funds intends to pay all or its pro rata share of certain
expenses, including the compensation of the Trustees; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute;
fees and expenses of independent accountants, of legal counsel and of any
transfer agent, dividend disbursing agent; expenses of redeeming shares;
expenses of preparing, printing and mailing prospectuses, reports, notices,
proxy statements and reports to shareholders and to governmental officers and
commissions; expenses connected with the execution, recording and settlement of
portfolio security transactions; insurance premiums; fees and expenses of the
Custodian including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating the net asset values of the Fund
Shares; expenses of shareholder meetings; and the advisory fees payable to the
Adviser under the Investment Advisory Agreements, the administration fee payable
to the Administrator under the Administration Agreement and the
sub-administration fee payable to the Distributor under the Distribution and
Sub-Administration Agreement. Expenses relating to the issuance, registration
and qualification of shares of each Fund and the preparation, printing and
mailing of prospectuses for such purposes are borne by the Fund or the Shares
except that the Distribution and Sub-Administration Agreement with the
Distributor requires the Distributor to pay for prospectuses which are to be
used for sales to prospective investors.
Pursuant to offering multiple classes of shares, certain expenses of the
Funds are borne by certain classes, either exclusively, or in a manner which
approximates the proportionate value received by the class as a result of the
expenses being incurred.
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DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Mutual Fund Trust is an open-end management investment company organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts in 1994 The Trust has reserved the right to create and issue
additional series or classes. Each share of a series or class represents an
equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Expenses
of the Trust which are not attributable to a specific series or class are
allocated among all the series in a manner believed by management of the Trust
to be fair and equitable. Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that trust shares held in the treasury of the trust shall not be voted. Shares
of each series or class generally vote separately, for example to approve an
investment advisory agreement or distribution plan, but shares of all series and
classes vote together, to the extent required under the 1940 Act, in the
election or selection of Trustees and independent accountants.
Shareholders of the Institutional Shares bear the fees and expenses
described in this Prospectus. Similarly, shareholders of the counterpart Vista
Shares and Premier Shares bear the fees and expenses described in the
appropriate prospectuses for such classes of Shares. The absence of fees paid by
each of the Institutional Shares to the Distributor and shareholder servicing
agents for distribution expenses and shareholder services provided to
institutional investors differ significantly than similar fees paid under
distribution plans and shareholder servicing arrangements adopted for its
counterpart Vista Shares. As a result, at any given time, the net yield on the
Institutional Shares will be approximately .30% to .50% higher than the yield on
the counterpart Vista Shares and approximately .15% to .30% higher than the
yield on the counterpart Premier Shares. Standardized yield quotations will be
computed separately for each class of shares of a Fund.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class or of all series and
classes when in the judgment of the Trustees it is necessary or desirable to
submit matters for a shareholder vote. A Trustee of the Trust may, in accordance
with certain rules of the Securities and Exchange Commission, be removed from
office when the holders of record of not less than two-thirds of the outstanding
shares either present a written declaration to the Trust's Custodian or vote in
person or by proxy at a meeting called for this purpose. In addition, 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 the
outstanding shares of the Trust. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request. Shareholders of each series or class
would be entitled to share pro rata in the net assets of that series or class
available for distribution to shareholders upon liquidation of that series or
class.
The Trust is an entity of the type commonly known as a "Massachusetts
business 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
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on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Code of Ethics of the Trust prohibits all affiliated personnel from
engaging in personal investment activities which compete with or attempt to take
advantage of a Fund's planned portfolio transactions. The objective of the Code
of Ethics is to ensure that the operations of a Fund be carried out for the
exclusive benefit of a Fund's shareholders. The Trust maintains careful
monitoring of Compliance with the Code of Ethics. See "General Information" in
the Fund's Statement of Additional Information.
On October 28, 1994, certain mutual fund series of Mutual Fund Group
("MFG"), an affiliated investment company, underwent a statutory reorganization
to become series of the Trust. The Tax Free, U.S. Government, Global and Prime
Funds are such series and, therefore, certain information contained in this
prospectus reflects the history of those funds since their inception as series
of MFG and the fact that certain policies, plans and shareholder privileges
continued unchanged as a result of the reorganization.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Trust. In this capacity, DST maintains the
account records of all shareholders in the Funds, including statement
preparation and mailing. DST is also responsible for disbursing dividend
distributions to shareholders. From time to time, DST and/or the Funds may
contract with other entities to perform certain services for the Transfer Agent.
For its services as Transfer Agent, DST receives such compensation as is from
time to time agreed upon by the Trust and DST. DST's address is 127 W. 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 compensation as is from time to time
agreed upon by the Trust and Chase. The Custodian's responsibilities include
safeguarding and controlling each Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on each Fund's investments, maintaining books of original entry for portfolio
and Fund accounting and other required books and accounts, and calculating the
daily net asset value of shares of each Fund. Portfolio securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved by
the Trustees. The internal division of Chase which serves as the Trust's
Custodian does not determine the investment policies of the Funds or decide
which securities will be bought or sold on behalf of the Funds or otherwise have
access to or share material inside information with the internal division that
performs advisory services for the Funds.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
SPECIFIC FUND POLICIES AND INFORMATION
U.S. GOVERNMENT FUND. The U.S. Government Fund may engage in transactions
involving reverse repurchase agreements in an amount not to exceed 5% of the
Fund's total assets. Reverse repurchase agreements involve the sale of money
market securities held by the Fund with an agreement
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to repurchase the securities at an agreed-upon price, date and interest payment.
Reverse repurchase agreements have the same characteristics as borrowing
transactions by the Fund. During the time a reverse repurchase agreement is
outstanding, the Fund will maintain a segregated custodial account containing
U.S. Government or other appropriate high quality debt securities having a value
equal to the repurchase price. Reverse repurchase agreements are usually for
seven days or less and cannot be repaid prior to their expiration dates. For
additional information regarding reverse repurchase agreements, see "Investment
Objectives, Policies and Restrictions--Investment Policies: Reverse Repurchase
Agreements" in the Statement of Additional Information.
The U.S. Government Fund is also permitted to invest in U.S. Government
agency securities, which often provide higher yields than are available from the
more common types of government-backed instruments. While they may frequently
offer attractive yields, the limited-activity markets of many of these
securities means that, if the Fund were required to liquidate any of them, it
might not be able to do so advantageously. For additional information on these
types of securities, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Specialized Kinds of Government Agency
Securities" in the Statement of Additional Information.
If securities issued or guaranteed by GNMA, FNMA or FHLMC 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 to the U.S. Government
Fund of the premium, which may be particularly likely in the event of a
prepayment.
TAX FREE FUND. As a non-fundamental policy, the assets of the Tax Free Fund
will be invested only in Municipal Obligations that qualify under one of the
following categories:
(1) Municipal bonds with remaining maturities of 397 days or less that
at the date of purchase are rated Aaa or Aa by Moody's Investors Service,
Inc. ("Moody's"), AAA or AA by Standard and Poor's Corporation ("Standard &
Poor's") or AAA or AA by Fitch Investors Service, Inc. ("Fitch"), or, if not
rated, are of comparable quality as determined by the Adviser on an ongoing
basis pursuant to general guidelines established by the Board of Trustees of
the Trust, relating to the credit evaluation of the obligor on the bonds or
of the bank issuing a guaranty or letter of credit in support of the bonds
or of any insurance issued in support of the bonds.
(2) Municipal notes with remaining maturities of 397 days or less that
at the date of purchase are rated MIG-1 or MIG-2 by Moody's, SP-1 or SP-2 by
Standard & Poor's or F-1 or F-2 by Fitch, or if not rated, are of comparable
quality as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. The principal
kinds of municipal notes include tax anticipation notes, bond anticipation
notes and revenue anticipation notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency.
(3) Municipal commercial paper that is rated Prime-1 by Moody's, A-1 by
Standard & Poor's or F-1 by Fitch or, if not rated, is of comparable quality
as determined by the Adviser on an ongoing basis pursuant to general
guidelines established by the Board of Trustees of the Trust. Issues of
municipal commercial paper typically represent very short-term, unsecured,
negotiable promissory notes. These obligations are often issued to meet
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of
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municipalities or are refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements (see "Investment Objectives, Policies
and Restrictions--Investment Policies: Repurchase Agreements" in the
Statement of Additional Information) or other credit facility agreements
offered by banks or other institutions which may be called upon in the event
of default by the issuer of the commercial paper.
While Municipal Obligations satisfying the foregoing criteria may not earn
as high a level of current income as securities with longer terms or of lower
quality, those securities would generally be less liquid and subject to a higher
degree of price fluctuation than such Municipal Obligations. For descriptions of
the ratings of Standard & Poor's, Moody's and Fitch, see "Description of
Ratings" in Appendix A.
In view of the possible "concentration" of the Tax Free Fund in Municipal
Obligations secured by bank letters of credit or guarantees, an investment in
the Fund should be made with an understanding of the characteristics of the
banking industry and the risks associated with such an investment. Banks are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and
interest rates and fees which 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 under a letter of credit. For further information concerning
variable rate demand instruments, see "Investment Objectives, Policies and
Restrictions--Investment Policies: Variable Rate Securities and Participation
Certificates" in the Statement of Additional Information.
STAND-BY COMMITMENTS. When the Tax Free Fund purchases Municipal
Obligations, stand-by commitments from banks with respect to such Municipal
Obligations may also be acquired. The Tax Free Fund also reserves the right to,
and may in the future, acquire stand-by commitments from broker-dealers. Under a
stand-by commitment, a bank or broker-dealer agrees to purchase at such Fund's
option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired by the Fund with respect
to a particular Municipal Obligation held in its portfolio. Not more than 10% of
the total assets of the Tax Free Fund will be invested in Municipal Obligations
that are subject to stand-by commitments from the same bank or broker-dealer.
The Tax Free Fund intends to acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The purpose of this practice is to permit such
Fund to be fully invested in securities, the interest on which is excluded from
gross income for federal income tax purposes, while preserving the necessary
liquidity to purchase securities on a "when-issued" or "forward delivery" basis,
to meet unusually large redemptions and to purchase at a later date securities
other than those subject to the stand-by commitment.
The stand-by commitments that may be entered into are subject to certain
risks, which include the inability of the issuer of the commitment to pay for
the securities at the time the commitment is exercised, the fact that the
commitment is not marketable by the Tax Free Fund, and that the maturity of the
underlying security will generally be different from that of the commitment.
Municipal Obligations with the additional security provided by a stand-by
commitment will cost the Fund more,
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directly or indirectly, than comparable securities without such a commitment,
thus providing a lower yield than would be available from such other securities.
The Tax Free Fund will not purchase Municipal Obligations with stand-by
commitments from the Adviser or any bank affiliated with the Adviser, and have
no present intention of acquiring Municipal Obligations with stand-by
commitments from Shareholder Servicing Agents or banks affiliated with
Shareholder Servicing Agents. For further information concerning stand-by
commitments, see "Investment Objectives, Policies and Restrictions-- Investment
Policies: Stand-by Commitments" in the Statement of Additional Information.
GLOBAL FUND. The Global Fund may invest in U.S. Government securities issued
or guaranteed as to principal and interest by the U.S. Government or by agencies
or instrumentalities thereof include certain U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are primarily
supported by the full faith and credit of the U.S. Treasury, such as securities
of the Small Business Administration. The Global Fund may also invest in
selected securities issued or guaranteed by the U.S. Treasury of which the
principal and interest components of such securities are traded independently
under the Separate Trading of Registered Interest and Principal of Securities
Program ("STRIPS"). In addition, the Fund may invest in those obligations
supported by (i) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Student Loan Marketing Association), (ii)
the authority of the U.S. Government to purchase certain obligations of the
issuer (such as securities of the Federal National Mortgage Association), or
(iii) only the credit of the issuer. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies and
instrumentalities as described in clauses (i), (ii) or (iii) above in the
future, other than as set forth above, since it is not obligated to do so by
law. The Global Fund is also permitted to invest in certain specialized U.S.
Government agency securities, which often provide higher yields than are
available from the more common types of government-backed instruments. While
they may frequently offer attractive yields, the limited-activity markets of
many of these securities means that, if the Fund were required to liquidate any
of them, it might not be able to do so advantageously.
PRIME FUND. The Prime Fund may invest in U.S. Government securities issued
or guaranteed as to principal and interest by the U.S. Government or by agencies
or instrumentalities thereof include certain U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ only in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are primarily
supported by the full faith and credit of the U.S. Treasury, such as securities
of the Small Business Administration. The Prime Fund may also invest in selected
securities issued or guaranteed by the U.S. Treasury of which the principal and
interest components of such securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities Program
("STRIPS"). In addition, the Prime Fund may invest in those obligations
supported by (i) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Student Loan Marketing Association), (ii)
the authority of the U.S. Government to purchase certain obligations of the
issuer (such as securities of the Federal National Mortgage Association), or
(iii) only the credit of the issuer. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies and
instrumentalities as described in clauses (i), (ii) or (iii) above in the
future, other than as set forth above, since it is not obligated to do so by
law. The Prime Fund is also permitted to invest in certain specialized U.S.
Government agency securities,
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which often provide higher yields than are available from the more common types
of government-backed instruments. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
the Prime Fund were required to liquidate any of them, it might not be able to
do so advantageously. The Prime Fund has no current intension to actively trade
in STRIPS.
COMMON FUND POLICIES AND INFORMATION
Other Securities. The Global and Prime 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 and are not deemed U.S.
Government securities, including "Treasury Receipts", "Treasury Investment
Growth Receipts" ("TIGR's") and "Certificates of Accrual on Treasury Securities"
("CATS"). These notes and bonds are held in custody by a bank on behalf of the
owners of the receipts.
Domestic Bank Obligations. The domestic bank obligations in which the Global
and Prime Funds may invest consist of certificates of deposit, time deposits and
bankers' acceptances issued or guaranteed by U.S. banks. Such bank 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. The foreign bank obligations in which the Global
and Prime Funds may invest consist of U.S. Dollar denominated obligations issued
or guaranteed by foreign banks, including foreign branches of U.S. banks,
foreign banks and U.S. branches of foreign banks. Such bank 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.
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 Global and Prime Funds, other than those of bank holding
companies, include obligations which are (i) rated Prime-I by Moody's, A-1 by
Standard & Poor's or F-1 by Fitch; or (ii) determined by the Adviser to be of
comparable quality to those rated obligations which may be purchased by the
Global and Prime Funds 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,
Standard & Poor's or Fitch. The commercial paper and other short-term
obligations of U.S. bank holding companies which may be purchased by the Global
and Prime Funds 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.
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The Global and Prime Funds also may purchase floating and variable rate
demand notes and bonds, which are obligations normally having stated maturities
in excess of 397 days, but which permit the holder to demand payment of
principal at any time, or at specified intervals not exceeding 397 days, in each
case upon not more than 30 days' notice. Variable rate demand notes include
master demand notes which are obligations that permit the Global and Prime Funds
to invest fluctuating amounts, which may change daily without penalty, pursuant
to direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations normally has a corresponding right, after a given period, to prepay
in its discretion the outstanding principal amount of the obligations plus
accrued interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and the borrower, it is not contemplated that
such instruments will generally be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Global and Prime Funds' right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and, if not so rated, the Global and Prime Funds may invest in them only if the
Adviser determines that at the time of investment the obligations are of
comparable quality to the other obligations in which the Global and Prime Funds
may invest.
The Adviser, on behalf of the Global and Prime Funds, will consider on an
ongoing basis the creditworthiness of the issuers of the floating and variable
rate demand obligations in the Funds' portfolio. The Global and Prime Funds will
not invest more than 10% of the value of their respective total assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if there is no secondary
market available for these obligations, and in other securities that are not
readily marketable. In addition, the Prime Fund will not trade in variable
demand notes that have interest rate caps except with respect to usury
considerations.
Securities of Foreign Governments and Supranational Agencies. The Global and
Prime Funds may invest up to 25% of their respective total assets in obligations
of supranational agencies, such as the International Bank for Reconstruction and
Development, also known as the World Bank, which 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. For a
discussion of the risks associated in investment in these securities see "Risk
Factors" below.
The Global and Prime Funds will limit its investments in U.S. Dollar
denominated 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.
Other Investment Policies and Restrictions. The Global, Treasury, Federal
and Prime Funds have adopted certain fundamental investment restrictions set
forth in the Statement of Additional Informa tion, which include a restriction
that such Fund will not borrow money (excluding entering into reverse repurchase
agreements) except from banks and only for temporary or emergency purposes or to
meet
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redemption requests which might otherwise require the untimely disposition of
securities; provided that such borrowings in the aggregate may not exceed 10% of
the value of the Fund's total assets (including the amount borrowed) at the time
of such borrowing. The Global, Treasury, Federal and Prime Funds will not
purchase investment securities when the Funds' outstanding borrowings exceed 5%
of the value of their respective total assets. The Global and Prime Funds may
invest up to 25% of their respective total assets in the securities of issuers
in any industry, provided that there is no limitation on investments of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Global and Prime Funds' concentration policy regarding
the U.S. and foreign banking industries may involve certain additional credit
risks, such as defaults or downgrades, if at some future date adverse economic
conditions prevail in such industries.
The Global and Prime Funds may invest not more than 10% of their respective
total assets in repurchase agreements maturing in more than seven days or in
other nonmarketable or illiquid securities maturing in more than seven days,
including reverse repurchase agreements.
The Funds, except for the Tax Free Fund, may invest in reverse repurchase
agreements which involve the sale of money market securities held by the Fund
with an agreement to repurchase the securities at an agreed upon price, date and
interest payment. Reverse repurchase agreements have the same characteristics as
borrowing by the Funds. During the time a reverse repurchase agreement is
outstanding, the Global Fund will maintain a segregated custodial account
containing U.S. Government or other appropriate high quality debt securities
having a value equal to the repurchase price. Reverse repurchase agreements are
usually for seven days or less and cannot be repaid prior to their expiration
dates. Reverse repurchase agreements involve the risk that the market value of
the Fund's portfolio securities transferred may decline below the price at which
the Fund is obliged to purchase the securities. Further, because a reverse
repurchase agreement entered into by a Fund constitutes borrowing, it may have a
leveraging effect.
Risk Factors. Foreign bank obligations include fixed time deposits which are
payable at a stated maturity date and bear a fixed rate of interest. Generally,
fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligations. The Global and Prime
Funds will not invest more than 10% of their respective total assets in fixed
time deposits. Fixed time deposits do not have a market and therefore may be
regarded as illiquid. However, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.
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.
Foreign securities issued by foreign governments, any of their political
subdivisions, agencies and instrumentalities, debt obligations issued by foreign
banks and their branches and commercial paper issued by foreign issuers involve
investment risks in addition to those of domestic obligations of domestic
issuers, including the possibilities that liquidity could be impaired because of
future political
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and economic developments, that the obligations may be less marketable than
comparable domestic obligations of domestic issuers, that a foreign jurisdiction
might impose withholding taxes on interest income payable on those obligations,
that deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations, that the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, that there may be
difficulties in obtaining or enforcing a judgment against a foreign issuer
(including branches) or that the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign issuers may differ
from those applicable to United States issuers. In addition, foreign banks are
not subject to examination by any U.S. Government agency or instrumentality.
REPURCHASE AGREEMENTS. The Tax Free, U.S. Government, Global, Treasury and
Prime Funds may, when appropriate, enter into repurchase agreements (a purchase
of and simultaneous commitment to resell a security at an agreed-upon price and
date which is usually not more than seven days from the date of purchase) only
with member banks of the Federal Reserve System and security dealers believed
creditworthy by the Trustees and only if fully collateralized by U.S. Government
obligations (in the case of the Treasury Fund, U.S. Treasury obligations) or
other securities in which such Funds are permitted to invest. In the event the
seller fails to pay the agreed-to sum on the agreed-upon delivery date, the
underlying security could be sold by a Fund, but the Fund might incur a loss in
doing so, and in certain cases may not be permitted to sell the security. As an
operating policy, each Fund, through its custodian bank, takes constructive
possession of the collateral underlying repurchase agreements. Additionally,
procedures have been established for the Funds to monitor, on a daily basis, the
market value of the collateral underlying all repurchase agreements to ensure
that the collateral is at least 100% of the value of the repurchase agreements.
Not more than 10% of the total assets of a Fund will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days.
WHEN-ISSUED OR FORWARD DELIVERY PURCHASES. Each Fund may purchase new issues
of securities in which it is permitted to invest on a "when-issued" or, with
respect to existing issues, on a "forward delivery" basis, which means that the
securities will be delivered at a future date beyond the customary settlement
time. Although there is no limit as to the amount of the commitments which may
be made by a Fund to purchase securities on a "when-issued" or "forward
delivery" basis, it is expected that under normal circumstances not more than
30% of a Fund's total assets will be committed to such purchases. A Fund does
not pay for such obligations or start earning interest on them until the
contractual settlement date. Although commitments to purchase "when-issued" or
"forward delivery" securities will only be made with the intention of actually
acquiring them, these securities may be sold before the settlement date if
deemed advisable by an Adviser.
While it is not intended that such purchases would be made for speculative
purposes, purchases of securities on a "when-issued" or "forward delivery" basis
can involve more risk than other types of purchases and have the effect of
leveraging. For example, when the time comes to pay for a "when-issued" or
"forward delivery" security, a Fund's portfolio securities may have to be sold
in order to meet payment obligations, and a sale of securities to meet such
obligations carries with it a greater potential for the realization of capital
gain, which is not tax-exempt. Also, if it is necessary to sell the "when-
issued" or "forward delivery" security before delivery, a Fund may incur a loss
because of market
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fluctuations since the time the commitment to purchase the "when-issued" or
"forward delivery" security was made. Any gain resulting from any such sale
would not be tax-exempt. For additional information concerning these risks and
other risks associated with the purchase of "when-issued" or "forward delivery"
securities as well as other aspects of the purchase of securities on a
"when-issued" or "forward delivery" basis, see "Investment Objectives, Policies
and Restrictions--Investment Policies: When-Issued and Forward Delivery
Purchases" in the Statement of Additional Information.
VARIABLE RATE SECURITIES AND PARTICIPATION CERTIFICATES. The variable rate
demand instruments that may be purchased by the Tax Free Fund are tax exempt
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at any time or at specified
intervals not exceeding 397 days, in each case not more than 30 days' notice.
