Rule 497(c)
File Nos. 33-75250
and 811-8358
May 6, 1996
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
VISTA[SM] NEW YORK TAX FREE MONEY MARKET FUND
VISTA[SM] CALIFORNIA TAX FREE MONEY MARKET FUND
Vista[SM] Shares
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES
AND ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ............................................................ 3
The expenses you pay on your Fund investment, including examples
Financial Highlights ....................................................... 5
The Funds' financial history
Fund Objectives and Investment Approach
Vista 100% U.S. Treasury Securities Money Market Fund ..................... 12
Vista Treasury Plus Money Market Fund ..................................... 12
Vista Federal Money Market Fund ........................................... 12
Vista U.S. Government Money Market Fund ................................... 12
Vista Cash Management Fund ................................................ 13
Vista Tax Free Money Market Fund .......................................... 13
Vista New York Tax Free Money Market Fund ................................. 13
Vista California Tax Free Money Market Fund ............................... 14
Common Investment Policies ................................................. 14
Management ................................................................. 20
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management
and Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares ....................................... 21
How the Funds Value their Shares ........................................... 24
How Dividends and Distributions Are Made; Tax Information .................. 24
How the Funds distribute their earnings, and tax treatment related
to those earnings
Other Information Concerning the Funds ..................................... 25
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information .................................................... 28
How performance is determined, stated and/or advertised
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on
expenses incurred in the most recent fiscal year by each Fund, other than the
Vista 100% U.S. Treasury Securities Money Market Fund, and based on estimated
expenses for the current fiscal year for the Vista 100% U.S. Treasury
Securities Money Market Fund. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista Vista Vista Vista
100% U.S. Treasury Vista Vista U.S. Vista New York California
Treasury Plus Federal Government Vista Tax Free Tax Free Tax Free
Securities Money Money Money Cash Money Money Money
Money Market Market Market Management Market Market Market
Market Fund Fund Fund Fund Fund Fund Fund Fund
------------ --------- --------- ---------- ---------- --------- --------- ----------
Vista Vista Vista Vista Vista Vista Vista Vista
Shares Shares Shares Shares Shares Shares Shares Shares
------------ --------- --------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses (as a percentage
of average net assets)
- ----------------------------
Investment Advisory Fee
(after estimated waiver
of fees, where
indicated) .................. 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.00%*
12b-1 Fee ** .................. 0.10% 0.10% 0.10% 0.10% n/a 0.10% 0.10% 0.10%
Shareholder Servicing Fee
(after estimated waiver
of fee, where
indicated)* ................. 0.18%* 0.20%* 0.35% 0.23%* 0.33%* 0.21%* 0.20%* 0.10%*
Other Expenses ................ 0.21% 0.19% 0.15% 0.16% 0.16% 0.18% 0.19% 0.35%
Total Fund Operating
Expenses (after waivers
of fees, where
indicated) .................. 0.59%* 0.59%* 0.70% 0.59%* 0.59%* 0.59%* 0.59%* 0.55%*
Examples
- --------------------------
Your investment of $1,000 would incur the following expenses, assuming 5% annual return:
1 year ........................ $ 6 $ 6 $ 7 $ 6 $ 6 $ 6 $ 6 $ 6
3 years ....................... 19 19 22 19 19 19 19 18
5 years ....................... -- 33 39 33 33 33 33 31
10 years ...................... -- 74 87 74 74 74 74 69
</TABLE>
- ---------------
* Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Investment Advisory Fee and Shareholder Servicing Fee would be 0.10%
and 0.35%, respectively, for each such Fund, and Total Fund Operating
Expenses for Vista 100% U.S. Treasury Securities Money Market Fund, Vista
Treasury Plus Money Market Fund, Vista U.S. Government Money Market Fund,
Vista Cash Management Fund, Vista Tax Free Money Market Fund, Vista New
York Tax Free Money Market Fund and Vista California Tax Free Money Market
Fund would be 0.76%, 0.74%, 0.71%, 0.61%, 0.73%, 0.74%, and 0.90%,
respectively. Total Fund Operating Expenses reflect the agreement by Chase
voluntarily to waive fees payable to it and/or reimburse expenses for a
period of at least one year to the extent necessary to prevent Total Fund
Operating Expenses of Vista Shares of each Fund other than Vista Federal
Money Market Fund and Vista California Tax Free Money Market Fund from
exceeding the amounts indicated in the table. In addition, Chase has
agreed to waive fees payable to it and/or reimburse expenses for a two
year period to the extent necessary to prevent Total Fund Operating
Expenses for Vista Shares of the Vista Treasury Plus Money Market Fund,
Vista U.S. Government Money Market Fund, Vista Cash Management Money
Market Fund, Vista Tax Free Money Market Fund and the Vista New York Tax
Free Money Market Fund from exceeding 0.73%, 0.76%, 0.72%, 0.74% and
0.71%, respectively, of average net assets during such period.
3
<PAGE>
** Long-term shareholders in mutual funds with 12b-1 fees, such as holders
of Vista Shares of all Funds except Vista Cash Management Fund, may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers,
Inc.
The table is provided to help you understand the expenses of investing in
the Funds and your share of the operating expenses that a Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in a Fund. The Funds understand that Shareholder Servicing
Agents may credit the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees
received by the Shareholder Servicing Agent from a Fund with respect to those
accounts. See "Other Information Concerning the Funds."
4
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover 100% U.S. Treasury Securities Money Market
Fund ("Hanover 100% Treasury Fund") merged into Vista 100% U.S. Treasury
Securities Money Market Fund, which was created to be the successor to the
Hanover 100% Treasury Fund. The table set forth below provides selected per
share data and ratios for one Hanover 100% Treasury Fund share outstanding
throughout each period shown. This information is supplemented by financial
statements and accompanying notes appearing in the Hanover 100% Treasury
Fund's Annual Report to Shareholders for the fiscal year ended November 30,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below, unless otherwise indicated, have
been audited by KPMG Peat Marwick LLP, independent accountants, whose report
thereon is included in the Hanover 100% Treasury Fund's Annual Report to
Shareholders.
VISTA 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
Vista Shares
------------------------------------------------------------------
Year Ended
------------------------------------------------------------------
11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
--------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- ------- -------- --------
Income from Investment Operations:
Net Investment Income ................................ 0.050 0.033 0.026 0.033 0.021
-------- -------- ------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................. 0.050 0.033 0.026 0.033 0.021
-------- -------- ------- -------- --------
Net Asset Value, End of Period ......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ======== ======== ========
Total Return ........................................... 5.15% 3.32% 2.62% 3.33% 2.58%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............... $1,337,549 $1,024,125 $873,631 $383,688 $141,875
Ratio of Expenses to Average Net Assets# .............. 0.58% 0.59% 0.58% 0.55% 0.45%
Ratio of Net Investment Income to Average Net
Assets# ............................................. 4.99% 3.26% 2.58% 3.28% 5.02%
Ratio of Expenses without waivers and assumption of
expenses to Average Net Assets# ..................... 0.61% 0.62% 0.61% 0.67% 0.74%
Ratio of Net Investment Income without waivers and
assumption of expenses to Average Net Assets
(unaudited)# ......................................... 4.96% 3.23% 2.55% 3.16% 4.73%
</TABLE>
- ---------------
# Short periods have been annualized.
* Fund commenced operations on July 1, 1991.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a Vista share outstanding throughout the periods shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund or their
Shareholder Servicing Agent. The financial statements and notes, as well as
the financial information set forth in the table below, have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is also
included in the Annual Report to Shareholders.
VISTA FEDERAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Vista Shares
------------------------
Year 5/9/94**
ended through
8/31/95 8/31/94
--------- -----------
<S> <C> <C>
Per Share Operating Performance
------------------------------
Net Asset Value, Beginning of Period ................................ $ 1.00 $ 1.00
-------- -------
Income from Investment Operations:
Net Investment Income ............................................. 0.051 0.013
-------- -------
Total from Investment Operations .................................. 0.051 0.013
Less Distributions:
Dividends from Net Investment Income .............................. 0.051 0.013
-------- -------
Net Asset Value, End of Period ...................................... $ 1.00 $ 1.00
======== =======
Total Return ........................................................ 5.20% 1.26%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............................ $203,399 $19,955
Ratio of Expenses to Average Net Assets# ........................... 0.69% 0.40%
Ratio of Net Investment Income to Average Net Assets# .............. 5.16% 4.36%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets# .............................................. 0.93% 1.02%
Ratio of Net Investment Income without waivers and assumptions of
expenses to Average Net Assets# .................................. 4.92% 3.74%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
** Commencement of offering shares.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below, have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon is included in
the Annual Report to Shareholders.
VISTA U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
Vista Shares
-------------------------------------
Year 11/1/93 1/1/93
ended through through
8/31/95 8/31/94+ 10/31/1993*
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
------------------------------
Net Asset Value, Beginning of Period ....................... $ 1.00 $ 1.00 $ 1.00
-------- -------- ----------
Income from Investment Operations:
Net Investment Income .................................... 0.049 0.025 0.019
-------- -------- ----------
Less Distributions:
Dividends from Net Investment Income ..................... 0.049 0.025 0.019
-------- -------- ----------
Net Asset Value, End of Period ............................. $ 1.00 $ 1.00 $ 1.00
======== ======== ==========
Total Return ............................................... 5.05% 2.48% 2.02%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ................... $341,336 $335,365 $323,498
Ratio of Expenses to Average Net Assets# .................. 0.80% 0.80% 0.82%
Ratio of Net Investment Income to Average Net Assets# ..... 4.93% 2.94% 2.39%
Ratio of Expenses without waivers and assumption of
expenses to Average Net Assets# ......................... 0.80% 0.80% 0.82%
Ratio of Net Investment Income without waivers and
assumption of expenses to Average Net Assets# ........... 4.93% 2.94% 2.39%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of offering of shares.
+ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
7
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash Management
Fund") merged with Vista Cash Management Fund. The table set forth below
provides selected per share data and ratios for one Hanover Cash Management
Fund (the accounting survivor of the merger) share outstanding throughout
each period shown. This information is supplemented by financial statements
and accompanying notes appearing in the Hanover Cash Management Fund's Annual
Report to Shareholders for the fiscal year ended November 30, 1995, which is
incorporated by reference into the SAI. Shareholders can obtain a copy of
this report by contacting the Fund or their Shareholder Servicing Agent. The
financial statements and notes, as well as the financial information set
forth in the table below, unless otherwise indicated, have been audited by
KPMG Peat Marwick LLP, independent accountants, whose report thereon is
included in the Hanover Cash Management Fund's Annual Report to Shareholders.
VISTA CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
Vista Shares
-------------------------------------------------------------------------------------
Year Ended
-------------------------------------------------------------------------------------
11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90 11/30/89*
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
------------------------------------------
Net Asset Value, Beginning of Period ........ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- ------- ------- ------- ----------
Income from Investment Operations:
Net Investment Income ..................... 0.054 0.036 0.027 0.035 0.059 0.077 0.076
-------- ------- ------- ------- ------- ------- ----------
Less Distributions:
Dividends from Net Investment Income ...... 0.054 0.036 0.027 0.035 0.059 0.077 0.076
-------- ------- ------- ------- ------- ------- ----------
Net Asset Value, End of Period .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= ======= ======= ======= ==========
Total Return ................................ 5.49% 3.62% 2.74% 3.51% 6.01% 7.94% 7.83%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .... $1,634,493 $990,045 $861,025 $560,173 $343,166 $196,103 $134,503
Ratio of Expenses to Average Net Assets# ... 0.58% 0.58% 0.61% 0.67% 0.67% 0.67% 0.67%
Ratio of Net Investment Income to
Average Net Assets# ...................... 5.35% 3.62% 2.70% 3.41% 5.84% 7.65% 8.62%
Ratio of Expenses without waivers and
assumption of expenses to Average Net
Assets# ................................... 0.62% 0.62% 0.64% 0.72% 0.73% 0.73% 0.74%
Ratio of Net Investment Income without
waivers and assumption of expenses to
Average Net Assets (unaudited)# .......... 5.31% 3.58% 2.67% 3.36% 5.78% 7.59% 8.55%
</TABLE>
- ---------------
# Short periods have been annualized.
* Fund commenced operations January 17, 1989.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below for each of the five years in the
period ended August 31, 1995, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to Shareholders.
VISTA TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Vista Shares
-------------------------------------------------------------------------------------------------
Year ended
--------------------------------------------------------------
Year 11/1/93 9/4/87*
ended through through
8/31/95 8/31/94* 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/92
------- ------- ------- ------- ------- ------- ------- ------- ---------
<S> <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
----- ----- ----- ----- ----- ----- ----- ----- -------
Income from Investment
Operations:
Net Investment Income ... 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045 0.007
----- ----- ----- ----- ----- ----- ----- ----- -------
Less Distributions:
Dividends from Net
Investment Income ...... 0.029 0.015 0.019 0.028 0.043 0.054 0.056 0.045 0.007
----- ----- ----- ----- ----- ----- ----- ----- -------
Net Asset Value, End of
Period .................. $ 1.00 $ 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% 4.50%
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 $133,177
Ratio of Expenses to
Average Net Assets# ..... 0.86% 0.85% 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% 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% 1.18%
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% 4.15%
</TABLE>
- ---------------
* Commencement of offering of Shares.
+ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
# Periods less than one year have been annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below for each of the five years in the
period ended August 31, 1995, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to Shareholders.
VISTA NEW YORK TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Vista Shares
-------------------------------------------------------------------------------------------------
Year Ended
--------------------------------------------------------------
Year 11/1/93 9/4/87*
ended through through
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87
------- ------- ------- ------- ------- ------- ------- ------- ---------
<S> <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 $ .00
----- ----- ----- ----- ----- ----- ----- ----- -------
Income from Investment
Operations:
Net Investment Income ........ 0.028 0.015 0.017 0.025 0.038 0.050 0.051 0.043 0.009
----- ----- ----- ----- ----- ----- ----- ----- -------
Less Distributions:
Dividends from Net
Investment Income .......... 0.028 0.015 0.017 0.025 0.038 0.050 0.051 0.043 0.009
----- ----- ----- ----- ----- ----- ----- ----- -------
Net Asset Value, End of
Period ..................... $ 1.00 $ 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% 4.71%
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 $2,385
Ratio of Expenses to
Average Net Assets# ....... 0.86% 0.85% 0.85% 0.85% 0.85% 0.83% 0.81% 0.78% 0.25%
Ratio of Net Investment
Income to Average Net
Assets# ................... 2.84% 1.77% 1.72% 2.48% 3.83% 4.91% 5.15% 4.26% 4.71%
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% 1.50%
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% 3.46%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
+ In 1994 the New York Tax Free Money Market Fund changed its fiscal year-end
from October 31 to August 31.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Vista Share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. The financial
statements and notes, as well as the financial information set forth in the
table below, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is also included in the Annual Report to
Shareholders. Shareholders can obtain a copy of this report by contacting the
Fund or their Shareholder Servicing Agent.
VISTA CALIFORNIA TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Year 11/1/93 Year 3/4/92*
ended through ended through
8/31/95 8/31/94+ 10/31/93 10/31/92
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
---- ----- ----- -------
Income from Investment Operations:
Net Investment Income ............................... 0.033 0.018 0.023 0.019
---- ----- ----- -------
Less Distributions:
Dividends from Net Investment Income ................ 0.033 0.018 0.023 0.019
---- ----- ----- -------
Net Asset Value, End of Period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
==== ===== ===== =======
Total Return .......................................... 3.32% 1.82% 2.30% 2.89%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted) .............. $58,315 $64,423 $45,346 $44,643
Ratio of Expenses to Average Net Assets# ............. 0.48% 0.46% 0.42% 0.06%
Ratio of Net Investment Income to Average
Net Assets# ........................................ 3.25% 2.17% 2.26% 2.86%
Ratio of Expenses without waivers and assumption
of expenses to Average Net Assets# ................. 1.07% 0.94% 1.02% 1.23%
Ratio of Net Investment Income without waivers and
assumption of expenses to Average Net Assets# ...... 2.66% 1.69% 1.66% 1.69%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
+ In 1994 the California Tax Free Money Market Fund changed its fiscal
year-end from October 31 to August 31.
11
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent with
maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund does not purchase
securities issued or guaranteed by agencies or instrumentalities of the U.S.
Government, and does not enter into repurchase agreements. Income on direct
investments in U.S. Treasury securities is generally not subject to state and
local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. In addition, the Fund will
seek to enhance its yield by investing in repurchase agreements which are
fully collateralized by U.S. Treasury obligations. The dollar weighted
average maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, and obligations issued or
guaranteed as to principal and interest by certain agencies or
instrumentalities of the U.S. Government. Income on direct investments in
U.S. Treasury securities and obligations of the agencies and
instrumentalities in which the Fund invests is generally not subject to state
and local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less. Due to state income tax
considerations, the Fund will not enter into repurchase agreements.
===============
Shareholders of the above Funds that reside in a state that imposes an
income tax should determine through consultation with their own tax advisors
whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status, and whether the
Fund's capital gains and other income, if any, when distributed will be
subject to the state's income tax. See "How Dividends and Distributions are
Made; Tax Information."
===============
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Treasury, or agencies or instrumentalities of the U.S.
Government, and in repurchase agreements collateralized by these obligations.
The dollar weighted average maturity of the Fund will be 60 days or less.
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Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and the maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar- denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 90 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations (as defined under "Additional
Investment Policies of the Tax Free Funds"). As a fundamental policy, under
normal market conditions the Fund will have at least 80% of its assets
invested in Municipal Obligations the interest on which, in the opinion of
bond counsel, is excluded from gross income for federal income tax purposes
and does not constitute a preference item which would be subject to the
federal alternative minimum tax on individuals (these preference items are
referred to as "AMT Items"). Although the Fund will seek to invest 100% of
its assets in such Municipal Obligations, it reserves the right under normal
market conditions to invest up to 20% of its total assets in AMT Items or
securities the interest on which is subject to federal income tax. For
temporary defensive purposes, the Fund may exceed this limitation. The dollar
weighted average maturity of the Fund will be 90 days or less.
Vista New York Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes and from New
York State and New York City personal income taxes as is consistent with the
preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations. Except when the Fund's advisers
determine that acceptable securities are unavailable for investment, at least
65% of the assets of the Fund will be invested in New York Municipal
Obligations (as defined under "Additional Investment Policies of the Tax Free
Funds"), although the exact amount of its assets invested in such securities
will vary from time to time. To the extent suitable New York Municipal
Obligations are not available for investment, the Fund may purchase Municipal
Obligations issued by other states, their agencies and instrumentalities. The
portion of the Fund's assets invested in such other Municipal Obligations
would generally be subject to New York State and New York City personal
income taxes.
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As a fundamental policy, under normal market conditions the Fund will have
at least 80% of its assets invested in Municipal Obligations the interest on
which, in the opinion of bond counsel, is excluded from gross income for
federal income tax purposes and which are not AMT Items. Although the Fund
will seek to invest 100% of its assets in such Municipal Obligations, it
reserves the right under normal market conditions to invest up to 20% of its
total assets in AMT Items or securities the interest on which is subject to
federal income tax. For temporary defensive purposes, the Fund may exceed
this limitation. The dollar weighted average maturity of the Fund will be 90
days or less.
Vista California Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income
exempt from federal and State of California income taxes as is consistent
with the preservation of capital and maintenance of liquidity.
The Fund invests primarily in a non-diversified portfolio of California
Municipal Obligations (as defined under "Additional Investment Policies of
the Tax Free Funds"). As a fundamental policy, the Fund will invest at least
65% of the value of its total assets in California Municipal Obligations,
except when the Fund is maintaining a temporary defensive position. To the
extent suitable California Municipal Obligations are not available for
investment, the Fund may purchase Municipal Obligations issued by other
states, their agencies and instrumentalities. The portion of the Fund's
assets invested in such other Municipal Obligations would generally be
subject to California state personal income tax.
As a fundamental policy, the Fund will invest at least 80% of the value of
its net assets in Municipal Obligations, except when the Fund is maintaining
a temporary defensive position. Although the Fund will seek to invest 100% of
its assets in Municipal Obligations, it reserves the right under normal
market conditions to invest up to 20% of its total assets in AMT Items or
securities the interest on which is subject to federal income tax. For
temporary defensive purposes, the Fund may exceed this limitation. The dollar
weighted average maturity of the Fund will be 90 days or less.
COMMON INVESTMENT POLICIES
In lieu of investing directly, each Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high quality obligations
which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category (the two highest short-term rating categories in the case of
Vista New York Tax Free Money Market Fund and Vista California Tax Free Money
Market Fund) by at least two national rating organizations ("NROs") (or one
NRO if the instrument was rated only by one such organization) or, if
unrated, must be determined to be of comparable quality in accordance with
the procedures of the Trustees. If a security has an unconditional guarantee
or similar enhancement, the issuer of the guarantee or enhancement may be
relied upon in meeting these ratings requirements rather than the issuer of
the security. Securities in which the Funds invest may not earn as high a
level of current income as long-term or lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal
regulations.
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Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund, Vista New York Tax Free Money Market
Fund and Vista California Tax Free Money Market Fund (together, the "Tax Free
Funds") are classified as "non-diversified" funds under federal securities
law. These Funds' assets may be more concentrated in the securities of any
single issuer or group of issuers than if the Funds were diversified. Each
Fund other than the Tax Free Funds is classified as a "diversified" fund
under federal securities law.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices, when
consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct obligations of
the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury Securities
Money Market Fund and Vista Treasury Plus Money Market Fund may also invest
in other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Certain U.S. Government Obligations, such as U.S. Treasury securities and
direct pass-through certificates of the Government National Mortgage
Association (GNMA), are backed by the "full faith and credit" of the U.S.
Government. Other U.S. Government Obligations, such as obligations of Federal
Home Loan Banks and the Federal Home Loan Mortgage Corporation, are not
backed by the "full faith and credit" of the U.S. Government. In the case of
securities not backed by the "full faith and credit" of the U.S. Government,
the investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the U.S. Government itself in the event the agency or instrumentality
does not meet its commitments.
Repurchase Agreements, Securities Loans and Forward Commitments. Each Fund
other than Vista 100% U.S. Treasury Securities Money Market Fund and Vista
Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other than the Tax
Free Funds also has the ability to lend portfolio securities in an amount
equal to not more than 30% of its total assets to generate additional income.
These transactions must be fully collateralized at all times. Each Fund may
purchase securities for delivery at a future date, which may increase its
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. These transactions involve
some risk to a Fund if the other party should default on its obligation and
the Fund is delayed or prevented from recovering the collateral or completing
the transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). A Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these trans-
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actions, a Fund would acquire the right to sell a security at an agreed upon
price within a specified period prior to its maturity date. These
transactions involve some risk to a Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction. Acquisition of puts will have the
effect of increasing the cost of the securities subject to the put and
thereby reducing the yields otherwise available from such securities.
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 20% of its total
assets in separately traded principal and interest components of securities
backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". Vista Cash Management Fund and each Tax Free
Fund may also invest in zero coupon obligations. Zero coupon obligations are
debt securities that do not pay regular interest payments, and instead are
sold at substantial discounts from their value at maturity. The value of
STRIPS and zero coupon obligations tends to fluctuate more in response to
changes in interest rates than the value of ordinary interest-paying debt
securities with similar maturities. The risk is greater when the period to
maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. Each
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Tax Free Funds and the Vista Cash
Management Fund may invest include participation certificates and, in the
case of Vista Cash Management Fund, certificates of indebtedness or
safekeeping. Participation certificates are pro rata interests in securities
held by others; certificates of indebtedness or safekeeping are documentary
receipts for such original securities held in custody by others. As a result
of the floating or variable rate nature of these investments, a Fund's yield
may decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, a Fund's yield may increase and it may have reduced risk of
capital depreciation. Demand features on certain floating or variable rate
securities may obligate a Fund to pay a "tender fee" to a third party. Demand
features provided by foreign banks involve certain risks associated with
foreign investments. The Internal Revenue Service has not ruled on whether
interest on participations in floating or variable rate municipal obligations
is tax exempt, and the Tax Free Funds would purchase such instruments based
on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund may invest up to 10% of its total assets in
shares of other money market funds, subject to applicable regulatory
limitations.
Portfolio Turnover. It is intended that the Funds will be fully managed by
buying and selling securities, as well as holding securities to maturity. The
frequency of the Funds' portfolio transactions will vary from year to year.
In managing a Fund, the Fund's advisers will seek to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund
Vista Cash Management Fund may also invest in the following instruments,
when consistent with its overall objective and policies. These instruments,
and certain associated risks, are more fully described in the SAI.
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<PAGE>
Bank Obligations. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation
or by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, most often a pool of assets similar to one another, such
as motor vehicle receivables or credit card receivables.
Municipal Obligations. The Fund may invest in high-quality, short-term
municipal obligations that carry yields that are competitive with those of
other types of money market instruments in which it may invest. Dividends
paid by this Fund that are derived from interest on municipal obligations
will be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The Fund
intends to invest a substantial portion of its assets from time to time in
securities of foreign governments and supranational agencies. The Fund will
limit its investments in foreign government obligations to commercial paper
and other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of
supranational agencies, such as the International Bank for Reconstruction and
Development (also known as the World Bank) are supported by subscribed, but
unpaid, commitments of member countries. There is no assurance that these
commitments will be undertaken or complied with in the future, and foreign
and supranational securities are subject to certain risks associated with
foreign investing.
Custodial Receipts. The Fund may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in
connection with programs sponsored by banks and brokerage firms. These are
not deemed U.S. Government securities. These notes and bonds are held in
custody by a bank on behalf of the owners of the receipts.
Additional Investment Policies of the Tax Free Funds
The following provides additional information regarding the permitted
investments of the Tax Free Funds. These investments, and certain associated
risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations issued by
or on behalf of states, territories and possessions of the United States, and
their authorities, agencies, instrumentalities and political subdivisions,
the interest on which, in the opinion of bond counsel, is excluded from gross
income for federal income tax purposes (without regard to whether the
interest thereon is also exempt from the personal income taxes of any state
or whether the interest thereon constitutes a preference item for purposes of
the federal alternative minimum tax). "New York Municipal Obligations" are
Municipal Obligations of the State of New York and its political subdivisions
and of Puerto Rico, other U.S. territories and their political subdivisions,
the interest on which, in the opinion of bond counsel, is exempt from New
York State and New York City personal income taxes. "California Municipal
Obligations" are Municipal Obligations of the State of California, its
political subdivisions, authorities and corporations, the interest on which,
in the opinion of bond counsel, is exempt from State of California personal
income taxes.
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Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of
general operating expenses or the refunding of outstanding debts. They may
also be issued to finance various private activities, including the lending
of funds to public or private institutions for the construction of housing,
educational or medical facilities, and may include certain types of
industrial development bonds, private activity bonds or notes issued by
public authorities to finance privately owned or operated facilities, or to
fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes. The Municipal
Obligations in which the Tax Free Funds invest may consist of municipal
notes, municipal commercial paper and municipal bonds maturing or deemed to
mature in 397 days or less.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
From time to time, each Tax Free Fund may invest more than 25% of the
value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental issuers such as hospitals or
airports, provided, however, that a Tax Free Fund may not invest more than
25% of the value of its total assets in such bonds if the issuers are in the
same industry.
Municipal Lease Obligations. The Tax Free Funds may invest in municipal
lease obligations. These are participations in a lease obligation or
installment purchase contract obligation and typically provide a premium
interest rate. Municipal lease obligations do not constitute general
obligations of the municipality. Certain municipal lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment payments in future years unless money
is later appropriated for such purpose. Each Tax Free Fund will limit
investments in non-appropriation leases to 10% of its assets. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove
difficult. Certain investments in municipal lease obligations may be
illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market Fund
invests must satisfy the following ratings criteria: Municipal bonds must be
rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another
NRO, municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's
or SP-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, and municipal commercial paper must be rated in the
category Prime-1 by Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or
have a comparable rating from another NRO, or, if any of the foregoing is
unrated, it must be of comparable quality. Municipal Obligations in which
Vista New York Tax Free Money Market Fund and Vista California Tax Free Money
Market Fund invest must satisfy the following ratings criteria: Municipal
bonds must be rated
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in the categories Aaa or Aa by Moody's or AAA or AA by Standard & Poor's or
AAA or AA by Fitch, or have a comparable rating from another NRO, municipal
notes must be rated in the categories MIG-1 or VMIG-1 or MIG-2 or VMIG-2 by
Moody's or SP-1 or SP-2 by Standard & Poor's or F-1 or F-2 by Fitch, or have
a comparable rating from another NRO, and municipal commercial paper must be
rated in the categories Prime-1 or Prime-2 by Moody's or A-1 or A-2 by
Standard & Poor's or F-1 or F-2 by Fitch, or have a comparable rating from
another NRO, or, if any of the foregoing is unrated, it must be of comparable
quality. Municipal Obligations which satisfy the foregoing short-term ratings
criteria need not also satisfy the long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds limit
investment risks for their shareholders. These regulations and restrictions
prohibit each Fund from: (a) with certain limited exceptions, investing more
than 5% of its total assets in the securities of any one issuer (this
limitation does not apply to the Tax Free Funds or to U.S. Government
Obligations held by the other Funds); (b) investing more than 10% of its net
assets in illiquid securities (which include securities restricted as to
resale unless they are determined to be readily marketable in accordance with
procedures established by the Board of Trustees); or (c) investing more than
25% of its total assets in any one industry (excluding U.S. Government
Obligations, bank obligations and, for the Tax Free Funds, obligations of
states, cities, municipalities or other public authorities, as well as
municipal obligations secured by bank letters of credit or guarantees). A
complete description of these and other investment policies is included in
the SAI. Except for each Fund's investment objective, restriction (c) above
and investment policies designated as fundamental above or in the SAI, the
Funds' investment policies are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to maintain
a stable net asset value. Changes in interest rates may affect the value of
the obligations held by the Funds. The value of fixed income securities
varies inversely with changes in prevailing interest rates, although money
market instruments are generally less sensitive to changes in interest rates
than are longer-term securities. For a discussion of certain other risks
associated with the Funds' additional investment activities, see "Other
Investment Practices," "Additional Investment Policies of Vista Cash
Management Fund" and "Additional Investment Policies of the Tax Free Funds."
Vista Cash Management Fund. This Fund is permitted to invest any portion
of its assets in obligations of domestic banks (including their foreign
branches), and in obligations of foreign issuers. The ability to concentrate
in the banking industry may involve certain credit risks, such as defaults or
downgrades, if at some future date adverse economic conditions prevail in
such industry. U.S. banks are subject to extensive governmental regulations
which may limit both the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds
for the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including
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risks relating to future political and economic developments, more limited
liquidity of foreign obligations than comparable domestic obligations, the
possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign assets, and the possible establishment
of exchange controls or other restrictions. There may be less publicly
available information concerning foreign issuers, there may be difficulties
in obtaining or enforcing a judgment against a foreign issuer (including
branches), and accounting, auditing and financial reporting standards and
practices may differ from those applicable to U.S. issuers. In addition,
foreign banks are not subject to regulations comparable to U.S. banking
regulations.
The Tax Free Funds. Each Tax Free Fund may invest without limitation in
Municipal Obligations secured by letters of credit or guarantees from U.S.
banks (including their foreign branches), and may also invest in Municipal
Obligations backed by foreign institutions. These investments are subject to
the considerations discussed in the preceding paragraphs relating to Vista
Cash Management Fund.
Each of the Tax Free Funds is "non-diversified," which may make the value
of their shares more susceptible to developments affecting issuers in which
these Funds invest. In addition, more than 25% of the assets of each Tax Free
Fund may be invested in securities to be paid from revenue of similar
projects, which may cause these Funds to be more susceptible to similar
economic, political, or regulatory developments (particularly with respect to
Vista New York Tax Free Money Market Fund and Vista California Tax Free Money
Market Fund, since the issuers in which these Funds invest will generally be
located in a single state).
Because the Tax Free Funds will invest primarily in obligations issued by
states, cities, public authorities and other municipal issuers, the Tax Free
Funds are susceptible to factors affecting such states and their municipal
issuers. The New York and California Tax Free Money Market Funds will be
particularly susceptible to factors affecting the State of New York, the
State of California, and their respective municipal issuers. A number of
municipal issuers, including the State of New York, New York City, the State
of California and certain California counties, have a recent history of
significant financial and fiscal difficulties. California's Orange County
recently defaulted on certain of its indebtedness. If a municipal issuer is
unable to meet its financial obligations, the income derived by the related
Fund and that Fund's ability to preserve capital and liquidity could be
adversely affected. See the SAI for further information.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the
interest on which is not subject to federal income tax. This legislation may
affect the availability of Municipal Obligations for investment by the Tax
Free Funds.
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to each of
the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its predecessors
have over 100 years of
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money management experience. For its investment advisory services to each of
the Funds, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.10% of each Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to each Fund other than the Vista Cash Management
Fund and the Vista Tax Free Money Market Fund, pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly- owned operating
subsidiary of Chase. CAM makes investment decisions for each of these Funds
on a day-to-day basis. For these services, CAM is entitled to receive a fee,
payable by Chase from its advisory fee, at an annual rate equal to 0.03% of
each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to
institutional clients and to consolidate Chase's investment management
function. The same individuals who serve as portfolio managers for Chase also
serve as portfolio managers for CAM. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
Texas Commerce Bank, National Association ("TCB") is the sub-investment
adviser to the Vista Cash Management Fund and the Vista Tax Free Money Market
Fund pursuant to a Sub-Investment Advisory Agreement between Chase and TCB.
TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax
Free Money Market Fund on a day-to-day basis. For these services, TCB is
entitled to receive a fee, payable by Chase from its advisory fee, at an
annual rate equal to 0.03% of each such Fund's average daily net assets. TCB
is located at 600 Travis, Houston, Texas 77002.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs,
SEP-IRAs and the Systematic Investment Plan) and make additional investments
at any time with as little as $100. You can buy Fund shares three
ways--through an investment representative or shareholder servicing agent,
through the Funds' distributor (at 1-800-34-VISTA), or through the Systematic
Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be
accepted. When purchases are made by check, redemptions will not be allowed
until clearance of the purchase check, which may take 15 calendar days or
longer. In addition, redemption of shares purchased through ACH will not be
allowed until clearance of your payment, which may take 7 business days or
longer. In the event a check used to pay for shares is not honored by a bank,
the purchase order will be cancelled and the shareholder will be liable for
any losses or expenses incurred by a Fund.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening an account.
Buying shares through the Funds' distributor. Complete and return the
enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through the Systematic Investment Plan. You can make regular
investments of $100 or more per transaction through automatic periodic
deduction from your bank savings or checking
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account. Shareholders electing to start this Systematic Investment Plan when
opening an account should complete Section 8 of the account application.
Current shareholders may begin the Plan at any time by sending a signed
letter with signature guarantee and a deposit slip or voided check to the
Vista Service Center. Call the Vista Service Center at 1-800-34-VISTA for
complete instructions.
Buying shares through an investment representative or shareholder
servicing agent. Vista Shares of the Funds may be purchased through a
shareholder servicing agent (i.e., a financial institution, such as a bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Funds) or by customers of brokers or
certain financial institutions which have entered into Selected Dealer
Agreements with the Funds' distributor. An investor may purchase Vista Shares
by authorizing his shareholder servicing agent or investment representative
to purchase shares on his behalf through the Funds' distributor. Shareholder
servicing agents may offer additional services to their customers, including
customized procedures for the purchase and redemption of Vista Shares, such
as pre- authorized or systematic purchase and withdrawal programs and "sweep"
checking programs. For further information, see "Other Information Concerning
the Funds" in this prospectus and the SAI.
Shares are sold without a sales load at the net asset value next
determined after the Vista Service Center receives your order in proper form
on any business day during which the Federal Reserve Bank of New York and the
New York Stock Exchange are open for business ("Fund Business Day"). To
receive that day's dividend, the Vista Service Center or your investment
representative or shareholder servicing agent must generally receive your
order prior to a Fund's Cut-off Time. The Funds' Cut-off Times (Eastern time)
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Vista 100% U.S. Treasury Securities Money Market Fund ....... Noon
Tax Free Funds .............................................. Noon
Vista Federal Money Market Fund ............................. 2:00 p.m.
Vista U.S. Government Money Market Fund ..................... 2:00 p.m.
Vista Cash Management Fund .................................. 2:00 p.m.
Vista Treasury Plus Money Market Fund ....................... 4:00 p.m.
</TABLE>
Orders for shares received and accepted prior to the Cut-off Times will be
entitled to all dividends declared on that day. Orders received for shares
after a Fund's Cut-off Time and prior to 4:00 p.m., Eastern time on any Fund
Business Day will not be accepted and executed on the same day except at the
Funds' discretion. Orders received and not accepted after a Fund's Cut-off
Time will be considered received prior to the Fund's Cut-off Time on the
following Fund Business Day and processed accordingly. Orders for shares are
accepted by each Fund after funds are converted to federal funds. Orders paid
by check and received before a Fund's Cut-off Time will generally be
available for the purchase of shares the following Fund Business Day. The
Funds reserve the right to reject any purchase order.
How to Sell Shares
You can sell your Fund shares on any Fund Business Day either directly or
through your investment representative or shareholder servicing agent. A Fund
will only forward redemption payments on shares for which it has collected
payment of the purchase price.
Selling shares directly to a Fund. Send a signed letter of instruction to
the Vista Service Center. The price you receive is the next net asset value
calculated after your request is received in proper form.
22
<PAGE>
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
A Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
A Fund generally sends you payment for your shares the Fund Business Day
after your request is received in proper form, provided your request is
received by the Vista Service Center prior to the Fund's Cut-off Time, and
assuming the Fund has collected payment of the purchase price of your shares.
Under unusual circumstances, the Funds may suspend redemptions, or postpone
payment for more than seven business days, as permitted by federal securities
laws.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Funds. Unless an investor indicates otherwise on the account application, the
Funds will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Funds with his or her account
registration and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, a Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither a Fund nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, or contact
your investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Systematic Withdrawal Plan. You can make regular withdrawals of $50 or
more monthly, quarterly or semiannually. A minimum account balance of $5,000
is required to establish a Systematic Withdrawal Plan. Call the Vista Service
Center at 1-800-34-VISTA for complete instructions.
Selling shares through your investment representative or your shareholder
servicing agent. Your investment representative or your shareholder servicing
agent must receive your request before the Cut-off Time for your Fund to
receive that day's net asset value. Your representative will be responsible
for furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntary redeem your
shares if the aggregate net asset value of the shares in your account is less
than $500 or if you purchase through the Systematic Investment Plan and fail
to meet that Fund's investment minimum within a twelve month period. In the
event of any such redemption, you will receive at least 60 days' notice prior
to the redemption.
How to Exchange Your Shares
You can exchange your shares for Vista Shares of certain other Vista money
market funds at net asset value and for certain classes of shares of the
Vista non-money market funds at net asset value plus any applicable sales
charge, subject to any minimum investment requirement. Not all Vista funds
offer all
23
<PAGE>
classes of shares. The prospectus of the other Vista fund into which shares
are being exchanged should be read carefully and retained for future
reference.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. Ask your investment
representative or the Vista Service Center for prospectuses of other Vista
funds. Please read the prospectus carefully before investing and keep it for
future reference. Shares of certain Vista funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Funds, the
Funds reserve the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving a Fund in a
year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is currently
determined daily as of 4:00 p.m., Eastern time on each Fund Business Day by
dividing the net assets of a Fund attributable to such class by the number of
shares of such class outstanding at the time the determination is made.
Effective with the anticipated introduction of certain automated share
purchase programs, the net asset value of shares of each class of Funds
available through the programs will also be determined as of 6:00 p.m.,
Eastern time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized cost
in accordance with federal securities laws, certain requirements of which are
summarized under "Common Investment Policies." This method increases
stability in valuation, but may result in periods during which the stated
value of a portfolio security is higher or lower than the price a Fund would
receive if the instrument were sold. It is anticipated that the net asset
value of each share of each Fund will remain constant at $1.00 and the Funds
will employ specific investment policies and procedures to accomplish this
result, although no assurance can be given that they will be able to do so on
a continuing basis. The Board of Trustees will review the holdings of each
Fund at intervals it deems appropriate to determine whether that Fund's net
asset value calculated by using available market quotations (or an
appropriate substitute which reflects current market conditions) deviates
from $1.00 per share based upon amortized cost. In the event the Trustees
determine that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, the Trustees will
take such corrective action as they regard as necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is declared
as a dividend to the shareholders each Fund Business Day. Dividends are
declared as of the time of day which corresponds to the latest time on that
day that a Fund's net asset value is determined. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly.
Unless a shareholder arranges to receive dividends in cash or by ACH to a
pre-established bank account, dividends are distributed in the
24
<PAGE>
form of additional shares. Dividends that are otherwise taxable are still
taxable to you whether received in cash or additional shares. Net realized
short-term capital gains, if any, will be distributed at least annually. The
Funds do not expect to realize net long-term capital gains.
Net investment income for each Fund consists of all interest accrued and
discounts earned, less amortization of any market premium on the portfolio
assets of the Fund and the accrued expenses of the Fund.
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund
does not qualify as a regulated investment company for any taxable year or
does not make distributions as it intends, the Fund will be subject to tax on
all of its income and gains.
Distributions by a Fund of its ordinary income and short-term capital
gains are generally taxable to you as ordinary income. Distributions by the
Tax Free Funds of their tax-exempt interest income will not be subject to
federal income tax. Such distributions will generally be subject to state and
local taxes, but may be exempt if paid out of interest on municipal
obligations of the state or locality in which you reside. Distributions by a
Fund of any net long-term capital gains would be taxable as such, regardless
of the length of time you have held your shares. Distributions will be
taxable in the same manner for federal income tax purposes whether received
in cash or in shares through the reinvestment of distributions.
To the extent distributions are attributable to interest from obligations
of the U.S. Government and certain of its agencies and instrumentalities,
such distributions may be exempt from certain types of state and local taxes.
Early in each calendar year the Funds will notify you of the amount and
tax status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Funds. You should consult your tax adviser to determine the
precise effect of an investment in the Funds on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Distribution Plans
The Funds' distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. Each Fund
other than the Vista Cash Management Fund has adopted a Rule 12b-1
distribution plan which provides that such Fund will pay distribution fees at
annual rates of up to 0.10% of the average daily net assets attributable to
its Vista Shares. There is no distribution plan for the Vista Cash Management
Fund. Payments under the distribution plan shall be used to compensate or
reimburse the Funds' distributor and broker-dealers for services provided and
expenses incurred in connection with the sale of Vista Shares, and are not
tied to the amount of actual expenses incurred. Some activities intended to
promote the sale of Vista Shares will be conducted generally by the Vista
Family of Funds, and activities intended to promote a Fund's Vista Shares may
also benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional
25
<PAGE>
meal, ticket to a sporting event or theater or entertainment for
broker-dealers and their guests; and payment or reimbursement for travel
expenses, including lodging and meals, in connection with attendance at
training and educational meetings within and outside the U.S.
Shareholder Servicing Agents
Each Fund has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers, including assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.35% of the
average daily net assets of the Vista Shares of each Fund held by investors
for whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services. The Board of Trustees has
determined that the amount payable in respect of "service fees" (as defined
in the NASD Rules of Fair Practice) does not exceed 0.25% of the average
annual net assets attributable to the Vista Shares of each Fund.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain shareholder servicing agents may (although they are
not required by the Trust to do so) credit to the accounts of their customers
from whom they are already receiving other fees amounts not exceeding such
other fees or the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of a Fund attributable to shares of such
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to a Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Funds' administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.05% of each
Fund's average daily net assets.
VFD provides certain sub-administrative services to each Fund pursuant to
a distribution and sub- administration agreement and is entitled to receive a
fee for these services from each Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee
to pay for certain expenses incurred in connection with organizing new series
of the Trust and certain other ongoing expenses of the Trust. VFD is located
at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for each Fund and receives
compensation under an agreement with the Funds. Securities and cash of each
Fund may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
26
<PAGE>
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Funds' custodian for all services to the Funds, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Funds. Shareholder servicing and distribution fees
are allocated to specific classes of the Funds. In addition, the Funds may
allocate transfer agency and certain other expenses by class. Service
providers to a Fund may, from time to time, voluntarily waive all or a
portion of any fees to which they are entitled.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was known as
the Vista Global Money Market Fund. The Trust has reserved the right to
create and issue additional series and classes. Each share of a series or
class represents an equal proportionate interest in that series or class with
each other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted.
Shares of each class of a Fund generally vote together except when required
under federal securities laws to vote separately on matters that only affect
a particular class, such as the approval of distribution plans for a
particular class. Fund shares will be maintained in book entry form, and no
certificates representing shares owned will be issued to shareholders.
Each Fund may issue multiple classes of shares. This Prospectus relates
only to Vista Shares of the Funds. Certain Funds offer other classes of
shares in addition to these classes. The categories of investors that are
eligible to purchase shares and minimum investment requirements may differ
for each class of Fund shares. In addition, other classes of Fund shares may
be subject to differences in sales charge arrangements, ongoing distribution
and service fee levels, and levels of certain other expenses, which would
affect the relative performance of the different classes. Investors may call
1-800-34-VISTA to obtain additional information about other classes of shares
of the Funds that are offered. Any person entitled to receive compensation
for selling or servicing shares of a Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
27
<PAGE>
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
any of the Funds, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities so purchased.
Chase and its affiliates deal, trade and invest for their own accounts in
U.S. Government obligations, municipal obligations and commercial paper and
are among the leading dealers of various types of U.S. Government obligations
and municipal obligations. Chase and its affiliates may sell U.S. Government
obligations and municipal obligations to, and purchase them from, other
investment companies sponsored by the Funds' distributor or affiliates of the
distributor. Chase will not invest any Fund assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by any Fund. Chase has informed the Funds
that in making its investment decisions, it does not obtain or use material
inside information in the possession of any other division or department of
Chase or in the possession of any affiliate of Chase, including the division
that performs services for the Trust as custodian. Shareholders of the Funds
should be aware that, subject to applicable legal or regulatory restrictions,
Chase and its affiliates may exchange among themselves certain information
about the shareholders and their accounts. Transactions with affiliated
broker-dealers will only be executed on an agency basis in accordance with
applicable federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective yield".
Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will
continue to be generated each week over a 52-week period. It is shown as a
percentage of such investment. "Effective yield" is the annualized "yield"
calculated assuming the reinvestment of the income earned during each week of
the 52-week period. The "effective yield" will be slightly higher than the
"yield" due to the compounding effect of this assumed reinvestment.
28
<PAGE>
The Tax Free Funds may also quote a "tax equivalent yield", the yield that
a taxable money market fund would have to generate in order to produce an
after-tax yield equivalent to a Tax Free Fund's yield. The tax equivalent
yield of a Tax Free Fund can then be compared to the yield of a taxable money
market fund. Tax equivalent yields can be quoted on either a "yield" or
"effective yield" basis.
Investment performance may from time to time be included in advertisements
about the Funds. Performance is calculated separately for each class of
shares. Because this performance information is based on historical earnings,
it should not be considered as an indication or representation of future
performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's
portfolio, each Fund's operating expenses and which class of shares you
purchase. Investment performance also reflects the risks associated with each
Fund's investment objective and policies. These factors should be considered
when comparing each Fund's investment results to those of other mutual funds
and investment vehicles. Quotations of investment performance for any period
when an expense limitation was in effect will be greater if the limitation
had not been in effect. Each Fund's performance may be compared to other
mutual funds, relevant indices and rankings prepared by independent services.
See the SAI.