With respect to the U.S. Government Fund, certain Government securities, provide
for a periodic adjustment in the interest rate paid on the instrument and/or
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. The variable rate securities in which the above-referenced
Funds may be invested include participation certificates (and, with respect to
the U.S. Government Fund, certificates of indebtedness) issued by a bank,
insurance company or other financial institution, and in variable rate
securities owned by such institutions or affiliated organizations
("Participation Certificates"). 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. With respect to the Tax Free Fund, these instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 397
days or less. If the participation interest is unrated, or has been given a
rating below that which otherwise is permissible for purchase by one of the
Funds, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trustees have determined meets the
prescribed quality standards for banks, or the payment obligation otherwise will
be collateralized by U.S Government securities. (See "Investment Objectives,
Policies and Restrictions--Investment Policies: Variable Rate Securities and
Participation Certificates" in the Statement of Additional Information.)
The Adviser will monitor on an on-going basis the ability of the underlying
issuers to meet their demand obligations. Although variable rate securities may
be sold by a Fund, it is intended that they be held until maturity, except under
certain specified circumstances. (See "Investment Objectives, Policies and
Restrictions--Investment Policies: Variable Rate Securities and Participation
Certificates" in the Statement of Additional Information.)
As a result of the variable rate nature of these investments, a Fund's yield
will decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined.
Conversely, during periods where prevailing interest rates have increased, a
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
PORTFOLIO MANAGEMENT AND TURNOVER. It is intended that the portfolios of the
Funds will be fully managed by buying and selling securities, as well as holding
securities to maturity. In managing the portfolios of these Funds, the Adviser
seeks to take advantage of market developments, yield disparities and variations
in the creditworthiness of issuers. For a description of the strategies that may
be used by the Adviser in managing the portfolios of these Funds, which may
include adjusting the
33
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average maturity of a portfolio in anticipation of a change in interest rates,
see "Investment Objectives, Policies and Restrictions--Investment Policies:
Portfolio Management" in the Statement of Additional Information.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Since money market instruments are generally
purchased in principal transactions, the Funds pay no brokerage commissions. For
a complete discussion of portfolio transactions and brokerage allocation, see
"Investment Objectives, Policies and Restrictions--Investment Policies:
Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information.
EFFECT OF RULE 2A-7 ON PORTFOLIO MANAGEMENT. The portfolio management of
each Fund is intended to comply with the provisions of Rule 2a-7 under the 1940
Act (the "Rule") under which, if a Fund meets certain conditions, it may use the
"amortized cost" method of valuing its securities. Under the Rule, the maturity
of an instrument is generally considered to be its stated maturity (or in the
case of an instrument called for redemption, the date on which the redemption
payment must be made), with special exceptions for certain kinds of instruments.
Repurchase agreements and securities loan agreements are, in general, treated as
having a maturity equal to the period remaining until they can be executed.
In accordance with the provisions of the Rule, each of the Global Fund, U.S.
Government Fund, Treasury Fund, Federal Fund and Prime Fund must: (i) maintain a
dollar weighted average portfolio maturity (see above) not in excess of 90 days
(however, the U.S. Government Fund, the Treasury Fund and the Prime Fund do not
plan to have a dollar weighted average portfolio maturity in excess of 60 days);
(ii) limit its investments, including repurchase agreements, to those
instruments which are denominated in U.S. dollars, which the Board of Trustees
determines present minimal credit risks, and which are of "high quality" as
determined by at least two major rating services; or, in the case of any
instrument that is split-rated or not rated, of comparable qualify as determined
by the Board; and (iii) not purchase any instruments with a remaining maturity
(see above) of more than 397 days. The Rule also contains special provisions as
to the maturity of variable rate and floating rate instruments. In accordance
with the Rule, the Tax Free Fund must (i) maintain a dollar-weighted average
portfolio maturity of 90 days or less, (ii) purchase only instruments having
remaining maturities of 397 days or less and (iii) invest only in U.S. dollar
denominated securities determined in accordance with procedures established by
the Board of Trustees to present minimal credit risks and which are rated in one
of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated only by one such organization) or, if
unrated, are of comparable qualify as determined in accordance with procedures
established by the Board of Trustees.
PORTFOLIO SECURITIES LENDING. Although the Funds do not intend to engage in
such activity in the ordinary course of business, each Fund (other than the Tax
Free 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 20% of the value of the Tax Free, U.S.
Government or Global Fund's respective total assets and 30% of the Treasury,
Federal or Prime Fund's respective assets. In connection with such loans, the
Funds will receive collateral consisting of cash, cash equivalents, U.S.
34
<PAGE>
Government securities or irrevocable letters of credit issued by financial
institutions (or, in the case of the Treasury Fund, U.S. Treasury obligations).
Such collateral will be maintained at all times in an amount equal to at least
100% of the current market value plus accrued interest of the securities loaned.
The Funds can increase their income through the investment of such collateral.
The Funds continue to be entitled to the interest payable or any
dividend-equivalent payments received on a loaned security and, in addition,
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. The Funds might experience risk of
loss if the institutions with which they have engaged in portfolio loan
transactions breach their agreements with the Funds. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
experience financial difficulty. Loans will be made only to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans justifies the risk.
DESCRIPTION OF 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 consist of both notes and bonds. There are five
major varieties of state and municipal notes: TAX ANTICIPATION NOTES ("TANS");
REVENUE ANTICIPATION NOTES ("RANS"); BOND ANTICIPATION NOTES ("BANS"); AND
CONSTRUCTION LOAN NOTES ("CLNS").
TANs and RANs are issued by states, municipalities and other tax-exempt
issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TANs and RANs are general obligations of the issuing entity
payable from taxes or revenues (respectively) expected to be received within one
year.
BANs are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from bonds to be issued concurrently
or at a later date. BANs are issued most frequently by revenue bond issuers to
finance such items as construction and mortgage purchases.
CLNs are issued primarily by housing agencies to finance construction of
projects for an interim period prior to a bond issue. CLNs are secured by a lien
on the property under construction, and therefore have security beyond that of
the traditional BAN.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred to as
"municipalities") which generally have a maturity at the time of issue of one
year or more and which are issued to raise funds for various public purposes
such
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as construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of revenue bonds are issued by or on behalf of
public authorities to provide funding for various privately operated industrial
facilities such as warehouse, office, plant and store facilities ("Private
Activity Bonds"). Interest on the Private Activity Bonds is generally, with
certain exceptions, excluded from gross income for federal income tax purposes
pursuant to Section 103(a) of the Code, provided the issuer and corporate
obligor thereof continue to meet certain conditions. Private Activity Bonds in
most cases, do not generally constitute the pledge of the credit of the issuer
of such bonds. The payment of the principal and interest on Private Activity
Bonds usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many Private Activity Bonds, there is no established
secondary market for their purchase or sale and therefore they may not be
readily marketable. However, Private Activity Bonds or the participation
certificates in Private Activity Bonds purchased by a Fund will have liquidity
because they will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions which may be exercised by a
Fund at any time.
YIELD AND PERFORMANCE INFORMATION
From time to time, each of the Institutional Shares may use hypothetical
investment examples and performance information in advertisements, shareholder
reports or other communications to shareholders. Because such performance
information is based on historical earnings, it should not be considered as an
indication or representation of the performance of the Institutional Shares in
the future. From time to time, the yield of each of the Institutional Shares, as
a measure of its performance, 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 other relevant
indices or to rankings prepared by independent services or other financial or
industry publications, such as Lipper Analytical Services, Inc., or the
Morningstar Mutual Funds on Disc, that monitor the performance of mutual funds.
In addition, the yield of each of the Institutional Shares may be compared to
the IBC/Donoghue's Money Fund AveragesTM, compiled in the Money Fund Report (R),
as published by IBC/Donoghue Inc., a widely recognized independent publication
that monitors the performance of money market funds. Also, each of the
Institutional Shares' yield data may be 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 publications of a local or
regional nature. Each of the Institutional Shares may, with proper
authorization, reprint articles written about the Institutional Shares and
provide them to prospective shareholders.
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<PAGE>
Each of the Institutional Shares may provide its annualized "yield" and
"effective yield" to current and prospective shareholders. The "yield" of a fund
refers to the income generated by an investment in the fund over a seven-day
period (which period shall be stated in any advertisement or communication with
a shareholder). This income is then "annualized", that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of investment. The
"effective yield" is calculated similarly, but when annualized the income earned
by the investment during that week is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Tax Free Fund may also quote a "tax equivalent yield." The "tax
equivalent yield" refers to the yield that a taxable money market fund would
have to generate in order to produce an after-tax yield equivalent to that of
the Tax Free Fund. The use of a tax equivalent yield allows investors to compare
the yield of the Tax Free Fund, which provides shareholders with income excluded
for federal income tax purposes, with yields of money market funds which are not
so tax-exempt.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of each of the Institutional Shares will vary
based on interest rates, the current market value of the securities held in the
Fund's portfolio and changes in the Fund's and the Shares' expenses. In
addition, the Adviser and the Administrator may voluntarily waive a portion of
their fees on a month-to-month basis. These actions would have the effect of
increasing the net income (and therefore the yield) of the Institutional Shares
during the period such waivers are in effect. These factors and possible
differences in the methods used to calculate yields should be considered when
comparing each of the Institutional Shares' yields to those published for other
money market funds and other investment vehicles. See the Statement of
Additional Information for further information concerning the Institutional
Shares' calculation of yield.
OTHER INFORMATION
Federal tax legislation enacted over the past few years has limited the
types and volume of bonds, the interest on which is excludable from gross income
or does not constitute a preference item potentially subject to the alternative
minimum tax on individuals. As a result, this legislation may affect the
availability of Municipal Obligations for investment by the Vista Tax Free Money
Market Fund.
More than 25% of the assets of the Vista Tax Free Money Market Fund 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 occurrences. The value of shares of the Fund may be subject to
greater risk than those of other mutual funds that do not permit such a
practice.
The Statement of Additional Information contains more detailed information
about the Trust and the Institutional Shares, including information related to
(i) each Fund's investment policies and restrictions, (ii) risk factors
associated with each Fund's policies and investments, (iii) the Trust's
Trustees, officers and the Administrator and the Adviser, (iv) portfolio
transactions and brokerage allocation, (v) the Funds' shares, including rights
and liabilities of shareholders, and (vi) additional performance information,
including the method used to calculate yield or total rate of return quotations
of such Shares. The audited financial statements for each Fund for its last
fiscal year end are incorporated by reference in the Statement of Additional
Information.
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APPENDIX A
DESCRIPTION OF RATINGS*
The ratings of Moody's, Standard & Poor's and Fitch'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 TWO
HIGHEST QUALITY 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 by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Bonds in the Aa category which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1.
DESCRIPTION OF MOODY'S TWO HIGHEST RATINGS
OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal notes and other short-term loans are
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.
MIG-2 -- Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
- ------------
* 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.
A-1
<PAGE>
COMMERICAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and will normally be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a wide range of financial markets and assured sources of alternate liquidity.
DESCRIPTION OF STANDARD & POOR'S TWO HIGHEST QUALITY 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.
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 are
given a plus (+) designation.
SP-2 -- Satisfactory 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/A-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+").
A-2
<PAGE>
COMMERCIAL PAPER RATINGS
The rating A is the highest rating and is assigned by S&P to issues that 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. Paper rated A-1 indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
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.
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.
A-3
<PAGE>
[VISTA LOGO]
INSTITUTIONAL
SHARES
Money Market Funds
Prospectus and Application
--------------------------
* VISTA GLOBAL
MONEY MARKET FUND
* VISTA PRIME
MONEY MARKET FUND
* VISTA U.S. GOVERNMENT
MONEY MARKET FUND
Vista Service Center * VISTA TREASURY PLUS
P.O. Box 419392 MONEY MARKET FUND
Kansas City, MO 64141-6392
* VISTA TAX FREE
1-800-622-4273 MONEY MARKET FUND
December 31, 1995
<PAGE>
Rule 497 (c)
File Number 33-75250
STATEMENT OF
ADDITIONAL INFORMATION
DECEMBER 31, 1995
VISTA(SM) U.S. GOVERNMENT MONEY MARKET FUND
VISTA(SM) GLOBAL MONEY MARKET 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 FUND
125 West 55th Street, New York, New York 10019
This Statement of Additional Information sets forth
information which may be of interest to investors but which is not necessarily
included in the Prospectus offering each Fund or class of shares. This Statement
of Additional Information should be read in conjunction with the individual
Prospectuses offering shares of each of Vista Tax Free Income Fund, Vista
California Intermediate Tax Free Fund, Vista New York Tax Free Income Fund (the
"Income Funds"), and the combined Prospectuses offering each of the Vista
Shares, the Premier Shares and the Institutional Shares of Vista U.S. Government
Money Market Fund, Vista Global Money Market 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 (the "Money Market Funds"). Vista
Prime Money Market Fund is also offered through B Shares. Any references to the
"Prospectus" in this Statement of Additional Information is a reference to the
Prospectus or Prospectuses offering a Fund, Funds or class of shares of certain
of the Funds to which this Statement pertains. In each instance, the specific
Prospectus or Prospectuses referred to are referenced by the surrounding text,
which identifies a specific Fund, Funds, or class of shares. Copies of each
Prospectus may be obtained by an investor without charge by contacting Vista
Broker-Dealer Services, Inc., the Funds' 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 the Vista Service Center at
our toll-free number:
1-800-34-VISTA
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
MFT-SAI
-1-
<PAGE>
Table of Contents Page
The Funds................................................................... 2
Investment Objective, Policies and Restrictions............................. 3
Performance Information..................................................... 22
Determination of Net Asset Value............................................ 26
Tax Matters................................................................. 27
Management of the Funds..................................................... 34
Independent Accountants..................................................... 46
General Information......................................................... 46
Appendix A - Description of Municipal Obligations.......................... A-1
Appendix B - Description of Ratings ........................................ B-1
Appendix C - Special Investment Considerations Relating to Investing in
New York Municipal Obligations................................. C-1
Appendix D - Special Investment Considerations Relating to Investing in
California Municipal Obligations............................... D-1
Appendix E- The Tax Free Edge.............................................. E-1
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 11 separate series (a "Fund" or 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"). Under a multiple
class distribution system, the Money Market Funds and the Vista Tax Free Income
Fund and the Vista New York Tax Free Income Fund may be offered through multiple
classes of shares. The Vista Shares class of the Money Market Funds are referred
to in this Statement of Additional Information as the "Vista Shares", the
Premier Shares class of the Money Market Funds are referred to herein as the
"Premier Shares" and the Institutional Shares class of the Money Market Funds
are referred to herein as the "Institutional Shares". Those Income Funds offered
through two classes of shares may issue Class A shares (which are subject to an
initial sales load) and Class B shares (which are subject to a contingent
deferral sales load). The shares of the Income Funds and Money Market Funds are
collectively referred to in this Statement of Additional Information as the
"Shares."
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 Fund approved the reorganization of each of
these Funds into newly-created series of the Mutual Fund Trust, effective
October 28, 1994. Prior to such approvals, each of the nine existing funds were
effective series of Mutual Fund Group.
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 these Funds into
newly-created series of the 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, 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.
The Funds' Shares are continuously offered for sale through Vista
Broker-Dealer Services, Inc. ("VBDS"), the Funds' distributor (the
"Distributor"), which is not affiliated with Chase Manhattan Bank, N.A.' or its
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affiliates, to investors who are customers of a financial institution, such as a
federal or state-chartered bank, trust company, or savings and loan association
that has entered into a shareholder servicing agreement with the Trust on behalf
of the Funds (collectively, "Shareholder Servicing Agents") or customers of a
securities broker or certain financial institutions who have entered into
Selected Dealer Agreements with the Distributor. VBDS receives a distribution
fee from most, but not all of the Funds, pursuant to the plans of distribution
adopted pursuant to Rule 12b-1 of the 1940 Act.
The Board of Trustees of the Trust provides broad supervision over
the affairs of the Trust including the Funds. The Chase Manhattan Bank, N.A.
("Chase") is the investment adviser (the "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. The Adviser
continuously manages the investments of the Funds in accordance with the
investment objective and policies of each Fund. The selection of investments for
each Fund and the way in which they are managed depend on the conditions and
trends in the economy and the financial marketplaces. Occasionally,
communications to shareholders may contain the views of the investment adviser
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. A majority
of the Trustees of the Trust are not affiliated with the Adviser.
On August 27, 1995, The Chase Manhattan Corporation announced its
entry into an Agreement and Plan of Merger (the "Merger Agreement") with
Chemical Banking Corporation, a bank holding company, pursuant to which The
Chase Manhattan Corporation will merge with and into Chemical (the "Holding
Company Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation ("New Chase"). The board of directors of each holding company
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions, including the
approval of the shareholders of each holding company and the receipt of certain
regulatory approvals. The Holding Company Merger is expected to be completed on
or about January 31, 1996.
The Adviser is currently a wholly-owned subsidiary of The Chase
Manhattan Corporation, a registered bank holding company, and is a commercial
bank offering a wide range of banking and investment services to customers
throughout the U.S. and around the world. Effective upon consummation of the
Holding Company Merger, the Adviser will be a wholly-owned subsidiary of New
Chase. Upon consummation of the Bank Merger, the Adviser will continue to be a
wholly-owned subsidiary of New Chase.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
VISTA U.S. GOVERNMENT MONEY MARKET FUND (the "U.S. Government Fund") seeks
to provide as high a level of current income as is consistent with the
preservation of capital and maintenance of liquidity, through investments in
obligations issued or guaranteed by the U.S. Treasury, agencies of the U.S.
Government or instrumentalities that have been established or sponsored by the
U.S. Government.
VISTA GLOBAL MONEY MARKET FUND (the "Global Money Market Fund") seeks to
provide maximum current income consistent with the preservation of capital and
maintenance of liquidity, through investments in (i) U.S. Dollar denominated
high quality commercial paper and other high quality 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) U.S. Dollar denominated obligations issued or guaranteed by
U.S. banks with total assets
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exceeding $1 billion and by the 75 largest foreign commercial banks
(including obligations of foreign branches of such banks) in terms of total
assets, or such other U.S. or foreign commercial banks which are judged by the
Fund's investment adviser to meet comparable credit criteria; (iv) securities
issued or guaranteed by the U.S. Government or by agencies and instrumentalities
thereof; and (v) repurchase agreements.
VISTA PRIME MONEY MARKET FUND (the "Prime Fund") seeks to provide maximum
current income consistent with the preservation of capital and maintenance of
liquidity, through investments in (I) U.S. dollar denominated high quality
commercial paper and other high quality 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 Reconstructions and
Development); (iii) U.S. Dollar denominated obligations issued or guaranteed by
U.S. banks with total assets exceeding $1 billion and by the 75 largest foreign
commercial banks (including obligations of foreign branches of such banks) in
terms of total assets, or such other U.S. or foreign commercial banks which are
judged by the Fund's investment adviser to meet comparable credit criteria; (iv)
securities issued or guaranteed by the U.S. Government or by agencies and
insturmentality's thereof; and (v) repurchase agreements. The Fund is a
diversified series of the Trust. All of the fund's investments will be in U.S.
dollar-denominated securities with remaining maturities of 397 days or less. The
dollar weighted average of the Fund will be 60 days or less.
VISTA FEDERAL MONEY MARKET FUND (the "Federal Fund") seeks to achieve its
investment objective by investing primarily in direct obligations of the U.S.
Treasury with remaining maturities of 13 months or less such as Treasury bills
and notes. The Fund may also from time to time invest in obligations with
remaining maturities of 13 months or less issued or guaranteed as to principal
and interest by certain agencies or instrumentalities of the U.S. Government,
such as the Farm Credit System Financial Assistance Corporation, Federal
Financing Bank, General Services Administration, Federal home Loan Banks, Farm
Credit systems, Tennessee Valley Authority and the student Loan Marketing
Association. Income on direct investments in U.S. Treasury securities and
obligations of the aforementioned agencies and instrumentalities is generally
not subject to state and local income taxes by reason of federal law.
VISTA TREASURY PLUS MONEY MARKET FUND (the "Treasury Fund") seeks to
achieve its investment objective by investing in (I) obligations issued by the
U.S. Treasury bills and notes and (ii) repurchase agreements relating to U.S.
Treasury obligations. Securities in which the Treasury Plus Fund will invest may
not earn as high a level of current income as long-term or lower quality
securities which generally have less liquidity, greater market risk and more
fluctuation in market value. Securities issued by the U.S. Government
historically have involved little risk of loss of principal if held to maturity
and, in general, the instruments held by the fund will have neither as much risk
nor as high a return as longer term or non-U.S. Government obligations.
All of the fund's investments will be in U.S. dollar-denominated
securities with remaining maturities of 397 days or less. The dollar weighted
average of the Treasury Fund will be 60 days or less.
VISTA TAX FREE MONEY MARKET FUND (the "Tax Free Money Market Fund") seeks
to provide as high a level of current income which is exempt from federal income
taxes as is consistent with the preservation of capital and maintenance of
liquidity, through investments primarily in short-term municipal obligations.
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND (the "California Tax Free Money
Market Fund") seeks to provide its shareholders with 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 the maintenance of liquidity.
VISTA NEW YORK TAX FREE MONEY MARKET FUND (the "New York Tax Free Money
Market Fund") seeks to provide as high a level of current income which is exempt
from federal, New York State and New York City personal income taxes as is
consistent with the preservation of capital and maintenance of liquidity,
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through investments primarily in short-term municipal obligations issued by or
on behalf of the State of New York, its instrumentalities or political
subdivisions.
VISTA TAX FREE INCOME FUND (the "Tax Free Income Fund") seeks to provide
monthly dividends exempt from federal income taxes, through investments
primarily in municipal obligations.
VISTA NEW YORK TAX FREE INCOME FUND (the "New York Tax Free Income Fund")
seeks to provide monthly dividends exempt from federal, New York State and New
York City personal income taxes, through investments primarily in municipal
obligations issued by or on behalf of the State of New York, its
instrumentalities or political subdivisions.
VISTA CALIFORNIA INTERMEDIATE TAX FREE FUND (the "California Intermediate
Tax Free Fund") seeks to provide as high a level of current income exempt from
both federal income taxes and California State personal income taxes as is
consistent with prudent investment management and the preservation of
shareholders' capital. The Fund generally concentrates in intermediate term
obligations of the State of California, its local governments and political
subdivision.
Investment Policies
The Prospectus sets forth the various investment policies applicable
to each Fund. 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" are used interchangeably to refer to
debt securities issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies or instrumentalities, the interest on which 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 subject to the alternative minimum
tax). For a general discussion of Municipal Obligations and the risks associated
with investments therein, see Appendix A to this Statement of Additional
Information. For descriptions of the ratings of Municipal Obligations (and
short-term obligations permitted as investments) by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and Thomson
BankWatch, Inc. ("TBW"), 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 of Vista's fixed income 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.