29
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[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
- ----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VMM-1-596CX
[VISTA LOGO]
Vista Shares
- --------------------------------------
(arrow) 100% U.S. Treasury Securities
Money Market Fund
(arrow) Treasury Plus Money
Market Fund
(arrow) Federal Money
Market Fund
(arrow) U.S. Government
Money Market Fund
(arrow) Cash Management
Money Market Fund
(arrow) Tax Free Money
Market Fund
(arrow) New York Tax Free
Money Market Fund
(arrow) California Tax Free
Money Market Fund
Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
May 6, 1996
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
Premier[SM] Shares
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-622-4273. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES
AND ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ..................................................... 3
The expenses you pay on your Fund investment, including examples
Financial Highlights ................................................ 5
The Funds' financial history
Fund Objectives and Investment Approach
Vista 100% U.S. Treasury Securities Money Market Fund .............. 12
Vista Treasury Plus Money Market Fund .............................. 12
Vista Federal Money Market Fund .................................... 12
Vista U.S. Government Money Market Fund ............................ 12
Vista Cash Management Fund ......................................... 13
Vista Prime Money Market Fund ...................................... 13
Vista Tax Free Money Market Fund ................................... 13
Common Investment Policies .......................................... 14
Management .......................................................... 19
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management and
Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares ................................ 20
How the Funds Value Their Shares .................................... 23
How Dividends and Distributions Are Made; Tax Information ........... 23
How the Funds distribute their earnings, and tax treatment related to
those earnings
Other Information Concerning the Funds .............................. 24
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information ............................................. 28
How performance is determined, stated and/or advertised
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on
expenses incurred in the most recent fiscal year by each Fund other than the
Vista 100% U.S. Treasury Securities Money Market Fund, and based on estimated
expenses for the current fiscal year for the Vista 100% U.S. Treasury
Securities Money Market Fund. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista 100%
U.S. Vista
Treasury Treasury Vista Vista U.S. Vista
Securities Plus Federal Government Vista Prime Vista
Money Money Money Money Cash Money Tax Free
Market Market Market Market Management Market Money Market
Fund Fund Fund Fund Fund Fund Fund
----------- ----------- ---------- ---------- --------- ---------- ------------
Premier Premier Premier Premier Premier Premier Premier
Shares Shares Shares Shares Shares Shares Shares
----------- ----------- ---------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses (as a
percentage of
average net
assets)
- ----------------------
Investment Advisory
Fee ................ 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
12b-1 Fee* ............ n/a n/a n/a 0.10% n/a n/a n/a
Shareholder Servicing
Fee (after estimated
waiver of fee, where
indicated) .......... 0.25% 0.25% 0.20%** 0.19%** 0.23%** 0.20%** 0.25%
Other Expenses ....... 0.20% 0.20% 0.20% 0.16% 0.17% 0.15% 0.20%
Total Fund Operating
Expenses (after
waiver of fee, where
indicated) .......... 0.55% 0.55% 0.50%** 0.55%** 0.50%** 0.45%** 0.55%
Examples
- --------
Your investment of $1,000 would incur the following expenses, assuming 5% annual return:
1 Year ................ $ 6 $ 6 $ 5 $ 6 $ 5 $ 5 $ 6
3 years ............... 18 18 16 18 16 14 18
5 years ............... -- 31 28 31 28 25 31
10 years .............. -- 69 63 69 63 57 69
</TABLE>
- ---------------
* Long-term shareholders in mutual funds with 12b-1 fees, such as holders of
Premier Shares of Vista U.S. Government Money Market Fund, may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers, Inc.
** Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Shareholder Servicing Fee would be 0.25% for each such Fund, and Total
Fund Operating Expenses for Vista Federal Money Market Fund, Vista U.S.
Government Money Market Fund, Vista Cash Management Fund and Vista Prime
Money Market Fund would be 0.55%, 0.61%, 0.52% and 0.50%, respectively.
3
<PAGE>
The table is provided to help you understand the expenses of investing in
the Funds and your share of the operating expenses that a Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in a Fund. The Funds understand that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from a Fund with respect to
those accounts. See "Other Information Concerning the Funds."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund or their
Shareholder Servicing Agent. The financial statements and notes, as well as
the financial information set forth in the table below, have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is
included in the Annual Report to Shareholders.
VISTA TREASURY PLUS MONEY MARKET FUND
<TABLE>
<CAPTION>
Premier Shares
---------------------
Year 4/22/94**
ended through
8/31/95 8/31/94
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ............................ $ 1.00 $ 1.00
------- ------
Income from Investment Operations:
Net Investment Income ......................................... 0.050 0.014
------- ------
Less Distributions:
Dividends from Net Investment Income .......................... 0.050 0.014
------- ------
Net Asset Value, End of Period ................................. $ 1.00 $ 1.00
======= ======
Total Return .................................................... 5.17% 1.37%
======= ======
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ........................ $18,572 $ 36
Ratio of Expenses to Average Net Assets# ...................... 0.50% 0.49%
Ratio of Net Investment Income to Average Net Assets# ......... 5.23% 3.85%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets# ...................................... 1.57% 0.89%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets# .......................... 4.16% 3.46%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
** Commencement of offering shares.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund or their
Shareholder Servicing Agent. The financial statements and notes, as well as
the financial information set forth in the table below, have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is
included in the Annual Report to Shareholders.
VISTA FEDERAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Premier Shares
---------------------
Year 4/22/94**
ended through
8/31/95 8/31/94
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ............................ $ 1.00 $ 1.00
-------- -------
Income From Investment Operations:
Net Investment Income ......................................... 0.053 0.015
-------- -------
Less Distributions:
Dividends from Net Investment Income .......................... 0.053 0.015
-------- -------
Net Asset Value, End of Period ................................. $ 1.00 $ 1.00
======== =======
Total Return .................................................... 5.40% 1.47%
Ratios/Supplemental Data:
Net Assets, end of Period (000 omitted) ........................ $148,512 $55,768
Ratio of Expenses to Average Net Assets# ...................... 0.49% 0.35%
Ratio of Net Investment Income to Average Net Assets# ......... 5.32% 4.38%
Ratio of Expenses without waivers and assumption 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 offering shares.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Premier Share outstanding throughout each period shown. This information
is supplemented by financial statements and accompanying notes appearing in
the Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below for each of the periods commencing
subsequent to June 30, 1992, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to Shareholders. Periods ended prior to July 1, 1993 were audited by
other independent accountants.
VISTA U.S. GOVERNMENT MONEY MARKET FUND(1)
<TABLE>
<CAPTION>
Premier Shares
---------------------------------------------------------------------------------------
Year 11/1/93 Year 7/1/92 Year Ended
Ended through Ended through ------------------------------------
8/31/95 8/31/94+++ 10/31/93 10/31/92* 6/30/92 6/30/91 6/30/90(2)
--------- ---------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of
Period ......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- -------- ------- -------- -------
Income from Investment
Operations:
Net Investment Income ........... 0.052 0.027 0.027 0.010 0.041(3) 0.068 0.075
-------- -------- ---------- -------- ------- -------- -------
Less Distributions:
Dividends from Net Investment
Income ........................ 0.052 0.027 0.027 0.010 0.041(3) 0.068 0.075
-------- -------- ---------- -------- ------- -------- -------
Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ======== ======= ======== =======
Total Return ..................... 5.31% 2.70% 2.70% 0.98% 4.68% 6.91% 8.13%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted) ................... $763,609 $545,999 $1,609,704 $108,505 $ 78,795 $193,308 $63,774
Ratio of Expenses to Average Net
Assets+ ........................ 0.55% 0.55% 0.55% 0.58% 0.57% 0.57% 0.72%
Ratio of Net Income to Average Net
Assets+ ........................ 5.22% 3.13% 2.66% 2.87% 4.10% 6.76% 7.46%
Ratio of Expenses without waivers
and assumption of expenses to
Average Net Assets+ ............ 0.59% 0.61% 0.67% 0.70% 0.64% 0.65% --
Ratio of Net Investment Income
without waivers and assumption
of expenses to Average Net --
Assets+ ........................ 5.18% 3.07% 2.54% 2.75% 4.03% 6.68%
</TABLE>
7
<PAGE>
VISTA U.S. GOVERNMENT MONEY MARKET FUND(1)
<TABLE>
<CAPTION>
Premier Shares
-----------------------------------------------------------
Year Ended
-----------------------------------------------------------
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85 9/30/84
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------
Income from Investment Operations:
Net Investment Income .............. 0.083 0.065 0.058 0.062 0.072 0.083
------- ------- ------- ------- ------- ------
Less Distributions:
Dividends from Net Investment
Income .......................... 0.083 0.065 0.058 0.062 0.072 0.083
------- ------- ------- ------- ------- ------
Net Asset Value, End of Period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======
Total Return ......................... 6.34% 6.54% 5.78% 6.24% 7.13% 6.25%
Ratios/Supplemental Data:
Net Assets, End of Period (000
omitted) .......................... $84,752 $79,541 $82,068 $86,475 $14,523 $ 3,991
Ratio of Expenses to Average Net
Assets+ ........................... 0.70% 0.67% 0.64% 0.68% 1.03% 1.54%
Ratio of Net Income to Average Net
Assets+ ........................... 8.31% 6.54% 5.78% 6.24% 7.16% 8.25%
Ratio of Expenses without waivers
and assumption of expenses to
Average Net Assets+ .............. -- -- -- -- 1.10% 2.23%
Ratio of Net Investment Income
without waivers and assumption of
expenses to Average Net Assets+ ... -- -- -- -- 7.09% 7.56%
</TABLE>
- ---------------
+ Periods less than one year have been annualized.
++ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
* In 1992 the Trinity Government Fund, the predecessor to the Vista U.S.
Government Money Market Fund, changed its fiscal year-end from June 30 to
October 31.
(1) Trinity Government Fund and Vista U.S. Government Money Market Fund each
reorganized as a new portfolio of Mutual Fund Group effective January 1,
1993 in a tax-free reorganization, and subsequently were reorganized into
the Trust on October 28, 1994. The new portfolio was named Vista U.S.
Government Money Market Fund.
(2) On January 31, 1990, the Trinity Government Fund was reorganized into a
series of Trinity Assets Trust. Prior to the reorganization, the Trinity
Government Fund had been incorporated under the laws of the State of
Florida since July 10, 1980 as Pinnacle Government Fund, Inc. with a
fiscal year ended September 30. Actual per share income and capital
changes for the nine-month period ended June 30, 1990 have been
annualized in order to provide a comparison to prior years' results.
(3) Includes $0.001 short-term capital gain per share.
8
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash Management
Fund") merged into the Vista Cash Management Fund; therefore, commencing with
the fiscal year ending August 31, 1996, selected per share data and ratios
for one Hanover Cash Management Fund share outstanding will be provided.
Accordingly, no information is presented below.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund or their
Shareholder Servicing Agent. The financial statements and notes, as well as
the financial information set forth in the table below, have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is
included in the Annual Report to Shareholders.
VISTA PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
Premier Shares
---------------------
Year 11/15/93*
ended through
8/31/95 8/31/94+
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ............................ $ 1.00 $ 1.00
------- -------
Income from Investment Operations:
Net Investment Income ......................................... 0.053 0.027
Net Realized Loss on Securities .............................. (0.003) --
------- -------
Total Income from Investment Operations ...................... 0.050 0.027
Voluntary Capital Contribution ................................ 0.003 --
------- -------
Less Distributions:
Dividends from Net Investment Income .......................... 0.053 0.027
------- -------
Net Asset Value, End of Period ................................. $ 1.00 $ 1.00
======= =======
Total Return (1) ............................................... 5.44% 2.75%
Ratios/Supplemental Data:
Net Assets, end of Period (000 omitted) ........................ $62,737 $73,253
Ratio of Expenses to Average Net Assets# ...................... 0.45% 0.45%
Ratio of Net Investment Income to Average Net Assets# ......... 5.24% 3.15%
Ratio of Expenses without waivers and assumption 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>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Premier Share outstanding throughout each period shown. This information
is supplemented by financial statements and accompanying notes appearing in
the Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders can
obtain a copy of this report by contacting the Fund or their Shareholder
Servicing Agent. The financial statements and notes, as well as the financial
information set forth in the table below for each of the five years in the
period ended August 31, 1995, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to shareholders.
VISTA TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Premier Shares
-----------------------------------------------------------------
Year 11/1/93 Year ended 7/18/90*
Ended through ------------------------------ through
8/31/95 8/31/94+++ 10/31/93 10/31/92 10/31/91 10/31/90
--------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
Income from Investment Operations:
Net Investment Income .............. 0.032 0.018 0.022 0.031 0.046 0.002
-------- -------- -------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income .......................... 0.032 0.018 0.022 0.031 0.046 0.002
-------- -------- -------- ------- ------- -------
Net Asset Value, End of Period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======= =======
Total Return ......................... 3.29% 1.79% 2.21% 3.09% 4.68% 6.82%
Ratios/Supplemental Data:
Net Assets, End of Period
(000 omitted) ..................... $148,436 $229,306 $225,791 $87,027 $19,174 $11,320
Ratio of Expenses to Average Net
Assets+ .......................... 0.56% 0.55% 0.55% 0.55% 0.55% 0.55%
Ratio of Net Investment Income to
Average Net Assets+ .............. 3.21% 2.11% 2.16% 2.92% 4.39% 6.82%
Ratio of Expenses without waivers
and assumption of expenses to
Average Net Assets+ .............. 0.84% 0.78% 0.79% 0.76% 0.82% 0.71%
Ratio of Net Investment Income
without waivers and assumption of
expenses to Average Net Assets+ ... 2.93% 1.89% 1.92% 2.71% 4.12% 6.66%
</TABLE>
- ---------------
+ Periods less than one year have been annualized.
++ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of operations.
11
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent with
maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund does not purchase
securities issued or guaranteed by agencies or instrumentalities of the U.S.
Government, and does not enter into repurchase agreements. Income on direct
investments in U.S. Treasury securities is generally not subject to state and
local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. In addition, the Fund will
seek to enhance its yield by investing in repurchase agreements which are
fully collateralized by U.S. Treasury obligations. The dollar weighted
average maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, and obligations issued or
guaranteed as to principal and interest by certain agencies or
instrumentalities of the U.S. Government. Income on direct investments in
U.S. Treasury securities and obligations of the agencies and
instrumentalities in which the Fund invests is generally not subject to state
and local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less. Due to state income tax
considerations, the Fund will not enter into repurchase agreements.
===========
Shareholders of the above Funds that reside in a state that imposes an
income tax should determine through consultation with their own tax advisors
whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status, and whether the
Fund's capital gains and other income, if any, when distributed will be
subject to the state's income tax. See "How Dividends and Distributions are
Made; Tax Information."
===========
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Treasury or agencies or instrumentalities of the U.S.
Government, and in repurchase agreements collateralized by these obligations.
The dollar weighted average maturity of the Fund will be 60 days or less.
12
<PAGE>
Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and the maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar- denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 90 days or less.
Vista Prime Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar- denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 60 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations (as defined under "Additional
Investment Policies of Vista Tax Free Money Market Fund"). As a fundamental
policy, under normal market conditions the Fund will have at least 80% of its
assets invested in Municipal Obligations the interest on which, in the
opinion of bond counsel, is excluded from gross income for federal income tax
purposes and does not constitute a preference item which would be subject to
the federal alternative minimum tax on individuals (these preference items
are referred to as "AMT Items"). Although the Fund will seek to invest 100%
of its assets in such Municipal Obligations, it reserves the right under
normal market conditions to invest up to 20% of its total assets in AMT Items
or securities the interest on which is subject to federal income tax. For
temporary defensive purposes, the Fund may exceed this limitation. The dollar
weighted average maturity of the Fund will be 90 days or less.
13
<PAGE>
COMMON INVESTMENT POLICIES
In lieu of investing directly, each Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high-quality obligations
which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating organizations ("NROs") (or
one NRO if the instrument was rated only by one such organization) or, if
unrated, must be determined to be of comparable quality in accordance with
the procedures of the Trustees. If a security has an unconditional guarantee
or similar enhancement, the issuer of the guarantee or enhancement may be
relied upon in meeting these ratings requirements rather than the issuer of
the security. Securities in which the Funds invest may not earn as high a
level of current income as long-term or lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal
regulations.
Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund is classified as a "non-diversified" fund
under federal securities law. This Fund's assets may be more concentrated in
the securities of any single issuer or group of issuers than if the Fund were
diversified. Each Fund other than the Vista Tax Free Money Market Fund is
classified as a "diversified" fund under federal securities laws.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices, when
consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct obligations of
the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury Securities
Money Market Fund and Vista Treasury Plus Money Market Fund may also invest
in other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Certain U.S. Government Obligations, such as U.S. Treasury securities and
direct pass-through certificates of the Government National Mortgage
Association (GNMA), are backed by the "full faith and credit" of the U.S.
Government. Other U.S. Government Obligations, such as obligations of Federal
Home Loan Banks and the Federal Home Loan Mortgage Corporation, are not
backed by the "full faith and credit" of the U.S. Government. In the case of
securities not backed by the "full faith and credit" of the U.S. Government,
the investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the U.S. Government itself in the event the agency or instrumentality
does not meet its commitments.
Repurchase Agreements, Securities Loans and Forward Commitments. Each Fund
other than Vista 100% U.S. Treasury Securities Money Market Fund and Vista
Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other
14
<PAGE>
than the Vista Tax Free Money Market Fund also has the ability to lend
portfolio securities in an amount equal to not more than 30% of its total
assets to generate additional income. These transactions must be fully
collateralized at all times. Each Fund may purchase securities for delivery
at a future date, which may increase its overall investment exposure and
involves a risk of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to a Fund if the other
party should default on its obligation and the Fund is delayed or prevented
from recovering the collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). A Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, a Fund would acquire the
right to sell a security at an agreed upon price within a specified period
prior to its maturity date. These transactions involve some risk to a Fund if
the other party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 20% of its total
assets in separately traded principal and interest components of securities
backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". Vista Cash Management Fund, Vista Prime Money
Market Fund and Vista Tax Free Money Market Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. Each
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which Vista Tax Free Money Market Fund, Vista
Cash Management Fund and Vista Prime Money Market Fund may invest include
participation certificates and, in the case of Vista Cash Management Fund and
Vista Prime Money Market Fund, certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by
others; certificates of indebtedness or safekeeping are documentary receipts
for such original securities held in custody by others. As a result of the
floating or variable rate nature of these investments, a Fund's yield may
decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, a Fund's yield may increase and it may
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have reduced risk of capital depreciation. Demand features on certain
floating or variable rate securities may obligate a Fund to pay a "tender
fee" to a third party. Demand features provided by foreign banks involve
certain risks associated with foreign investments. The Internal Revenue
Service has not ruled on whether interest on participations in floating or
variable rate municipal obligations is tax exempt, and the Tax Free Fund
would purchase such instruments based on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund may invest up to 10% of its total assets in
shares of other money market funds, subject to applicable regulatory
limitations.
Portfolio Turnover. It is intended that the Funds will be fully managed by
buying and selling securities, as well as holding securities to maturity. The
frequency of the Funds' portfolio transactions will vary from year to year.
In managing a Fund, the Fund's advisers will seek to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund and Vista Prime
Money Market Fund
Vista Cash Management Fund and Vista Prime Money Market Fund may also
invest in the following instruments, when consistent with their overall
objectives and policies. These instruments, and certain associated risks, are
more fully described in the SAI.
Bank Obligations. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation
or by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, most often a pool of assets similar to one another, such
as motor vehicle receivables or credit card receivables.
Municipal Obligations. The Funds may invest in high-quality, short-term
municipal obligations that carry yields that are competitive with those of
other types of money market instruments in which they may invest. Dividends
paid by these Funds that are derived from interest on municipal obligations
will be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The Funds
intend to invest a substantial portion of their assets from time to time in
securities of foreign governments and supranational agencies. The Funds will
limit their investments in foreign government obligations to commercial paper
and other short-term notes issued or guaranteed by the governments of Western
Europe, Australia, New Zealand, Japan and Canada. Obligations of
supranational agencies, such as the International Bank for Reconstruction and
Development (also known as the World Bank) are supported by subscribed, but
unpaid, commitments of member countries. There is no assurance that these
commitments will be undertaken or complied with in the future, and foreign
and supranational securities are subject to certain risks associated with
foreign investing.
Custodial Receipts. The Funds may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in
connection with programs sponsored by banks and brokerage firms. These are
not deemed
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U.S. Government securities. These notes and bonds are held in custody by a
bank on behalf of the owners of the receipts.
Additional Investment Policies of Vista Tax Free Money Market Fund
The following provides additional information regarding the permitted
investments of Vista Tax Free Money Market Fund. These investments, and
certain associated risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations issued by
or on behalf of states, territories and possessions of the United States, and
their authorities, agencies, instrumentalities and political subdivisions,
the interest on which, in the opinion of bond counsel, is excluded from gross
income for federal income tax purposes (without regard to whether the
interest thereon is also exempt from the personal income taxes of any state
or whether the interest thereon constitutes a preference item for purposes of
the federal alternative minimum tax).
Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of
general operating expenses or the refunding of outstanding debts. They may
also be issued to finance various private activities, including the lending
of funds to public or private institutions for the construction of housing,
educational or medical facilities, and may include certain types of
industrial development bonds, private activity bonds or notes issued by
public authorities to finance privately owned or operated facilities, or to
fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes. The Municipal
Obligations in which the Fund invests may consist of municipal notes,
municipal commercial paper and municipal bonds maturing or deemed to mature
in 397 days or less.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
or installment payments in future years unless money is later appropriated
for such purpose. The Fund will limit its investments in non-appropriation
leases to 10%
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of its assets. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. Certain investments in municipal lease obligations may
be illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market Fund
invests must satisfy the following ratings criteria: Municipal bonds must be
rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another
NRO, municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's
or SP-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, and municipal commercial paper must be rated in the
category Prime-1 by Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or
have a comparable rating from another NRO, or, if any of the foregoing is
unrated, it must be of comparable quality. Municipal Obligations which
satisfy the foregoing short-term ratings criteria need not also satisfy the
long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds limit
investment risks for their shareholders. These regulations and restrictions
prohibit each Fund from: (a) with certain limited exceptions, investing more
than 5% of its total assets in the securities of any one issuer (this
limitation does not apply to the Tax Free Fund or to U.S. Government
Obligations held by the other Funds); (b) investing more than 10% of its net
assets in illiquid securities (which include securities restricted as to
resale unless they are determined to be readily marketable in accordance with
procedures established by the Board of Trustees); or (c) investing more than
25% of its total assets in any one industry (excluding U.S. Government
Obligations, bank obligations and, for the Tax Free Money Market Fund,
obligations of states, cities, municipalities or other public authorities, as
well as municipal obligations secured by bank letters of credit or
guarantees). A complete description of these and other investment policies is
included in the SAI. Except for each Fund's investment objective, restriction
(c) above and investment policies designated as fundamental above or in the
SAI, the Funds' investment policies are not fundamental. The Trustees may
change any non-fundamental investment policy without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to maintain
a stable net asset value. Changes in interest rates may affect the value of
the obligations held by the Funds. The value of fixed income securities
varies inversely with changes in prevailing interest rates, although money
market instruments are generally less sensitive to changes in interest rates
than are longer-term securities. For a discussion of certain other risks
associated with the Funds' additional investment activities, see "Other
Investment Practices," "Additional Investment Policies of Vista Cash
Management Fund and Vista Prime Money Market Fund" and "Additional Investment
Policies of Vista Tax Free Money Market Fund."
Vista Cash Management Fund and Vista Prime Money Market Fund. These Funds
are permitted to invest any portion of their assets in obligations of
domestic banks (including their foreign branches), and in obligations of
foreign issuers. The ability to concentrate in the banking industry may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. 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
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of funds for the purpose of financing lending operations under prevailing
money market conditions. General economic conditions as well as exposure to
credit losses arising from possible financial difficulties of borrowers play
an important part in the operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable domestic obligations, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization
of foreign assets, and the possible establishment of exchange controls or
other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches), and
accounting, auditing and financial reporting standards and practices may
differ from those applicable to U.S. issuers. In addition, foreign banks are
not subject to regulations comparable to U.S. banking regulations.
Vista Tax Free Money Market Fund. This Fund may invest without limitation
in Municipal Obligations secured by letters of credit or guarantees from U.S.
banks (including their foreign branches), and may also invest in Municipal
Obligations backed by foreign institutions. These investments are subject to
the considerations discussed in the preceding paragraphs relating to Vista
Cash Management Fund and Vista Prime Money Market Fund.
This Fund is "non-diversified," which may make the value of its shares
more susceptible to developments affecting issuers in which the Fund invest.
In addition, more than 25% of the assets of the Fund may be invested in
securities to be paid from revenue of similar projects, which may cause the
Fund to be more susceptible to similar economic, political, or regulatory
developments.
Because this Fund will invest primarily in obligations issued by states,
cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial
and fiscal difficulties. If a municipal issuer is unable to meet its
financial obligations, the income derived by the Fund and the Fund's ability
to preserve capital and liquidity could be adversely affected.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the
interest on which is not subject to federal income tax. This legislation may
affect the availability of Municipal Obligations for investment by the Fund.
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to each of
the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its
predecessors have over 100 years of
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money management experience. For its investment advisory services to each of
the Funds, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.10% of each Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to each Fund other than the Vista Cash Management
Fund and the Vista Tax Free Money Market Fund, pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly- owned operating
subsidiary of Chase. CAM makes investment decisions for each of these Funds
on a day-to-day basis. For these services, CAM is entitled to receive a fee,
payable by Chase from its advisory fee, at an annual rate equal to 0.03% of
each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to
institutional clients and to consolidate Chase's investment management
function. The same individuals who serve as portfolio managers for Chase also
serve as portfolio managers for CAM. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
Texas Commerce Bank, National Association ("TCB") is the sub-investment
adviser to the Vista Cash Management Fund and the Vista Tax Free Money Market
Fund pursuant to a Sub-Investment Advisory Agreement between Chase and TCB.
TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax
Free Money Market Fund on a day-to-day basis. For these services, TCB is
entitled to receive a fee, payable by Chase from its advisory fee, at an
annual rate equal to 0.03% of each such Fund's average daily net assets. TCB
is located at 600 Travis, Houston, Texas 77002.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Premier Shares may be purchased through certain investment representatives
or shareholder servicing agents. Qualified investors are defined to be
institutions, trusts, partnerships, corporations, qualified and other
retirement plans and fiduciary accounts opened by a bank, trust company or
thrift institution which exercises investment authority over such accounts.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be
accepted. When purchases are made by check, redemptions will not be allowed
until clearance of the purchase check, which may take 15 calendar days or
longer. In addition, redemption of shares purchased through ACH will not be
allowed until clearance of your payment, which may take 7 business days or
longer. In the event a check used to pay for shares is not honored by a bank,
the purchase order will be cancelled and the shareholder will be liable for
any losses or expenses incurred by a Fund.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening an account.
Buying shares through the Systematic Investment Plan. You can make regular
investments of $100 or more per transaction through automatic periodic
deduction from your bank savings or checking account. Shareholders electing
to start this Systematic Investment Plan when opening an account should
complete Section 8 of the account application. Current shareholders may begin
the Plan at any time by
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sending a signed letter with signature guarantee and a deposit slip or voided
check to the Vista Service Center. Call the Vista Service Center at
1-800-622-4273 for complete instructions.
Buying shares through an investment representative or shareholder
servicing agent. Premier Shares of the Funds may be purchased through a
shareholder servicing agent (i.e., a financial institution, such as a bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Funds) or by customers of brokers or
certain financial institutions which have entered into Selected Dealer
Agreements with the Funds' distributor. An investor may purchase Premier
Shares by authorizing his shareholder servicing agent or investment
representative to purchase shares on his behalf through the Funds'
distributor. Shareholder servicing agents may offer additional services to
their customers, including customized procedures for the purchase and
redemption of Premier Shares, such as pre-authorized or systematic purchase
and withdrawal programs and "sweep" checking programs. For further
information, see "Other Information Concerning the Funds" in this prospectus
and the SAI.
Shares are sold without a sales load at the net asset value next
determined after the Vista Service Center receives your order in proper form
on any business day during which the Federal Reserve Bank of New York and the
New York Stock Exchange are open for business ("Fund Business Day"). To
receive that day's dividend, the Vista Service Center or your investment
representative or shareholder servicing agent must generally receive your
order prior to a Fund's Cut-off Time. The Funds' Cut-off Times (Eastern time)
are as follows:
Vista 100% U.S. Treasury Securities Money Market Fund .... Noon
Vista Tax Free Money Market Fund ......................... Noon
Vista Federal Money Market Fund .......................... 2:00 p.m.
Vista U.S. Government Money Market Fund ................. 2:00 p.m.
Vista Cash Management Fund .............................. 2:00 p.m.
Vista Prime Money Market Fund ............................ 2:00 p.m.
Vista Treasury Plus Money Market Fund ................... 4:00 p.m.
Orders for shares received and accepted prior to the Cut-off Times will be
entitled to all dividends declared on that day. Orders received for shares
after a Fund's Cut-off Time and prior to 4:00 p.m., Eastern time on any Fund
Business Day will not be accepted and executed on the same day except at the
Funds' discretion. Orders received and not accepted after a Fund's Cut-off
Time will be considered received prior to the Fund's Cut-off Time on the
following Fund Business Day and processed accordingly. Orders for shares are
accepted by each Fund after funds are converted to federal funds. Orders paid
by check and received before a Fund's Cut-off Time will generally be
available for the purchase of shares the following Fund Business Day. The
Funds reserve the right to reject any purchase order.
Minimum Investments. Each Fund has established a minimum initial
investment amount of $100,000 for the purchase of Premier Shares.
Shareholders must maintain an average account balance of $100,000 in the
Premier Shares of a Fund at all times. There is no minimum for subsequent
investments.
How to Sell Shares
You can sell your Fund shares on any Fund Business Day either directly or
through your investment representative or shareholder servicing agent. A Fund
will only forward redemption payments on shares for which it has collected
payment of the purchase price.
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Selling shares directly to a Fund. Send a signed letter of instruction to
the Vista Service Center. The price you receive is the next net asset value
calculated after your request is received in proper form. In order to allow
the advisers to most effectively manage the Funds, investors are urged to make
redemption requests as early in the day as possible.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
A Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
A Fund generally sends you payment for your shares the Fund Business Day
after your request is received in proper form, provided your request is
received by the Vista Service Center prior to the Fund's Cut-off Time, and
assuming the Fund has collected payment of the purchase price of your shares.
Under unusual circumstances, the Funds may suspend redemptions, or postpone
payment for more than seven business days, as permitted by federal securities
laws.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Funds. Unless an investor indicates otherwise on the account application, the
Funds will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Funds with his or her account
registration and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, a Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither a Fund nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, or contact
your investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Selling shares through your investment representative or your shareholder
servicing agent. Your investment representative or your shareholder servicing
agent must receive your request before the Cut-off Time for your Fund to
receive that day's net asset value. Your representative will be responsible
for furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntary redeem your
shares if the aggregate net asset value of the shares in your account is less
than $100,000 or if you purchase through the Systematic Investment Plan and
fail to meet that Fund's investment minimum within a twelve month period. In
the event of any such redemption, you will receive at least 60 days' notice
prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for Premier Shares of certain other Vista
money market funds at net asset value and for certain classes of shares of
the Vista non-money market funds at net asset value plus
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any applicable sales charge, subject to any minimum investment requirement.
Not all Vista funds offer all classes of shares. The prospectus of the other
Vista fund into which shares are being exchanged should be read carefully and
retained for future reference.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. Ask your investment
representative or the Vista Service Center for prospectuses of other Vista
funds. Please read the prospectus carefully before investing and keep it for
future reference. Shares of certain Vista funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Funds, the
Funds reserve the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving a Fund in a
year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is currently
determined daily as of 4:00 p.m., Eastern time on each Fund Business Day by
dividing the net assets of a Fund attributable to such class by the number of
shares of such class outstanding at the time the determination is made.
Effective with the anticipated introduction of certain automated share
purchase programs, the net asset value of shares of each class of Funds
available through the programs will also be determined as of 6:00 p.m.,
Eastern time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized cost
in accordance with federal securities laws, certain requirements of which are
summarized under "Common Investment Policies." This method increases
stability in valuation, but may result in periods during which the stated
value of a portfolio security is higher or lower than the price a Fund would
receive if the instrument were sold. It is anticipated that the net asset
value of each share of each Fund will remain constant at $1.00 and the Funds
will employ specific investment policies and procedures to accomplish this
result, although no assurance can be given that they will be able to do so on
a continuing basis. The Board of Trustees will review the holdings of each
Fund at intervals it deems appropriate to determine whether that Fund's net
asset value calculated by using available market quotations (or an
appropriate substitute which reflects current market conditions) deviates
from $1.00 per share based upon amortized cost. In the event the Trustees
determine that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, the Trustees will
take such corrective action as they regard as necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is declared
as a dividend to the shareholders each Fund Business Day. Dividends are
declared as of the time of day which corresponds
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to the latest time on that day that a Fund's net asset value is determined.
Shares begin accruing dividends on the day they are purchased. Dividends are
distributed monthly. Unless a shareholder arranges to receive dividends in
cash or by ACH to a pre-established bank account, dividends are distributed
in the form of additional shares. Dividends that are otherwise taxable are
still taxable to you whether received in cash or additional shares. Net
realized short-term capital gains, if any, will be distributed at least
annually. The Funds do not expect to realize net long-term capital gains.
Net investment income for each Fund consists of all interest accrued and
discounts earned, less amortization of any market premium on the portfolio
assets of the Fund and the accrued expenses of the Fund.
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund
does not qualify as a regulated investment company for any taxable year or
does not make distributions as it intends, the Fund will be subject to tax on
all of its income and gains.
Distributions by a Fund of its ordinary income and short-term capital
gains are generally taxable to you as ordinary income. Distributions by Vista
Tax Free Money Market Fund of its tax-exempt interest income will not be
subject to federal income tax. Such distributions will generally be subject
to state and local taxes, but may be exempt if paid out of interest on
municipal obligations of the state or locality in which you reside.
Distributions by a Fund of any net long-term capital gains would be taxable
as such, regardless of the length of time you have held your shares.
Distributions will be taxable in the same manner for federal income tax
purposes whether received in cash or in shares through the reinvestment of
distributions.
To the extent distributions are attributable to interest from obligations
of the U.S. Government and certain of its agencies and instrumentalities,
such distributions may be exempt from certain types of state and local taxes.
Early in each calendar year the Funds will notify you of the amount and
tax status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Funds. You should consult your tax adviser to determine the
precise effect of an investment in the Funds on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Distribution Arrangements
The Funds' distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. Vista
U.S. Government Money Market Fund has adopted a Rule 12b-1 distribution plan
which provides that it will pay distribution fees at annual rates of up to
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0.10% of the average daily net assets attributable to its Premier Shares.
There is no distribution plan for Premier Shares of the other Funds. Payments
under the distribution plan shall be used to compensate or reimburse the
Funds' distributor and broker-dealers for services provided and expenses
incurred in connection with the sale of Premier Shares of Vista U.S.
Government Money Market Fund, and are not tied to the amount of actual
expenses incurred. Some activities intended to promote the sale of Premier
Shares of Vista U.S. Government Money Market Fund will be conducted generally
by the Vista Family of Funds, and activities intended to promote the Fund's
Premier Shares may also benefit the Fund's other shares and other Vista
funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket
to a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging
and meals, in connection with attendance at training and educational meetings
within and outside the U.S.
Shareholder Servicing Agents
Each Fund has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers, including assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the
average daily net assets of the Premier Shares of each Fund held by investors
for whom the shareholder servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for the
provision of shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain shareholder servicing agents may (although they are
not required by the Trust to do so) credit to the accounts of their customers
from whom they are already receiving other fees amounts not exceeding such
other fees or the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of a Fund attributable to shares of such
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to a Fund or its shareholders, since it will
be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Funds' administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.05% of each
Fund's average daily net assets.
25
<PAGE>
VFD provides certain sub-administrative services to each Fund pursuant to a
distribution and sub- administration agreement and is entitled to receive a
fee for these services from each Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee
to pay for certain expenses incurred in connection with organizing new series
of the Trust and certain other ongoing expenses of the Trust. VFD is located
at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for each Fund and receives
compensation under an agreement with the Funds. Securities and cash of each
Fund may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Funds' custodian for all services to the Funds, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Funds. Shareholder servicing and distribution fees
are allocated to specific classes of the Funds. In addition, the Funds may
allocate transfer agency and certain other expenses by class. Service
providers to a Fund may, from time to time, voluntarily waive all or a
portion of any fees to which they are entitled.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was known as
the Vista Global Market Fund. The Trust has reserved the right to create and
issue additional series and classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted.
Shares of each class of a Fund generally vote together except when required
under federal securities laws to vote separately on matters that only affect
a particular class, such as the approval of distribution plans for a
particular class. Fund shares will be maintained in book entry form, and no
certificates representing shares owned will be issued to shareholders.
Each Fund issues multiple classes of shares. This Prospectus relates only
to Premier Shares of the Funds. Premier Shares may be purchased only by
qualified investors. See "How to Buy, Sell and Exchange Shares." The Funds
offer other classes of shares in addition to these classes. The categories of
investors that are eligible to purchase shares and minimum investment
requirements may differ for each class of
26
<PAGE>
Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service
fee levels, and levels of certain other expenses, which will affect the
relative performance of the different classes. Investors may call
1-800-622-4273 to obtain additional information about other classes of shares
of the Funds that are offered. Any person entitled to receive compensation
for selling or servicing shares of a Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
any of the Funds, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities so purchased.
Chase and its affiliates deal, trade and invest for their own accounts in
U.S. Government obligations, municipal obligations and commercial paper and
are among the leading dealers of various types of U.S. Government obligations
and municipal obligations. Chase and its affiliates may sell U.S. Government
obligations and municipal obligations to, and purchase them from, other
investment companies sponsored by the Funds' distributor or affiliates of the
distributor. Chase will not invest any Fund assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by any Fund. Chase has informed the Funds
that in making its investment decisions, it does not obtain or use material
inside information in the possession of any other division or department of
Chase
27
<PAGE>
or in the possession of any affiliate of Chase, including the division that
performs services for the Trust as custodian. Shareholders of the Funds
should be aware that, subject to applicable legal or regulatory restrictions,
Chase and its affiliates may exchange among themselves certain information
about the shareholders and their accounts. Transactions with affiliated
broker-dealers will only be executed on an agency basis in accordance with
applicable federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective yield".
Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will
continue to be generated each week over a 52-week period. It is shown as a
percentage of such investment. "Effective yield" is the annualized "yield"
calculated assuming the reinvestment of the income earned during each week of
the 52-week period. The "effective yield" will be slightly higher than the
"yield" due to the compounding effect of this assumed reinvestment.
The Vista Tax Free Money Market Fund may also quote a "tax equivalent
yield", the yield that a taxable money market fund would have to generate in
order to produce an after-tax yield equivalent to a tax free fund's yield.
The tax equivalent yield of the Vista Tax Free Money Market Fund can then be
compared to the yield of a taxable money market fund. Tax equivalent yields
can be quoted on either a "yield" or "effective yield" basis.
Investment performance may from time to time be included in advertisements
about the Funds. Performance is calculated separately for each class of
shares. Because this performance information is based on historical earnings,
it should not be considered as an indication or representation of future
performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's
portfolio, each Fund's operating expenses and which class of shares you
purchase. Investment performance also reflects the risks associated with each
Fund's investment objective and policies. These factors should be considered
when comparing each Fund's investment results to those of other mutual funds
and investment vehicles.
Quotations of investment performance for any period when an expense
limitation was in effect will be greater if the limitation had not been in
effect. Each Fund's performance may be compared to other mutual funds,
relevant indices and rankings prepared by independent services. See the SAI.
28
<PAGE>
[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kanasas City, MO 64141-6392
- ----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VPMM-1-596CX
[VISTA LOGO]
Premier Shares
- ----------------------------------------
(bullet) 100% U.S. Treasury Securities
Money Market Fund
(bullet) Treasury Plus Money
Market Fund
(bullet) Federal Money
Market Fund
(bullet) U.S. Government
Money Market Fund
(bullet) Cash Management
Money Market Fund
(bullet) Prime Money
Market Fund
(bullet) Tax Free Money
Market Fund
Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
May 6, 1996
PROSPECTUS
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
Institutional[SM] Shares
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Funds in their May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-622-4273. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUNDS ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES AND
ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ........................................................... 3
The expenses you pay on your Fund investment, including examples
Financial Highlights ...................................................... 4
The Funds' financial history
Fund Objectives and Investment Approach
Vista 100% U.S. Treasury Securities Money Market Fund .................... 10
Vista Treasury Plus Money Market Fund .................................... 10
Vista Federal Money Market Fund .......................................... 10
Vista U.S. Government Money Market Fund .................................. 10
Vista Cash Management Fund ............................................... 11
Vista Prime Money Market Fund ............................................ 11
Vista Tax Free Money Market Fund ......................................... 11
Common Investment Policies ................................................ 12
Management ................................................................ 18
Chase Manhattan Bank, the Funds' adviser; Chase Asset Management and
Texas Commerce Bank, the Funds' sub-advisers
How to Buy, Sell and Exchange Shares ...................................... 18
How the Funds Value their Shares .......................................... 21
How Dividends and Distributions Are Made; Tax Information ................. 21
How the Funds distribute their earnings, and tax treatment related to
those earnings
Other Information Concerning the Funds .................................... 22
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information ................................................... 25
How performance is determined, stated and/or advertised
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in a Fund based on
expenses incurred in the most recent fiscal year by each Fund other than the
Vista 100% U.S. Treasury Securities Money Market Fund, and based on estimated
expenses for the current fiscal year for the Vista 100% U.S. Treasury
Securities Money Market Fund. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
<TABLE>
<CAPTION>
Vista 100%
U.S. Vista
Treasury Treasury Vista Vista U.S. Vista Vista Vista
Securities Plus Federal Government Cash Prime Tax Free
Money Money Money Money Manage- Money Money
Market Market Market Market ment Market Market
Fund Fund Fund Fund Fund Fund Fund
------------- ------------- ------------- ------------- ------------- ------------- -------------
Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Shares Shares Shares Shares Shares Shares Shares
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating
Expenses (as a percentage
of average net assets)
- --------------------------
Investment Advisory Fee ... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
12b-1 Fee ................. n/a n/a n/a n/a n/a n/a n/a
Shareholder Servicing Fee n/a n/a n/a n/a n/a n/a n/a
Other Expenses ............. 0.17% 0.17% 0.20% 0.15% 0.15% 0.16% 0.20%
Total Fund Operating
Expenses ................ 0.27% 0.27% 0.30% 0.25% 0.25% 0.26% 0.30%
Examples
- --------
Your investment of $1,000 would incur the following expenses, assuming 5% annual return:
1 year .................... 3 3 3 3 3 3 3
3 years ................... 9 9 10 8 8 8 10
5 years ................... -- 15 17 14 14 15 17
10 years .................. -- 34 38 32 32 33 38
</TABLE>
The table is provided to help you understand the expenses of investing in
the Funds and your share of the operating expenses that a Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in a Fund.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund. The financial
statements and notes, as well as the financial information set forth in the
table below, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the Annual Report to
Shareholders.
VISTA TREASURY PLUS MONEY MARKET FUND
<TABLE>
<CAPTION>
Institutional
Shares
--------------------
Year 4/20/94*
ended through
8/31/95 8/31/95
--------- --------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ........................... $ 1.00 $ 1.00
------- -------
Income From Investment Operations:
Net Investment Income ...................................... 0.053 0.014
------- -------
Less Distributions:
Dividends from Net Investment Income ........................ 0.053 0.014
------- -------
Net Asset Value, End of Period ................................ $ 1.00 $ 1.00
======= =======
Total Return ................................................... 5.36% 1.45%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted) ...................... $17,636 $14,976
Ratio of Expenses to Average Net Assets# ..................... 0.32% 0.32%
Ratio of Net Investment Income to Average Net Assets# ........ 5.21% 3.93%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets# ...................................... 0.89% 0.53%
Ratio of Net Investment Income without waivers and assumption
of Expenses to Average Net Assets# .......................... 4.64% 3.72%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund. The financial
statements and notes, as well as the financial information set forth in the
table below, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the Annual Report to
Shareholders.
VISTA FEDERAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Institutional
Shares
---------------------
Year 4/20/94*
ended through
8/31/95 8/31/94
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ........................... $ 1.00 $ 1.00
-------- --------
Income From Investment Operations:
Net Investment Income ...................................... 0.054 0.015
-------- --------
Less Distributions:
Dividends from Net Investment Income ........................ 0.054 0.015
-------- --------
Net Asset Value, End of Period ................................ $ 1.00 $ 1.00
======== ========
Total Return ................................................... 5.57% 1.54%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted) ...................... $113,591 $117,364
Ratio of Expenses to Average Net Assets# ..................... 0.31% 0.30%
Ratio of Net Investment Income to Average Net Assets# ........ 5.45% 4.26%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets# ...................................... 0.37% 0.49%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets# .......................... 5.39% 4.06%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Institutional Share outstanding throughout each period shown. This
information is supplemented by financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year
ended August 31, 1995, which is incorporated by reference into the SAI.
Shareholders can obtain a copy of this report by contacting the Fund. The
financial statements and notes, as well as the financial information set
forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to Shareholders.
VISTA U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
---------------------
Year 12/10/93*
ended through
8/31/95 8/31/94+
------- --------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .......................... $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net Investment Income ...................................... 0.055 0.026
-------- --------
Less Distributions:
Dividends from net investment income ....................... 0.055 0.026
-------- --------
Net Asset Value, End of Period ............................... $ 1.00 $ 1.00
======== ========
Total Return .................................................. 5.60% 2.61%
Ratios/Supplemental Data: .....................................
Net Assets, End of Period (000 omitted) ..................... $466,083 $212,810
Ratio of Expenses to Average Net Assets ..................... 0.27% 0.27%#
Ratio of Net Investment Income to Average Net Assets ........ 5.58% 3.81%#
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets ...................................... 0.28% 0.27%#
Ratio of Net Investment Income without waivers and
assumption of Expenses to Average Net Assets ............... 5.57% 3.81%#
</TABLE>
- ---------------
# Short periods have been annualized.
* Commencement of offering of shares.
+ In 1994 the U.S. Government Money Market Fund changed its fiscal year-end
from October 31 to August 31.
6
<PAGE>
FINANCIAL HIGHLIGHTS
On May 3, 1996, the Hanover Cash Management Fund ("Hanover Cash Management
Fund") merged into the Vista Cash Management Fund; therefore, commencing with
the fiscal year ending August 31, 1996, selected per share data and ratios
for one Hanover Cash Management Fund share outstanding will be provided.
Accordingly, no information is presented below.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this annual report by contacting the Fund. The financial
statements and notes, as well as the financial information set forth in the
table below, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the Annual Report to
Shareholders.
VISTA PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
Institutional
Shares
---------------------
Year 4/26/94*
ended through
8/31/95 8/31/94+
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .............................. $ 1.00 $ 1.00
-------- -------
Income From Investment Operations:
Net Investment Income .......................................... 0.055 0.014
Net Gains or (Losses) in Securities (both realized and
unrealized) .................................................... (0.003) --
-------- -------
Total from Investment Operations ................................ 0.052 0.014
-------- -------
Voluntary Capital Contribution ................................... 0.003 --
-------- -------
Less Distributions:
Dividends from Net Investment Income ........................... 0.055 0.014
-------- -------
Net Asset Value, End of Period ..................................... $ 1.00 $ 1.00
======== =======
Total Return ....................................................... 5.62% 1.50%
Ratios/Supplemental Data:
Net Assets, End of Period (000 omitted) ........................... $185,640 $57,961
Ratio of Expenses to Average Net Assets# .......................... 0.27% 0.27%
Ratio of Net Investment Income to Average Net Assets# ............. 5.57% 4.21%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets# ............................................. 0.35% 0.37%
Ratio of Net Investment Income without waivers and assumption of
expenses to Average Net Assets# ................................. 5.49% 4.11%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
+ In 1994 the Prime Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering shares.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
one Institutional Share outstanding throughout each period shown. This
information is supplemented by financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year
ended August 31, 1995, which is incorporated by reference into the SAI.
Shareholders can obtain a copy of this report by contacting the Fund. The
financial statements and notes, as well as the financial information set
forth in the table below, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included in the Annual
Report to Shareholders.
VISTA TAX FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
---------------------
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
-------- --------
Less Distributions:
Dividends from Net Investment Income ........................ 0.035 0.019
-------- --------
Net Asset Value, End of Period ................................ $ 1.00 $ 1.00
======== ========
Total Return ................................................... 3.53% 1.95%
Ratios/Supplemental Data: ......................................
Net Assets, End of Period (000 omitted) ...................... $108,494 $110,332
Ratio of Expenses to Average Net Assets+ ..................... 0.33% 0.34%
Ratio of Net Investment Income to Average Net Assets+ ........ 3.46% 2.38%
Ratio of Expenses without waivers and assumption of expenses
to Average Net Assets+ ...................................... 0.34% 0.34%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets+ .......................... 3.45% 2.38%
</TABLE>
- ---------------
+ Short periods have been annualized.
++ In 1994 the Tax Free Money Market Fund changed its fiscal year-end from
October 31 to August 31.
* Commencement of offering of shares.