Managers also search for the lowest buying price and highest selling price they
can find. Because bonds are not traded in a centralized environment, prices
vary, giving managers the opportunity to take advantage of market price
inefficiencies.
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 vital step in the analysis is comparing yields on different types of
securities to determine relative risk/reward profiles.
The following information supplements and should be read in
conjunction with the sections of each Prospectus entitled "Investment Objectives
and Policies", "Additional Information on Investment Policies and Techniques"
and with the Appendices included at the end of the relevant Prospectus.
U.S. Government Securities -- As indicated in each Prospectus they
may also maintain cash reserves and invest in a variety of short-term debt
securities, including obligations issued or guaranteed by the U.S.
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Government or its agencies or instrumentalities, which have remaining
maturities not exceeding 397 days or less. Agencies and instrumentalities that
issue or guarantee debt securities and have been established or sponsored by the
U.S. Government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association and the Student Loan Marketing
Association. Certain of these securities may not be backed by the full faith and
credit of the U.S. Government.
Specialized Kinds of Government Agency Securities -- The U.S.
Government Fund is permitted to invest in certain specialized U.S. Government
agency securities (such as guaranteed notes of the Small Business
Administration, Federal Aviation Administration, Department of Defense, Bureau
of Indian Affairs and Private Export Funding Corporation), which often provide
higher yields than are available from the more common types of government-backed
instruments. However, such specialized instruments may only be available from a
few sources, in limited amounts, or only in very large denominations; they may
also require specialized capability in portfolio servicing and in legal matters
related to government guarantees. While they may frequently offer attractive
yields, the limited-activity markets of many of these securities means that, if
the U.S. Government Fund were required to liquidate any of them, it might not be
able to do so advantageously; accordingly, the U.S. Government Fund intends
normally to hold such securities to maturity or pursuant to repurchase
agreements, and would limit its investment in such securities (including
repurchase agreements maturing in more than seven days) to not more than 10% of
its total assets.
Taxable Securities -- As indicated in each Prospectus, the Tax Free
Funds are permitted to make investments in securities of the kind described
below, the interest on which is subject to federal income tax. Such investments
will be made in any one or more of the following circumstances: (a) pending
investment of proceeds of sales of Fund shares or of portfolio securities; (b)
pending settlement of purchases of portfolio securities; and (c) to maintain
liquidity for the purpose of meeting anticipated redemptions. In addition, a Tax
Free Fund's investment in taxable securities may temporarily exceed the
permissible limit prescribed for such investments in the Prospectus when, in
Chase's opinion, it is advisable to do so because of adverse market conditions
affecting the market for Municipal Obligations. The kinds of taxable securities
in which a Tax Free Fund may be invested are limited to the following
short-term, fixed-income securities (maturing in one year or less from the time
of purchase): (i) obligations of the U.S. Government, its agencies,
instrumentalities or authorities; (ii) commercial paper rated P-1 or P-2 by
Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1 or F-2 by Fitch (see the
description regarding commercial paper ratings under "Commercial Paper" above);
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements as described below. (For a complete
description of the various securities ratings, see Appendix B - "Description of
Ratings".)
Bank Obligations -- Investments by the Prime Fund in short-term debt
securities include investments in obligations (including certificates of
deposits and bankers' acceptances) of those U.S. banks 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.
A certificate of deposit is an interest-bearing negotiable certificate
issued by a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
The Prime Fund may also purchase foreign bank obligations which consist of
U.S. dollar-denominated obligations issues or guaranteed by foreign banks,
including foreign branches of U.S. banks, foreign banks and U.S. branches of
foreign banks.
Commercial Paper -- Investments by the Prime Fund and the Global
Money Market Fund ^ in short-
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term debt securities also include investments in commercial paper, which
represents short-term, unsecured promissory notes issued in bearer form by bank
holding companies, corporations and finance companies. The commercial paper
purchased for the Prime Fund and the Global Fund will consist of direct
obligations of domestic and foreign issuers other than bank holding companies
which, at the time of investment, are (I) rated "P-1" by Moody's or "A-1" or
better by Standard & Poor's, or (ii) securities which, if not rated, are, in
Chase's opinion, of an investment quality comparable to rated commercial paper
in which the Prime Fund may invest. The rating "P-1" is the highest commercial
paper rating assigned by Moody's, and the ratings "A-1" and "A-1+" are the
highest commercial ratings assigned by Standard & Poor's. The commercial paper
of bank holding companies purchased by the Prime Fund includes obligations
issued or guaranteed by bank holding companies with total assets exceeding $1
billion.
Repurchase Agreements -- Each Fund (other than the Federal Fund and
the Tax Free Income Funds) may, when appropriate, enter into repurchase
agreements only with member banks of the Federal Reserve System and securities
dealers believed creditworthy, and only if fully collateralized by U.S.
Government obligations or other 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 may be deemed 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 or its custodian or sub-custodian will have possession of
the collateral, which the Board of Trustees believes will give it a valid,
perfected security interest in the collateral. Whether a repurchase agreement is
the purchase and sale of a security or a collateralized loan has not been
conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by the
seller under a repurchase agreement construed to be a collateralized loan, the
underlying securities would not be owned by the Fund, but would only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore, a
Fund may suffer time delays and incur costs in connection with the disposition
of the collateral. The Trust's Board of Trustees believes that the collateral
underlying repurchase agreements may be more susceptible to claims of the
seller's creditors than would be the case with securities owned by the Fund.
Repurchase agreements will give rise to income which will not qualify as
tax-exempt income when distributed by a Tax Free Fund. A Fund will not be
invested in a repurchase agreement maturing in more than seven days if any such
investment together with securities subject to restrictions on transfer held by
such Fund exceed 10% of its total net assets. (See paragraph 5 under "Investment
Restrictions" below.) Repurchase agreements are also subject to the same risks
described below with respect to stand-by commitments.
Reverse Repurchase Agreements -- Each Fund (other than the Federal
Fund and the Tax Free Income Funds) may also engage in reverse repurchase
transactions. Reverse repurchase agreements involve sales of portfolio
securities of the Funds to member banks of the Federal Reserve System or
securities dealers believed creditworthy, concurrently with an agreement by each
of the Funds to repurchase the same securities at a later date at a fixed price
which is generally equal to the original sales price plus interest. The Funds
retain record ownership and the right to receive interest and principal payments
on the portfolio security involved. The Funds intend to enter into such
transactions infrequently in order to obtain funds to pursue additional
investment opportunities the yield on which would exceed the carrying cost of
the sale proceeds of the reverse repurchase agreement. In connection with each
reverse repurchase transaction, the Funds would direct their custodian bank to
place cash or U.S. Government securities in a separate account of the Fund in an
amount equal to the repurchase price. Reverse repurchase agreements have the
same characteristics as borrowing transactions by a Fund.
"High Quality" Municipal Obligations -- In connection with the Tax
Free Money Market Funds' policy of investing primarily in short-term, high
quality, fixed rate and variable rate Municipal Obligations, the Trust's Board
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of Trustees has determined that the term "high quality" means Municipal
Obligations which at the time of purchase are rated by at least two of the
following agencies: either "AAA" or "AA" by Standard & Poor's, "Aaa" or "Aa" by
Moody's, or AAA or AA by Fitch, in the case of bonds; "MIG-1" or "MIG-2" by
Moody's, SP-1 or SP-2 by Standard & Poor's, or F-1 or F-2 by Fitch, in the case
of notes; "A-1+", "A-1" or A-2" by Standard & Poor's, "P-1" or "P-2" by Moody's,
or F-1 or F-2 by Fitch, in the case of tax-exempt commercial paper; or which are
unrated, but are determined to be of comparable quality by the Trust's Board of
Trustees on the basis of its credit evaluation of the obligor or of the bank
issuing a participating certificate, letter of credit or guaranty, or insurance
issued in support of the Municipal Obligations or Participation Certificates.
(See "Variable Rate Securities and Participation Certificates" below.) Such
instruments may produce a lower yield than would be available from less highly
rated instruments. The Trust's 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. (See Appendix B herein or
Appendix A - "Description of Ratings" in the Prospectus.)
Ratings of Municipal Obligations -- If, subsequent to its purchase by
the Fund, (a) an issue of rated Municipal Obligations ceases to be rated in the
highest rating category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization) or the
Fund's Board determines that it is no longer of comparable quality or (b) the
Adviser becomes 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 Fund's Board will
reassess promptly whether such security presents minimal credit risk and will
cause the Fund to take such action as it determines is in the best interest of
the Fund and 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 Adviser becoming aware of the new rating and the
Fund's Board is subsequently notified of the Adviser's actions.
To the extent that the 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 Fund will attempt to use comparable ratings as
standards for its investments in accordance with the investment policies
contained in the Fund's Prospectus 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 Adviser also will evaluate
these securities and the creditworthiness of the issuers of such securities.
When-Issued or Forward Delivery Purchases -- As described in the
Prospectus, each Fund may purchase new issues of securities in which it is
permitted to invest on a "when-issued" or, with respect to existing issues, on a
"forward delivery" basis. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a "when-issued" or "forward
delivery" 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, as the case may be, 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 "when-issued" or "forward delivery" 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 amount of
the purchase be held aside or segregated to be used to pay for the commitment, a
separate account of the Fund consisting of cash, cash equivalents or high
quality debt securities equal to the amount of the Fund's commitments to
purchase "when-issued" or "forward delivery" securities will be established at
the Fund's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
respective Fund.
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Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a "when-issued" or "forward
delivery" basis may involve more risk than other types of purchases. Securities
purchased on a "when-issued" or "forward delivery" basis and the securities held
in the respective Fund's portfolio are subject to changes in value (both
generally changing in the same way, that is, both experiencing appreciation when
interest rates decline and depreciation when interest rates rise) 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
"when-issued" or "forward delivery" 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 "when-issued" or "forward delivery" securities, 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 "when-issued" or "forward delivery"
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). The sale of securities to meet such obligations may result
in the realization of capital gains or losses, which, for consideration by the
Tax Free Funds, are not exempt from federal income tax or New York State or New
York City personal income taxes.
To the extent a Fund engages in "when-issued" or "forward delivery"
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.
Stand-by Commitments -- When a Tax Free Money Market Fund purchases
Municipal Obligations it may also acquire stand-by commitments from banks with
respect to such Municipal Obligations. Such Funds also reserve the right to, and
may in the future, acquire stand-by commitments from brokers-dealers. Under a
stand-by commitment, a bank or broker-dealer agrees to purchase at the Fund's
option a specified Municipal Obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired by a Fund with respect
to a particular Municipal Obligation held in its portfolio.
The amount payable to a Fund upon its exercise of a stand-by
commitment 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, a 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 Tax Free 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 Tax Free
Money Market 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
different from that of the commitment. Not more than 10% of the total assets of
a Tax Free Money Market Fund will be invested in Municipal Obligations that are
subject to stand-by commitments from the same bank or broker-dealers.
Variable Rate Securities and Participation Certificates -- The
variable rate demand instruments that may be purchased by a Tax Free Money
Market Fund are Municipal Obligations (including municipal notes and municipal
commercial paper) or, with respect to the U.S. Government Fund, certain
Government securities, that provide for a periodic adjustment in the interest
rate paid on the instrument and 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 Tax Free 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,
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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 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 above Funds will decide which 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 Tax Free Money Market Fund, the Board of Trustees
may determine that an unrated 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 Trust's Board of Trustees will re-evaluate each unrated
variable rate security on a quarterly basis to determine that it continues to
meet a Tax Free Money Market Fund's high quality criteria. If an instrument is
ever deemed to fall below a Tax Free Money Market Fund's high quality standards,
either it will be sold in the market or the demand feature will be exercised.
The variable rate securities in which all of the above-referenced
Funds may be invested include Participation certificates, issued by a bank,
insurance company or other financial institution, in variable rate securities
owned by such institutions or affiliated organizations ("Participation
Certificates"). A Participation Certificate gives a Fund an undivided interest
in the variable rate security in the proportion that the Fund's participation
interest bears to the total principal amount of the security and 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 has 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. A Fund
will exercise the demand feature only (i) upon a default under the terms of the
offering documentation of the security, (ii) as needed to provide liquidity to
the Fund in order to make redemptions of Fund shares, or (iii) to maintain a
high quality investment portfolio. The institutions issuing the Participation
Certificates will 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 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 the insurance, although the Fund retains the option
to purchase insurance if necessary.
The Adviser has been instructed by the Trust's Board of Trustees to
monitor continually the pricing, quality and liquidity of the variable rate
securities held by the above-referenced Funds, including the 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, except under the circumstances stated above.
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 Funds. No Fund
will invest more than 5% of its total assets (taken at the greater of cost or
market value) in Participation Certificates.
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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"e prime rate of a particular bank may differ from
other banks and will be the rate announced by each bank on a particular day.
Changes in the prime rate may occur with great frequency and generally become
effective on the date announced. tal appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
income securities. A Fund's portfolio may contain 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 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 variable rate securities is made in relation to movements of the
applicable banks' "prime rates" or other short-term rate adjustment indices, the
variable rate securities are not comparable to long-term fixed rate securities.
Accordingly, interest rates on the 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 Tax Free 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 Variable Rate Certificates. The Money Market Funds may
invest in tender option bonds. A tender option bond is a synthetic floating 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 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 2(a)-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 rate security. A Money Market Fund may
invest up to 5% of its total assets in tender option bonds.
Portfolio Management -- It is intended that the portfolios of the Tax
Free Income Funds will be fully managed by buying and selling securities, as
well as holding securities to maturity. In managing the portfolios of these
Funds, the Adviser seeks to take advantage of market developments, yield
disparities and variations in the creditworthiness of issuers, which may include
use of the following strategies:
(1) shortening the average maturity of a portfolio in anticipation of
a rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of a portfolio in anticipation of
a decline in interest rates so as to maximize the tax-exempt yield of a Tax
Free Income Fund;
(3) selling one type of debt security (e.g., revenue bonds) or U.S.
Government obligation (e.g., Treasury bonds), as the case may be, and
buying another (e.g., general obligation bonds or GNMA direct pass-through
certificates, respectively, as the case may be) when disparities arise in
the relative values of each; and
(4) changing from one debt security or U.S. Government obligation, as
the case may be, to an essentially similar debt security or U.S. Government
obligation when their respective yields
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are distorted due to market factors.
Distributions of gains, if any, realized from the sale of Municipal
Obligations or other securities by a Tax Free Income Fund are subject to federal
income taxes and New York State and New York City personal income taxes. (See
"Tax Matters" in the Prospectus.) These strategies may result in increases or
decreases in a Fund's current income available for distribution to the Fund's
shareholders and in the holding by the Fund of securities which sell at moderate
to substantial premiums or discounts from face value. Moreover, if the
expectation of changes in interest rates or the evaluation of the normal yield
relationship between two securities proves to be incorrect, a Fund's income, net
asset value per share and potential capital gain may be decreased, or its
potential capital loss may be increased.
Loans of Portfolio Securities -- Certain securities dealers who make
"short sales" or who wish to obtain particular securities for short periods may
seek to borrow them from institutional investors such as the Funds. Each Fund
(other than the Tax Free Income Funds and the Tax Free Money Market Funds)
reserves the right to seek to increase its income by lending its portfolio
securities. Under present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Securities and Exchange
Commission, such loans may be made only to member firms of the New York Stock
Exchange, and are required to be secured continuously by collateral in cash,
cash equivalents, or U.S. Government securities maintained on a current basis in
an amount at least equal to the market value of the securities loaned. Under a
loan, a Fund has the right to call a loan and obtain the securities loaned at
any time on five days' notice.
During the existence of a loan, a Fund continues to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and also receives compensation based on investment of the collateral. A
Fund does not, however, have the right to vote any securities having voting
rights during the existence of the loan, but can call the loan in anticipation
of an important vote to be taken among holders of the securities or of the
giving or withholding of their consent on a material matter affecting the
investment.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral if the borrower of the
securities experiences financial difficulty. However, the loans will be made
only to dealers deemed by a Fund to be of good standing, and when, in the
judgment of the Fund, the consideration that can be earned currently from
securities loans of this type justifies the attendant risk. In the event a Fund
makes securities loans, it is not intended that the value of the securities
loaned would exceed 30% (or 20% in the case of the U.S. Government Fund) of the
value of the Fund's total assets.
Risk Factors -- Investing in California Municipal Obligations --
Constitutional limits on the State of California's appropriations, Proposition
98 and other existing State legislation, as well as the general financial
condition of the State of California have significantly altered the State's
budget process which could adversely affect the ability of issuers of California
Municipal Obligations to pay interest and principal on California Municipal
Obligations. Investors should review Appendix D which sets forth additional
information relating to investing in California Municipal Obligations.
Non-diversification -- The Trust has registered as a
"non-diversified" investment company, which means that as to 50% of a Fund's
total assets, no more than 5% of the assets of each Fund, other than California
Intermediate Tax Free Fund, Prime Money Market Fund, Federal Money Market Fund,
Treasury Plus Money Market, Global Money Market Fund and U.S. Government Money
Market Fund, may be invested in the obligations of an issuer, subject to
diversification requirements applicable to the Funds under federal tax laws. At
present, these requirements do not permit more than 25% of the value of a Fund's
total assets to be invested in securities (other than various securities issued
or guaranteed by the United States or its agencies or instrumentalities) of any
one issuer, at the close of any calendar quarter. Since a relatively high
percentage of the assets of each Fund may be invested in the obligations of a
limited number of issuers, the value of each Fund's shares may be more
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susceptible to any single economic, political or regulatory occurrence than the
shares of a diversified investment company.
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 Adviser to forecast interest rates and other economic
factors correctly. If the Adviser incorrectly forecasts such factors and has
taken positions in derivative or similar instruments contrary to prevailing
market trends, the Funds could be 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.
Derivative and Related Instruments
To the extent permitted by the investment objectives and policies of each
Fund, and as described more fully below, an Income Fund may:
purchase, write and exercise call and put options on securities,
securities indexes (including using options in combination with
securities, other options or derivative instruments);
enter into futures contracts and options on futures contracts;
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purchase and sell mortgage-backed and asset-backed securities; and
purchase and sell structured products.
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:
o 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. As 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. This risk is particularly
acute in the case of "cross-hedges" between currencies.
o The Adviser may incorrectly 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.
o 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.
o 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.
o 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.
o 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.
o In certain instances,particularly those involving overthe-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 of the Funds' use of various strategies
involving derivatives and related instruments.
Options on Securities, Securities Indexes and Debt Instruments. The Funds
may PURCHASE, SELL or EXERCISE call and put options on:
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o securities;
o securities indexes;
o 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 the 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 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.
If a put or call option purchased by the Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the case
of a put, remains equal to or greater than the exercise price or , in the case
of a call, remains less than or equal to the exercise price, the Fund will lose
its entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when 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 :
1interest-rate futures contracts;
o futures contracts on specified instruments; and
o options on these futures contracts ("futures options").
The futures contracts and futures options may be based on various
securities 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) and other financial instruments and indices.
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These instruments 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 or currency different from the security or
currency position being hedged to take advantage of relationships between the
two securities or currencies.
Investments in futures contracts and options thereon involve risks
similar to those associated with options transactions discussed above. The Funds
will only enter into futures contracts or options on futures contracts which are
standardized and 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.
Mortgage-Backed Securities. The Funds may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations. Mortgage loans included in the pool--but not the
security itself--may be insured by the Government National Mortgage Association
or the Federal Housing Administration or guaranteed by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation or the Veterans
Administration. Mortgage-backed securities provide investors with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. Although providing the potential for enhanced
returns, mortgage-backed securities can also be volatile and result in
unanticipated losses.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of the principal invested far in
advance of the maturity of the mortgages in the pool. The actual yield of a
mortgage-backed security may be adversely affected by the prepayment of
mortgages included in the mortgage pool underlying the security.
The Funds may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, semi-annually. CMOs are collateralized by portfolios of
mortgage pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related, entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
An investor is partially protected against a sooner than desired return of
principal because of the sequential payments.
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REMICs include governmental and/or private entities that issue a fixed pool
of mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities. REMICs issued by private
entities are not U.S. Government securities and are not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer.
Structured Products. The Funds may purchase interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations, thereby creating "structured
products." 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. The extent of the payments made with respect to
structured products is dependent on the extent of the cash flow on the
underlying instruments.
The Fund may also invest in other types of structured products,
including among others, spread trades and notes linked by a formula (e.g., a
multiple) to the price of an underlying instrument or currency. A spread trade
is an investment position relating to a difference in the prices or interest
rates of two securities or currencies 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 or currencies.
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.
Restrictions on the Use of Futures and Option Contracts
Regulations of the CFTC require that the Funds enter into
transactions in futures contracts and options thereon for hedging purposes only,
in order to assure that they are not deemed to be a "commodity pools" under such
regulations. In particular, CFTC regulations require that all short futures
positions be entered into for the purpose of hedging the value of securities
held in a Fund's portfolio, and that all long futures positions either
constitute bona fide hedging transactions, as defined in such regulations, or
have a total value not in excess of an amount determined by reference to certain
cash and securities positions maintained for the Fund, and accrued profits on
such positions. In addition, a Fund may not purchase or sell such instruments
if, immediately thereafter, the sum of the amount of initial margin deposits on
its existing futures positions and premiums paid for options on futures
contracts would exceed 5% of the market value of the Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian 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 Funds' ability to engage in the hedging 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 a Fund not exceed 50% of the market value of its total assets. Neither this
restriction nor any policy with respect to the above-referenced restrictions,
would be changed by the Trust's Board of Trustees without considering the
policies and concerns of the various federal and state regulatory agencies.
_______________________
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Shareholder approval is not required to change any of the investment
policies discussed above, except as otherwise noted herein and in the
Prospectus.