9
<PAGE>
FUND OBJECTIVES AND INVESTMENT APPROACH
Vista 100% U.S. Treasury Securities Money Market Fund
The Fund's objective is to provide maximum current income consistent with
maximum safety of principal and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. The Fund does not purchase
securities issued or guaranteed by agencies or instrumentalities of the U.S.
Government, and does not enter into repurchase agreements. Income on direct
investments in U.S. Treasury securities is generally not subject to state and
local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less.
Vista Treasury Plus Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in direct obligations of the U.S. Treasury, including
Treasury bills, bonds and notes, which differ principally only in their
interest rates, maturities and dates of issuance. In addition, the Fund will
seek to enhance its yield by investing in repurchase agreements which are
fully collateralized by U.S. Treasury obligations. The dollar weighted
average maturity of the Fund will be 60 days or less.
Vista Federal Money Market Fund
The Fund's objective is to provide current income consistent with
preservation of capital and maintenance of liquidity.
The Fund invests primarily in direct obligations of the U.S. Treasury,
including Treasury bills, bonds and notes, and obligations issued or
guaranteed as to principal and interest by certain agencies or
instrumentalities of the U.S. Government. Income on direct investments in
U.S. Treasury securities and obligations of the agencies and
instrumentalities in which the Fund invests is generally not subject to state
and local income taxes by reason of federal law. The dollar weighted average
maturity of the Fund will be 90 days or less. Due to state income tax
considerations, the Fund will not enter into repurchase agreements.
===========
Shareholders of the above Funds that reside in a state that imposes an
income tax should determine through consultation with their own tax advisors
whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status, and whether the
Fund's capital gains and other income, if any, when distributed will be
subject to the state's income tax. See "How Dividends and Distributions are
Made; Tax Information."
===========
Vista U.S. Government Money Market Fund
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
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The Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Treasury, or agencies or instrumentalities of the U.S.
Government, and in repurchase agreements collateralized by these obligations.
The dollar weighted average maturity of the Fund will be 60 days or less.
Vista Cash Management Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and the maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar- denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 90 days or less.
Vista Prime Money Market Fund
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar- denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 60 days or less.
Vista Tax Free Money Market Fund
The Fund's objective is to provide as high a level of current income which
is excluded from gross income for federal income tax purposes as is
consistent with the preservation of capital and maintenance of liquidity.
The Fund invests in a non-diversified portfolio of short-term, fixed rate
and variable rate Municipal Obligations (as defined under "Additional
Investment Policies of Vista Tax Free Money Market Fund"). As a fundamental
policy, under normal market conditions the Fund will have at least 80% of its
assets invested in Municipal Obligations the interest on which, in the
opinion of bond counsel, is excluded from
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gross income for federal income tax purposes and does not constitute a
preference item which would be subject to the federal alternative minimum tax
on individuals (these preference items are referred to as "AMT Items").
Although the Fund will seek to invest 100% of its assets in such Municipal
Obligations, it reserves the right under normal market conditions to invest
up to 20% of its total assets in AMT Items or securities the interest on
which is subject to federal income tax. For temporary defensive purposes, the
Fund may exceed this limitation. The dollar weighted average maturity of the
Fund will be 90 days or less.
COMMON INVESTMENT POLICIES
In lieu of investing directly, each Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the applicable Fund.
Each Fund seeks to maintain a net asset value of $1.00 per share.
The Funds invest only in U.S. dollar-denominated high quality obligations
which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating organizations ("NROs") (or
one NRO if the instrument was rated only by one such organization) or, if
unrated, must be determined to be of comparable quality in accordance with
the procedures of the Trustees. If a security has an unconditional guarantee
or similar enhancement, the issuer of the guarantee or enhancement may be
relied upon in meeting these ratings requirements rather than the issuer of
the security. Securities in which the Funds invest may not earn as high a
level of current income as long-term or lower quality securities.
The Funds purchase only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal
regulations.
Although each Fund seeks to be fully invested, at times it may hold
uninvested cash reserves, which would adversely affect its yield.
Vista Tax Free Money Market Fund is classified as a "non-diversified" fund
under federal securities law. This Fund's assets may be more concentrated in
the securities of any single issuer or group of issuers than if the Fund were
diversified. Each Fund other than the Vista Tax Free Money Market Fund is
classified as a "diversified" fund under federal securities laws.
There can be no assurance that any Fund will achieve its investment
objective.
Other Investment Practices
The Funds may also engage in the following investment practices, when
consistent with their overall objectives and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. Each Fund may invest in direct obligations of
the U.S. Treasury. Each Fund other than Vista 100% U.S. Treasury Securities
Money Market Fund and Vista Treasury Plus Money Market Fund may also invest
in other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Certain U.S. Government Obligations, such as U.S. Treasury securities and
direct pass-through certificates of the Government National Mortgage
Association (GNMA), are backed by the "full faith and credit" of the U.S.
Govern-
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ment. Other U.S. Government Obligations, such as obligations of Federal Home
Loan Banks and the Federal Home Loan Mortgage Corporation, are not backed by
the "full faith and credit" of the U.S. Government. In the case of securities
not backed by the "full faith and credit" of the U.S. Government, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the U.S. Government itself in the event the agency or instrumentality
does not meet its commitments.
Repurchase Agreements, Securities Loans and Forward Commitments. Each Fund
other than Vista 100% U.S. Treasury Securities Money Market Fund and Vista
Federal Money Market Fund may enter into agreements to purchase and resell
securities at an agreed-upon price and time. Each Fund other than the Vista
Tax Free Money Market Fund also has the ability to lend portfolio securities
in an amount equal to not more than 30% of its total assets to generate
additional income. These transactions must be fully collateralized at all
times. Each Fund may purchase securities for delivery at a future date, which
may increase its overall investment exposure and involves a risk of loss if
the value of the securities declines prior to the settlement date. These
transactions involve some risk to a Fund if the other party should default on
its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. Each Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever a Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). A Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. Each Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, a Fund would acquire the
right to sell a security at an agreed upon price within a specified period
prior to its maturity date. These transactions involve some risk to a Fund if
the other party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the transaction.
Acquisition of puts will have the effect of increasing the cost of the
securities subject to the put and thereby reducing the yields otherwise
available from such securities.
STRIPS and Zero Coupon Obligations. Each Fund other than Vista 100% U.S.
Treasury Securities Money Market Fund may invest up to 20% of its total
assets in separately traded principal and interest components of securities
backed by the full faith and credit of the U.S. Government, including
instruments known as "STRIPS". Vista Cash Management Fund, Vista Prime Money
Market Fund and Vista Tax Free Money Market Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. Each
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate
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changes, and variable rate securities, whose interest rates are periodically
adjusted. Certain of these instruments permit the holder to demand payment of
principal and accrued interest upon a specified number of days' notice from
either the issuer or a third party. The securities in which Vista Tax Free
Money Market Fund, Vista Cash Management Fund and Vista Prime Money Market
Fund may invest include participation certificates and, in the case of Vista
Cash Management Fund and Vista Prime Money Market Fund, certificates of
indebtedness or safekeeping. Participation certificates are pro rata
interests in securities held by others; certificates of indebtedness or
safekeeping are documentary receipts for such original securities held in
custody by others. As a result of the floating or variable rate nature of
these investments, a Fund's yield may decline and it may forego the
opportunity for capital appreciation during periods when interest rates
decline; however, during periods when interest rates increase, a Fund's yield
may increase and it may have reduced risk of capital depreciation. Demand
features on certain floating or variable rate securities may obligate a Fund
to pay a "tender fee" to a third party. Demand features provided by foreign
banks involve certain risks associated with foreign investments. The Internal
Revenue Service has not ruled on whether interest on participations in
floating or variable rate municipal obligations is tax exempt, and the Tax
Free Fund would purchase such instruments based on opinions of bond counsel.
Other Money Market Funds. Each Fund other than Vista 100% U.S. Treasury
Securities Money Market Fund may invest up to 10% of its total assets in
shares of other money market funds, subject to applicable regulatory
limitations.
Portfolio Turnover. It is intended that the Funds will be fully managed by
buying and selling securities, as well as holding securities to maturity. The
frequency of the Funds' portfolio transactions will vary from year to year.
In managing a Fund, the Fund's advisers will seek to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. More frequent turnover will generally result in higher transactions
costs, including dealer mark-ups.
Additional Investment Policies of Vista Cash Management Fund
and Vista Prime Money Market Fund
Vista Cash Management Fund and Vista Prime Money Market Fund may also
invest in the following instruments, when consistent with their overall
objectives and policies. These instruments, and certain associated risks, are
more fully described in the SAI.
Bank Obligations. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation
or by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, most often a pool of assets similar to one another, such
as motor vehicle receivables or credit card receivables.
Municipal Obligations. The Funds may invest in high-quality, short-term
municipal obligations that carry yields that are competitive with those of
other types of money market instruments in which they may invest. Dividends
paid by these Funds that are derived from interest on municipal obligations
will be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The Funds
intend to invest a substantial portion of their assets from time to time in
securities of foreign governments and supra-
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national agencies. The Funds will limit their investments in foreign
government obligations to commercial paper and other short-term notes issued
or guaranteed by the governments of Western Europe, Australia, New Zealand,
Japan and Canada. Obligations of supranational agencies, such as the
International Bank for Reconstruction and Development (also known as the
World Bank) are supported by subscribed, but unpaid, commitments of member
countries. There is no assurance that these commitments will be undertaken or
complied with in the future, and foreign and supranational securities are
subject to certain risks associated with foreign investing.
Custodial Receipts. The Funds may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in
connection with programs sponsored by banks and brokerage firms. These are
not deemed U.S. Government securities. These notes and bonds are held in
custody by a bank on behalf of the owners of the receipts.
Additional Investment Policies of Vista Tax Free Money Market Fund
The following provides additional information regarding the permitted
investments of Vista Tax Free Money Market Fund. These investments, and
certain associated risks, are more fully described in the SAI.
Municipal Obligations. "Municipal Obligations" are obligations issued by
or on behalf of states, territories and possessions of the United States, and
their authorities, agencies, instrumentalities and political subdivisions,
the interest on which, in the opinion of bond counsel, is excluded from gross
income for federal income tax purposes (without regard to whether the
interest thereon is also exempt from the personal income taxes of any state
or whether the interest thereon constitutes a preference item for purposes of
the federal alternative minimum tax).
Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of
general operating expenses or the refunding of outstanding debts. They may
also be issued to finance various private activities, including the lending
of funds to public or private institutions for the construction of housing,
educational or medical facilities, and may include certain types of
industrial development bonds, private activity bonds or notes issued by
public authorities to finance privately owned or operated facilities, or to
fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes. The Municipal
Obligations in which the Fund invests may consist of municipal notes,
municipal commercial paper and municipal bonds maturing or deemed to mature
in 397 days or less.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
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From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
or installment payments in future years unless money is later appropriated
for such purpose. The Fund will limit its investments in non-appropriation
leases to 10% of its assets. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event
of foreclosure might prove difficult. Certain investments in municipal lease
obligations may be illiquid.
Ratings. Municipal Obligations in which Vista Tax Free Money Market Fund
invests must satisfy the following ratings criteria: Municipal bonds must be
rated in the category Aaa by Moody's Investors Service, Inc. ("Moody's") or
AAA by Standard & Poor's Corporation ("Standard & Poor's") or AAA by Fitch
Investors Service, Inc. ("Fitch"), or have a comparable rating from another
NRO, municipal notes must be rated in the category MIG-1 or VMIG-1 by Moody's
or SP-1 by Standard & Poor's or F-1 by Fitch, or have a comparable rating
from another NRO, and municipal commercial paper must be rated in the
category Prime-1 by Moody's or A-1 by Standard & Poor's or F-1 by Fitch, or
have a comparable rating from another NRO, or, if any of the foregoing is
unrated, it must be of comparable quality. Municipal Obligations which
satisfy the foregoing short-term ratings criteria need not also satisfy the
long-term ratings criteria.
Limiting Investment Risks
Specific regulations and investment restrictions help the Funds limit
investment risks for their shareholders. These regulations and restrictions
prohibit each Fund from: (a) with certain limited exceptions, investing more
than 5% of its total assets in the securities of any one issuer (this
limitation does not apply to the Vista Tax Free Money Market Fund or to U.S.
Government Obligations held by the other Funds); (b) investing more than 10%
of its net assets in illiquid securities (which include securities restricted
as to resale unless they are determined to be readily marketable in
accordance with procedures established by the Board of Trustees); or (c)
investing more than 25% of its total assets in any one industry (excluding
U.S. Government Obligations, bank obligations and, for the Vista Tax Free
Money Market Fund, obligations of states, cities, municipalities or other
public authorities, as well as municipal obligations secured by bank letters
of credit or guarantees). A complete description of these and other
investment policies is included in the SAI. Except for each Fund's investment
objective, restriction (c) above and investment policies designated as
fundamental above or in the SAI, the Funds' investment policies are not
fundamental. The Trustees may change any non-fundamental investment policy
without shareholder approval.
Risk Factors
General. There can be no assurance that any Fund will be able to maintain
a stable net asset value. Changes in interest rates may affect the value of
the obligations held by the Funds. The value of fixed
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income securities varies inversely with changes in prevailing interest rates,
although money market instruments are generally less sensitive to changes in
interest rates than are longer-term securities. For a discussion of certain
other risks associated with the Funds' additional investment activities, see
"Other Investment Practices," "Additional Investment Policies of Vista Cash
Management Fund and Vista Prime Money Market Fund" and "Additional Investment
Policies of Vista Tax Free Money Market Fund."
Vista Cash Management Fund and Vista Prime Money Market Fund. These Funds
are permitted to invest any portion of their assets in obligations of
domestic banks (including their foreign branches), and in obligations of
foreign issuers. The ability to concentrate in the banking industry may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable domestic obligations, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization
of foreign assets, and the possible establishment of exchange controls or
other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches), and
accounting, auditing and financial reporting standards and practices may
differ from those applicable to U.S. issuers. In addition, foreign banks are
not subject to regulations comparable to U.S. banking regulations.
Vista Tax Free Money Market Fund. This Fund may invest without limitation
in Municipal Obligations secured by letters of credit or guarantees from U.S.
banks (including their foreign branches), and may also invest in Municipal
Obligations backed by foreign institutions. These investments are subject to
the considerations discussed in the preceding paragraphs relating to Vista
Cash Management Fund and Vista Prime Money Market Fund.
This Fund is "non-diversified," which may make the value of its shares
more susceptible to developments affecting issuers in which the Fund invest.
In addition, more than 25% of the assets of the Fund may be invested in
securities to be paid from revenue of similar projects, which may cause the
Fund to be more susceptible to similar economic, political, or regulatory
developments.
Because this Fund will invest primarily in obligations issued by states,
cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial
and fiscal difficulties. If a municipal issuer is unable to meet its
financial obligations, the income derived by the Fund and the Fund's ability
to preserve capital and liquidity could be adversely affected.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid
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by the mutual fund may be treated as such a preference item to shareholders.
Federal tax legislation enacted over the past few years has limited the types
and volume of bonds which are not AMT Items and the interest on which is not
subject to federal income tax. This legislation may affect the availability
of Municipal Obligations for investment by the Fund.
MANAGEMENT
The Funds' Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to each of
the Funds pursuant to an Investment Advisory Agreement and has overall
responsibility for investment decisions of each of the Funds, subject to the
oversight of the Board of Trustees. Chase is a wholly-owned subsidiary of The
Chase Manhattan Corporation, a bank holding company. Chase and its
predecessors have over 100 years of money management experience. For its
investment advisory services to each of the Funds, Chase is entitled to
receive an annual fee computed daily and paid monthly at an annual rate equal
to 0.10% of each Fund's average daily net assets. Chase is located at 270
Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to each Fund other than the Vista Cash Management
Fund and the Vista Tax Free Money Market Fund, pursuant to a Sub-Investment
Advisory Agreement between CAM and Chase. CAM is a wholly-owned operating
subsidiary of Chase. CAM makes investment decisions for each of these Funds
on a day-to-day basis. For these services, CAM is entitled to receive a fee,
payable by Chase from its advisory fee, at an annual rate equal to 0.03% of
each such Fund's average daily net assets. CAM was recently formed for the
purpose of providing discretionary investment advisory services to
institutional clients and to consolidate Chase's investment management
function. The same individuals who serve as portfolio managers for Chase also
serve as portfolio managers for CAM. CAM is located at 1211 Avenue of the
Americas, New York, New York 10036.
Texas Commerce Bank, National Association ("TCB") is the sub-investment
adviser to the Vista Cash Management Fund and the Vista Tax Free Money Market
Fund pursuant to a Sub-Investment Advisory Agreement between Chase and TCB.
TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by The Chase Manhattan Corporation. TCB makes
investment decisions for the Vista Cash Management Fund and the Vista Tax
Free Money Market Fund on a day-to-day basis. For these services, TCB is
entitled to receive a fee, payable by Chase from its advisory fee, at an
annual rate equal to 0.03% of each such Fund's average daily net assets. TCB
is located at 600 Travis, Houston, Texas 77002.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Institutional Shares may be purchased through selected financial service
firms, such as broker-dealer firms and banks ("Dealers") who have entered
into a selected dealer agreement with the Funds' distributor on each business
day during which the Federal Reserve Bank of New York and the New York Stock
Exchange are open for business ("Fund Business Day"). Qualified investors are
defined as institutions, trusts, partnerships, corporations, qualified and
other retirement plans and fiduciary accounts opened by a bank, trust company
or thrift institution which exercises investment authority over such
accounts.
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Institutional Shares are sold without a sales load at the net asset value
next determined after the Vista Service Center receives your order in proper
form on any Fund Business Day. To receive that day's dividend, the Vista
Service Center or Dealer must generally receive your order prior to a Fund's
Cut-off Time. The Funds' Cut-off Times (Eastern time) are as follows:
Vista 100% U.S. Treasury Securities Money Market Fund .... Noon
Vista Tax Free Money Market Fund ......................... Noon
Vista Federal Money Market Fund .......................... 2:00 p.m.
Vista U.S. Government Money Market Fund ................. 2:00 p.m.
Vista Cash Management Fund .............................. 2:00 p.m.
Vista Prime Money Market Fund ............................ 2:00 p.m.
Vista Treasury Plus Money Market Fund ................... 4:00 p.m.
Orders received for shares after a Fund's Cut-off Time and prior to 4:00
p.m., Eastern time on any Fund Business Day will not be accepted and executed
on the same day except at the Funds' discretion. Orders received and not
accepted after a Fund's Cut-off Time will be considered received prior to the
Fund's Cut-off Time on the following Fund Business Day and processed
accordingly. Orders for shares received and accepted prior to the Cut-off
Times will be entitled to all dividends declared on that day. The Funds
reserve the right to reject any purchase order.
All purchases of Institutional Shares must be paid for by federal funds
wire. If federal funds are not available with respect to any such order by
the close of business on the day the order is received by the Vista Service
Center, the order will be cancelled. Any order received after the Cut-off
Times noted above will not be accepted. Any funds received in connection with
late orders will be invested on the next Fund Business Day.
Federal regulations require that each investor provide a certified
Taxpayer Identification Number upon opening an account.
Dealers may offer additional services to their customers, including
customized procedures for the purchase and redemption of Institutional
Shares, such as pre-authorized or systematic purchase and withdrawal
programs, "sweep" checking programs, cash advances, automated access and
direct demand deposit debit.
Minimum Investments. Each Fund has established a minimum initial
investment amount of $1,000,000 for the purchase of Institutional Shares.
Shareholders must maintain an average account balance of $1,000,000 in the
Institutional Shares of a Fund at all times. There is no minimum for
subsequent investments.
How to Sell Shares
You may redeem all or any portion of the shares in your account on any
Fund Business Day at the net asset value next determined after a redemption
request in proper form is furnished by you to your Dealer and transmitted to
and received by the Vista Service Center. A wire redemption may be requested
by telephone to the Vista Service Center. For telephone redemptions, call the
Vista Service Center at 1-800-622-4273.
In making redemption requests, the names of the registered shareholders on
your account and your account number must be supplied. The price you receive
is the next net asset value calculated after your
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request is received in proper form. In order to allow the advisers to most
effectively manage the Funds, investors are urged to make redemption requests
as early in the day as possible.
Payment for redemption requests received in proper form prior to a Fund's
Cut-off Time but no later than 2:00 p.m., Eastern time is normally made in
federal funds wired to the redeeming shareholder on the same Fund Business
Day. Payment for redemption requests received after the Cut-off Time or 2:00
p.m., Eastern time is normally made in federal funds wired to the redeeming
shareholder on the next Fund Business Day. Under unusual circumstances, the
Funds may suspend redemptions, or postpone payment for more than seven
business days, as permitted by federal securities laws.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Funds. Unless an investor indicates otherwise on the account application, the
Funds will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Funds with his or her account
registration and address as it appears on the Funds' records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, a Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither a Fund nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, or contact
your Dealer. The Telephone Redemption Privilege may be modified or terminated
without notice.
Selling shares through your Dealer. Your Dealer must receive your request
before the Cut-off Time for your Fund to receive that day's net asset value.
Your representative will be responsible for furnishing all necessary
documentation to the Vista Service Center.
Involuntary Redemption of Accounts. Each Fund may involuntarily redeem
your shares if the aggregate net asset value of the shares of that Fund in
your account is less than $1,000,000. In the event of any such redemption,
you will receive at least 60 days' notice prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for Institutional Shares of certain other
Vista money market funds at net asset value and for certain classes of shares
of the Vista non-money market funds at net asset value plus any applicable
sales charge, subject to any minimum investment requirement. Not all Vista
funds offer all classes of shares. The prospectus of the other Vista fund
into which shares are being exchanged should be read carefully and retained
for future reference.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. Ask your investment
representative or the Vista Service Center for prospectuses of other Vista
funds. Please read the prospectus carefully before investing and keep it for
future reference. Shares of certain Vista funds are not available to
residents of all states.
20
<PAGE>
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Funds, the
Funds reserve the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving a Fund in a
year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of each Fund is currently
determined daily as of 4:00 p.m., Eastern time on each Fund Business Day by
dividing the net assets of a Fund attributable to such class by the number of
shares of such class outstanding at the time the determination is made.
Effective with the anticipated introduction of a new automated share purchase
program by certain Dealers, the net asset value of shares of each class of
Funds available through the program will also be determined as of 6:00 p.m.,
Eastern time on each Fund Business Day.
The portfolio securities of each Fund are valued at their amortized cost
in accordance with federal securities laws, certain requirements of which are
summarized under "Common Investment Policies." This method increases
stability in valuation, but may result in periods during which the stated
value of a portfolio security is higher or lower than the price a Fund would
receive if the instrument were sold. It is anticipated that the net asset
value of each share of each Fund will remain constant at $1.00 and the Funds
will employ specific investment policies and procedures to accomplish this
result, although no assurance can be given that they will be able to do so on
a continuing basis. The Board of Trustees will review the holdings of each
Fund at intervals it deems appropriate to determine whether that Fund's net
asset value calculated by using available market quotations (or an
appropriate substitute which reflects current market conditions) deviates
from $1.00 per share based upon amortized cost. In the event the Trustees
determine that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, the Trustees will
take such corrective action as they regard as necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of each Fund is declared
as a dividend to the shareholders each Fund Business Day. Dividends are
declared as of the time of day which corresponds to the latest time on that
day that a Fund's net asset value is determined. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly.
Unless a shareholder arranges to receive dividends in cash or by ACH to a
pre-established bank account, dividends are distributed in the form of
additional shares. Dividends that are otherwise taxable are still taxable to
you whether received in cash or additional shares. Net realized short-term
capital gains, if any, will be distributed at least annually. The Funds do
not expect to realize net long-term capital gains.
Net investment income for each Fund consists of all interest accrued and
discounts earned, less amortization of any market premium on the portfolio
assets of the Fund and the accrued expenses of the Fund.
21
<PAGE>
Each Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. Each Fund intends to distribute substantially all of its
ordinary income and capital gain net income on a current basis. If a Fund
does not qualify as a regulated investment company for any taxable year or
does not make distributions as it intends, the Fund will be subject to tax on
all of its income and gains.
Distributions by a Fund of its ordinary income and short-term capital
gains are generally taxable to you as ordinary income. Distributions by Vista
Tax Free Money Market Fund of its tax-exempt interest income will not be
subject to federal income tax. Such distributions will generally be subject
to state and local taxes, but may be exempt if paid out of interest on
municipal obligations of the state or locality in which you reside.
Distributions by a Fund of any net long-term capital gains would be taxable
as such, regardless of the length of time you have held your shares.
Distributions will be taxable in the same manner for federal income tax
purposes whether received in cash or in shares through the reinvestment of
distributions.
To the extent distributions are attributable to interest from obligations
of the U.S. Government and certain of its agencies and instrumentalities,
such distributions may be exempt from certain types of state and local taxes.
Early in each calendar year the Funds will notify you of the amount and
tax status of distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Funds. You should consult your tax adviser to determine the
precise effect of an investment in the Funds on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUNDS
Administrator
Chase acts as the Funds' administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.05% of each
Fund's average daily net assets.
Sub-Administrator and Distributor
Vista Fund Distributors, Inc. ("VFD") acts as the Funds' sub-administrator
and distributor. VFD is a subsidiary of The BISYS Group, Inc. and is
unaffiliated with Chase. For the sub-administrative services it performs, VFD
is entitled to receive a fee from each Fund at an annual rate equal to 0.05%
of the Fund's average daily net assets. VFD has agreed to use a portion of
this fee to pay for certain expenses incurred in connection with organizing
new series of the Trust and certain other ongoing expenses of the Trust. VFD
is located at 101 Park Avenue, New York, New York 10178.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets
22
<PAGE>
of a Fund attributable to shares of such Fund held by customers of such
selected dealers. Such compensation does not represent an additional expense
to a Fund or its shareholders, since it will be paid by Chase.
Custodian
Chase acts as custodian and fund accountant for each Fund and receives
compensation under an agreement with the Funds. Securities and cash of each
Fund may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
Each Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Funds' custodian for all services to the Funds, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Funds. Shareholder servicing and distribution fees
are allocated to specific classes of the Funds. In addition, the Funds may
allocate transfer agency and certain other expenses by class. Service
providers to a Fund may, from time to time, voluntarily waive all or a
portion of any fees to which they are entitled.
Organization and Description of Shares
Each Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). Prior to May 6, 1996, the Vista Cash Management Fund was known as
the Vista Global Money Market Fund. The Trust has reserved the right to
create and issue additional series and classes. Each share of a series or
class represents an equal proportionate interest in that series or class with
each other share of that series or class. The shares of each series or class
participate equally in the earnings, dividends and assets of the particular
series or class. Shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each whole share held, and each
fractional share shall be entitled to a proportionate fractional vote, except
that Trust shares held in the treasury of the Trust shall not be voted.
Shares of each class of a Fund generally vote together except when required
under federal securities laws to vote separately on matters that only affect
a particular class, such as the approval of distribution plans for a
particular class. Fund shares will be maintained in book entry form, and no
certificates representing shares owned will be issued to shareholders.
Each Fund issues multiple classes of shares. This Prospectus relates only
to Institutional Shares of the Funds. Institutional Shares may be purchased
only by qualified investors. See "How to Buy, Sell and Exchange Shares." The
Funds offer other classes of shares in addition to these classes. The
categories of investors that are eligible to purchase shares and minimum
investment requirements may differ for each class of Fund shares. In
addition, other classes of Fund shares may be subject to differences in sales
charge arrangements, ongoing distribution and service fee levels, and levels
of certain other expenses, which will
23
<PAGE>
affect the relative performance of the different classes. Investors may call
1-800-622-4273 to obtain additional information about other classes of shares
of the Funds that are offered. Any person entitled to receive compensation
for selling or servicing shares of a Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
any of the Funds, including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities so purchased.
Chase and its affiliates deal, trade and invest for their own accounts in
U.S. Government obligations, municipal obligations and commercial paper and
are among the leading dealers of various types of U.S. Government obligations
and municipal obligations. Chase and its affiliates may sell U.S. Government
obligations and municipal obligations to, and purchase them from, other
investment companies sponsored by the Funds' distributor or affiliates of the
distributor. Chase will not invest any Fund assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by any Fund. Chase has informed the Funds
that in making its investment decisions, it does not obtain or use material
inside information in the possession of any other division or department of
Chase or in the possession of any affiliate of Chase, including the division
that performs services for the Trust as custodian. Shareholders of the Funds
should be aware that, subject to applicable legal or regulatory
24
<PAGE>
restrictions, Chase and its affiliates may exchange among themselves certain
information about the shareholders and their accounts. Transactions with
affiliated broker-dealers will only be executed on an agency basis in
accordance with applicable federal regulations.
PERFORMANCE INFORMATION
Each Fund may advertise its annualized "yield" and its "effective yield."
Annualized "yield" is determined by assuming that income generated by an
investment in a Fund over a stated seven-day period (the "yield") will
continue to be generated each week over a 52-week period. It is shown as a
percentage of such investment. "Effective yield" is the annualized "yield"
calculated assuming the reinvestment of the income earned during each week of
the 52-week period. The "effective yield" will be slightly higher than the
"yield" due to the compounding effect of this assumed reinvestment.
Vista Tax Free Money Market Fund may also quote a "tax equivalent yield,"
the yield that a taxable money market fund would have to generate in order to
produce an after-tax yield equivalent to the tax free fund's yield. The tax
equivalent yield of the Vista Tax Free Money Market Fund can then be compared
to the yield of a taxable money market fund. Tax equivalent yields can be
quoted on either a "yield" or "effective yield" basis.
Investment performance may from time to time be included in advertisements
about the Funds. Performance is calculated separately for each class of
shares. Because this performance information is based on historical earnings,
it should not be considered as an indication or representation of future
performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's
portfolio, each Fund's operating expenses and which class of shares you
purchase. Investment performance also reflects the risks associated with each
Fund's investment objective and policies. These factors should be considered
when comparing each Fund's investment results to those of other mutual funds
and investment vehicles. Quotations of investment performance for any period
when an expense limitation was in effect will be greater if the limitation
had not been in effect. Each Fund's performance may be compared to other
mutual funds, relevant indices and rankings prepared by independent services.
See the SAI.
25
<PAGE>
[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
- ----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VINST-1-596CX
[VISTA LOGO]
Institutional
Shares
- ---------------------------------------
(arrow) 100% U.S. Treasury Securities
Money Market Fund
(arrow) Treasury Plus Money
Market Fund
(arrow) Federal Money
Market Fund
(arrow) U.S. Government
Money Market Fund
(arrow) Cash Management
Money Market Fund
(arrow) Prime Money
Market Fund
(arrow) Tax Free Money
Market Fund
Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
PROSPECTUS
VISTA[SM] NEW YORK TAX FREE INCOME FUND
Class A and B Shares
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ......................................................... 3
The expenses you might pay on your Fund investment, including examples
Financial Highlights ..................................................... 4
How the Fund has performed
Fund Objectives ......................................................... 6
Investment Policies ...................................................... 6
The kinds of securities in which the Fund invests, investment policies
and techniques, ans risks
Management ............................................................... 11
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management, the
Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment .................................................... 11
Alternative sales arrangements
How to Buy, Sell and Exchange Shares ..................................... 12
How the Fund Values its Shares .......................................... 17
How Distributions are Made; Tax Information ............................. 17
How the Fund distributes its earnings, and tax treatment related to
those earnings
Other Information Concerning the Fund .................................... 18
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information .................................................. 21
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges .................................. 23
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in the Fund based on
expenses incurred in the most recent fiscal year. The examples show the
cumulative expenses attributable to a hypothetical $1,000 investment over
specified periods.
Class A Class B
Shares Shares
-------- --------
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ........... 4.50% None
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)*........ None 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
- -----------------------------------------
Investment Advisory Fee
(after estimated waiver)**..................... 0.20% 0.20%
12b-1 Fee***..................................... 0.25% 0.75%
Shareholder Servicing Fee
(after estimated waiver, where indicated)...... 0.00%** 0.25%
Other Expenses................................... 0.45% 0.45%
------ ------
Total Fund Operating Expenses
(after waiver of fee)** ...................... 0.90% 1.65%
====== ======
Examples
- --------
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
--------- -------- -------- ---------
Class A Shares+ ...................... $54 $72 $ 93 $151
Class B Shares:
Assuming complete redemption at
the end of the period++ +++ ......... $68 $85 $113 $175
Assuming no redemptions +++ .......... $17 $52 $ 90 $175
</TABLE>
- ---------------
* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally
declines by 1% annually thereafter (except in the fourth year), reaching
zero after six years. See "How to Buy, Sell and Exchange Shares."
** Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Investment Advisory Fee would be 0.30% for Class A and Class B
shares, the Shareholder Servicing Fee would be 0.25% for Class A shares,
and Total Fund Operating Expenses would be 1.25% and 1.75% for Class A
and Class B shares, respectively.
*** Long-term shareholders in mutual funds with 12b-1 fees, such as Class A
and Class B shareholders of the Fund, may pay more than the economic
equivalent of the maximum front-end sales charge permitted by rules of
the National Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales charge.
+++ Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
++++ Ten-year figures assume conversion of Class B shares to Class A shares
at the beginning of the ninth year after purchase. See "How to Buy, Sell
and Exchange Shares."
The table is provided to help you understand the expenses of investing in
the Fund and your share of the operating expenses that the Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in the Fund. The Fund understands that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect
to those accounts. See "Other Information Concerning the Fund."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
both Class A and Class B shares. The information for each of the five years
in the period ended August 31, 1995 has been audited by Price Waterhouse LLP,
the Fund's independent accountants, whose report on the financial statements
which include this information and the financial statements are incorporated
by reference into the SAI. The Fund's Annual Report for the fiscal year ended
August 31, 1995 includes these financial statements and is available without
charge upon request.
Vista New York Tax Free Income Fund
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year 11/1/93 Year ended
ended through -------------------------------
8/31/95 8/31/94 10/31/93 10/31/92 10/31/91
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ............... $ 11.30 $ 12.27 $ 11.18 $ 11.24 $ 10.48
-------- -------- -------- -------- --------
Income from Investment Operations: Net Investment
Income .......................................... 0.570 0.473 0.592 0.473 0.635
Net Gains or (Losses) in Securities (both
realized and unrealized) ......................... 0.167 (0.688) 1.281 0.274 0.762
Total from Investment Operations .................. 0.737 (0.215) 1.873 0.747 1.397
Less Distributions: Dividends from Net Investment
Income .......................................... 0.567 0.472 0.591 0.473 0.635
Distributions from Capital Gains .................. -- 0.283 0.194 0.334 0.000
-------- -------- -------- -------- --------
Total Distributions ............................... 0.567 0.755 0.785 0.807 0.635
-------- -------- -------- -------- --------
Net Asset Value, End of Period .................... $ 11.47 $ 11.30 $ 12.27 $ 11.18 $ 11.24
======== ======== ======== ======== ========
Total Return (1) .................................. 6.82% (1.81%) 17.31% 8.57% 13.68%
Ratios/Supplemental Data Net Assets, End of
Period (000 omitted) ............................ $104,168 $103,113 $120,809 $48,420 $24,062
Ratio of Expenses to Average Net Assets .......... 0.85% 0.76%# 0.75% 0.75% 0.76%
Ratio of Net Investment Income to Average ........ 5.11% 4.89%# 4.86% 5.74% 5.85%
Net Assets Ratio of Expenses without waivers
and assumption of expenses to Average Net
Assets........................................... 1.37% 1.25%# 1.11% 1.41% 1.71%
Ratio of Net Investment Income without waivers
and assumption of expenses to Average Net
Assets........................................... 4.59% 4.40%# 4.50% 5.08% 4.90%
Portfolio Turnover Rate ............................ 122% 162% 150% 280% 353%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- --------------------
Year Ended 9/4/87* Year 11/4/93**
------------------------------ to ended through
10/31/90 10/31/89 10/31/88 10/31/87 8/31/95 8/31/95+
-------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .... $ 10.60 $ 10.62 $ 10.08 $ 10.00 $ 11.27 $ 12.11
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income .................. 0.671 0.739 0.701 0.053 0.485 0.419
Net Gains or (Losses) in Securities
(both realized and unrealized) ........ (0.100) 0.045 0.590 0.027 0.162 (0.543)
------- ------- ------- ------- ------- -------
Total from Investment Operations ........ 0.571 0.784 1.291 0.080 0.647 (0.124)
Less Distributions: Dividends from Net
Investment Income ....................... 0.672 0.741 0.751 0.000 0.507 0.433
Distributions from Capital Gains ....... 0.020 0.063 0.000 0.000 -- 0.283
------- ------- ------- ------- ------- -------
Total Distributions ...................... 0.692 0.804 0.751 0.000 0.507 0.716
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ........... $ 10.48 $ 10.60 $ 10.62 $ 10.08 $ 11.41 $ 11.27
======= ======= ======= ======= ======= =======
Total Return (1) .......................... 5.56% 7.69% 13.24% 5.41% 5.99% (1.11%)
Ratios/Supplemental Data Net Assets, End
of Period (000 omitted) ................ $20,413 $17,545 $ 5,557 $ 101 $10,633 $ 7,234
Ratio of Expenses to Average Net Assets 0.71% 0.20% 0.00% 0.00%# 1.61% 1.51%#
Ratio of Net Investment Income to
Average ................................. 6.34% 6.90% 7.16% 7.49%# 4.35% 4.28%#
Net Assets Ratio of Expenses without
waivers and assumption of expenses to
Average Net Assets .................... 1.68% 2.30% 1.50% 1.50%# 1.87% 1.76%#
Ratio of Net Investment Income without
waivers and assumption of expenses to
Average Net Assets ..................... 5.38% 4.81% 5.66% 5.99%# 4.09% 4.03%#
Portfolio Turnover Rate .................. 143% 286% 362% 90% 122% 162%
</TABLE>
- ---------------
# Annualized.
* Commencement of operations.
** Commencement of offering of shares.
(1) Total return figures are calculated before taking into account effect of
4.50% sales charge.
+ In 1994 the New York Tax Free Income Fund changed its fiscal year-end
from October 31 to August 31.
5
<PAGE>
FUND OBJECTIVES
Vista New York Tax Free Income Fund seeks to provide monthly dividends
which are excluded from gross income for federal tax purposes and exempt from
New York State and New York City personal income taxes, as well as to protect
the value of its shareholders' investment. The Fund is not intended to be a
complete investment program, and there is no assurance it will achieve its
objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in New York Municipal Obligations (as defined
under "Municipal Obligations"). As a fundamental policy, under normal market
conditions, the Fund will have at least 80% of its assets in New York
Municipal Obligations the interest on which, in the opinion of bond counsel,
does not constitute a preference item which would be subject to the federal
alternative minimum tax on individuals (these preference items are referred
to as "AMT Items"). The Fund reserves the right under normal market
conditions to invest up to 20% of its total assets in AMT Items or securities
the interest on which is subject to federal income tax and New York State and
New York City personal income taxes. For temporary defensive purposes, the
Fund may exceed this limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at least in the category Baa, MIG-3 or
VMIG-3 by Moody's Investors Service, Inc. ("Moody's"), or BBB or SP-2 by
Standard & Poor's Corporation ("S&P") or BBB or FIN-3 by Fitch Investors
Service, Inc. ("Fitch") or comparably rated by another national rating
organization, or, if unrated, considered by the Fund's advisers to be of
comparable quality.
There is no restriction on the maturity of the Fund's portfolio or any
individual portfolio security. The Fund's advisers may adjust the average
maturity of the Fund's portfolio based upon their assessment of the relative
yields available on securities of different maturities and their expectations
of future changes in interest rates.
The Fund is classified as a "non-diversified" fund under federal
securities law. The Fund's assets may be more concentrated in the securities
of any single issuer or group of issuers than if the Fund were diversified.
For temporary defensive purposes, the Fund may invest without limitation
in high quality money market instruments and repurchase agreements, the
interest income from which may be taxable to shareholders as ordinary income
for federal income tax purposes.
In lieu of investing directly, the Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of states,
territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on
which, in the opinion of bond counsel, is excluded from gross income for
federal income tax purposes (without regard to whether the interest thereon
is also exempt from the personal income taxes of any state or whether the
interest thereon constitutes a preference item for purposes of the federal
alternative minimum tax). "New York Municipal
6
<PAGE>
Obligations" are Municipal Obligations of the State of New York and its
political subdivisions and of Puerto Rico, other U.S. territories and their
political subdivisions, the interest on which, in the opinion of bond
counsel, is exempt from New York State and New York City personal income
taxes. Municipal Obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of
general operating expenses or the refunding of outstanding debts. They may
also be issued to finance various private activities, including the lending
of funds to public or private institutions for the construction of housing,
educational or medical facilities, and may include certain types of
industrial development bonds, private activity bonds or notes issued by
public authorities to finance privately owned or operated facilities, or to
fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
or installment payments in future years unless money is later appropriated
for such purpose. Although "non- appropriation" lease obligations are secured
by the leased property, disposition of the property in the event of
foreclosure might prove difficult. Certain investments in municipal lease
obligations may be illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices,
and certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or high-quality,
short-term money market instruments. Such instruments may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money
market instruments may involve certain risks associated with foreign
investment.
U.S. Government Obligations. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter into
agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future
7
<PAGE>
date, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
These transactions involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from
recovering the collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). The Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, the Fund would acquire
the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to
the Fund if the other party should default on its obligation and the Fund is
delayed or prevented from recovering the collateral or completing the
transaction. Acquisition of puts will have the effect of increasing the cost
of the securities subject to the put and thereby reducing the yields
otherwise available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of its
total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government,
including instruments known as "STRIPS". The Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. The
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Fund may invest include
participation certificates and certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by
others; certificates of indebtedness or safekeeping are documentary receipts
for such original securities held in custody by others. As a result of the
floating or variable rate nature of these investments, the Fund's yield may
decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, the Fund's yield may increase and it may have reduced risk of
capital depreciation. Demand features on certain floating or variable rate
securities may obligate the Fund to pay a "tender fee" to a third party.
Demand features provided by foreign banks involve certain risks associated
with foreign investments. The Internal Revenue Service has not ruled on
whether interest on participations in floating or variable rate municipal
obligations is tax exempt, and the Fund would purchase such instruments based
on opinions of bond counsel.
8
<PAGE>
Inverse Floaters and Interest Rate Caps. The Fund may invest in inverse
floaters and in securities with interest rate caps. Inverse floaters are
instruments whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index, and their price may be
considerably more volatile than a fixed-rate security. Interest rate caps are
financial instruments under which payments occur if an interest rate index
exceeds a certain predetermined interest rate level, known as the cap rate,
which is tied to a specific index. These financial products will be more
volatile in price than municipal securities which do not include such a
structure.
Other Investment Companies. The Fund may invest up to 10% of its total
assets in shares of other investment companies, subject to applicable
regulatory limitations.
Derivatives and Related Instruments. The Fund may invest its assets in
derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject
to asset segregation requirements to cover the Fund's obligations. The Fund
may (i) purchase, write and exercise call and put options on securities and
securities indexes (including using options in combination with securities,
other options or derivative instruments); (ii) enter into swaps, futures
contracts and options on futures contracts; (iii) employ forward interest
rate contracts; and (iv) purchase and sell structured products, which are
instruments designed to restructure or reflect the characteristics of certain
other investments.
There are a number of risks associated with the use of derivatives and
related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers
to forecast these factors correctly. Inaccurate forecasts could expose the
Fund to a risk of loss. There can be no guarantee that there will be a
correlation between price movements in a hedging instrument and in the
portfolio assets being hedged. The Fund is not required to use any hedging
strategies. Hedging strategies, while reducing risk of loss, can also reduce
the opportunity for gain. Derivatives transactions not involving hedging may
have speculative characteristics, involve leverage and result in more risk to
the Fund than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to
close out a derivatives position. Activities of large traders in the futures
and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in derivatives markets. In
certain instances, particularly those involving over-the-counter transactions
or forward contracts, there is a greater potential that a counterparty or
broker may default. In the event of a default, the Fund may experience a
loss. For additional information concerning derivatives, related instruments
and the associated risks, see the SAI.
Portfolio Turnover. The frequency of the Fund's portfolio transactions
will vary from year to year. The Fund's investment policies may lead to
frequent changes in investments, particularly in periods of rapidly changing
market conditions. High portfolio turnover rates would generally result in
higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made;
Tax Information" and "Other Information Concerning the Fund--Certain
Regulatory Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment risks for
its shareholders. These restrictions prohibit the Fund from: (a) investing
more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures estab-
9
<PAGE>
lished by the Board of Trustees); or (b) investing more than 25% of its total
assets in any one industry (this would apply to municipal obligations backed
only by the assets and revenues of nongovernmental users, but excludes
obligations of states, cities, municipalities or other public authorities). A
complete description of these and other investment policies is included in
the SAI. Except for restriction (b) above and investment policies designated
as fundamental above or in the SAI, the Fund's investment policies (including
its objective) are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
Changes in interest rates may affect the value of the obligations held by
the Fund. The value of fixed income securities varies inversely with changes
in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by the State
of New York and its cities, public authorities and other municipal issuers,
the Fund is susceptible to factors affecting the State of New York and its
municipal issuers. The State of New York and New York City have a recent
history of significant financial and fiscal difficulties. If the State of New
York or any of its local government entities is unable to meet its financial
obligations, the income derived by the Fund and the Fund's ability to
preserve capital and liquidity could be adversely affected. See the SAI for
further information.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the
interest on which is not subject to federal income tax. This legislation may
affect the availability of Municipal Obligations for investment by the Fund.
The Fund may invest up to 25% of its total assets in Municipal Obligations
secured by letters of credit or guarantees from U.S. and foreign banks, and
other foreign institutions. The dependence on banking institutions may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.
Obligations backed by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable domestic obligations, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization
of foreign assets, and the possible establishment of exchange controls or
other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches) and
accounting, auditing and financial reporting standards and practices may
differ from those applicable to U.S. issuers. In addition, foreign banks are
not subject to regulations comparable to U.S. banking regulations.
10
<PAGE>
Because the Fund is "non-diversified," the value of its shares is more
susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to
be paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments,
particularly in light of the fact that the issuers in which the Fund invests
will generally be located in the State of New York.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the Fund
pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board
of Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan
Corporation, a bank holding company. Chase and its predecessors have over 100
years of money management experience. For its investment advisory services to
the Fund, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.30% of the Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to the Fund pursuant to a Sub-Investment Advisory
Agreement between CAM and Chase. CAM is a wholly-owned operating subsidiary
Chase. CAM makes investment decisions for the Fund on a day-to-day basis. For
these services, CAM is entitled to receive a fee, payable by Chase from its
advisory fee, at an annual rate equal to 0.15% of the Fund's average daily
net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for
CAM. CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1987. Ms. Hunter is
part of a team providing fixed income strategy and product development. Ms.
Hunter has been employed at Chase (including its predecessors) since 1980.
ABOUT YOUR INVESTMENT
Alternative Sales Arrangements
Class A shares. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject
to any sales charges when they are redeemed. Certain purchases of Class A
shares qualify for reduced sales charges. Class A shares have lower combined
12b-1 and service fees than Class B shares. See "How to Buy, Sell and
Exchange Shares" and "Other Information Concerning the Fund."
Class B shares. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge ("CDSC") if redeemed
within a specified period after purchase. Class B shares also have higher
combined 12b-1 and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year after purchase.
For more information about the conversion of Class B shares, see the SAI.
This discussion will include information about how shares acquired through
reinvestment of distributions are treated for conversion purposes. Class B
shares provide an investor the benefit of putting all of the investor's
dollars to
11
<PAGE>
work from the time the investment is made. Until conversion, Class B shares
will have a higher expense ratio and pay lower dividends than Class A shares
because of the higher combined 12b-1 and service fees. See "How to Buy, Sell
and Exchange Shares" and "Other Information Concerning the Fund."
Which arrangement is best for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a
number of factors, including the amount and intended length of the
investment. Investors making investments that qualify for reduced sales
charges might consider Class A shares. Investors who prefer not to pay an
initial sales charge might consider Class B shares. In almost all cases,
investors planning to purchase $250,000 or more of the Fund's shares will pay
lower aggregate charges and expenses by purchasing Class A shares.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs,
SEP-IRAs and the Systematic Investment Plan) and make additional investments
at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor buy
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be
accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which
may take 15 calendar days or longer. In addition, the redemption of shares
purchased through ACH will not be allowed until clearance of your payment,
which may take 7 business days or longer.