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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 the Fund or total
beneficial interests of a Portfolio present at a meeting, if the holders of more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Fund
Each Fund may not:
(1) borrow money or pledge, mortgage or hypothecate its assets,
except that, as a temporary measure for extraordinary or emergency
purposes (with respect to all of the Funds) or, with respect to the
non-tax free money market Funds only, by engaging in reverse repurchase
transactions, it may borrow in an amount not to exceed 1/3 of the current
value of its net assets (10% of net assets for the Global Money Market
Fund, the Prime Fund, the Treasury Money Market Fund, the Federal Fund,
California Tax Free Money Market Fund and Tax Free Money Market Fund),
including the amount borrowed, and may pledge, mortgage or hypothecate not
more than 1/3 of such assets to secure such borrowings (it is intended
that, aside from reverse repurchase transactions, money would be borrowed
by a Fund only from banks and only to accommodate requests for the
repurchase of shares of the Fund while effecting an orderly liquidation of
portfolio securities), provided that collateral arrangements with respect
to a Fund's permissible futures and options transactions, including
initial and variation margin, are not considered to be a pledge of assets
for purposes of this restriction; no Fund will purchase investment
securities if its outstanding borrowing, including repurchase agreements,
exceeds 5% of the value of the Fund's total assets; for additional related
restrictions, see clause (i) under the caption "State and Federal
Restrictions" hereafter;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained as may be necessary for
the clearance of purchases and sales of securities and except that, with
respect to a Fund's permissible options and futures transactions, deposits
of initial and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures or options positions;
(3) underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security;
(4) 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 U.S.
Government securities or (ii) 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;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (including securities that are not
readily marketable, but not including repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of the
Fund's total assets (taken at market value) would be so invested
(including repurchase agreements maturing in more than seven days);
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business, other than (i)
with respect to a Fund's permissible futures and options transactions
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(7) purchase securities of any issuer if such purchase at the
time thereof would cause more than 10% of the voting securities of such
issuer to be held by the Fund; with respect to the Global Money Market
Fund, the Prime Fund, the Federal Fund and the Treasury Fund only,
purchase any voting securities;
(8) make short sales of securities or maintain a short position;
except that all Funds other than the U.S. Government Fund, Global Money
Market Fund, may only make such short sales of securities or maintain a
short position if when a short position is open such Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same
issue as, and equal in amount to, the securities sold short, and unless
not more than 10% of the Fund's and net assets (taken at market value) is
held as collateral for such sales at any one time (it is the present
intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes;
such sales would not be made of securities subject to outstanding
options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of a Fund's investment
objective, up to 25% of the assets of the Fund, at market value at the
time of each investment, may be invested in any one industry, except that,
with respect to a Fund's permissible futures and options transactions,
positions in options and futures shall not be subject to this restriction,
and provided, however, that more than 25% of the assets of the New York
Tax Free Money Market Fund, California Tax Free Money Market Fund the Tax
Free Money Market Fund , may be invested in Municipal Obligations secured
by bank letters of credit or guarantees, including Participation
Certificates and, except that each of the Money Market Funds may invest
more than 25% of its total assets in obligations issued by banks,
including U.S. banks, foreign banks and their branches as to Global Money
Market Fund and the Prime Fund only, and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, up
to 25 % of the assets of the California Intermediate Tax Free Fund will be
invested in Municipal Obligations secured by bank letters of credit or
guarantees; or
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that 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 for purposes of this
restriction.
Each Fund, other than the New York Tax Free Money Market Fund and the
Tax Free Money Market Fund, is not permitted to make loans to other persons,
except (i) through the lending of its portfolio securities and provided that any
such loans not exceed 30% (or 20% in the case of the U.S. Government Fund,
California Tax Free Money Market Fund, of the Fund's total assets (taken at
market value), (ii) through the use of repurchase agreements or the purchase of
short-term obligations and provided that not more than 10% of the Fund's total
assets will be invested in repurchase agreements maturing in more than seven
days, or (iii) by purchasing, subject to the limitation in paragraph 5 above, a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions, for which purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part of
an issue to the public shall not be considered the making of a loan.
The U.S. Government Fund may not make any commitment to purchase
securities on a when-issued basis if, as a result, more than 30% of a Fund's
total assets would be so committed.
The U.S. Government Fund and the California Intermediate Tax Free
Fund may not purchase the securities of other investment companies except as
part of a merger, consolidation, or other acquisition involving such Fund
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The California Intermediate Tax Free Fund may not invest in
securities of any company if an officer, trustee, or director of the Trust or of
the Manager owns beneficially more than 1/2% of the outstanding securities of
such company, and such officers, trustees, and directors, as a group, own
beneficially more than 5% of the outstanding securities of such issuer..
The New York Tax Free Money Market Fund and the Tax Free Money Market
Fund are not permitted to make loans to other persons, except through the use of
repurchase agreements or the purchase of short-term obligations and provided
that not more than 10% of each such Fund's total assets will be invested in
repurchase agreements maturing in more than seven days, or by purchasing,
subject to the limitation in paragraph 5 above, a portion of an issue of debt
securities of types commonly distributed privately to financial institutions,
for which purposes the purchase of short-term commercial paper or a portion of
an issue of debt securities which are part of an issue to the public shall not
be considered the making of a loan.
For purposes of the investment restrictions described above and the
state and federal restrictions described below, 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. For purposes
of Investment Restriction No. 9, 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".
In addition, the Funds that are permitted to enter into repurchase
agreements have adopted the following operating policy with respect to such
activity, which is not fundamental and which may be changed without shareholder
approval. Such Funds may enter into repurchase agreements (a purchase of and a
simultaneous commitment to resell a security at an agreed-upon price on an
agreed-upon date) only with member banks of the Federal Reserve System and
securities dealers believed creditworthy and only if fully collateralized by
U.S. Government obligations or other securities in which such Funds are
permitted to invest. If the vendor of a repurchase agreement fails to pay the
sum agreed to on the agreed-upon delivery date, a Fund would have the right to
sell the securities constituting the collateral; however, the Fund might thereby
incur a loss and in certain cases may not be permitted to sell such securities.
Moreover, as noted above in paragraph 5, a Fund that is permitted to invest in
repurchase agreements may not, as a matter of fundamental policy, invest more
than 10% of its total assets in repurchase agreements maturing in more than
seven days.
The Funds have no current intention of engaging in the following
activities in the foreseeable future: (i) writing, purchasing or selling puts,
calls or combinations thereof with respect to U.S. Government securities; (ii)
making short sales of securities or maintaining a short position; or (iii)
purchasing voting securities of any issuer.
State and Federal Restrictions: In order to comply with certain
federal and state statutes and regulatory policies, as a matter of operating
policy, each Fund will not: (i) sell any security which it does not own unless
by virtue of its ownership of other securities the Fund has at the time of sale
a right to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions, (ii) invest for
the purpose of exercising control or management, (iii) invest more than 10% of
the Fund's total assets (taken at the greater of cost or market value) in
securities that are not readily marketable. These policies are not fundamental
and may be changed by the Trust's Board of Trustees without shareholder
approval.
Percentage and Rating Restrictions: If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security of a Fund will not be considered a violation of policy.
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Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for the Funds that
invest in equity and debt securities are made by a portfolio manager who is an
employee of the Adviser to such Funds and who is appointed and supervised by
senior officers of such Adviser. Changes in the Funds' investments are reviewed
by the Board of Trustees. The Funds' portfolio managers may serve other clients
of the Adviser in a similar capacity. Money market instruments are generally
purchased in principal transactions; thus, the Money Market Funds pay no
brokerage commissions.
The frequency of a non-Money Market 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 (see "Tax Matters" in the Prospectus),
the Adviser will weigh the added costs of short-term investment against
anticipated gains. For the fiscal year ended October 31, 1993, the period from
November 1, 1993 through August 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 Fund had portfolio turnover rates of 40%, 93%
and 94%, respectively.
The primary consideration in placing portfolio security transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Funds and
other clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their brokerage
commissions. 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 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 on the tender of the Funds' portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Funds and by the Adviser. At present, no other
recapture arrangements are in effect.
Under the Funds' Investment Advisory Agreements and as permitted by
Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause the
Funds to pay a broker-dealer which provides brokerage and research services to
the Adviser an amount of commission for effecting a securities transaction for
the Funds and in excess of the amount other broker-dealers would have charged
for the transaction if the Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of either a
particular transaction or the Adviser's overall responsibilities to the Funds or
to its clients. Not all of such services are useful or of value in advising 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.
Although commissions paid on every transaction will, in the judgment
of the Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might
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charge may be paid to broker-dealers who were selected to execute transactions
on behalf of the Funds and Portfolios and the Adviser's other clients as part of
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Funds, a commission higher than one charged elsewhere will not
be paid to such a firm solely because it provided Research to the Adviser.
The Adviser's investment management personnel will attempt to
evaluate the quality of Research provided by brokers. Results of this effort are
sometimes used by the Adviser as a consideration in the selection of brokers to
execute portfolio transactions. However, the Adviser would be unable to quantify
the amount of commissions which are paid as a result of such Research because a
substantial number of transactions are effected through brokers which provide
Research but which are selected principally because of their execution
capabilities.
The management fees that the Funds pay to the Adviser will not be
reduced as a consequence of the Adviser's 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 in serving one or more
of the Funds and other clients and, conversely, such services obtained by the
placement of brokerage business of other clients would be useful to the Adviser
in carrying out its obligations to a Fund. While such services are not expected
to reduce the expenses of the Adviser, the Adviser would, through use of the
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its 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 other clients.
Investment decisions for the Funds and for the Adviser's other clients are made
with a view to achieving their respective investment objectives. It may develop
that the same investment decision is made for more than one client or that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more Funds or other clients are simultaneously
engaged in the purchase or sale of the same security, the securities are
allocated among clients in a manner believed to be equitable to each. It is
recognized that in some cases this system could have a detrimental effect on the
price or volume of the security as far as the Funds are concerned. However, it
is believed that the ability of the Funds to participate in volume transactions
will generally produce better executions for the Funds.
No portfolio transactions are executed with the Adviser or a
Shareholder Servicing Agent, or with any affiliate of the Adviser or a
Shareholder Servicing Agent, acting either as principal or as broker.
PERFORMANCE INFORMATION
Total Rate of Return
A Fund's total rate of return for any period will be calculated by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
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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 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 commencement of business operations of each such Fundund commenced
business was September 8, 1987.Tmaximum 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 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 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.
Yield Quotations
Any current "yield" quotation of the 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" of the 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
of the Shares of a Money
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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 the 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
FUND AS OF 8/31/95 AS OF 8/31/95
- --------------------------------------------------------------------------------
U. S. Government Fund :
Vista Shares 5.02% 5.15%
Premier Shares 5.27% 5.41%
Institutional Shares 5.54% 5.70%
Global Money Market Fund :
Vista Shares 5.33% 5.47%
Premier Shares 5.48% 5.63%
Institutional Shares 5.66% 5.82%
Prime Fund
B Shares 4.43% 4.53%
Premier Shares 5.46% 5.60%
Institutional Shares 5.63% 5.79%
Federal Fund:
Vista Shares 5.12% 5.25%
Premier Shares 5.32% 5.46%
Institutional Shares 5.50% 5.65%
Treasury Fund:
Premier Shares 5.20% 5.33%
Institutional Shares 5.38% 5.52%
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Seven-Day Yields:
CURRENT EFFECTIVE ANNUALIZED
ANNUALIZED COMPOUND TAX EQUIVILENT
YIELD ANNUALIZED YIELD *
YIELD
Tax Free Money
Market
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 Money
Market 3.12 3.17 5.80
New York Tax Free Money
Market 2.81 2.85 5.28
---------------------=------------------
THIRTY-DAY TAX EQUIVILENT
YIELD THIRTY-DAY YIELD*
-----------------------------------------
Tax Free Income Fund:
A Shares 4.11 6.80
B Shares 3.56 5.89
New York Tax Free Income
Fund:
A Shares 4.41 8.29
B Shares 3.87 7.27
California Intermediate
Tax Free Fund 4.63 8.61
* The annualized tax equivalent yields assume a federal income tax rate of
39.6% for the Tax Free Money Market 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 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 and California Intermediate Tax Free Fund.
In advertising or promotional materials for a Fund, performance data for all
classes of Fund shares will be included.
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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 N.Y. Tax Free Income Funds or July 16, 1993 for the
California Intermediate Tax Free Fund.) The values reflect an assumption that
capital gain distributions and income dividends, if any, have been accepted in
additional Shares. From time to time, the Funds will provide these performance
results, if any, 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
August 31, 1995 Investment DistributionsDividendsTotal 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 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
August 31, 1995 Investment DistributionsDividendsTotal Value
- --------------- ---------------- --------------------------------
The Tax Free Income Fund:
A Shares $11,317 $1,066 $7,202 $19,585
B Shares 9,047 125 827 9,999
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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
The California Intermediate
Tax Free Fund 9,251 120 1,112 10,483
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value per Share each day (as of
12:00 noon, New York City time, in the case of the Tax Free Money Market Funds,
2:00 p.m. for the U.S. Government Fund, the Global Money Market Fund, the Prime
Fund, the Federal Fund and the Treasury Plus Fund and as of the regular close of
the New York Stock Exchange, or 4:15 p.m. for Funds holding options, in the case
of a Fixed Income during which the New York Stock Exchange is open for trading
(a "Fund Business Day"), by dividing the value of its net assets (i.e., the
value of its securities and other assets less its liabilities, including
expenses payable or accrued, which, in the case of funds with multiple share
classes, is apportioned between the classes, to obtain net assets by class) by
the number of its shares outstanding (by class, for multiple class Funds) at the
time the determination is made. (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 Adviser is closed on the following: Martin Luther King Junior Day, Columbus
Day and Veteren's Day. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order. (See "Purchases and Redemptions of Shares" in the Prospectus.)
The Money Market Funds' portfolio securities are valued at their
amortized cost. Amortized cost valuation involves valuing an instrument at its
cost and thereafter accreting 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 U. S. Government Fund, the Global Money Market, the Federal Fund,
the Tax Free Money Market, the New York Tax Free Money Market and the California
Tax Free Money Market will maintain a dollar-weighted average portfolio maturity
of 90 days or less. The Prime Fund and the Treasury Fund will maintain a
dollar-weighted average portfolio maturity of 60 days or less. None of the Money
Market Funds will purchase any instrument with a remaining maturity greater than
397 days or subject to a repurchase agreement having a duration of greater than
one year, will limit portfolio investments, including repurchase agreements, to
those U.S. dollar-denominated instruments that with respect to the Global Money
Market Fund and the Tax Free Money Market Funds, are determined by the Board of
Trustees to present minimal credit risks and will comply with certain reporting
and recordkeeping procedures.
The Money Market Funds have established procedures to ensure that
their portfolio securities meet their high quality criteria. (See "Investment
Objectives, Policies and Restrictions -- Investment Policies" above.)
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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 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.
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).
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the respective Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or its shareholders, and
the discussions here and in each Fund's Prospectus are not intended as
substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to federal
income tax on the portion of its net investment income (i.e., 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.).
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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) 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
-30-
<PAGE>
asset disposed of may be reduced only in the case of clause (i) 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 (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
ShortShort 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.
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.
-31-
<PAGE>
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"))(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 qualify for the 70%
dividends-received deduction for corporations only to the extent discussed
below. Dividends paid on Class A and Class B shares are calculated at the same
time and in the same manner. 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. The Code provides, however, that under certain conditions
only 50% of the capital gain recognized upon a Fund's disposition of "small
business" stock will be subject to tax.
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.
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<PAGE>
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 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.
For purposes of the Corporate AMT and the environmental Superfund tax
(which are discussed above in connection with exempt-interest dividends paid by
the Tax Free Funds), the corporate dividends-received deduction is not itself an
item of tax preference that must be added back to taxable income or is otherwise
disallowed in determining a corporation's AMTI.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be invested
in various countries is not known.
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<PAGE>
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 the Fund will do this.
In such a case and any other case involving the other 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 the extent of the
amount of capital gain dividends received on such shares. For this purpose, the
special holding period rules of Code Section 246(c)(3) and (4) (discussed above
in connection with the dividends-received deduction for corporations) generally
will apply in determining the holding period of shares. Long-term capital gains
of noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a
Fund, (2) disposes of such shares less than 91 days after they are acquired and
(3) subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
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<PAGE>
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
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
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.
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<PAGE>
MANAGEMENT OF THE 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. Asterisks indicate those Trustees and officers that are
"interested persons" (as defined in the 1940 Act). 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 Board of Trustees; Chairman and Chief
Executive Officer, Lumelite Corporation, since September 1985.
Address: 700 River Road, Cos Cob, Connecticut 06807.
RICHARD E. TEN HAKEN - 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 Vice President, New
York State Teachers' Retirement System. Address: 4 Barnfield Road, Pittsford,
New York 14534.
WILLIAM J. ARMSTRONG - Vice President and Treasurer, Ingersoll-Rand Company
(Woodcliff Lake, New Jersey). Address: 49 Aspen Way, Upper Saddle River, New
Jersey 07458.
JOHN R.H. BLUM - Partner in the law firm of Richards, O'Neil & Allegaert;
Commissioner of Agriculture - State of Connecticut. Address: 322 Main Street,
Lakeville, Connecticut 06039-0448.
JOSEPH J. HARKINS* - Retired; Commercial Sector Executive and Executive
Vice President of The Chase Manhattan Bank, N.A. from 1985 through 1989. He has
been employed by Chase in numerous capacities and offices since 1954. Director
of Blessings Corporation, Jefferson Insurance Company of New York, Monticello
Insurance Company and Nationar. Address: 257 Plantation Circle South, Ponte
Vedra South, Ponte Vedra Beach, FL 32082.
H. RICHARD VARTABEDIAN* - President of the Trust, Retired; Senior
Investment Officer, Division Executive of the Investment Management Division of
The Chase Manhattan Bank, N.A., 1980-1991; responsible for investment research,
trading and portfolio management for commingled funds and high net worth
individuals within the U.S. Employed by Chase in various investment oriented
capacities since 1960, primarily as a senior portfolio manager for
institutional, ERISA and high net worth portfolios. Address: P.O. Box 296, Beach
Road, Hendrick's Head, Southport, Maine 04576.
STUART W. CRAGIN, Jr. - 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. Address: 652 Glenbrook Road, Stamford, Connecticut 06906.
IRVING L. THODE - Retired; Vice President of Quotron Systems. He has
previously served in a number of executive positions with Control Data Corp.,
including President of their Latin American operations, and General Manager of
their Data Services business. Address: 80 Perkins Road, Greenwich, Connecticut
06830.
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<PAGE>
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting of
the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the 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. 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. Prior
to August 21, 1995, the quarterly retainer was $9,000 and the per-meeting fee
was $1,000. The Chairman of the Trustees and the Chairman of the Investment
Committee each receive a 50% increment over regular Trustee total compensation
for serving in such capacities for all the investment companies advised by the
Adviser.
Set forth below is information regarding compensation paid or accrued during the
year ended December 31, 1995 for each Trustee of the Trust:
<TABLE>
<CAPTION>
Aggregate
Aggregate Compensation Pension or
Aggregate Compensation from Mutual Retirement Total Compensation
Compensation from Mutual Fund Variable Benefits Accrued from
from Trust Fund Group Annuity Trust as Fund Expenses "Fund Complex"(1)
------------ ------------ --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, Trustee $48,730.51 $29,726.14 0 0 $78,456.65
Richard E. Ten Haken, Trustee 32,487.00 19,817.39 0 0 52,304.39
William J. Armstrong, Trustee 26,814.95 19,817.39 0 0 46,632.34
John R.H. Blum, Trustee 31,857.95 19,446.42 0 0 51,304.37
Joseph J. Harkins, Trustee 32,487.00 19,817.39 0 0 52,304.39
H. Richard Vartabedian, Trustee 37,265.41 37,539.03* 0 0 74,804.44
Stuart W. Cragin, Jr., Trustee 32,487.00 19,817.39 0 0 52,304.39
Irving L. Thode, Trustee 32,487.00 19,817.39 0 0 52,304.39
</TABLE>
* Included in this amount is $15,000 Mr. Vartabedian receives per year
for serving as Trustee of International Equity Portfolio, Global Fixed
Income Portfolio, Growth and Income Portfolio and Capital Growth
Portfolio.
(1) Data reflects total compensation earned during the period January 1,
1995 to December 31, 1995.
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<PAGE>
Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan for
Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not an
employee of any of the Funds, the 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 (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, 3, 3 and 3 respectively.
<TABLE>
<CAPTION>
Years of
Service Highest Annual Compensation Paid by All Vista Funds
<S> <C> <C> <C> <C> <C>
40,000 45,000 50,000 55,000
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
</TABLE>
Effective August 21, 1995, the Trustees instituted a Deferred Compensation Plan
for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which each
Trustee (who is not an employee of any of the Funds, the 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. It is anticipated that each Eligible Trustee
will execute a deferred compensation agreement for the 1996 calendar year.
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Officers
MARTIN DEAN* - Treasurer and Assistant Secretary of the Trust; BISYS Fund
Services, Inc., Manager, Financial Reporting and Control.
GEORGE O. MARTINEZ* - Secretary; Senior Vice President and Director of
Legal and Compliance Services, BISYS Fund Services, Inc., Vista Broker-Dealer
Services, Inc.
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.
The Funds pay no direct remuneration to any officer of the Trust. As
of August 31, 1995, the Trustees and officers as a group owned of record 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
The Adviser manages the assets of each Fund pursuant to Investment
Advisory Agreements, dated August 23, 1994 for each of the Funds, except
Treasury Money Market Fund and Federal Money Market Fund, dated April 15, 1994
(the "Advisory Agreements"). Subject to such policies as the Board of Trustees
may determine, Chase makes investment decisions for each Fund. Pursuant to the
terms of the Advisory Agreements, the Adviser provides each Fund with such
investment advice and supervision as it deems necessary for the proper
supervision of each Fund's investments. The Adviser continuously provides
investment programs and determines from time to time what securities shall be
purchased, sold or exchanged and what portion of each Fund's assets shall be
held uninvested. The Adviser furnishes, at its own expense, all services,
facilities and personnel necessary in connection with managing the investments
and effecting portfolio transactions for the Funds. The other expenses
attributable to, and payable by the Funds, are described under "Expenses" in the
Prospectus. The Advisory Agreement for each Fund 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 Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on such
Advisory Agreement.
Pursuant to the terms of each of the Advisory Agreements, the Adviser is
permitted to render services to others. Each Advisory Agreement is terminable
without penalty by the Trust on behalf of each Fund and Portfolio on not more
than 60 days', nor less than 30 days', written notice when authorized either by
a majority vote of such Fund's shareholders or by a vote of a majority of the
Board of Trustees of the Trust, or by the 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). Each Advisory Agreement
provides that the Adviser under such Agreement shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution of portfolio transactions for the
respective Fund, except for willful misfeasance, bad faith or gross negligence
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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 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 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 such Fund during such fiscal year; and if such amounts should
exceed the monthly fee, the Adviser 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 the Adviser pursuant to
the Advisory Agreements, each Fund pays an investment advisory fee computed and
paid monthly based on a rate equal to a specified percentage (0.10% for the
Money Market Funds; 0.30% for the New York Tax Free Income Fund, the Tax Free
Income Fund, the California Intermediate Tax Free Fund with respect to each
Fund's average daily net assets, on an annualized basis for such Fund's
then-current fiscal year. month-to-month basis.
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:
The Tax Free Money Market Fund: $486,073 ($17,981), $371,535, and
$440,282, respectively; The New York Tax Free Money Market Fund: $454,872
($22,825), $279,493 and $381,647 respectively;
The Tax Free Income Fund: $127,952 ($127,952), $252,244 ($219,741) and
$307,093 ($287,095) respectively; The 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 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 and the Treasury Money Market, 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 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
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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
and voluntarily waived the amount in parentheses following such fees with
respect to the U.S. Government Money Market: $887,334 and $1,440,186 and with
respect to the the Global Money Market Fund: $951,403 ($177,691) and $1,076,339
($361,108), respectively.
Administrator
Pursuant to an Administration Agreement, dated August 23, 1994 for
each of the Funds' except the Federal Money Market Fund and Treasury Money
Market Fund, dated April 15, 1994 (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
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 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.
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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:
The U.S. Government Money Market Fund: $564,610 ($24,783), $1,040,090,
$443,694 and $720,093; The Tax Free Money Market Fund: $197,227 ($30,601),
$324,048 ($22,244), $185,769 and $220,141;
The New York Tax Free Money Market Fund: $277,855 ($24,360), $303,249
($15,216), $139,747 and $190,823; The Tax Free Income Fund: $9,919
($9,919), $42,651 ($42,651), $84,082 ($68,719) and $102,364 ($64,572);
The New York Tax Free Income Fund: $34,704 ($24,262), $89,264
($39,466), $96,046 ($61,425) and $111,164 ($81,265);
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 Fund and $3,123 ($2,944), $11,331($11,331) for the
Treasury 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 Fund, respectively.
For the period ended October 31, 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 adminiostration fees with respect to the Global Money
Market Fund and voluntarily waived the amounts in parentheses: $538,169
($173,322, $475,701 ($66,407), $673,015 ($128,647).
Distributor
Distribution Plan
The Trust has adopted separate plans of distribution pursuant to Rule 12b-1
under the 1940 Act (a "Distribution Plan") including several Distribution Plans
on behalf of the Class A Shares of the Income and Equity Funds and the Vista
Shares of the Tax Free Money Market Funds which provides that each of the Funds
shall pay a distribution fee (the "Basic Distribution Fee"), including payments
to the Distributor, at an annual rate not to exceed 0.20% of its Shares average
daily net assets for distribution services (exclusive of any expenses incurred
by the Distributor in connection with print or electronic media advertising).
The Distributor may use all or any portion of such Basic 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. Each of the Funds is also permitted to pay the
Distributor an additional fee not to exceed 0.05% per annum of its Shares'
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average daily net assets in anticipation of, or as reimbursement for, expenses
incurred in connection with print or electronic media advertising for its
shares. The Funds have not made any payment of such an additional fee as of the
date of this Statement of Additional Information.
As noted above the Class B shareholders will pay a distribution fee
of 0.75% of average daily net assets under a Rule 12b-1 Distribution Plan. The
Distributor currently expects to pay sales commissions to a dealer at the time
of sale of Class B shares of up to 4% of the purchase price of the shares sold
by such dealer. The principal underwriter will use its own fund or funds
facilitated by the Distributor (which may be borrowed or otherwise financed) to
pay such amounts. Because the Distributor will receive a maximum of 0.75% of
average daily net assets represented by Class B shares it will take the
Distributor several years to recoup the sales commissions paid to dealers and
other sales expenses.
Because of the 0.75% limitation on the compensation paid to the
Distributor during such fiscal year, a large portion of the commissions
attributable to sales of Class B shares will be accrued and paid by the Fund to
the Distributor in fiscal years subsequent to the years in which the Class B
shares are sold.
The Trustees have also adopted a distribution plan for the Premier
Shares of the Tax Free Money Market Funds. Such plan is identical in all
material respects to the Distribution Plan described above, except that the
basic Distribution Fees under such plan may not exceed .15% of the Premier
Shares of the Tax Free Fund's average daily net assets. No class of shares of a
Fund will make payments or be liable for any distribution expenses incurred by
the other class of shares of such Fund. In addition, the Trustees also have
adopted a separate Distribution Plan in accordance with Rule 12b-1 under the
1940 Act which provides that the Vista Shares and the Premier Shares U.S.
Government Fund shall pay up to 0.10% of its annual net assets for certain
expenses associated with the distribution of its shares. This Distribution Plan
does not provide for reimbursement of any overhead expenses. The Institutional
Shares of the Money Market Funds have no 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 December 16,
1991. 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 such Fund (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 the 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.
Since the Basic Distribution Fee is not directly tied to actual expenses,
the amount of Basic Distribution Fee paid by each of the Shares during any year
may be more or less than actual expenses incurred pursuant to the Distribution
Plan. 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, such as
those described above with respect to expenses incurred in connection with print
or electronic media advertising, by which the Distributor's compensation is
directly linked to its expenses). However, the Shares are not liable for any
distribution expenses incurred in excess of the Basic Distribution Fee paid.
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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:
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 $153,687 accrued or paid to the
Distributor was allocated as follows: printing postage and handling - $32,874
sales compensation - $94,210; advertising and administrative filings- $26,572;
With respect to the Vista Shares of the Tax Free Money Market Fund,
the Basic Distribution Fee of $ $240,582 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $51,460; sales
compensation - $147,477; advertising & administrative filings - $41,597;
With respect to the Shares of the California Tax Free Money Market
Fund, the Basic Distribution Fee of $41,525 accrued or paid to the Distributor
was allocated as follows: printing postage and handling - $8,882; sales
compensation - $25,455; advertising & administrative filings- $7,180;
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 Fund,
the Basic Distribution Fee of $6,404 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $1,370; sales compensation
- - $3,926; advertising & administrative filings- $1,107.
With respect to the Vista Shares of the U.S. Government Money Market
Fund, the Basic Distribution Fee of $397,175 accrued or paid to the Distributor
was allocated as follows: printing postage and handling - $84,956; sales
compensation - $243,468; advertising & administrative filings- $68,672;
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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:
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 $258,709 accrued or paid to the Distributor was
allocated as follows: printing postage and handling - $55,338; sales
compensation - $158,589; advertising & administrative filings - $44,731;
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 - $146,511;
sales compensation - $419,876; advertising & administrative filings - $118,428;
There is no 12b-1 Distribution Plan for any Class of the Treasury Money
Market Fund and the Global Money Market Fund, while only the Vista Shares of the
Federal Money Market and the B Shares of the Prime Money Market Fund have 12B-1
Distribution Plans.
Distribution and Sub-Administration Agreement
The Trust has entered into a Distributor and Sub-Administration
Agreement dated August 23, 1994, and dated April 15, 1994 for the Treasury Fund
and the Federal 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 of the Shares. As of April 1, 1990, the Distributor became a
wholly-owned subsidiary of Concord Financial Group. The Distribution Agreement
provides that the Distributor will bear the expenses of printing, distributing
and filing prospectuses and statements of additional information and reports
used for sales purposes, and of preparing and printing sales literature and
advertisements not paid for by the Distribution Plan. The Trust pays for all of
the expenses for qualification of the shares of each Fund for sale in connection
with the public offering of such shares, and all legal expenses in connection
therewith. In addition, pursuant to the Distribution Agreement, the Distributor
provides certain sub-administration services to the Trust, including providing
officers, clerical staff and office space.
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The Distribution Agreement is currently in effect and will continue
in effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
such Fund's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Distribution
Agreement is terminable without penalty by the Trust on behalf of each Fund on
60 days' written notice when authorized either by a majority vote of such Fund's
shareholders or by vote of a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days' written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
In the event the operating expenses of any Fund, including all
investment advisory, administration and sub-administration fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses such
as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or regulations
thereunder of any state in which the shares of such Fund are qualified for sale,
as such limitations may be raised or lowered from time to time, the Distributor
shall reduce its sub-administration fee with respect to such Fund (which fee is
described below) to the extent of its share of such excess expenses. The amount
of any such reduction to be borne by the Distributor shall be deducted from the
monthly sub-administration fee otherwise payable with respect to such Fund
during such fiscal year; and if such amounts should exceed the monthly fee, the
Distributor shall pay to such Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives an
annual fee, payable monthly, of 0.05% of the net assets of each Fund. However,
the Distributor has voluntarily agreed to waive a portion of the fees payable to
it under the Distribution Agreement with respect to each Fund on a
month-to-month basis. For the fiscal years ended October 31, 1992, 1993,the
period November 1, 1993 through August 31, 1994 and for the year ended August
31, 1995, 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: $6,0384
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 Fund: $16,096 and $17,001
($17,001).
For the fiscal period ended October 31, 1992, the California Tax Free Money
Market Fund paid 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,
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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 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.
For the fiscal year November 1, 1993 through August 31, 1994, the
U.S. Government Money Market Fund and the Global Money Market Fund paid or
accrued distributiuon and sub-administratiuon fees of $443,694 and $475,701,
respectively. For the year ended August 31, 1995, the U.S. Government Money
Market Fund was paid or accrued $720,093. For the same period, the Global Money
Market Fund was paid or accrued $538,169 and voluntarily waived $44,275.
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. The fees relating to acting as liaison to shareholders and providing
personal services to shareholders will not exceed, on an annualized basis, 0.25%
of the average daily net assets of each of the Shares of the Income Funds and
the Vista Shares of the Tax Free Money Market Funds represented by shares owned
during the period for which payment is being made by investors with whom such
Shareholder Servicing Agent maintains a servicing relationship. However, each
Shareholder Servicing Agent has voluntarily agreed to waive a portion of the
fees payable to it under its Servicing Agreement with respect to each Fund on a
month-to-month basis. For the fiscal years ended October 31, 1992 and 1993, and
the period November 1, 1993 through August 31, 1994, and the year ended August
31, 1995, fees payable to the Shareholder Servicing Agents (all of which
currently are related parties) and the amounts voluntarily waived for each such
period (as indicated in parentheses), were as follows:
U.S. Government Money Market Fund - Vista Shares: $713,799, $816,674;
Global Money Market Fund - Vista Shares: $550,995 ($50,574),$348,428
($98,796)
Tax Free Money Market Fund - Vista Shares: $531,208 ($85,012),
$636,438 ($41,182), $312,937, and $367,259, respectively; California
Tax Free Money Market Fund - Vista Shares: (for the period ended
October 31, only) $149,182 ($113,952), $119,635 ($119,635) and
$139,735 ($139,735), respectively; New York Tax Free Money Market
Fund - Vista Shares: $1,111,429 ($97,440), $931,475 ($51,107),
$698,735 and $954,117, respectively;
Tax Free Income Fund: $39,677 ($39,677), $111,375 ($111,375),
$196,918 ($169,386), and; $223,990 ($179,192), respectively;
Tax Free Income Fund - B Shares: $13,286 and $31,921;
New York Tax Free Income Fund: $138,522 ($96,882), $240,920
($107,693), $233,498 ($179,364) and $256,481 ($205,185),respectively;
New York Tax Free Income Fund - B Shares: $6,613 and 21,430;
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California Intermediate Tax Free Fund: $83,485 ($83,485) and $85,003 ($85,
003).
The Trust has also entered into a shareholder servicing agreement with each
Shareholder Servicing Agent, on behalf of the Premier Shares of the Tax Free
Money Market Funds, to provide certain services for a fee which will not exceed,
on an annualized basis, 0.20% of the average daily net assets of each of the
Premier Shares represented by shares owned during the period for which payment
is being made by investors with whom such Shareholder Servicing Agent maintains
a servicing relationship. However, each Shareholder Servicing Agent has
voluntarily agreed to waive a portion of the fees payable to it under its
Servicing Agreement on a month-to-month basis.
For the fiscal years ended October 31, 1992 and 1993, and the period
November 1, 1993 through August 31, 1994 and the year ended August 31, 1995,
fees payable by the Premier Shares to the Shareholder Servicing Agents and the
amounts voluntarily waived for each such period (as indicated in parentheses),
were as follows:
Tax Free Money Market Fund: $126,852 ($73,048), $328,100
($245,074), $353,240 ($226,331) and $345,945 ($131,039) respectively.
In addition, the Trust has entered into a shareholder servicing
agreement with each Shareholder Servicing Agent, on behalf of the U.S.
Government Fund, the Global Money Market Fund, the Prime Fund, the Federal Fund
and the Treasury Fund to provide certain services for the Vista Shares and the
Premier Shares, for a fee which will not exceed, on an annualized basis (0.25%
with respect to the Vista Shares and 0.10% with respect to the Premier Shares),
of the average daily net assets of relative class of shares, represented by
shares owned during the period which payment is being made by investors with
whom such Shareholder Servicing Agent maintains a servicing relationship.
However, each Shareholder Servicing Agent has voluntarily agreed to waive a
portion of the fees payable to it under its Servicing Agreement on a
month-to-month basis.
For the fiscal years ended October 31, 1993, and the period November
1, 1993 through August 31, 1994 and the year ended August 31, 1995, fees payable
by the Premier Shares to the Shareholder Servicing Agents and the amounts
voluntarily waived for each such period (as indicated in parentheses), were as
follows:
U.S. Government Money Market Fund: $745,518, $518,682 and $684,952;
Global Money Market Fund: $353,935, $401,858 and $421,596;
For the year ended August 31, 1994, the Prime Money Market Fund -
Premier Shares and B Shares paid or accrued Shareholder Servicing Fees of
$217,100 and $687, repectively. For the year ended August 31, 1995, the Prime
Money Market Fund - Premier Shares and B Shares paid or accrued Shareholder
Servicing Fees of $82,617 ($72,534) and $10,080 ($5,488), respectively.
For the year ended August 31, 1995, the Federal Money Market Fund and
the Treasury Money Market Fund - Premier Shares were paid or accrued and
voluntarily waived Shareholder Servicing Fees of $109,180 ($15,790) and $2,971
($2,971), respectively.
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 IFTC acts as transfer agent for the
Trust. Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund for which Chase receives compensation as is from time to
time agreed upon by Chase. For additional information, see "Shareholder
Servicing Agents, Transfer Agent and Custodian" in the Prospectus.
In certain circumstances Shareholder Servicing Agents may be required
to register as dealers under state law.
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INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the
Trust's Annual Reports to Shareholders for the fiscal year ended August 31,
1995, have been so incorporated by reference 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 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.
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 11 Funds of shares of beneficial
interest without par value. 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 separately,
for example to approve investment advisory agreements or distribution plans, but
shares of all series and classes vote together, to the extent required under the
1940 Act, in the election or selection of Trustees and independent accountants.
With respect to shares purchased through a Shareholder Servicing Agent and, in
the event written proxy instructions are not received by the 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.
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 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, at any given time, the
net yield on the Shares will be approximately .15% to .30% lower than the yield
on the Premier Shares and approximately 30% to 50% lower than the yield on the
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.
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<PAGE>
Class A shares are sold at net asset value plus an initial sales
charge of up to a maximum of 4.50% of the public offering price. Class B shares
have no initial sales charge; however, a contingent deferred sales charge will
be imposed on redemptions made within six years of purchase. The amount of this
contingent deferred sales charge will be 5% of the redemption proceeds on
redemptions in the first year after purchase, declining to zero for redemptions
made more than six years after purchase. However, this contingent deferred sales
charge will not apply to redemptions of shares representing capital appreciation
on Fund assets and reinvestment of dividends or capital distributions.
Approximately eight years after purchase, Class B shares will automatically
convert to Class A shares.
In general, absent waivers, Class A and Class B shares each have an
annual shareholder servicing fee of 0.25% of average daily net assets. In
addition, absent waivers, Class A has an annual distribution fee under Rule
12b-1 of 0.25% of average daily net assets, while Class B has an annual
distribution fee under Rule 12b-1 of 0.75% of average daily net assets.
Moreover, 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.
The Trust is an entity of the type commonly known as a "Massachusetts
business 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 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,
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<PAGE>
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of
the Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action or
failure to act, errors of judgment or mistakes of fact or law, but nothing in
the Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Principal Holders
As of November 30, 1995, the following persons owned
beneficially, 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 63.62%
OMNIBUS ACCOUNT # 1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A 17.00%
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 30.15%
GLOBAL SEC SERVICES OMNIBUS
ATTN: ALEX KWONG
3 CHASE METRO TECH CENTER
7TH FLOOR
BROOKLYN, NY 11245-0002
CHASE MANHATTAN BANK N/A 24.02%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
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<PAGE>
NATIONAL FINANCIAL SERV CORP 8.67%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-1003
PENLIN & CO 8.26%
CHASE LINCOLN FIRST BANK
ATTN: P WHALEN
PO BOX 1412
ROCHESTER, N Y 14603-1412
VISTA US GOVERNMENT MONEY MARKET FUND - INTERNATIONAL SHARES
CHASE MANHATTAN BANK NA 45.21%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
CHASE MANHATTAN BANK N/A 13.42%
GLOBAL SEC SERVICES OMNIBUS
ATTN: ALEX KWONG
3 CHASE METRO TECH CENTER
7TH FLOOR
BROOKLYN, NY 11245-0002
CUDD & COMPANY 8.33%
OMNIBUS ACCOUNT #1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
VISTA GLOBAL MONEY MARKET FUND - VISTA SHARES
FIRST FIDELITY BANK N/A NJ 14.23%
ATTN: ELEANOR ELLIS
BROAD & WALNUT STS
2 1/2 WITHERSPOON
PHILADELPHIA PA 19109
CHASE MANHATTAN BANK N/A 12.22%
METROPOLITAN COMMUNITY BANK
ATTN: JOHN MOLLOY
PROOF & CONTROL
1985 MARCUS AVENUE -2
NEW HYDE PARK, NY 11042-1081
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<PAGE>
VISTA GLOBAL MONEY MARKET FUND - PREMIER SHARES
CHASE MANHATTAN BANK N/A 33.78%
GLOBAL SEC SERVICES OMNIBUS
ATTN: ALEX KWONG
3 CHASE METRO TECH CENTER
7TH FLOOR
BROOKLYN, NY 11245-0002
NATIONAL FINANCIAL SERV CORP 20.78%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-1003
CHASE MANHATTAN BANK N/A 7.46%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
CUDD & COMPANY 6.71%
OMNIBUS ACCOUNT # 1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
VISTA GLOBAL MONEY MARKET FUND - INSTITUTIONAL SHARES
CONTINENTAL AIRLINES INC 37.40%
2929 ALLEN PARKWAY SUITE 1576
HOUSTON, TX 77019-2197
CUDD & COMPANY 13.55%
OMNIBUS ACCOUNT # 1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A 6.37%
GLOBAL SEC SERVICES OMNIBUS
ATTN: ALEX KWONG
3 CHASE METROTECH CENTER
7TH FLOOR
BROOKLYN, NY 11245-0002
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<PAGE>
CARRIERS ILA CFS TRUST FUND 6.38%
C/O CCC INC
ONE EVERTRUST PLAZA
JERSEY CITY, NJ 07302-3051
MANHATTAN PREPAID HEALTH SERVICE 5.07%
PLAN INC
475 RIVERSIDE DR STE 1220
NEW YORK, NY 10115-0122
VISTA PRIME MONEY MARKET - PREMIER SHARES
CHASE MANHATTAN BANK N/A 84.13%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
VISTA PRIME MONEY MARKET FUND - INSTITUTIONAL SHARES
CHASE MANHATTAN BANK N/A 33.70%
GLOBAL SEC SERVICES OMNIBUS
ATTN: ALEX KWONG
3 CHASE METROTECH CENTER
7TH FLOOR
BROOKLYN, NY 11245-0002
CHASE MANHATTAN BANK N/A 27.65%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
CONTINENTAL AIRLINES INC 22.96%
2929 ALLEN PARKWAY SUITE 1576
HOUSTON, TX 77019-2197
VISTA FEDERAL MONEY MARKET FUND - VISTA SHARES
BLANCHARD GROUP OF FUNDS 19.32%
C/O FEDERATED SERVICES COMPANY
FEDERATED INVESTORS TOWER
ATTN: RECON AND CONTROL -24 CCT
PITTSBURGH, PA 15222
CHASE MANHATTAN BANK N/A 13.57%
METROPOLITAN COMMUNITY BANK
ATTN: JOHN MOLLOY
PROOF & CONTROL
1985 MARCUS AVENUE -2
NEW HYDE PARK, NY 11042-1081
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<PAGE>
VISTA FEDERAL MONEY MARKET FUND - PREMIER SHARES
NATIONAL FINANCIAL SERV CORP 54.42%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-1003
CHASE MANHATTAN BANK N/A 18.95%
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 FEDERAL MONEY MARKET FUND - INSTITUTIONAL SHARES
CUDD & COMPANY 69.38%
OMNIBUS ACCOUNT # 1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A 14.31%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
HEALTH MANAGEMENT SYSTEMS INC 6.63%
ATTN: SCOTT REMLEY
401 PARK AVENUE SOUTH 4TH FLOOR
NEW YORK, NY 10016-8808
VISTA TREASURY PLUS MONEY MARKET FUND - PREMIER SHARES
CHASE MANHATTAN BANK N/A 82.04%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
PHOTRONICS INCORPORATED 7.79%
ATTN: ROBERT J. BOLLO
15 SECOR ROAD
BROOKFIELD, CT 06804-3937
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VISTA TREASURY PLUS MONEY MARKET FUND - INSTITUTIONAL SHARES
CHASE MANHATTAN BANK N/A 65.04%
GSS AS AGENT
RAY DEJESUS
770 BROADWAY 13TH FLOOR
NEW YORK, NY 10003-9522
TRENWICK AMERICA REINSURANCE CORP 11.30%
TRENWICH C/O LISA STALOWICZ
METRO CENTER ONE STATION PLACE
STANFORD, CT 06902
VISTA TAX FREE MONEY MARKET FUND - VISTA SHARES
CUDD & COMPANY 75.49%
OMNIBUS ACCOUNT # 1
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A 16.25%
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 29.58%
CHASE MANHATTAN BANK N/A
PTIS DIV
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
NATIONAL FINANCIAL SERV CORP 18.91%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-1003
1976 ACC TRUST 5.16%
RS LAUDER TTEE
FBO JANE LAUDER
C/O JAMES M GRIFFIN
767 FIFTH AVENUE
NEW YORK, NY 10153-0001
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<PAGE>
VISTA TAX FREE MONEY MARKET FUND - INSTITUTIONAL SHARES
CUDD & COMPANY 58.11%
OMNIBUS ACCOUNT # 1
PTIS DIV
35 FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A TTEE 6.87%
FBO BUTLER COUNTY (TEXACO REF & MKG)
TR INDENTURE DATED SEP 15 94
ATTN: VALERIE DUNBAR TREASURERS OFC
4 CHASE METRO TECH CENTER 3RD FLOOR
BROOKLYN, NY 11245-0001
ROBERT PLAN CORPORATION 5.13%
100 CHARLES LINDBERGH BLVD
UNIONDALE, NY 11553-3631
VISTA NEW YORK TAX FREE MONEY MARKET FUND
CUDD & COMPANY 30.28%
C/O CHASE MANHATTAN BANK
PTIS DIV
1211 AVENUE OF THE AMERICAS 35TH FLOOR
NEW YORK, NY 10036-8701
CHASE MANHATTAN BANK N/A 26.79%
METROPOLITAN COMMUNITY BANK
ATTN: JOHN MOLLOY
PROOF & CONTROL
1985 MARCUS AVENUE -2
NEW HYDE PARK, NY 11042-1081
CHASE MANHATTAN BANK N/A 7.57%
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
NATIONAL FINANCIAL SERV CORP 5.76%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-10003
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<PAGE>
VISTA NEW YORK TAX FREE INCOME FUND - A SHARES
CUDD & COMPANY 17.41%
CUSTODY DIVISION
1211 6TH AVENUE 35TH FLOOR
NEW YORK, NY 10036-8701
VISTA NEW YORK TAX FREE INCOME FUND - CLASS B
JEANE B MAHONY 6.63%
38 HUTCHINSON BLVD
SCARSDALE, NY 10583-6524
VISTA CALIFORNIA INTERMEDIATE TAX FREE FUND
MERRILL LYNCH PIERCE FENNER & SMITH 5.45%
MUTUAL FUND OPERATIONS
ATTN: BOOK ENTRY
4800 DEER LAKE DRIVE EAST 3RD FLOOR
JACKSONVILLE, FL 32246-6484
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND
CUDD & COMPANY 42.27%
C/O CHASE MANHATTAN BANK
PTIS DIV
35TH FLOOR
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-8701
UNION BANK OF SWITZERLAND NY 25.18%
ATTN: ANDREW FOX VP
299 PARK AVENUE 40TH FLOOR
NEW YORK, NY 10171-0026
NATIONAL FINANCIAL SERV CORP 24.99%
FOR THE EXCL BEN OF OUR CUST
ATTN: MIKE MCLAUGHLIN
200 LIBERTY STREET
NEW YORK, NY 10281-1003
Financial Statements
The financial statements for the fiscal period ended August 31, 1995 for the
Funds are incorporated herein by reference from the Funds' Annual Reports to
Shareholders.