Buying shares through the Fund's distributor. Complete and return the
enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic
deduction from your bank checking or savings account. Shareholders electing
to start this Systematic Investment Plan when opening an account should
complete Section 8 of the account application. Current shareholders may begin
such a plan at any time by sending a signed letter with signature guarantee
and a deposit slip or voided check to the Vista Service Center. Call the
Vista Service Center at 1-800-34-VISTA for complete instructions.
Shares are sold at the public offering price based on the net asset value
next determined after the Vista Service Center receives your order in proper
form. In most cases, in order to receive that day's public offering price,
the Vista Service Center must receive your order before the close of regular
trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before
the close of regular trading on the New York Stock Exchange to receive that
day's public offering price. Orders for shares are accepted by the Fund after
funds are converted to federal funds. Orders paid by check and received by
2:00 p.m., Eastern Time will generally be available for the purchase of
shares the following business day.
If you are considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption, exchange or
transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not
12
<PAGE>
issue certificates for your Class A shares unless you request them. Due to
the conversion feature of Class B shares, certificates for Class B shares
will not be issued and all Class B shares will be held in book entry form.
Class A Shares
The public offering price of Class A shares is the net asset value plus a
sales charge that varies depending on the size of your purchase. The Fund
receives the net asset value. The sales charge is allocated between your
broker-dealer and the Fund's distributor as shown in the following table,
except when the Fund's distributor, in its discretion, allocates the entire
amount to your broker-dealer.
<TABLE>
<CAPTION>
Sales charge as a
percentage of:
----------------------- Amount of sales charge
Amount of transaction at Offering Net amount reallowed to dealers as a
offering price Price invested percentage of offering price
- ------------------------------ -------- --------- ----------------------------
<S> <C> <C> <C>
Under 100,000 ............... 4.50 4.71 4.00
100,000 but under 250,000 ... 3.75 3.90 3.25
250,000 but under 500,000 ... 2.50 2.56 2.25
500,000 but under 1,000,000 .. 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1
million or more.
The Fund's distributor pays broker-dealers commissions on net sales of
Class A shares of $1 million or more based on an investor's cumulative
purchases. Such commissions are paid at the rate of 0.75% of the amount under
$2.5 million, 0.50% of the next $7.5 million, 0.25% of the next $40 million
and 0.15% thereafter. The Fund's distributor may withhold such payments with
respect to short-term investments.
Class B Shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may be
redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a
percentage of the lesser of the current market value or the purchase price of
shares being redeemed.
Year 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the CDSC period. When a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. For information on how sales charges are calculated if you
exchange your shares, see "How to Exchange Your Shares." The Fund's
distributor pays broker-dealers a commission of 4.00% of the offering price
on sales of Class B shares, and the distributor receives the entire amount of
any CDSC you pay.
General
You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment representative or the Vista Service Center for
details about Vista's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employee benefit plans,
and other plans. Descriptions are also included
13
<PAGE>
in the enclosed application and in the SAI. In addition, sales charges will
not apply to shares purchased with redemption proceeds received within the
prior ninety days from non-Vista mutual funds on which the investor paid a
front-end or contingent deferred sales charge.
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes
of determining whether the plan may purchase Class A shares at net asset
value. These investments will also be included for purposes of the discount
privileges and programs described above.
The Fund may sell Class A shares at net asset value without an initial
sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase, the Fund's distributor and transfer agent or any affiliates or
subsidiaries thereof, registered representatives and other employees (and
their immediate families) of broker-dealers having selected dealer agreements
with the Fund's distributor, employees (and their immediate families) of
financial institutions having selected dealer agreements with the Fund's
distributor (or otherwise having an arrangement with a broker-dealer or
financial institution with respect to sales of Vista fund shares) financial
institution trust departments investing an aggregate of $1 million or more in
the Vista Family of Funds and clients of certain administrators of
tax-qualified plans when proceeds from repayments of loans to participants
are invested (or reinvested) in the Vista Family of Funds.
No initial sales charge will apply to the purchase of Class A shares of
the Fund by an investor seeking to invest the proceeds of a qualified
retirement plan where a portion of the plan was invested in the Vista Family
of Funds, any qualified retirement plan with 50 or more participants, or an
individual participant in a tax-qualified plan making a tax-free rollover or
transfer of assets from the plan in which Chase or an affiliate serves as
trustee or custodian of the plan or manages some portion of the plan's
assets.
Purchases of Class A shares of the Fund may be made with no initial sales
charge through an investment adviser or financial planner that charges a fee
for its services. Purchases of Class A shares of the Fund may be made with no
initial sales charge (i) by an investment adviser, broker or financial
planner, provided arrangements are preapproved and purchases are placed
through an omnibus account with the Fund or (ii) by clients of such
investment adviser or financial planner who place trades for their own
accounts, if such accounts are linked to a master account of such investment
adviser or financial planner on the books and records of the broker or agent.
Such purchases may be made for retirement and deferred compensation plans and
trusts used to fund those plans.
Purchases of Class A shares of the Fund may be made with no initial sales
charge in accounts opened by a bank, trust company or thrift institution
which is acting as a fiduciary exercising investment discretion, provided
that appropriate notification of such fiduciary relationship is reported at
the time of the investment to the Fund, the Fund's distributor or the Vista
Service Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase Class A shares of the Fund with
no initial sales charge for as long as they continue to own Class A shares of
any Vista fund, provided there is no change in account registration.
Shareholders of record of any portfolio of The Hanover Funds, Inc. or The
Hanover Investment Funds, Inc. as of May 3, 1996 and certain related
investors may purchase Class A shares of the Fund with no initial sales
charge for as long as they continue to own shares of any Vista fund following
this date, provided there is no change in account registration.
The Fund may sell Class A shares at net asset value without an initial
sales charge in connection with the acquisition by the Fund of assets of an
investment company or personal holding company. The CDSC will be waived on
redemption of Class B shares arising out of death or disability or in
connection with certain withdrawals
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<PAGE>
from IRA or other retirement plans. Up to 12% of the value of Class B shares
subject to a systematic withdrawal plan may also be redeemed each year
without a CDSC, provided that the Class B account had a minimum balance of
$20,000 at the time the systematic withdrawal plan was established. The SAI
contains additional information about purchasing the Fund's shares at reduced
sales charges.
The Fund reserves the right to change any of these policies on purchases
without an initial sales charge at any time and may reject any such purchase
request.
Shareholders of other Vista funds may be entitled to exchange their shares
for, or reinvest distributions from their funds in, shares of the Fund at net
asset value.
How to Sell Shares
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The
Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of instruction
to the Vista Service Center, along with any certificates that represent
shares you want to sell. The price you will receive is the next net asset
value calculated after the Fund receives your request in proper form, less
any applicable CDSC. In order to receive that day's net asset value, the
Vista Service Center must receive your request before the close of regular
trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
See the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
The Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the business day
after your request is received in proper form, assuming the Fund has
collected payment of the purchase price of your shares. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, the Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither the Fund nor its
agents will be liable for any loss, liability, cost or expense arising out of
any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
15
<PAGE>
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a systematic
withdrawal plan for Class A accounts. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Selling shares through your investment representative. Your investment
representative must receive your request before the close of regular trading
on the New York Stock Exchange to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its
services.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem your
shares if at such time the aggregate net asset value of the shares in your
account is less than $500, or if you purchase through the Systematic
Investment Plan and fail to meet the Fund's investment minimum within a
twelve month period. In the event of any such redemption, you will receive at
least 60 days notice prior to the redemption. In the event the Fund redeems
Class B shares pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain other
Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista
fund into which shares are being exchanged should be read carefully and
retained for future reference. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you redeem the
shares acquired through the exchange, the redemption may be subject to the
CDSC, depending upon when you originally purchased the shares. The CDSC will
be computed using the schedule of any fund into or from which you have
exchanged your shares that would result in your paying the highest CDSC
applicable to your class of shares. In computing the CDSC, the length of time
you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
An exchange of Class B shares into any of the Vista money market funds
other than the Class B shares of the Vista Prime Money Market Fund will be
treated as a redemption--and therefore subject to the conditions of the
CDSC--and a subsequent purchase. Class B shares of any Vista non-money market
fund may be exchanged into the Class B shares of the Vista Prime Money Market
Fund in order to continue the aging of the initial purchase of such shares.
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for
shares that remain outstanding. Ask your investment representative or the
Vista Service Center for prospectuses of other Vista funds. Shares of certain
Vista funds are not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
16
<PAGE>
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving the Fund in
a year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
Reinstatement privilege. Class A shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with such
redemption may purchase Class A shares with no initial sales charge (in an
amount not in excess of their redemption proceeds) if the purchase occurs
within 90 days of the redemption of the Class B shares.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined once
daily based upon prices determined as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund attributable to that class by the total
number of outstanding shares of that class. Values of assets held by the Fund
are determined on the basis of their market or other fair value, as described
in the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains
at least annually. Distributions from capital gains are made after applying
any available capital loss carryovers. Distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with
respect to Class B shares because expenses attributable to Class B shares
will generally be higher.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a
pre-established bank account while reinvesting capital gains distributions in
additional shares without a sales charge; or (3) receive all distributions in
cash or by ACH. You can change your distribution option by notifying the
Vista Service Center in writing. If you do not select an option when you open
your account, all distributions will be reinvested. All distributions not
paid in cash or by ACH will be reinvested in shares of the class on which the
distributions are paid. You will receive a statement confirming reinvestment
of distributions in additional Fund shares promptly following the quarter in
which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the
Fund or in another Vista fund. If the Vista Service Center does not receive
your election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all
of its ordinary income and gains on a current basis.
17
<PAGE>
If the Fund does not qualify as a regulated investment company for any
taxable year or does not make such distributions, the Fund will be subject to
tax on all of its income and gains.
Distributions by the Fund of its tax-exempt interest income will not be
subject to federal income tax, but generally will be subject to state and
local taxes. However, to the extent paid out interest on New York Municipal
Obligations, such distributions will also be exempt from New York State and
New York City personal income taxes for a New York individual resident
shareholder.
All other Fund distributions will be taxable as ordinary income, except
that any distributions of net long- term capital gains will be taxable as
such, regardless of how long you have held the shares. Distributions will be
treated in the same manner for federal income tax purposes whether received
in cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next distribution date. Those investors purchasing
shares just prior to a distribution will be taxed on the entire amount of the
taxable distribution received, even though the net asset value per share on
the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Trust
has adopted a Rule 12b-1 distribution plans for Class A and Class B shares
which provide that the Fund will pay distribution fees at annual rates of up
to 0.25% and 0.75% of the average daily net assets attributable to Class A
and Class B shares of the Fund, respectively. Payments under the distribution
plans shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class A and Class B shares, and are not tied to the amount of
actual expenses incurred. Payments may be used to compensate broker-dealers
with trail or maintenance commissions at an annual rate of up to 0.25% of the
average daily net asset value of Class A or Class B shares maintained in the
Fund by customers of these broker-dealers. Trail or maintenance commissions
are paid to broker- dealers beginning the 13th month following the purchase
of shares by their customers. Some activities intended to promote the sale of
Class A and Class B shares will be conducted generally by the Vista Family of
Funds, and activities intended to promote the Fund's Class A or Class B
shares may also benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; and occasional meal, ticket
to a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging
and meals, in connection with attendance at training and educational meetings
within and outside the U.S.
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<PAGE>
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own Class A or Class B shares of the Fund. These
services include assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to .25% of the
average daily net assets of Class A and Class B shares of the Fund held by
investors for whom the shareholder servicing agent maintains a servicing
relationship. Shareholder servicing agents may subcontract with other parties
for the provision of shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption
of Fund shares, such as pre-authorized or systematic purchase and redemption
plans. Each shareholder servicing agent may establish its own terms and
conditions, including limitations on the amounts of subsequent transactions,
with respect to such services. Certain shareholder servicing agents may
(although they are not required by the Trust to do so) credit to the accounts
of their customers from whom they are already receiving other fees an amount
not exceeding such other fees or the fees for their services as shareholder
servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it
will be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub- administration agreement and is entitled to receive a
fee for these services from the Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee
to pay for certain expenses incurred in connection with organizing new series
of the Trust and certain other ongoing expenses of the Trust. VFD is located
at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and receives
compensation under an agreement with the Trust. Fund securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved
by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and
19
<PAGE>
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to government offices and commissions;
expenses of meetings of investors; fees and expenses of independent
accountants, of legal counsel and of any transfer agent, registrar or
dividend disbursing agent of the Trust; insurance premiums; and expenses of
calculating the net asset value of, and the net income on, shares of the
Fund. Shareholder servicing and distribution fees are allocated to specific
classes of the Fund. In addition, the Fund may allocate transfer agency and
certain other expenses by class. Service providers to the Fund may, from time
to time, voluntarily waive all or a portion of any fees to which they are
entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional
series and classes. Each share of a series or class represents an equal
proportionate interest in that series or class with each other share of that
series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Shares
have no preemptive or conversion rights. Shares when issued are fully paid
and non-assessable, except as set forth below. Shareholders are entitled to
one vote for each whole share held, and each fractional share shall be
entitled to a proportionate fractional vote, except that Trust shares held in
the treasury of the Trust shall not be voted. Shares of each class of the
Fund generally vote together except when required under federal securities
laws to vote separately on matters that only affect a particular class, such
as the approval of distribution plans for a particular class.
The Fund issues multiple classes of shares. This Prospectus relates to
Class A and Class B shares of the Fund. The Fund may offer other classes of
shares in addition to these classes. The categories of investors that are
eligible to purchase shares and minimum investment requirements may differ
for each class of Fund shares. In addition, other classes of Fund shares may
be subject to differences in sales charge arrangements, ongoing distribution
and service fee levels, and levels of certain other expenses, which would
affect the relative performance of the different classes. Investors may call
1-800-34-VISTA to obtain additional information about other classes of shares
of the Fund that are offered. Any person entitled to receive compensation for
selling or servicing shares of the Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing
20
<PAGE>
mutual fund shares as agent for a customer. Chase and the Trust believe that
Chase (including its affiliates) may perform the services to be performed by
it as described in this Prospectus without violating such laws. If future
changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations
and municipal obligations to, and purchase them from, other investment
companies sponsored by the Fund's distributor or affiliates of the
distributor. Chase will not invest the Fund's assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by the Fund. Chase has informed the Fund that
in making its investment decisions, it does not obtain or use material inside
information in the possession of any other division or department of Chase,
including the division that performs services for the Fund as custodian, or
in the possession of any affiliate of Chase. Shareholders of the Fund should
be aware that, subject to applicable legal or regulatory restrictions, Chase
and its affiliates may exchange among themselves certain information about
the shareholder and his account. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. Performance is calculated separately for each
class of shares. "Yield" for each class of shares is calculated by dividing
the annualized net investment income calculated pursuant to federal rules per
share during a recent 30-day period by the maximum public offering price per
share of such class on the last day of that period. "Effective yield" is the
"yield" calculated assuming the reinvestment of income earned, and will be
slightly higher than the "yield" due to the compounding effect of this
assumed reinvestment. "Tax equivalent yield "is the yield that a taxable fund
would have to generate in order to produce an after-tax yield equivalent to
the Fund's yield. The tax equivalent yield of the Fund can then be compared
to the yield of a taxable Fund. Tax equivalent yields can be quoted on either
a "yield" or "effective yield" basis.
"Total return" for the one-, five- and ten-year periods (or for the life
of a class, if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in
the Fund invested at the maximum public offering price (in the case of Class
A shares) or reflecting the deduction of any applicable contingent deferred
sales charge (in the case of Class B shares). Total return reflects the
deduction of the maximum initial sales charge in the case of Class A shares,
but does not reflect the deduction of any contingent deferred sales charge in
the case of Class B shares. Total return may also be presented for other
periods or based on investment at reduced sales charge levels. Any quotation
of investment performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if such sales charges were
used.
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All performance data is based on the Fund's past investment results and
does not predict future performance. Investment performance, which will vary,
is based on many factors, including market conditions, the composition of the
Fund's portfolio, the Fund's operating expenses and which class of shares you
purchase. Investment performance also often reflects the risks associated
with the Fund's investment objectives and policies. These factors should be
considered when comparing the Fund's investment results to those of other
mutual funds and other investment vehicles. Quotation of investment
performance for any period when a fee waiver or expense limitation was in
effect will be greater than if the waiver or limitation had not been in
effect. The Fund's performance may be compared to other mutual funds,
relevant indices and rankings prepared by independent services. See the SAI.
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<PAGE>
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund
shareholder.
(bullet) SYSTEMATIC INVESTMENT PLAN--Invest as much as you wish ($100
or more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
(bullet) SYSTEMATIC WITHDRAWAL--Make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a systematic
withdrawal plan for Class A accounts.
(bullet) SYSTEMATIC EXCHANGE--Transfer assets automatically from one
Vista account to another on a regular, prearranged basis. There is no
additional charge for this service.
(bullet) FREE EXCHANGE PRIVILEGE--Exchange money between Vista funds in
the same class of shares without charge. The exchange privilege allows you
to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
(bullet) REINSTATEMENT PRIVILEGE--Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset value
next determined subject to written request within 90 calendar days of the
redemption, accompanied by payment for the shares (not in excess of the
redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with
such redemption may purchase Class A shares with no initial sales charge
(in an amount not in excess of their redemption proceeds) if the purchase
occurs within 90 days of the redemption of the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or
termination.
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[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
- -----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VNYTF-1-596CX
[VISTA LOGO]
New York
Tax Free
Income Fund
- -----------------------------------------
Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
PROSPECTUS
VISTA[SM] CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ........................................................... 3
The expenses you might pay on your Fund investment, including examples
Financial Highlights ...................................................... 4
How the Fund has performed
Fund Objective ........................................................... 5
Investment Policies ....................................................... 5
The kinds of securities in which the Fund invests, investment policies and
techniques, and risks
Management ................................................................ 10
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
How to Buy, Sell and Exchange Shares ...................................... 10
How the Fund Values its Shares ........................................... 14
How Distributions are Made; Tax Information ............................... 14
How the Fund distributes its earnings, and tax treatment related to those
earnings
Other Information Concerning the Fund .................................... 15
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information ................................................... 18
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges ................................... 19
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in the Fund based on
expenses incurred in the most recent fiscal year. The example shows the
cumulative expenses attributable to a hypothetical $1,000 investment over
specified periods.
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................. 4.50%
Maximum Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds)............................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
- ----------------------------------------
Investment Advisory Fee (after estimated waiver)*...................... 0.00%
12b-1 Fee (after estimated waiver)* ** ................................ 0.00%
Shareholder Servicing Fee (after estimated waiver)* ................... 0.00%
Other Expenses (after estimated waiver)*............................... 0.60%
------
Total Fund Operating Expenses (after waivers of fees)*................. 0.60%
======
Example
- -------
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Shares+ ............................ $51 $63 $77 $117
- ---------------
* Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the level indicated in the table above. Absent such waivers,
the Investment Advisory Fee, 12b-1 Fee, Shareholder Servicing Fee and
Other Expenses would be 0.30%, 0.25%, 0.25% and 0.70%, respectively, and
Total Fund Operating Expenses would be 1.50%.
** Long-term shareholders in mutual funds with 12b-1 fees, such as
shareholders of the Fund, may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales charge.
The table is provided to help you understand the expenses of investing in
the Fund and your share of the operating expenses that the Fund incurs. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in the Fund. The Fund understands that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect
to those accounts. See "Other Information Concerning the Fund."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
shares. This information has been audited by Price Waterhouse LLP, the Fund's
independent accountants, whose report on the financial statements which
include this information and the financial statements are incorporated by
reference into the SAI. The Fund's Annual Report for the fiscal year ended
August 31, 1995 includes these financial statements and is available without
charge upon request.
Vista California Intermediate Tax Free Income Fund
<TABLE>
<CAPTION>
9/1/94 11/1/93 7/15/93
through thorugh through
8/31/95 8/31/94+ 10/31/93
------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .............................. $ 9.69 $ 10.30 $ 10.22
------- ------- --------
Income From Investment Operations:
Net Investment Income ............................................ 0.505 0.320 0.166
Net Gains or (Losses) in Securities (both realized and
unrealized) ...................................................... 0.200 (0.408) 0.081
------- ------- --------
Total from Investment Operations .................................. 0.705 (0.088) 0.247
------- ------- --------
Less Distributions:
Dividends from Net Investment Income ............................. 0.505 0.404 0.165
Distributions from Capital Gains ................................. -- 0.118 --
------- ------- --------
Total distributions ............................................... 0.505 0.522 0.165
------- ------- --------
Net Asset Value, End of Period ..................................... $ 9.89 $ 9.69 $ 10.30
======= ======= ========
Total Return (1) ................................................... 7.55% (0.86%) 2.42%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ......................... $32,746 $36,264 $ 41,728
Ratio of Expenses to Average Net Assets# .......................... 0.52% 0.52% 0.52%
Ratio of Net Investment Income to Average Net Assets# ............. 5.24% 4.88% 4.83%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets# ............................................. 1.40% 1.37% 1.33%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets# .............................. 4.36% 4.03% 4.02%
Portfolio Turnover Rate ........................................... 94% 93% 40%
</TABLE>
- ---------------
(1)Total return figure does not include the effect of any front-end sales load.
# Periods less than one year have been annualized.
* Commencement of offering shares.
+ In 1994 the California Intermediate Tax Free Income Fund changed its fiscal
year-end from October 31 to August 31.
4
<PAGE>
FUND OBJECTIVE
Vista California Intermediate Tax Free Income Fund seeks to provide current
income exempt from federal and California personal income taxes. The Fund is not
intended to be a complete investment program, and there is no assurance it will
achieve its objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in California Municipal Obligations (as defined
under "Municipal Obligations"). As a fundamental policy, under normal market
conditions, the Fund will have at least 80% of its assets in California
Municipal Obligations or in securities of territories and political
subdivisions of the U.S. Government the interest on which is deemed to be
exempt from federal, state and local income taxes. The Fund reserves the
right under normal market conditions to invest up to 20% of its total assets
in securities which constitute a preference item which would be subject to
the alternative minimum tax for noncorporate investors ("AMT Items") or
securities the interest on which is subject to federal and California
personal income taxes. For temporary defensive purposes, the Fund may exceed
this limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at time of purchase at least in the
category Baa, MIG-3 or VMIG-3 by Moody's Investor's Services, Inc.
("Moody's"), BBB or SP-3 by Standard & Poor's Corporation ("S&P"), or BBB or
FIN-3 by Fitch Investor's Services, Inc. ("Fitch") or comparably rated by
another national rating organization, or, if unrated, considered by the
Fund's advisers to be of comparable quality.
The Fund's investments have an average maturity of 10 years or less. The
Fund's advisers may adjust the average maturity of the Fund's portfolio based
upon their assessment of the relative yields available on securities of
different maturities and their expectations of future changes in interest
rates.
The Fund is classified as a "non-diversified" fund under federal securities
law. The Fund's assets may be more concentrated in the securities of any single
issuer or group of issuers than if the Fund were diversified.
In lieu of investing directly, the Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of states,
territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on
which, in the opinion of bond counsel, is exempt from federal income taxes
(without regard to whether the interest thereon is also exempt from the
personal income taxes of any state or whether the interest thereon
constitutes a preference item for purposes of the federal alternative minimum
tax). "California Municipal Obligations" are obligations of the State of
California, its local governments and political subdivisions, the interest on
which, in the opinion of bond counsel, is exempt from federal income taxes
and California personal income taxes and is not subject to the alternative
minimum tax for noncorporate investors. Municipal Obligations are issued to
obtain funds for various public purposes, such as the construction of public
facilities, the payment of general operating
5
<PAGE>
expenses or the refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of funds to public
or private institutions for the construction of housing, educational or
medical facilities, and may include certain types of industrial development
bonds, private activity bonds or notes issued by public authorities to
finance privately owned or operated facilities, or to fund short-term cash
requirements. Short-term Municipal Obligations may be issued as interim
financing in anticipation of tax collections, revenue receipts or bond sales
to finance various public purposes.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment payments in future years unless money is later appropriated for such
purpose. Although "non- appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. Certain investments in municipal lease obligations may be
illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices,
and certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or high-quality,
short-term money market instruments. Such instruments may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money
market instruments may involve certain risks associated with foreign
investment.