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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 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 MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
or instrumentalities, the interest on which is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the personal
income taxes of any state). Municipal Obligation bonds are issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, airport, mass transit or port facilities, sewage disposal,
solid waste disposal or hazardous waste treatment or disposal facilities and
certain local facilities for water supply, gas or electricity. Such obligations
are included within the term Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax. Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute Municipal Obligations, although the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of Municipal Obligation bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its good faith, credit and taxing power for the
payment of principal and interest. The payment of the principal of and interest
on such bonds may be dependent upon an appropriation by the issuer's legislative
body. The characteristics and enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Industrial development bonds which are Municipal
Obligations are in most cases revenue bonds and do not generally constitute the
pledge of the credit of the issuer of such bonds. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications, depending on numerous factors.
Municipal Obligation notes generally are used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
Obligation notes include:
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various tax revenues, such as income, sales,
use and business taxes, and are payable from these specific future
taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are
issued in expectation of receipt of other kinds or revenue, such as
federal revenues available under federal revenue sharing programs.
3. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term bond financing can be
arranged. In most cases, the long-term bonds then provide the money
for the repayment of the Notes.
4. Construction Loan Notes. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the proceeds of
which are applied to the payment of Construction Loan Notes, is
sometimes provided by a commitment by the Government National Mortgage
Association to purchase the loan, accomoanied by a commitment by the
Federal Housing Adminsitration to insure
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mortgage advances thereunder. In other instances, permanent
financing is provided by commitments of banks to purchase the
loan.
Issues of commercial paper typically represent short-term, unsecured,
negotiable promissory notes. These obligations are issued by agencies of state
and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, Municipal Obligation commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
The yields on Municipal Obligations are dependent on a variety of
factors, including general market conditions, supply and demand and general
conditions of the Municipal Obligation market, size of a particular offering,
the maturity of the obligation and rating (if any) of the issue. The ratings of
Moody's Investors Service, Inc. and Standard & Poor's Corporation 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.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease obligations do
not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation ordinarily is backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligations. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The Fund will seek to minimize these risks by
investing only in those lease obligations that (1) are rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (or one rating organization if the lease obligation was
rated only by one such organization) or (2) if unrated, purchased principally
from the issuer or domestic banks or other responsible third parties, in each
case only if the seller shall have entered into an agreement with the Fund
providing that the seller or other responsible their party will either remarket
or repurchase the municipal lease within a short period after demand by the
Fund. The staff of the Securities and Exchange Commission currently considers
certain lease obligations to be illiquid. Accordingly, not more than 10% of the
value of the Fund's net assets will be invested in lease obligations that are
illiquid and other illiquid securities. See "Investment Restrictions" below.
For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is based only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guaranty would be considered a separate security and will be
treated as an issue of such government or other entity.
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APPENDIX B
DESCRIPTION OF RATINGS
Bond Ratings
Moody's Investors Service, Inc. Bonds which are rated Aaa are judged
to be 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 by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong positions of
such issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with 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 fluctuations 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. 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.
Moody's applies numerical modifiers "1," "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's Corporation Bonds rated AAA have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from AAA issues only in small degree. Bonds rated A
have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of change in circumstances and
economic conditions than bonds in higher rated categories.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high
grade, broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to but slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond is showing of earnings
several times or many times interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit
quality with negligible risk factors; only slightly more than U.S. Treasury
debt. Bonds rated Duff-2, 3 and 4 are judged by Duff to be of high credit
quality with strong protection factors. Risk is modest but may vary slightly
from time to time because of economic conditions.
Bonds rated TBW-1 are judged by Thomson BankWatch, Inc. to be of the
highest credit quality with a very high degree of likelihood that principal and
income will be paid on a timely basis. Bonds rated TBW-2 offer a strong degree
of safety regarding repayment. The relative degree of safety, however, is not as
high as TBW-1.
Commercial Paper Ratings
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Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1-Highest Quality; Prime
2-Higher Quality; Prime 3-High Quality.
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, 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. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess safety characteristics. Capacity for timely payment on
issues with the designation A-2 is strong. However, the relative degree of
safety is not as high as for issues designated A-1. Issues carrying the
designation A-3 have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
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APPENDIX C
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO INVESTING IN
NEW YORK MUNICIPAL OBLIGATIONS
ADDITIONAL INFORMATION CONCERNING NEW YORK ISSUERS
As described in the Prospectus, except during temporary periods, the
Fund will invest substantially all of its assets in New York municipal
securities. In addition, the specific New York municipal securities in which the
Fund will invest will change from time to time. The Fund is therefore
susceptible to political, economic, regulatory or other factors affecting
issuers of New York municipal securities. The following information constitutes
only a brief summary of a number of the complex factors which may affect issuers
of New York municipal securities and does not purport to be a complete or
exhaustive description of all adverse conditions to which issuers of New York
municipal securities may be subject. Such information is derived from official
statements utilized in connection with the issuance of New York municipal
securities, as well as from other publicly available documents. Such information
has not been independently verified by the Fund, and the Fund assumes no
responsibility for the completeness or accuracy of such information.
Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of such
issuers, could have a material adverse impact on the financial condition of such
issuers. The Fund cannot predict whether or to what extent such factors or other
factors may affect the issuers of New York municipal securities, the market
value or marketability of such securities or the ability of the respective
issuers of such securities acquired by the Fund to pay interest on or principal
of such securities. The creditworthiness of obligations issued by local New York
issuers may be unrelated to the creditworthiness of obligations issued by the
State of New York, and there is no responsibility on the part of the State of
New York to make payments on such local obligations. There may be specific
factors that are applicable in connection with investment in the obligations of
particular issuers located within New York, and it is possible the Fund will
invest in obligations of particular issuers as to which such specific factors
are applicable. However, the information set forth below is intended only as a
general summary and not as a discussion of any specific factors that may affect
any particular issuer of New York municipal securities.
The portfolio of the Fund may include municipal securities issued by
New York State (the "State"), by its various public bodies (the "Agencies")
and/or by other entities located within the State, including the City of New
York (the "City") and political subdivisions thereof and/or their agencies.
New York State
The financial condition of the State and certain of its Agencies and
municipalities, particularly the City, could affect the market values and
marketability of New York Municipal Obligations which may be held by the Fund.
The following information constitutes only a brief summary, does not purport to
be a complete description, and is based on information drawn from official
statements relating to securities offerings of the State, the City and the
Municipal Assistance Corporation for the City of New York ("MAC") available as
of the date of this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects.
A national recession commenced in mid-1990. The downturn continued
through the remainder of the 1990-91 fiscal year, and was followed by a period
of weak economic growth during the remainder of the 1991 calendar year. For the
calendar year 1992, the national economy continued to recover, although at a
rate below all post-war recoveries. The recession was more severe in the State
than in other parts of the nation, owing to a significant retrenchment in the
financial services industry, cutbacks in defense spending, and an overbuilt real
estate market. The State economy remained in recession until 1993, when
employment growth resumed. Since early 1993, the State has gained approximately
100,000 jobs. The State's economic forecast calls for employment to increase in
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1994 and 1995. Employment growth will moderate in 1995 when the pace of
national economic growth is projected to clacken and entire industries adjust to
changing markets and State's economy absorbs the full impact of these
developments. Personal income is estimated to increase by 5.3% in 1994, and a
more moderate rate in 1995.
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, 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 1994-95 fiscal year was formulated on June 16, 1994 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 based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the time and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-thanpredicted results
in the 1994-95 fiscal year, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
The State issued its first update to the GAAP-basis Financial Plan for
the State's 1994-95 fiscal year on September 1, 1994. In the September
GAAP-basis update, the Division of the Budget projected a General Fund Operating
deficit of $690 million. The prior projection of the 1994-95 GAAP-basis State
Financial Plan, issued in February 1994 as part of the 1994-95 Executive Budget
(the "February 1994 Projection"), projected an operating surplus in the General
Fund of $7 million.
In the February 1994 projection, General Fund operating results over the
1993-94 and 1994-95 fiscal year projection period were anticipated to reduce the
accumulated deficit by $256 million. The impact of the reported results for the
State's 1993-94 fiscal year and the revised projection on the accumulated
deficit is substantially the same. Combining the $914 million operating surplus
for the State's 1993-94 fiscal year with the projected $690 million operating
deficit for the 1994-95 fiscal year results in an anticipated $224 million
reduction in the accumulated deficit.
Total revenues in the General Fund are projected at $32.825 billion,
consisting of $30.783 billion in tax revenues and $2.042 billion in
miscellaneous revenue. Personal income tax revenue is projected to reach $17.712
billion, or nearly 58% of total tax revenue. User taxes and fees are projected
to total $6.561 billion, or nearly 21% of total taxes. Business taxes are
projected at $5.442 billion, or 18%, while revenue from other taxes is projected
at $1.068 billion or 3% of total tax revenue. Total expenditures in the General
Fund are projected at $33.633 billion, including $23.778 billion for grants to
local governments, $8.033 billion for State operations, $1.807 billion for
general State charges, and $15 million for debt service. Compared to the
projections made in February, expenditures for grants to local governments are
substantially increased, while expenditures for State operations are reduced.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and January
13, 1992, S&P changed its ratings on all of the State's outstanding general
obligation bonds from AA- to A and from A to A-, respectively. Ratings reflect
only the respective views of such organizations, and their concerns about the
financial condition of New York State and City, the debt load of the State and
City and any economic uncertainties about the region. There is no assurance that
a particular rating will continue for any given period of time or that any such
rating will not be revised downward or withdrawn entirely if, in the judgment of
the agency originally establishing the rating, circumstances so warrant.
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(1) The State, Agencies and Other Municipalities. During the mid-1970s, some
of the Agencies and municipalities (in particular, the City) faced extraordinary
financial difficulties, which affected the State's own financial condition.
These events, including a default on short-term notes issued by the New York
State Urban Development Corporation ("UDC") in February 1975, which default was
cured shortly thereafter, and a continuation of the financial difficulties of
the City, created substantial investor resistance to securities issued by the
State and by some of its municipalities and Agencies. For a time, in late 1975
and early 1976, these difficulties resulted in a virtual closing of public
credit markets for State and many State related securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included the
adoption of a balanced budget on a cash basis (a deficit of $92 million that
actually resulted was financed by issuing notes that were paid during the first
quarter of the State's 1978 fiscal year). In addition, legislation was enacted
limiting the occurrence of additional so-called "moral obligation" and certain
other Agency debt, which legislation does not, however, apply to MAC debt.
State Financial Results
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 tax
and revenue anticipation notes ("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 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
On July 29, 1994, the Office of the State Comptroller issued the General
Purpose Financial Statements of the State of New York for the 1993-94 fiscal
year. The Statements were prepared on GAAP-basis and were independently audited
in accordance with generally accepted auditing standards. The State's Combined
Balance Sheet as of March 31, 1994 showed an accumulated surplus in its combined
governmental funds of $370 million, reflecting liabilities of $13.219 billion
and assets of $13.589 billion. This accumulated Governmental Funds surplus
includes a $1.637 billion accumulated deficit in the General Fund, as well as
accumulated surpluses in the Special Revenue and Debt Service fund types and a
$622 million accumulated deficit in the Capital Projects fund type.
The State completed its 1993-94 fiscal year with a combined Governmental
Funds operating surplus of $1.051 billion, which included an operating surplus
in the General Fund of $914 million, in the Special Revenue Funds of $149
million and in the Debt Service Funds of $23 million, and an operating deficit
in the Capital Projects Funds of $35 million. The following table updates Table
6 of the Annual Information Statement.
The State reported a General Fund operating surplus of $914 million for
the 1993-94 fiscal year, as compared to an operating surplus of $2.065 billion
for the prior fiscal year. The 1993-94 fiscal year surplus reflects several
major factors, including the cash basis surplus recorded in 1993-94, the use of
$671 million of the 1992-93 surplus to fund operating expenses in 1993-94, net
proceeds of $575 million in bonds issued by the Local Government Assistance
Corporation, and the accumulation of $265 million balance in the Contingency
Reserve Fund. Revenues increased $543 million (1.7%) over prior fiscal year
revenues with the largest increase occurring in personal income taxes.
Expenditures increased $1.659 billion (5.6%) over the prior fiscal year, with
the largest increase occurring in State aid for social services programs.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion
in the tax refund reserve account, $265 million in its Contingency Reserve Fund
and $134 million in its tax stabilization reserve fund. These fund balances were
primarily the result of an improving national economy, State employment growth,
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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 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 will be 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 New York Local
Government Assistance Corporation ("LGAC") program. The balance in the
contingency reserve fund 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 1993-94 exceeded those originally projected when the
State Financial Plan for the 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. 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 New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 year, and although this lagged the national economic
recovery, the growth in New York began earlier than forecasted. The New York
economy exhibited signs of strength in the service sector, in construction, and
in trade. Long Island, and the Mid-Hudson Valley continued to lag the rest of
the State in economic growth. Approximately 100,000 jobs are believed to have
been added during the 1993-94 fiscal year.
Disbursements and transfer from the General Fund were $303 million below
the level 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, disbursements were lower for Medicaid, capital
projects, and debt service (due to refundings). In addition, $114 million of
school and payments were funded from the proceeds of LGAC bonds. Disbursements
were higher-than-expected for general support for public schools. 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 a
Contingency Reserve Fund ("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 on 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.
For its 1992-93 fiscal year the State had a balanced budget on a cash
basis with a positive margin of $671 million in the General Fund that was
deposited in the refund reserve account.
After reflecting a 1992-93 year-end deposit to the refund reserve
account of $671 million, reported 1992-93 General Fund receipts were $45 million
higher than originally projected in April 1992. If not for that year-end
transaction, which had the effect of reducing 1992-93 receipts by $671 million
and making those receipts available in 1993-94, General Fund receipts would have
been $716 million higher than originally projected.
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The favorable performance was primarily attributable to personal income
tax collections that were more than $700 million higher than originally
projected (before reflecting the refund reserve transaction). The withholding
and estimated payment components of the personal income tax exceeded original
estimates by more than $800 million combined, reflecting both stronger economic
activity, particularly at year's end, and the tax-induced one-time acceleration
of income into 1992. Modest shortfalls were experienced in other components of
the income tax.
There were large, but largely offsetting, variances in other
categories. Significantly higher-than-projected business tax collections and the
receipt of unbudgeted payments from the Medical Malpractice Insurance
Association 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 revenue sources.
Disbursements and transfers to other funds totaled $30.829 billion, an
increase of $45 million above projections in April 1992. After adjusting for the
impact of a $150 million payment from the Medical Malpractice Insurance
Association to health insurers made pursuant to legislation passed in January
1993, actual disbursements were $105 million lower than projected. This
reduction primarily reflected higher-than-anticipated costs for educational
programs, as offset by lower costs in virtually all other categories of
spending, including Medicaid, local health programs, agency operations, fringe
benefits, capital projects and debt service.
During its 1989-90, 1990-91 and 1991-92 fiscal years, the State incurred
cash-basis operating deficits in the General Fund of $775 million, $1.081
billion and $575 million, respectively, prior to the issuance of short-term tax
and revenue anticipation notes ("TRANs"), owing to lower-than-projected
receipts.
Governmental Funds
The principal operating fund of the State is the General Fund. It
receives all State income that is not required by law to be deposited in another
fund. General Fund receipts, including transfers from other funds, totalled
$32.229 billion in the State's 1993-94 fiscal year. General Fund receipts in the
State's 1994-95 fiscal year are estimated in the State Financial Plan at $34.321
billion. Including transfers to other funds, total General Fund disbursements in
the 1993-94 fiscal year were $31.897 billion, and are estimated to total $34.248
billion in the State's 1994-95 fiscal year.
The Special Revenue Funds account for State receipts from specific
sources that are legally restricted in use to specified purposes and include all
moneys received from the Federal government. Total receipts in Special Revenue
Funds are projected at $24.598 billion in the State's 1994-95 fiscal year.
Federal grants are projected to account for 75% of the total projected receipts
in Special Revenue Funds in the State's 1994-95 fiscal year.
Disbursements from Special Revenue Funds are projected to be $24.982
billion for the State's 1994-95 fiscal year. Grants to local governments
disbursed from this fund type are projected to account for 75% of disbursements
from this fund for the 1994-95 fiscal year.
The Capital Projects Funds are used to finance the acquisition and
construction of major capital facilities and to aid local government units and
Agencies in financing capital constructions. Federal grants for capital
projects, largely highway-related, are projected to account for 33% of the
$3.233 billion in total projected receipts in Capital Projects Funds in the
State's 1994-95 fiscal year. Total disbursements for capital projects are
projected to be $3.730 billion during the State's 1994-95 fiscal year. Of total
disbursements from Capital Projects Funds, approximately 54% is for various
transportation purposes, including highways and mass transportation facilities;
4% is for programs of the Department of Correctional Services and other public
protection activities; 16% is for health and mental hygiene facilities; 13% is
for environmental and recreational programs; 5% is for educational programs; and
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5% is for housing and economic development programs. The balance is for the
maintenance of State office facilities and various other capital programs.
The Debt Service Funds serve to fulfill State debt service on long-term
general obligation State debt and other State lease/purchase and contractual
obligation financing commitments. Total receipts in Debt Service Funds are
projected to reach $2.318 billion in the State's 1994-95 fiscal year. Total
disbursements from Debt Service Funds for debt service, lease/purchase and
contractual obligation financing commitments are projected to be $2.246 billion
for the 1994- 95 fiscal year.
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State Borrowing Plan
The State issued $850 million in TRANs on May 4, 1993 to fund its
day-to-day operations and certain local assistance payments to its
municipalities and school districts. All of these TRANs matured on December 31,
1993.
The State anticipates that its 1994-95 borrowings for capital purposes
will consist of approximately $374 million in general obligation bonds
(including $140 million for the purpose of redeeming outstanding bond
anticipation notes) and $140 million in new commercial paper issuances. The
Legislature has authorized the issuance of up to $69 million in certificates of
participation for real property and equipment acquisitions during the State's
1994-95 fiscal year. The projections of the State regarding its borrowings for
the 1994-95 fiscal year may change if actual receipts fall short of State
projections or if other circumstances require.
In addition, the LGAC is authorized to provide net proceeds of $315
million during the 1994-95 fiscal year to make payments to local governmental
units, otherwise made by the State, reduces the State's future liabilities.
State Agencies
The fiscal stability of the State is related, at least in part, to the
fiscal stability of its localities and various of its Agencies. Various Agencies
have issued bonds secured, in part, by non-binding statutory provisions for
State appropriations to maintain various debt service reserve funds established
for such bonds (commonly referred to as "moral obligation" provisions).
At September 30, 1993, there were 18 Agencies that had outstanding debt
of $100 million or more. The aggregate outstanding debt, including refunding
bonds, of these 18 Agencies was $63.5 billion as of September 30, 1993. As of
March 31, 1994, aggregate Agency debt outstanding as State-supported debt was
$21.1 billion and as State-related was $29.4 billion. Debt service on the
outstanding Agency obligations normally is paid out of revenues generated by the
Agencies' projects or programs, but in recent years the State has provided
special financial assistance, in some cases on a recurring basis, to certain
Agencies for operating and other expenses and for debt service pursuant to moral
obligation indebtedness provisions or otherwise. Additional assistance is
expected to continue to be required in future years.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to meet
their obligations could result in a default by one or more of such Agencies. If
a default were to occur, it would likely have a significant effect on the
marketability of obligations of the State and the Agencies. These Agencies are
discussed below.
The New York State Housing Finance Agency ("HFA") provides financing for
multifamily housing, State University construction, hospital and nursing home
development, and other programs. In general, HFA depends upon mortgagors in the
housing programs it finances to generate sufficient funds from rental income,
subsidies and other payments to meet their respective mortgage repayment
obligations to HFA, which provide the principal source of funds for the payment
of debt service on HFA bonds, as well as to meet operating and maintenance costs
of the projects financed. From January 1, 1976 through March 31, 1987, the State
was called upon to appropriate a total of $162.8 million to make up deficiencies
in the debt service reserve funds of HFA pursuant to moral obligation
provisions. The State has not been called upon to make such payments since the
1986-87 fiscal year and no payments are anticipated during the 1993-94 fiscal
year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975, because
a substantial number of these housing program mortgagors are unable to make full
payments on their mortgage loans. Through a subsidiary, UDC is currently
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attempting to increase its rate of collection by accelerating its program
of foreclosures and by entering into settlement agreements. UDC has been, and
will remain, dependent upon the State for appropriations to meet its operating
expenses. The State also has appropriated money to assist in the curing of a
default by UDC on notes which did not contain the State's moral obligation
provision.
The Metropolitan Transportation Authority (the "MTA") oversees New York
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"). Through MTA's subsidiaries, the Long Island Rail Road
Company, the Metro-North Commuter Railroad Company and the Metropolitan Suburban
Bus Authority, the MTA operates certain commuter rail and bus lines in the New
York metropolitan area. In addition, the Staten Island Rapid Transit 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 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.
The TA and the commuter railroads, which are on a calendar fiscal year,
ended 1993 with their budgets balanced on a cash basis. The TA had a closing
cash balance of approximately $39 million.
Over the past several years 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 region (the
"Metropolitan Transportation Region") served by the MTA and a special .25%
regional sales and use tax -- that provide additional revenue for mass transit
purposes, including assistance to the MTA. The surcharge, which expires in
November 1995, yielded $533 million in calendar year 1993, of which the MTA was
entitled to receive approximately 90%, or approximately $480 million.
For 1994, the TA projects that it will end the year with $77.6 million
cash surplus. For the 1994-95 State fiscal year, total State assistance to the
MTA is estimated at $1.3 billion.
A subway fire on December 28, 1990 and a subway derailment on August 28,
1991, each of which caused fatalities and many injuries, have given rise to
substantial claims for damages against the TA and the City.
In 1981, the State Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan for the capital program designed to
upgrade the performance of the MTA's transportation systems and to supplement,
replace and rehabilitate facilities and equipment, and also granted certain
additional bonding authorization therefor.
On April 5, 1993, the Legislature approved, and the Governor
subsequently signed into law, legislation authorizing a five-year $9.56 billion
capital plan for the MTA for 1992-1996. The MTA has submitted a 1992-1996
Capital Program based on this legislation for the approval of the MTA Capital
Program Review Board (the "CPRB"), as State law requires. On July 1, 1993, the
CPRB indicated that it was withholding approval pending the resolution of
certain related issues. If approved, the 1992-1996 Capital Program would succeed
two previous five-year capital programs of the periods covering 1982-1986 and
1987-1991. The 1987-1991 Capital Program totalled approximately $8.0 billion,
including $6.2 billion for TA capital projects.
The 1992-1996 Capital Program would supersede a one-year program adopted
in 1992. State budget legislation for the 1992-93 fiscal year had required the
MTA to submit a one-year program for 1992 instead of a five-year program. The
one-year program, which contained $1.635 billion of projects for transit and
commuter facilities combined, was approved by the CPRB in May 1992, but the
five-year program for 1992-1996, required to be submitted subsequently by the
MTA as an amendment to the one-year plan, was disapproved without prejudice by
the CPRB in December 1992.
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There can be no assurance that such governmental actions will be taken,
that sources currently identified will not be decreased or eliminated, or that
the 1992-1996 Capital Program will not be delayed or reduced. If the MTA capital
program is delayed or reduced because of funding shortfalls or other factors,
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.
The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad powers and
responsibilities with respect to the government, finances and welfare of these
political subdivisions, especially in education and social services. In recent
years the State has been called upon to provide added financial assistance to
certain localities.
Other Localities
Certain localities in addition to the City could have financial problems
leading to requests for additional State assistance during the State's 1994-95
fiscal year 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 in the State's 1994-95 fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of all
localities in the State, other than the City, was approximately $15.7 billion. A
small portion (approximately $71.6 million) of this 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 budget 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. Seventeen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1992.
Certain proposed Federal expenditure reductions would reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities to
increase local revenues to sustain those expenditures. If the State, the City or
any of the Agencies 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. The
longer-range, potential problems of declining city population, increasing
expenditures and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Because of significant fiscal difficulties experienced from time to time
by the City of Yonkers, a Financial Control Board was created by the State in
1984 to oversee Yonkers' fiscal affairs. Future actions taken by the Governor or
the State Legislature to assist Yonkers in this crisis could result in the
allocation of State resources in amounts that cannot yet be determined.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term effect on State finances. Among
the more significant of these litigations are those that involve: (i) the
validity and fairness of agreements and treaties by which various Indian tribes
transferred title to the State of approximately six million acres of land in
central New York; (ii) certain aspects of the State's Medicaid rates and
regulations, including reimbursements to providers of mandatory and optional
Medicaid services; (iii) contamination in the Love Canal area of Niagara Falls;
(iv) a challenge to the State's practice of reimbursing certain Office of Mental
Health patient-care expenses with clients' Social Security benefits; (v) a
challenge to the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (vi) a challenge to the State's
possession of certain funds taken pursuant to the State's Abandoned Property
law; (vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) an action, in which the State
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is a third party defendant, for injunctive or other appropriate relief,
concerning liability for the maintenance of stone groins constructed along
certain areas of Long Island's shoreline; (ix) actions challenging the
constitutionality of legislation enacted during the 1990 legislative session
which changed the actuarial funding methods for determining contributions to
State employee retirement systems; (x) 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; (xi) an action challenging legislation enacted in 1990 which had the
effect of deferring certain employer contributions to the State Teachers'
Retirement Systems and reducing State aid to school districts by a like amount;
(xii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991 (described
below in this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway Authority
authorized by Chapter 56 of the Laws of 1993 (described below in this Part);
(xiv) challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (xv) challenges
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; (xvi)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients;
(xvii) a challenge to State implementation of a program which reduces Medicaid
benefits to certain home-relief recipients; and (xviii) challenges to the
rationality and retroactive application of State regulations recalibrating
nursing home Medicaid rates.
Adverse developments or decisions in such cases could affect the ability
of the State to maintain a balanced 1994- 95 State Financial Plan.
New York City
In the mid-1970's, the City had large accumulated past deficits and
until recently was not able to generate sufficient tax and other ongoing
revenues to cover expenses in each fiscal year. However, the City's operating
results for the fiscal year ending June 30, 1993 were balanced in accordance
with GAAP, the eleventh consecutive year in which the City achieved balanced
operating results in accordance with GAAP. The City's ability to maintain
balanced operating results in future years is subject to numerous contingencies
and future developments.
The City's economy, whose rate of growth slowed substantially over the
past three years, is currently in recession. During the 1990 and 1991 fiscal
years, as a result of the slowing economy, the City has experienced significant
shortfalls in almost all of its major tax sources and increases in social
services costs, and has been required to take actions to close substantial
budget gaps in order to maintain balanced budgets in accordance with the
Financial Plan.
In 1975, the City became unable to market its securities and entered a
period of extraordinary financial difficulties. In response to this crisis, the
State created MAC to provide financing assistance to the City and also enacted
the New York State Financial Emergency Act for the City of New York (the
"Emergency Act") which, among other things, created the Financial Control Board
(the "Control Board") to oversee the City's financial affairs and facilitate its
return to the public credit markets. The State also established the Office of
the State Deputy Comptroller ("OSDC") to assist the Control Board in exercising
its powers and responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the Emergency
Act. However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial condition. The City
prepares and operates under a four-year financial plan which is submitted
annually to the Control Board for review and which the City periodically
updates.
The City's independently audited operating results for each of its
fiscal years from 1981 through 1993 show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its net
General Fund position. In addition, the City's financial statements for the 1993
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fiscal year received an unqualified opinion from the City's independent
auditors, the eleventh consecutive year the City has received such an opinion.
In August 1993, the City adopted and submitted to the Control Board for its
review a four-year Financial Plan covering fiscal years 1994 through 1997 (the
"Financial Plan"). The Financial Plan was based on the City's fiscal year 1994
expense budget adopted June 14, 1993 as well as certain changes incorporated
subsequent to the budget adoption process. On November 23, 1993, the City
adopted and submitted to the Control Board for its review a first quarter
modification to the Financial Plan (the "November Modification") incorporating
various re-estimates of revenues and expenditures. For fiscal year 1994, the
November Modification includes additional resources stemming primarily from the
City Comptroller's fiscal year 1993 annual audit, savings from a reduction in
prior years' accrued expenditures, and higher State and Federal aid resulting
from claims by the City for reimbursement of various social services costs.
These resources were used to fund new needs in the November Modification
including higher costs in the uniformed agencies, at the Board of Education (the
"BoE") and for certain social services, the unlikelihood of the sale of the
Off-Track Betting Corporation (the "OTB"), and lower estimates of miscellaneous
and other revenues. After taking these adjustments into account, the November
Modification projects a balanced budget for fiscal year 1994, based upon
revenues of $31,585 billion. For fiscal years 1995, 1996 and 1997, the November
Modification projects budget gaps of $1.730 billion, $2.513 billion and $2.699
billion, respectively. These gaps are higher by about $450 million in fiscal
year 1995 and by about $700 million in each of fiscal years 1996 and 1997 than
in the Financial Plan, primarily on account of the nonrecurring value of the
fiscal year 1994 revenue adjustments, the loss of certain one-time resources
funding BoE fiscal year 1994 spending needs, and the reclassification of
anticipated State aid from the baseline revenue estimates to the gap-closing
program. To offset these larger gaps, the November Modification relies on
additional City, State and other actions.
On December 1, 1993, a three-member panel appointed by the Mayor to
address City structural budget imbalance released a report setting forth its
findings and recommendations. In its report, the panel noted that budget
imbalance is likely to be greater than the City now projects by $255 million in
fiscal year 1995, rising to nearly $1.5 billion in fiscal year 1997. The report
provided a number of options that the City should consider in addressing the
structural balance issue such as severe cuts in City-funded personnel levels,
increases in residential property taxes and the sales tax, and the imposition of
bridge tolls and solid waste collection fees. The report also noted that
additional State actions will be required in many instances to allow the City to
cut its budget without grave damage to basic services.
On December 21, 1993, OSDC issued a report reviewing the November
Modification. The report noted that while the outlook for fiscal year 1994 has
improved since August, it will be necessary for the City to manage its budget
aggressively in order to stay on course for budget balance this year. For fiscal
years 1995 through 1997, the report expressed concern that the gaps identified
by the City in the November Modification are the largest as a percentage of
City-fund revenues that the City has faced at this point in the fiscal year
since budget balance in accordance with GAAP was first achieved in fiscal year
1981.
On December 21, 1993, the staff of the Control Board issued its report
on the November Modification. The report states that the plan is now more
realistic in terms of the gaps it portrays and the solutions it offers. However,
the solutions are mostly limited to fiscal year 1994 while the gap for fiscal
year 1995 has been increased by $450 million. Beginning in fiscal year 1995,
budget gaps average over $1 billion annually. Therefore, the staff recommends
that prompt action to replace many current-year one-shots with recurring savings
is critical.
On February 2, 1994, the Mayor presented to the City Council and the
Control Board a mid-year modification to the Financial Plan (the "February
Modification"). The February Modification projects a balanced budget for fiscal
year 1994, based upon revenues of $31.735 billion, including a general reserve
of $81 million. For fiscal years 1995, 1996 and 1997, the February Modification
projects gaps of $2.261 billion, $3.167 billion and $3.253 billion,
respectively, and assumes no wage and salary increases beyond the expiration of
current labor
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agreements which expire in fiscal years 1995 and 1996. These gaps have
grown since November by about $530 million in fiscal year 1995, and $650 million
and $550 million in fiscal years 1996 and 1997, respectively, owing in large
part to lower estimates of real property tax revenues. To close the budget gap
projected for fiscal year 1995, the February Modification includes a gap-closing
program that consists of the following major elements: (i) an agency program of
$1.048 billion; (ii) fringe benefit and pension savings of $400 million; (iii)
an intergovernmental aid package of $400 million; (iv) a workforce reduction
program of $144 million; and (v) the assumption of a $234 million surplus roll
from fiscal year 1994. Implementation of many of the gapclosing initiatives
requires the cooperation of the municipal labor unions, the City Council and the
State and Federal governments. The February Modification also includes a tax
reduction program, with most of the financial impact affecting the later years
of the Plan period.
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financial purposes during the 1994 fiscal year. The City's capital financing
program projects long-term financing requirements of approximately $17 billion
for the City's fiscal years 1995 through 1998 for the construction and
rehabilitation of the City's infrastructure and other fixed assets. The major
capital requirement includes expenditures for the City's water supply system,
and waste disposal systems, roads, bridges, mass transit, schools and housing.
In addition, the City and the Municipal Water Finance Authority have issued
about $1.8 billion in refunding bonds in the 1994 fiscal year.
State Economic Trends
The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways. The State has long 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, resulting in the gradual erosion of its relative economic
affluence. The causes of this relative decline are varied and complex, in many
cases involving national and international developments beyond the State's
control. In recent years, the State's economic position has improved in a manner
consistent with that of the Northeast as a whole.
Part of the reason for the long-term relative decline in the State's
economy has been attributed to the combined State and local tax burden, which is
among the highest in the United States. The burdens of State and local taxation,
in combination with many other causes of regional economic dislocation, may have
contributed to the decision of businesses and individuals to relocate outside,
or not locate within, the State. In 1987, the State enacted a major personal
income tax reduction and reform program and also reduced the tax rate on
corporation income. In addition, the State has provided various tax incentives
to encourage business relocation and expansion. The State, however, in its
1989-90, 1990-91 and 1991-92 fiscal years substantially increased taxes and fees
to help close projected budget gaps in those years, and in 1990- 91, 1991-92 and
1992-93 delayed and restructured the remainder of the personal income tax
reduction program originally enacted in 1987. Under legislation proposed with
the 1993-94 budget, the rules for calculating tax liability for the 1993 tax
year will be the same as those for the 1992 tax year (deferring for a fourth
year a previously scheduled tax reduction), and the tax reduction program will
be frozen at current rates. Also, in July 1991 State legislation was enacted to
phase out the benefit of graduated income tax tables for taxpayers with adjusted
gross income above $100,000.
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APPENDIX D
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO INVESTING
IN CALIFORNIA MUNICIPAL OBLIGATIONS
Overview
From mid-1990 to late 1993, the State of California (the "State")
suffered a recession with the worst economic, fiscal and budget conditions since
the 1930s. Construction, manufacturing (especially aerospace), and financial
services, among others, were all severely affected. Job losses were the worst of
any post-war recession. Employment levels stabilized by late 1993 and steady
growth occurred in 1994 and is expected to continue in 1995, but pre-recession
job levels are not expected to be reached until late 1996. Economic indicators
show a steady recovery underway in the State since the start of 1994.
The recession seriously affected State tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund 3/4 K-12 schools
and community colleges, health and welfare, and corrections 3/4 growing at rates
higher than the growth rates for the principal revenue sources of the State
General Fund. As a result, the State experienced recurring budget deficits in
the late 1980s and early 1990s. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92;
revenues and expenditures were equal in 1992-93, and the State had an operating
surplus of $1.1 billion in 1993-94. However, at June 30, 1994, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties still
had an accumulated deficit, on a budget basis, of approximately $1.5 billion.
The accumulated budget deficits over the past several years, together
with expenditures for school funding which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses. In
order to meet its cash needs, the State has had to rely for several years on a
series of external borrowings, including borrowings past the end of a fiscal
year. Such borrowings are expected to continue in future fiscal years. To meet
its cash flow needs in the 1994-95 Fiscal Year, the State has issued, in July
and August, 1994, $4.0 billion of revenue anticipation warrants which mature on
April 25, 1996, and $3.0 billion of revenue anticipation notes maturing on June
28, 1995.
On July 15, 1994, all three of the rating agencies rating the State's
long-term debt lowered their ratings of the State's general obligation bonds.
Moody's Investors Service lowered its rating from "Aa" to "A1," Standard &
Poor's Ratings Group lowered its rating from "A+" to "A" and termed its outlook
as "stable," and Fitch Investors Service lowered its rating from "AA" to "A."
The 1994-95 Fiscal Year Budget (as updated in the January 10, 1995
Governor's Budget) is projected to have $42.2 billion of General Fund revenues
and transfers and $41.7 billion of budgeted expenditures. In addition, the 1994-
95 Budget Act anticipates deferring retirement of about $1 billion of the
accumulated budget deficit to the 1995-96 Fiscal Year when it is intended to be
fully retired by June 30, 1996.
The Governor's Budget for 1995-96 proposes General Fund revenues and
transfers of $42.5 billion and expenditures of $41.7 billion, which would leave
a balance of approximately $92 million in the budget reserve, the Special Fund
for Economic Uncertainties, at June 30, 1996 after repayment of the accumulated
budget deficits. The Budget Proposal is based on a number of assumptions,
including receipt of $830 million from the federal government to offset costs of
undocumented and refugee immigrants.
Orange County Bankruptcy
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On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Funds") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Funds had
suffered significant market losses in their investments, causing a liquidity
crisis for the Funds and the County. More than 180 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Funds. As of mid-January, 1995, following a restructuring of most of the Funds'
assets to increase their liquidity and reduce their exposure to interest rate
increases, the County estimated the Funds' loss at about $1.69 billion, or 22%
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the Funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also affect their ability to meet their
outstanding obligations.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, but the state cannot presently predict
what, if any, action may occur. At this time, it appears that school districts
may have collectively lost up to $230 million from the amounts they had on
deposit in the Funds. Under existing legal precedent, the State is obligated to
intervene when a school district's fiscal problems would otherwise deny its
students basic educational quality. The State is not presently able to predict
whether any school districts will face insolvency because of their participation
in the Funds, and if so, the potential amount or form of aid which the State may
have to provide. The Governor has called a special session of the Legislature
which is expected to consider various responses to the Orange County situation.
Budget Adjustment Law
The State's cash flow management plan for the 1994-95 Fiscal Year
included the issuance of $4.0 billion of revenue anticipation warrants on July
26, 1994, to mature on April 25, 1996, as part of a two-year plan to retire the
accumulated State budget deficit.
Because preparation of cash flow estimates for the 1995-96 Fiscal Year
is necessarily more imprecise than for the current fiscal year and entails
greater risks of variance from assumptions, and because the Governor's two-year
budget plan assumes receipt of a large amount of federal aid in the 1995-96
Fiscal Year for immigration-related costs which is uncertain, the Legislature
enacted a backup budget adjustment mechanism to mitigate possible deviations
from projected revenues, expenditures or internal borrowable resources which
might reduce available cash resources during the two-year plan, so as to assure
repayment of the warrants.
Pursuant to Section 12467 of the California Government Code, enacted by
Chapter 135, Statutes of 1994 (the "Budget Adjustment Law"), the State
Controller was required on November 15, 1994, in connection with the Legislative
Analyst's Office, to review the cash flow projections for the General Fund on
June 30, 1995 and compare them to the projections for the 1994-95 Fiscal Year
included in the Official Statement dated July 20, 1994 for the 1994 Revenue
Anticipation Warrants, Series C and D. If the State Controller's report
identified a decrease in the unused borrowable resources on June 30, 1995 of
more than $430,000,000, then the "1995 cash shortfall" would be the amount of
the difference that exceeded $430,000,000. On or before February 15, 1995,
legislation would have to be enacted providing for sufficient General Fund
expenditure reductions, revenue increases, or both, to offset said 1995 cash
shortfall. If such legislation was not enacted, within five days thereafter the
Director of Finance would have to reduce all General Fund appropriations for the
1994-95 Fiscal Year, except certain appropriations required by the State
Constitution and federal law (the "Required Appropriations"), by the percentage
equal to the ratio of said 1995 cash shortfall to total remaining General Fund
appropriations for the 1994-95 Fiscal Year, excluding the Required
Appropriations. On November 15, 1994, the State Controller issued a report which
stated that there would not be any implementation of the Budget Adjustment Law
in the 1994-95 Fiscal Year.
Furthermore, the Director of Finance is required to include updated
cash-flow statements for the 1994-95 and 1995-96 Fiscal Years in the May
revision to the 1995-96 Fiscal Year budget proposal. By June 1, 1995, the State
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Controller must concur with these updated statements or provide a revised
estimate of the cash condition of the General Fund for the 1994-95 and the
1995-96 Fiscal Years. For the 1995-96 Fiscal Year, the intent of Chapter 135 is
to prohibit any external borrowing as of June 30, 1996, thereby requiring the
State to rely solely on internal borrowable resources, expenditure reductions or
revenue increases to eliminate any projected cash flow shortfall.
On October 15, 1995, the State Controller will, in conjunction with the
Legislative Analyst's Office, review the estimated cash condition of the General
Fund for the 1995-96 Fiscal Year. The "1996 cash shortfall" shall be the amount
necessary to bring the balance of unused borrowable resources on June 30, 1996
to zero. On or before December 1, 1995, legislation must be enacted providing
for sufficient General Fund expenditure reductions, revenue increases, or both,
to offset any such 1996 cash shortfall identified by the State Controller. If
such legislation is not enacted, within five days thereafter the Director of
Finance must reduce all General Fund appropriations for the 1995-96 Fiscal Year
except the Required Appropriations, by the percentage equal to the ratio of said
1996 cash shortfall to total remaining General Fund appropriations for the
1995-96 Fiscal Year, excluding the Required Appropriations.
The General Fund
The moneys of the State are segregated into the General Fund and
approximately 600 Special Funds. The General Fund consists of revenues received
by the State Treasury and not required by law to be credited to any other fund,
as well as earnings from the investment of State moneys not allocable to another
fund. The General Fund is the principal operating fund for the majority of
governmental activities and is the depository of most of the major revenue
sources of the State. The General Fund may be expended as a consequence of
appropriation measures enacted by the Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The Special Fund for Economic Uncertainties
The Special Fund for Economic Uncertainties ("SFEU") is funded with
General Fund revenues and was established to protect the State from unforeseen
reduced levels of revenues and/or unanticipated expenditure increases. Amounts
in the SFEU may be transferred by the State Controller as necessary to meet cash
needs of the General Fund. The State Controller is required to return moneys so
transferred without payment of interest as soon as there are sufficient moneys
in the General Fund.
The legislation creating the SFEU contains a continuing appropriation
from the General Fund authorizing the State Controller to transfer to the SFEU,
as of the end of each fiscal year, the lesser of (i) the unencumbered balance in
the General Fund and (ii) the difference between the State's "appropriations
subject to limitation" for the fiscal year then ended and its "appropriations
limit" as defined in Section 8 of Article XIII B of the State Constitution and
established in the Budget Act for that fiscal year, as jointly estimated by the
State's Legislative Analyst's Office and the Department of Finance.
Inter-Fund Borrowings
General Fund
Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1994, the General Fund had outstanding loans in the aggregate principal amount
of $5.2 billion, which consisted of $4.0 billion of internal loans to the
General Fund from the SFEU and other Special Funds and $1.2 billion of external
loans represented by the 1994 Revenue Anticipation Warrants, Series A which
matured on December 21, 1994.
Other Special Funds
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In the event the General Fund is or will be exhausted, the State Controller
is required to notify the Governor and the Pooled Money Investment Board (the
"PMB," consisting of the State Director of Finance, the State Treasurer and the
State Controller). The Governor may then order the State Controller to direct
the transfer of all or any part of the moneys not needed in Special Funds to the
General Fund from such Special Funds, as determined by the PMIB. All money so
transferred must be returned to the Special Fund from which it was transferred
as soon as there is sufficient money in the General Fund to do so. Transfers
cannot be made from a Special Fund which will interfere with the object for
which such Special Fund was created. Furthermore, transfers may not be made from
the Central Valley Water Project Construction Fund, the Central Valley Water
Project Revenue Fund, the California Water Resources Development Bond Fund and
certain other bond funds, retirement funds and trust and agency funds. When
moneys transferred to the General Fund in any fiscal year from any Special Fund
pursuant to the inter-fund borrowing mechanism exceed ten percent of the total
additions to surplus available for appropriation as shown in the statement of
operations of the preceding fiscal year as set forth in the annual report of the
State Controller, interest must be paid on such excess at a rate determined by
the PMIB to be the current earning rate of the Pooled Money Investment Account.
Any reduction in internal borrowable resources may increase the State's
reliance on external borrowing to meet its cash flow requirements.
State Appropriations Limit
The State is subject to an annual appropriations limit imposed by
Article XIII B of the State Constitution (the "Appropriations Limit"). Article
XIII B prohibits the State from spending "appropriations subject to limitation"
in excess of the Appropriations Limit. Article XIII B, originally adopted in
1979, was modified substantially by Propositions 98 and 111 in 1988 and 1990,
respectively. See "Proposition 98" below. "Appropriations subject to
limitation," with respect to the State, 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 reasonably borne by that entity in providing the
regulation, product or service," but "proceeds of taxes" exclude most state
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. 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.
Not included in the Appropriations Limit are appropriations for the debt
service costs of Bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay project and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured or proposed to create new tax revenues dedicated to certain
specific uses, with such new taxes expressly exempted from the Article XIII B
limits (e.g., increased cigarette and tobacco taxes enacted by Proposition 99 in
1988). The Appropriations Limit may also be exceeded in cases of emergency.
However, unless the emergency arises from civil disturbance or natural disaster
declared by the Governor, and the appropriations are approved by two-thirds of
the Legislature, the Appropriations Limit for the next three years must be
reduced by the amount of the excess.
The State's Appropriations Limit in each year is based on the limit for
the prior year, adjusted annually for changes in State per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government. The measurement of change in population is a blended average
of statewide overall population growth, and change in attendance at local school
and community college ("K-14") districts. As amended by Proposition 111, the
Appropriations Limit is tested over consecutive two-year periods. Any excess of
the aggregate "proceeds of taxes" received over such two-year period above the
combined Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
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As originally enacted in 1979, the State's Appropriations Limit was based
on 1978-79 Fiscal Year authorizations to expend proceeds of taxes and was
adjusted annually to reflect changes in cost-of-living and population (using
different definitions, which were modified by Proposition 111). Starting in the
1991-92 Fiscal Year, the State's Appropriations Limit was recalculated by taking
the actual 1986-87 Fiscal Year limit, and applying the annual adjustments as if
Proposition 111 had been in effect. This recalculation resulted in an increase
of $1 billion to the State's Appropriations Limit in the 1990-91 Fiscal Year.
The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. California Government Code Section 7912
requires an estimate of the Appropriations Limit to be included in the
Governor's Budget, and thereafter to be subject to the budget process and
established in the Budget Act.
The following table shows the State's Appropriations Limit for the past four
fiscal years and the current fiscal year.
State Appropriations Limit
(Millions)
Fiscal Years
1990-91 1991-92 1992-93 1993-94 1994-95*
State Appropriations Limit ..... $32,703 $34,233 $35,010 $36,599 $37,554
Appropriations Subject to Limit. (25,191) (30,426) (27,474) (30,050) (31,501)
-------- -------- -------- -------- --------
Amount (over)/Under Limit...... $7,512 $3,807 $7,536 $6,549 $6,053
- -------------
* Estimated
SOURCE: State of California, Department of Finance.
Proposition 98
General
On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State Appropriations Limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues.
1995-96 Fiscal Year
The 1995-96 Governor's Budget adjusts the 1993-94 minimum guarantee to
reflect changes in enrollment and inflation, and 1993-94 Proposition 98
appropriations are increased to $14.1 billion, primarily to reflect changes in
the statutory continuous appropriation for apportionments. The revised
appropriations now exceed the minimum guarantee by $32 million. This
appropriation level still provides per-pupil funding of $4,225.
The 1994-95 Proposition 98 minimum guarantee has also been adjusted for
changes in factors described above, and is now calculated to be $14.9 billion.
Within the minimum guarantee, the dollars per pupil have been maintained at the
prior year's level; consequently, the 1994-95 minimum guarantee now includes a
loan repayment of $135 million, and the per-pupil funding increases to $4,231.
The 1995-96 Governor's Budget proposes to appropriate $15.9 billion of
Proposition 98 funds to K-14 to meet the guarantee level. Included within the
guarantee is a loan repayment of $379 million for the combined outstanding loans
of $1.76 billion. Funding per pupil is estimated to increase by $61 over 1994-95
to $4,292.
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Sources of Tax Revenues
The following is a summary of the State's major revenue sources.
Personal Income Tax
The California personal income tax, which in 1993-94 contributed about
44 percent of General Fund revenues, is closely modeled after the federal income
tax law. It is imposed on net taxable income (gross income less exclusions and
deductions). The tax is progressive with rates ranging from 1 to 11 percent.
Personal, dependent, and other credits are allowed against the gross tax
liability. In addition, taxpayers may be subject to an alternative minimum tax
("AMT") which is much like the federal AMT. Legislation enacted in July 1991
added two new marginal tax rates, at 10 percent and 11 percent, effective for
tax years 1991 through 1995. After 1995, the maximum personal income tax rate is
scheduled to return to 9.3 percent, and the AMT rate is scheduled to drop from
8.5 percent to 7 percent.
The personal income tax is adjusted annually by the change in the
consumer price index to prevent taxpayers from being pushed into higher tax
brackets without a real increase in income.
The 1995-96 Governor's Budget proposes to extend the 10 and 11 percent
tax rates and 8.5 percent AMT rate and to reduce the tax rates for all taxpayers
by 15 percent, to be phased in over a three-year period beginning in 1996. The
rates would be reduced by 5 percent in 1996, 10 percent in 1997, and 15 percent
in subsequent years from the 1995 rates. When fully implemented, the highest
marginal tax rate would be 9.3 percent and the AMT rate would be 7 percent.
Sales Tax
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Sales tax accounted for about 35
percent of General Fund revenue in 1993-94. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas,
electricity and water. Other exemptions provide relief for a variety of sales
ranging from custom computer software to aircraft.
The breakdown of the 7.25 percent rate currently imposed on a statewide basis
is:
Y 5.00 percent represents the regular State tax rate.
Y 2.00 percent is for cities and counties.
Y 0.25 percent is for county transit systems.
Legislation in July 1991 raised the sales tax by 1.25 percent to its
current level. One-half percent was a permanent addition to counties, but with
the money earmarked to trust funds to pay for health and welfare programs whose
administration was transferred to counties. This tax increase will be cancelled
if a court rules that such transfer and tax increase violate any constitutional
requirements. One-half percent of the State tax rate was scheduled to terminate
after June 30, 1993; however, it was extended until December 31, 1993 and
allocated to local agencies for public safety programs. As a result, the 0.5
percent sales tax has not been General Fund revenue since July 1, 1993. Voters
in a special election on November 2, 1993 approved a constitutional amendment to
permanently extend this 0.5 percent sales tax for local law enforcement.
After 1993, 0.25 percent of the State tax rate may be terminated upon
certification by the Director of Finance that the balance in the budget reserve
for two consecutive years will exceed 4 percent of General Fund revenues. The
0.25 percent rate can be reinstated if the Director of Finance subsequently
determines that the reserve will not exceed 4 percent of General Fund revenues.
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The 1995-96 Governor's Budget proposes a further restructuring of the
current statewide sales tax distribution. This proposal, while not raising the
existing 7.25 percent rate, would transfer an additional 0.22 percent from the
State to counties to assist the counties in paying for their increased share of
welfare and social services.
Bank and Corporation Tax
Bank and corporation tax revenues, which comprised about 12 percent of
General Fund revenue in 1993-94, are derived from the following taxes:
1. The franchise tax and the corporate income tax are levied at a 9.3
percent rate on profits. The former is imposed on corporations for the privilege
of doing business in California, while the latter is imposed on corporations
which do not do business in California but which derive income from California
sources.
2. Banks and other financial corporations pay an additional tax at the rate
of approximately 1.7 percent on their net income. This tax is in lieu of all
other State and local taxes except those on real property, motor vehicles and
business licenses.
The 1995-96 Governor's Budget proposes a 15 percent reduction in the
bank and corporation tax rate, to be phased in over a three-year period
beginning in 1996. The 9.3 percent rate would be reduced to 8.84 percent in
1996, 8.37 percent in 1997, and 7.91 percent in 1998.
Insurance Tax
The majority of insurance written in California is subject to a 2.35
percent gross premium tax. For insurers, this premium tax takes the place of all
other State and local taxes except those on real property and motor vehicles.
Exceptions to the 2.35 percent rate are certain pension and profit-sharing plans
which are taxed at the lesser rate of 0.50 percent, surplus lines and
nonadmitted insurance at 3 percent, and ocean marine insurers at 5 percent of
underwriting profits. Insurance taxes comprised approximately 3 percent of
General Fund revenues in 1993-94.
In November 1988, voters approved Proposition 103, which mandated
reductions and rebates for certain property and casualty insurance premiums. The
measure also directed the State Board of Equalization to adjust the gross
premiums tax rate to compensate for any resultant decrease in insurance tax
revenue through the 1990 tax year. As a result, the State Board of Equalization
increased the gross premiums tax rate from 2.35 percent to 2.37 percent for the
1989 tax year, and to 2.46 percent for the 1990 tax year. For 1991 and beyond,
the rate returned to 2.35 percent. In August 1991, the Insurance Commissioner
ordered insurers to begin rebating approximately $2.5 billion of premiums to
consumers. Some of these rebates are being challenged in the courts. However,
pursuant to Chapter 1248, Statutes of 1993, which prohibits insurers from
seeking reimbursement from the State of premium taxes paid during the rollback
period, the rebates will not impact State revenues.
Other Taxes
Other revenue sources for the General Fund include: Estate, Inheritance
and Gift Taxes, Cigarette Taxes, Alcoholic Beverage Taxes and Horse Racing
Revenues. These other sources total approximately 3 percent of General Fund
Revenues.
Special Fund Revenues
The California Constitution, codes and statutes specify the uses of
certain revenue. Such receipts are accounted for in various Special Funds. In
general, Special Fund revenues comprise three categories of income:
1. Receipts from tax levies which are allocated to specified functions, such
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as motor vehicle taxes and fees and certain taxes on tobacco products.
2. Charges for special services to specific functions, including such items
as business and professional license fees.
3. Rental royalties and other receipts designated for particular purposes
(e.g., oil and gas royalties).
Motor vehicle related taxes and fees accounted for about 57 percent of
all Special Fund revenue in 1993-94. Principal sources of this income are motor
vehicle fuel taxes, registration and weight fees and vehicle license fees. The
1994-95 Budget Act projects that during the 1994-95 Fiscal Year, $7.3 billion
will be derived from the ownership or operation of motor vehicles. About $4.0
billion of this revenue will be returned to local governments. The remainder
will be available for various State programs related to transportation and
services to vehicle owners. These estimates (as well as those shown below in the
table "COMPARATIVE YIELD OF STATE TAXES3/4ALL FUNDS") include the additional
fees and taxes derived from the passage of Proposition 111 in June 1990.
On November 8, 1988 voters approved Proposition 99, which imposed, as of
January 1, 1989, an additional 25 cents per pack excise tax on cigarettes, and a
new, equivalent excise tax on other tobacco products. The initiative requires
that funds from this tax be allocated to health related, environmental, and
educational programs. Legislation enacted in 1993 added an additional 2 cents
per pack excise tax for the purpose of funding breast cancer research.
CURRENT STATE BUDGETS
The discussion below of the 1994-95 and 1995-96 Fiscal Year budgets and
the table under "Summary of State Revenues and Expenditures" below are based on
estimates and projections of revenues and expenditures for the current fiscal
year and must not be construed as statements of fact. These estimates and
projections are based upon various assumptions which may be affected by numerous
factors, including future economic conditions in the State and the nation, and
there can be no assurance that the estimates will be achieved.
1994-95 Fiscal Year
Background
The 1994-95 Fiscal Year represented the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment to
produce a balanced budget. Many program cuts and budgetary adjustments had
already been made in the last three years. The Governor's Budget Proposal, as
updated in May and June 1994, recognized that the accumulated deficit could not
be repaid in one year, and proposed a two-year solution. The budget proposal set
forth revenue and expenditure forecasts and revenue and expenditure proposals
which result in operating surpluses for the budget for both 1994-95 and 1995-96,
and lead to the elimination of the accumulated budget deficit, estimated at
about $1.7 billion at June 30, 1994, by June 30, 1996.
1994-95 Budget Act
Revenues. The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflected the Administration's forecast of an
improving economy. Also included in this figure was the projected receipt of
about $360 million from the federal government to reimburse the State's cost of
incarcerating undocumented immigrants, most of which eventually was not received
(see "Subsequent Developments"). The Legislature failed to act on a proposal in
the January 1994-95 Governor's Budget to undertake an expansion of the transfer
of certain programs to counties, which would also have transferred to counties
0.5 percent of the State's current sales tax.
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The 1994-95 Budget Act projected Special Fund revenues of $12.1 billion,
a decrease of 2.4 percent from 1993- 94 estimated revenues.
Expenditures. The 1994-95 Budget Act projected General Fund expenditures of
$40.9 billion, an increase of $1.6 billion over the 1993-94 Fiscal Year. The
1994-95 Budget Act also projected Special Fund expenditures of $12.3 billion, a
4.7 percent decrease from the 1993-94 Fiscal Year estimated expenditures.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 Fiscal Year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combined one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the State
to defer repayment of approximately $1.0 billion of its accumulated budget
deficit into the 1995-96 Fiscal Year. The Budget Adjustment Law, described
above, enacted along with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 Fiscal Year.
Subsequent Developments
The 1995-96 Governor's Budget, issued January 10, 1995, contains a
reforecast of revenues and expenditures for the 1994-95 Fiscal Year. The
Department of Finance Bulletin for February 1995 reports that General Fund
revenues for January were $240 million above the 1995-96 Governor's Budget
forecast of $4,025 million. The largest component of the increase is
attributable to cash flow factors in the sales and use tax, which were $297
million above the month's forecast of $809 million. Additionally, personal
income tax receipts were $80 million below the month's forecast of $2,845
million, and bank and corporation receipts were $28 million below the month's
forecast of $211 million. Neither loss is considered significant at this time.
Finally, miscellaneous revenues were $42 million above the month's forecast of
$160 million. Most of the surplus is attributable to "other revenues," which are
a composite of many minor revenues. At this time, the gains in miscellaneous
revenues appear to be related to cash flow and are not considered permanent.
Initial analysis of the federal Fiscal Year 1995 budget by the
Department of Finance indicates that about $98 million was appropriated for
California to offset costs of incarceration of undocumented and refugee
immigrants, less than the $356 million which was assumed in the State's 1994-95
Budget Act. Because of timing considerations in applying for these federal
funds, the Department estimates that about $33 million of these funds will be
received during the State's 1994-94 Fiscal Year, with the balance received in
the following fiscal year. It does not appear that the federal budget contains
any of the additional $400 million in funding for refugee assistance and health
costs which were also assumed in the 1994-95 Budget Act, but the Department
expects the State to continue its efforts to obtain some or all of these federal
funds.
Budget Adjustment Law
Pursuant to the Budget Adjustment Law (the "Law"), the State Controller
is required to make a report by November 15, 1994 on whether the projected cash
resources for the General Fund as of June 30, 1995 will decrease more than $430
million from the amount projected by the State in its Official Statement in July
1994 for the sale of $4,000,000,000 of Revenue Anticipation Warrants. On
November 15, 1994, the State Controller issued the report on the State's cash
position required by the Budget Adjustment Law. The report indicated that the
cash position of the General Fund on June 30, 1995 would be $581 million better
than was estimated in the July 1994 cash flow projections and, therefore, no
budget adjustment procedures will be invoked for the 1994-95 Fiscal Year. As
explained earlier, the Law would only be implemented if the State Controller
estimated that borrowable resources on June 30, 1995 would be at least $430
million lower than projected.
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The State Controller's report identified a number of factors which have
led to the improved cash position of the State. Estimated revenues and transfers
for the 1994-95 Fiscal Year other than federal reimbursement for immigration
costs were up about $650 million. The largest portion of this was in higher bank
and corporation tax receipts, but all major tax sources were above original
projections. However, most of the federal immigration aid revenues projected in
connection with the 1994-95 Budget Act and in the July 1994 cash flows will not
be received, as indicated above, leaving a net increase in revenues of $322
million.
On the expenditure side, the State Controller reported that estimated
reduced caseload growth in health and welfare programs, reduced school
enrollment growth, and an accounting adjustment reducing a transfer from the
General Fund to the Special Fund for Economic Uncertainties resulted in overall
General Fund expenditure reductions (again before adjusting for federal aid) of
$672 million. However, the July 1994 cash flows projected that General Fund
health and welfare and education expenditures would be offset by the anticipated
receipt of $407 million in federal aid for illegal immigrant costs. The State
Controller now estimates that none of these funds will be received, so the net
reduction in General Fund expenditures is $265 million.
Finally, the State Controller indicated that a review of balances in
special funds available for internal borrowing resulted in an estimated
reduction of such borrowable resources of $6 million. The combination of these
factors results in the estimated improvement of the General Fund's cash position
of $581 million. The State Controller's revised cash flow projections for
1994-95 have allocated this improvement to two line items: an increase from $0
to $427 million in the estimated ending cash balance of the General Fund on June
30, 1995, and an increase in unused borrowable resources of $154 million.
The State Controller's report indicated that there was no anticipated
cash impact in the 1994-95 Fiscal Year for recent initiatives on "three strikes"
criminal penalties and illegal immigration which were approved by voters on
November 8, 1994. At a hearing before a committee of the Legislature on November
15, 1994, both the Legislative Analyst and the Department of Finance concurred
in the reasonableness of the State Controller's report. (The Legislative Analyst
had issued a preliminary analysis on November 1, 1994 which reached a conclusion
very close to that of the State Controller.) The State Controller's report makes
no projections about whether the Law may have to be implemented in 1995-96.
However, both the State Controller and the Legislative Analyst in the November
15 hearing noted that the July 1994 cash flows for the 1995-96 Fiscal Year place
continued reliance on large amounts of federal assistance for immigration costs,
which did not materialize this year, indicating significant budget pressures for
next year. (See "Revenue and Expenditure Assumptions" below.) The Department of
Finance indicated that the budgetary issues identified in the hearing would be
addressed in the Governor's Budget proposal for the 1995-96 Fiscal Year.
1995-96 Fiscal Year
1995-96 Budget Proposal 3/4 As described earlier, for the first time in
four years, the State enters the upcoming fiscal year with strengthening
revenues based on an improving economy. On January 10, 1995, the Governor
presented his 1995-96 Fiscal Year Budget Proposal (the "Proposed Budget"). The
Proposed Budget estimates General Fund revenues and transfers of $42.5 billion
(an increase of 0.2 percent over 1994-95). This nominal increase from the 1994-
95 Fiscal Year reflects the Governor's realignment proposal and the first year
of his tax cut proposal (see principal features of the Proposed Budget below for
further discussions). Without these two proposals, General Fund revenues would
be projected at approximately $43.8 billion, or an increase of 3.3 percent over
1994-95. Expenditures are estimated at $41.7 billion (essentially unchanged from
1994-95). Special Fund revenues are estimated at $13.5 billion (10.7 percent
higher than 1994-95) and Special Fund expenditures are estimated at $13.8
billion (12.2 percent higher than 1994-95). The Proposed Budget projects that
the General Fund will end the fiscal year at June 30, 1996 with a budget surplus
in the Special Fund for Economic Uncertainties of about $92 million, or less
than 1 percent of General Fund expenditures, and will have repaid all of the
accumulated budget deficits.
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As noted earlier, the 1995-96 Budget will be subject to the Budget
Adjustment or "Trigger" legislation enacted in June 1994. The Proposed Budget
contains a cash flow projection (based on all the assumptions described above)
which shows about $1 billion of unused borrowable resources at June 30, 1996,
providing this amount of "cushion" before the budget "trigger" would have to be
invoked.
However, a report issued by the Legislative Analyst on January 20, 1995
notes that the Proposed Budget (and hence the margin of cushion under the
"trigger") is subject to a number of major risks, including receipt of the
expected federal immigration aid and other federal actions to allow health and
welfare cuts, and the outcome of several lawsuits concerning previous budget
actions which the State has lost at the trial court level, and which are under
appeal. This Analyst's Report also estimates that, despite more favorable
revenues, the two-year budget estimates made in July 1994 are about $2 billion
out of balance, principally because federal immigration aid appears likely to be
much lower than previously estimated. This shortfall is much smaller than the
State has faced in recent years, and has been addressed in the Governor's
Budget.
* The "prime rate is generally the rate charged by a bank to its most
creditworthy customers for short-term loans. The prime rate of a particular bank
may differ from other banks and will be the rate announced by each bank on a
particular day. Changes in the prime rate may occur with great freqency and
generally become effective on the date announced.
* The date on which the New York Tax Free Income Fund and the tax Free
Income Fund commenced business was September 8, 1987.