U.S. Government Obligations. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter into
agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future date, which
may increase its overall investment exposure and involves a risk of loss if
the value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default
on its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
6
<PAGE>
Borrowings and Reverse Repurchase Agreements. The Fund may borrow money from
banks for temporary or short-term purposes, but will not borrow for leveraging
purposes. The Fund may also sell and simultaneously commit to repurchase a
portfolio security at an agreed-upon price and time, to avoid selling securities
during unfavorable market conditions in order to meet redemptions. Whenever the
Fund enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets on a daily basis in an amount at
least equal to the repurchase price (including accrued interest). The Fund would
be required to pay interest on amounts obtained through reverse repurchase
agreements, which are considered borrowings under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, the Fund would acquire
the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to
the Fund if the other party should default on its obligation and the Fund is
delayed or prevented from recovering the collateral or completing the
transaction. Acquisition of puts will have the effect of increasing the cost
of the securities subject to the put and thereby reducing the yields
otherwise available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of its
total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government,
including instruments known as "STRIPS". The Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. The
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Fund may invest include
participation certificates and certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by
others; certificates of indebtedness or safekeeping are documentary receipts
for such original securities held in custody by others. As a result of the
floating or variable rate nature of these investments, the Fund's yield may
decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, the Fund's yield may increase and it may have reduced risk of
capital depreciation. Demand features on certain floating or variable rate
securities may obligate the Fund to pay a "tender fee" to a third party.
Demand features provided by foreign banks involve certain risks associated
with foreign investments. The Internal Revenue Service has not ruled on
whether interest on participations in floating or variable rate municipal
obligations is tax exempt and the Fund would purchase such instruments based
on opinions of bond counsel.
Inverse Floaters and Interest Rate Caps. The Fund may invest in inverse
floaters and in securities with interest rate caps. Inverse floaters are
instruments whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index, and their price may be
considerably more volatile than a fixed-rate security. Interest rate caps are
financial instruments under which payments occur if an interest rate index
exceeds a certain predetermined interest rate level, known as the cap rate,
which is tied to a specific index. These financial products will be more
volatile in price than municipal bonds which do not include such a structure.
7
<PAGE>
Other Investment Companies. The Fund may invest up to 10% of its total assets
in shares of other investment companies, subject to applicable regulatory
limitations.
Derivatives and Related Instruments. The Fund may invest its assets in
derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject
to asset segregation requirements to cover the Fund's obligations. The Fund
may (i) purchase, write and exercise call and put options on securities and
securities indexes (including using options in combination with securities,
other options or derivative instruments); (ii) enter into swaps, futures
contracts and options on futures contracts; (iii) employ forward interest
rate contracts; and (iv) purchase and sell structured products, which are
instruments designed to restructure or reflect the characteristics of certain
other investments.
There are a number of risks associated with the use of derivatives and
related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers
to forecast these factors correctly. Inaccurate forecasts could expose the
Fund to a risk of loss. There can be no guarantee that there will be a
correlation between price movements in a hedging instrument and in the
portfolio assets being hedged. The Fund is not required to use any hedging
strategies. Hedging strategies, while reducing risk of loss, can also reduce
the opportunity for gain. Derivatives transactions not involving hedging may
have speculative characteristics, involve leverage and result in more risk to
the Fund than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to
close out a derivatives position. Activities of large traders in the futures
and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in derivatives markets. In
certain instances, particularly those involving over-the-counter transactions
or forward contracts, there is a greater potential that a counterparty or
broker may default. In the event of a default, the Fund may experience a
loss. For additional information concerning derivatives, related instruments
and the associated risks, see the SAI.
Portfolio Turnover. The frequency of the Fund's portfolio transactions
will vary from year to year. The Fund's investment policies may lead to
frequent changes in investments, particularly in periods of rapidly changing
market conditions. High portfolio turnover rates would generally result in
higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made;
Tax Information" and "Other Information Concerning the Fund--Certain
Regulatory Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment risks for
its shareholders. These restrictions prohibit the Fund from: (a) investing
more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures established by the Board of
Trustees); or (b) investing more than 25% of its total assets in any one
industry (this would apply to municipal obligations backed only by the assets
and revenues of nongovernmental users, but excludes obligations of states,
cities, municipalities or other public authorities). A complete description
of these and other investment policies is included in the SAI. Except for
restriction (b) above and investment policies designated as fundamental above
or in the SAI, the Fund's investment policies (including its objective) are
not fundamental. The Trustees may change any non-fundamental investment
policy without shareholder approval.
8
<PAGE>
Risk Factors
Changes in interest rates may affect the value of the obligations held by
the Fund. The value of fixed income securities varies inversely with changes
in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by the State
of California and its cities, public authorities and other municipal issuers,
the Fund is susceptible to factors affecting the State of California and its
municipal issuers. The State of California and certain California counties
have a recent history of significant financial and fiscal difficulties.
California's Orange County recently defaulted on certain of its indebtedness.
If the State of California or any of its local government entities is unable
to meet its financial obligations, the income derived by the Fund and the
Fund's ability to preserve capital and liquidity could be adversely affected.
See the SAI for further information.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the
interest on which is not subject to federal income tax. This legislation may
affect the availability of Municipal Obligations for investment by the Fund.
The Fund may invest up to 25% of its total assets in Municipal Obligations
secured by letters of credit or guarantees from U.S. and foreign banks, and
other foreign institutions. The dependence on banking institutions may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.
Obligations backed by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable domestic obligations, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization
of foreign assets, and the possible establishment of exchange controls or
other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches) and
accounting, auditing and financial reporting standards and practices may
differ from those applicable to U.S. issuers. In addition, foreign banks are
not subject to regulations comparable to U.S. banking regulations.
Because the Fund is "non-diversified," the value of its shares is more
susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to
be paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments,
particularly in light of the fact that the issuers in which the Fund invests
will generally be located in the State of California.
9
<PAGE>
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the Fund
pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board
of Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan
Corporation, a bank holding company. Chase and its predecessors have over 100
years of money management experience. For its investment advisory services to
the Fund, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.30% of the Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to the Fund pursuant to a Sub-Investment Advisory
Agreement between CAM and Chase. CAM is a wholly-owned operating subsidiary
of Chase. CAM makes investment decisions for the Fund on a day-to-day basis.
For these services, CAM is entitled to receive a fee, payable by Chase from
its advisory fee, at an annual rate equal to 0.15% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for
CAM. CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1993. Ms. Hunter is
part of a team providing fixed income strategy and product development. Ms.
Hunter has been employed at Chase (including its predecessors) since 1980.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs,
SEP-IRAs and the Systematic Investment Plan) and make additional investments
at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor by
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be
accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which
may take 15 calendar days or longer. In addition, the redemption of shares
purchased through ACH will not be allowed until clearance of your payment,
which may take 7 business days or longer.
Buying shares through the Fund's distributor. Complete and return the
enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic
deduction from your bank checking or savings account. Shareholders electing
to start this Systematic Investment Plan when opening an account should
complete Section 8 of the account application. Current shareholders may begin
such a plan at any time by sending a signed letter with signature guarantee
and a deposit slip or voided check to the Vista Service Center. Call the
Vista Service Center at 1-800-34-VISTA for complete instructions.
10
<PAGE>
Shares are sold at the public offering price based on the net asset value
next determined after the Vista Service Center receives your order in proper
form. In most cases, in order to receive that day's public offering price, the
Vista Service Center must receive your order before the close of regular trading
on the New York Stock Exchange. If you buy shares through your investment
representative, the representative must receive your order before the close of
regular trading on the New York Stock Exchange to receive that day's public
offering price. Orders for shares are accepted by the Fund after funds are
converted to federal funds. Orders paid by check and received by 2:00 p.m.,
Eastern Time will generally be available for the purchase of shares the
following business day.
If you are considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption, exchange or
transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not issue certificates for your shares unless you request them.
An investor who purchases shares pays a sales charge at the time of
purchase. As a result, shares are not subject to any sales charges when they
are redeemed. Certain purchases of shares qualify for reduced sales charges.
See "How to Buy, Sell and Exchange Shares" and "Other Information Concerning
the Fund."
The public offering price of shares is the net asset value plus a sales
charge that varies depending on the size of your purchase. The Fund receives
the net asset value. The sales charge is allocated between your broker-dealer
and the Fund's distributor as shown in the following table, except when the
Fund's distributor, in its discretion, allocates the entire amount to your
broker-dealer.
<TABLE>
<CAPTION>
Sales charge as a
percentage of:
------------------------ Amount of sales charge
Amount of transaction at Offering Net amount reallowed to dealers as a
ofering price($) Price invested percentage of offering price
- -------------------------------- -------- ---------- -----------------------------
<S> <C> <C> <C>
Under 100,000 ................. 4.50 4.71 4.00
100,000 but under 250,000 ..... 3.75 3.90 3.25
250,000 but under 500,000 ..... 2.50 2.56 2.25
500,000 but under 1,000,000 ... 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of shares of $1 million or more.
The Fund's distributor pays broker-dealers commissions on net sales of
shares of $1 million or more based on an investor's cumulative purchases.
Such commissions are paid at the rate of 0.75% of the amount under $2.5
million, 0.50% of the next $7.5 million, 0.25% of the next $40 million and
0.15% thereafter. The Fund's distributor may withhold such payments with
respect to short-term investments.
General
You may be eligible to buy shares at reduced sales charges. Consult your
investment representative or the Vista Service Center for details about
Vista's combined purchase privilege, cumulative quantity discount, statement
of intention, group sales plan, employee benefit plans, and other plans.
Descriptions are also included in the enclosed application and in the SAI. In
addition, sales charges will not apply to shares purchased with redemption
proceeds received within the prior ninety days from non-Vista mutual funds on
which the investor paid a front-end or contingent deferred sales charge.
11
<PAGE>
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes of
determining whether the plan may purchase shares at net asset value. These
investments will also be included for purposes of the discount privileges and
programs described above.
The Fund may sell shares at net asset value without an initial sales
charge to the current and retired Trustees (and their immediate families),
current and retired employees (and their immediate families) of Chase, the
Fund's distributor and transfer agent or any affiliates or subsidiaries
thereof, registered representatives and other employees (and their immediate
families) of broker-dealers having selected dealer agreements with the Fund's
distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor
(or otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Vista fund shares) financial institution
trust departments investing an aggregate of $1 million or more in the Vista
Family of Funds and clients of certain administrators of tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in the Vista Family of Funds.
No initial sales charge will apply to the purchase of shares of the Fund
by an investor seeking to invest the proceeds of a qualified retirement plan
where a portion of the plan was invested in the Vista Family of Funds, any
qualified retirement plan with 50 or more participants, or an individual
participant in a tax-qualified plan making a tax-free rollover or transfer of
assets from the plan in which Chase or an affiliate serves as trustee or
custodian of the plan or manages some portion of the plan's assets.
Purchases of shares of the Fund may be made with no initial sales charge
through an investment adviser or financial planner who charges a fee for its
services. Purchases of shares of the Fund may be made with no initial sales
charge (i) by an investment adviser, broker or financial planner, provided
arrangements are preapproved and purchases are placed through an omnibus
account with the Fund or (ii) by clients of such investment adviser or
financial planner who place trades for their own accounts, if such accounts
are linked to a master account of such investment adviser or financial
planner on the books and records of the broker or agent. Such purchases may
be made for retirement and deferred compensation plans and trusts used to
fund those plans.
Purchases of shares of the Fund may be made with no initial sales charge
in accounts opened by a bank, trust company or thrift institution which is
acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at the
time of the investment to the Fund, the Fund's distributor or the Vista
Service Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase shares of the Fund with no
initial sales charge for as long as they continue to own Class A shares of
any Vista fund, provided there is no change in account registration.
Shareholders of record of any portfolio of The Hanover Funds, Inc. or The
Hanover Investment Funds, Inc. as of May 3, 1996 and certain related
investors may purchase shares of the Fund with no initial sales charge for as
long as they continue to own shares of any Vista fund following this date,
provided there is no change in account registration.
The Fund may sell shares at net asset value without an initial sales
charge in connection with the acquisition by the Fund of assets of an
investment company or personal holding company. The SAI contains additional
information about purchasing the Fund's shares at reduced sales charges.
The Fund reserves the right to change any of these policies on purchases
without an initial sales charge at any time and may reject any such purchase
request.
12
<PAGE>
Shareholders of other Vista funds may be entitled to exchange their shares
for, or reinvest distributions from their funds in, shares of the Fund at net
asset value.
How to Sell Shares
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The
Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of instruction
to the Vista Service Center, along with any certificates that represent
shares you want to sell. The price you will receive is the next net asset
value calculated after the Fund receives your request in proper form. In
order to receive that day's net asset value, the Vista Service Center must
receive your request before the close of regular trading on the New York
Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
See the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
The Fund usually requires additional documentation for the sale of shares by
a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the business day
after your request is received in proper form, assuming the Fund has
collected payment of the purchase price of your shares. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 15 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, the Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither the Fund nor its
agents will be liable for any loss, liability, cost or expense arising out of
any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or more
monthly, quarterly or semiannually. A minimum account balance of $5,000 is
required to establish a systematic withdrawal plan. Call the Vista Service
Center at 1-800-34-VISTA for complete instructions.
13
<PAGE>
Selling shares through your investment representative. Your investment
representative must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its services.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem your
shares if at such time the aggregate net asset value of the shares in your
account is less than $500 or if you purchase through the Systematic
Investment Plan and fail to meet the Fund's investment minimum within a
twelve month period. In the event of any such redemption, you will receive at
least 60 days notice prior to the redemption.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain other
Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista
fund into which shares are being exchanged should be read carefully and
retained for future reference.
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for
shares that remain outstanding. Ask your investment representative or the
Vista Service Center for prospectuses of other Vista funds. Shares of certain
Vista funds are not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving the Fund in
a year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
Reinstatement privilege. Shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined once
daily based upon prices determined as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund by the total number of outstanding
shares. Values of assets held by the Fund are determined on the basis of
their market or other fair value, as described in the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains
at lease annually. Distributions from capital gains are made after applying
any available capital loss carryovers.
14
<PAGE>
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a pre-established
bank account while reinvesting capital gains distributions in additional shares
without a sales charge; or (3) receive all distributions in cash or by ACH. You
can change your distribution option by notifying the Vista Service Center in
writing. If you do not select an option when you open your account, all
distributions will be reinvested. All distributions not paid in cash or by ACH
will be reinvested in shares of the Fund. You will receive a statement
confirming reinvestment of distributions in additional Fund shares promptly
following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the
Fund or in another Vista fund. If the Vista Service Center does not receive
your election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all
of its income and gains on a current basis. If the Fund does not qualify as a
regulated investment company for any taxable year or does not make such
distributions, the Fund will be subject to tax on all of its income and
gains.
Distributions by the Fund of its tax-exempt interest income will not be
subject to federal income tax, but generally will be subject to state and
local taxes. However, to the extent paid out of interest on California
Municipal Obligations, such distributions will also be exempt from California
personal income taxes for a California individual resident shareholder.
All other Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will be taxable
as such, regardless of how long you have held the shares. Distributions will
be treated in the same manner for federal income tax purposes whether
received in cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next distribution date. Those investors purchasing
shares just prior to a distribution will be taxed on the entire amount of the
taxable distribution received, even though the net asset value per share on
the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plan
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Trust
has adopted a Rule 12b-1 distribution plan which provides that
15
<PAGE>
the Fund will pay distribution fees at annual rates of up to 0.25% of the
average daily net assets attributable to shares of the Fund. Payments under
the distribution plan shall be used to compensate or reimburse the Fund's
distributor and broker-dealers for services provided and expenses incurred in
connection with the sale of shares, and are not tied to the amount of actual
expenses incurred. Payments may be used to compensate broker-dealers with
trail or maintenance commissions at an annual rate of up to 0.25% of the
average daily net asset value of shares maintained in the Fund by customers
of these broker-dealers. Trail or maintenance commissions are paid to
broker-dealers beginning the 13th month following the purchase of shares by
their customers. Some activities intended to promote the sale of shares will
be conducted generally by the Vista Family of Funds, and activities intended
to promote the Fund's shares may also benefit the Fund's other shares and
other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket
to a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging
and meals, in connection with attendance at training and education meetings
within and outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own shares of the Fund. These services include
assisting with purchase and redemption transactions, maintaining shareholder
accounts and records, furnishing customer statements, transmitting
shareholder reports and communications to customers and other similar
shareholder liaison services. For performing these services, each shareholder
servicing agent receives an annual fee of up to 0.25% of the average daily
net assets of shares of the Fund held by investors for whom the shareholder
servicing agent maintains a servicing relationship. Shareholder servicing
agents may subcontract with other parties for the provision of shareholder
support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption
of Fund shares, such as pre-authorized or systematic purchase and redemption
plans. Each shareholder servicing agent may establish its own terms and
conditions, including limitations on the amounts of subsequent transactions,
with respect to such services. Certain shareholder servicing agents may
(although they are not required by the Trust to do so) credit to the accounts
of their customers from whom they are already receiving other fees an amount
not exceeding the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it
will be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub- administration agreement and is entitled to receive a
fee for these services from the Fund at an annual rate equal
16
<PAGE>
to 0.05% of the Fund's average daily net assets. VFD has agreed to use a
portion of this fee to pay for certain expenses incurred in connection with
organizing new series of the Trust and certain other ongoing expenses of the
Trust. VFD is located at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and receives
compensation under an agreement with the Trust. Fund securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved
by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Fund. Service providers to the Fund may, from time
to time, voluntarily waive all or a portion of any fees to which they are
entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional
series and classes. Each share of a series or class represents an equal
proportionate interest in that series or class with each other share of that
series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Shares
have no preemptive or conversion rights. Shares when issued are fully paid
and non-assessable, except as set forth below. Shareholders are entitled to
one vote for each whole share held, and each fractional share shall be
entitled to a proportionate fractional vote, except that Trust shares held in
the treasury of the Trust shall not be voted.
This Prospectus relates to shares of the Fund. The Fund may offer other
classes of shares in addition to this class. The categories of investors that
are eligible to purchase shares and minimum investment requirements may
differ for each class of Fund shares. In addition, other classes of Fund
shares may be subject to differences in sales charge arrangements, ongoing
distribution and service fee levels, and levels of certain other expenses,
which would affect the relative performance of the different classes.
Investors may call 1-800-34-VISTA to obtain additional information about
other classes of shares of the Fund that are offered. Any person entitled to
receive compensation for selling or servicing shares of the Fund may receive
different levels of compensation with respect to one class of shares over
another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
17
<PAGE>
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations
and municipal obligations to, and purchase them from, other investment
companies sponsored by the Fund's distributor or affiliates of the
distributor. Chase will not invest the Fund's assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by the Fund. Chase has informed the Fund that
in making its investment decisions, it does not obtain or use material inside
information in the possession of any other division or department of Chase,
including the division that performs services for the Fund as custodian, or
in the possession of any affiliate of Chase. Shareholders of the Fund should
be aware that, subject to applicable legal or regulatory restrictions, Chase
and its affiliates may exchange among themselves certain information about
the shareholder and his account. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the
annualized net investment income calculated pursuant to federal rules per
share during a recent 30-day period by the maximum public offering price per
share of such class on the last day of that period. "Effective yield" is the
"yield" calculated assuming the reinvestment of income earned, and will be
slightly higher than the "yield" due to the compounding effect of this
assumed reinvestment. "Tax equivalent yield "is the yield that a taxable fund
would have to generate in order to produce an after-tax yield equivalent to
the Fund's yield. The tax equivalent yield of the Fund can then be compared
to the yield of a taxable fund. Tax equivalent yields can be quoted on either
a "yield" or "effective yield" basis.
18
<PAGE>
"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the Fund
invested at the maximum public offering price. Total return may also be
presented for other periods or without reflecting sales charges. Any quotation
of investment performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if such sales charges were
used.
All performance data is based on the Fund's past investment results and
does not predict future performance. Investment performance, which will vary,
is based on many factors, including market conditions, the composition of the
Fund's portfolio and the Fund's operating expenses. Investment performance
also often reflects the risks associated with the Fund's investment
objectives and policies. These factors should be considered when comparing
the Fund's investment results to those of other mutual funds and other
investment vehicles. Quotation of investment performance for any period when
a fee waiver or expense limitation was in effect will be greater than if the
waiver or limitation had not been in effect. The Fund's performance may be
compared to other mutual funds, relevant indices and rankings prepared by
independent services. See the SAI.
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund
shareholder.
(bullet) SYSTEMATIC INVESTMENT PLAN--Invest as much as you wish ($100
or more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
(bullet) SYSTEMATIC WITHDRAWAL--Make regular withdrawals of $50 or more
monthly, quarterly or semiannually. A minimum account balance of $5,000 is
required to establish a systematic withdrawal plan.
(bullet) SYSTEMATIC EXCHANGE--Transfer assets automatically from one
Vista account to another on a regular, prearranged basis. There is no
additional charge for this service.
(bullet) FREE EXCHANGE PRIVILEGE--Exchange money between Vista funds in
the same class of shares without charge. The exchange privilege allows you
to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
(bullet) REINSTATEMENT PRIVILEGE--Shareholders have a one time
privilege of reinstating their investment in the Fund at net asset value
next determined subject to written request within 90 calendar days of the
redemption, accompanied by payment for the shares (not in excess of the
redemption).
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or
termination.
19
<PAGE>
[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
- -----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VCI-1-596CX
[VISTA LOGO]
California
Intermediate
Tax Free
Income Fund
- ----------------------------------------
Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
PROSPECTUS
VISTA[SM] TAX FREE INCOME FUND
Class A and B Shares
May 6, 1996
Investment Strategy: Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL--AND WILL FLUCTUATE IN VALUE. SHARES OF THE FUND ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN
BANK OR ANY OF ITS AFFILIATES AND ARE NOT INSURED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ............................................................ 3
The expenses you might pay on your Fund investment, including examples
Financial Highlights ....................................................... 5
How the Fund has performed
Fund Objectives ............................................................ 7
Investment Policies ........................................................ 7
The kinds of securities in which the Fund invests, investment policies
and techniques, and risks
Management ................................................................. 12
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management,
the Fund's sub-adviser, and the individuals who manage the Fund
About Your Investment ...................................................... 12
Alternative sales arrangements
How to Buy, Sell and Exchange Shares ....................................... 13
How the Fund Values its Shares ............................................ 18
How Distributions Are Made; Tax Information ............................... 18
How the Fund distributes its earnings, and tax treatment related
to those earnings
Other Information Concerning the Fund ...................................... 19
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information .................................................... 22
How performance is determined, stated and/or advertised
Make the Most of Your Vista Privileges ..................................... 23
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in the Fund based on
expenses incurred in the most recent fiscal year. The examples show the
cumulative expenses attributable to a hypothetical $1,000 investment over
specified periods.
Class A Class B
Shares Shares
------- -------
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .................. 4.50% None
Maximum Deferred Sales Charge (as a percentage
of the lower of original purchase
price or redemption proceeds)* ...................... None 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
- ----------------------------------------
Investment Advisory Fee (after estimated waiver)** .... 0.15% 0.15%
12b-1 Fee*** .......................................... 0.25% 0.75%
Shareholder Servicing Fee (after estimated waiver,
where indicated) ..................................... 0.00%** 0.25%
Other Expenses ........................................ 0.50% 0.50%
---- ----
Total Fund Operating Expenses (after waiver of fee)** .. 0.90% 1.65%
==== ====
Examples
- --------
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares+ ................................................... $54 $72 $ 93 $151
Class B Shares:
Assuming complete redemption at the end of the period++ ++++ ..... $68 $85 $113 $175
Assuming no redemptions++++ ..................................... $17 $52 $ 90 $175
</TABLE>
- ---------------
* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally
declines by 1% annually thereafter (except in the fourth year), reaching
zero after six years. See "How to Buy, Sell and Exchange Shares."
** Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the levels indicated in the table above. Absent such waivers,
the Investment Advisory Fee would be 0.30% for Class A and Class B
shares, the Shareholder Servicing Fee would be 0.25% for Class A shares,
and Total Fund Operating Expenses would be 1.30% and 1.80% for Class A
and Class B shares, respectively.
*** Long-term shareholders in mutual funds with 12b-1 fees, such as Class A
and Class B shareholders of the Fund, may pay more than the economic
equivalent of the maximum front-end sales charge permitted by rules of
the National Association of Securities Dealers, Inc.
+ Assumes deduction at the time of purchase of the maximum sales charge.
++ Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
++++ Ten-year figures assume conversion of Class B shares to Class A shares
at the beginning of the ninth year after purchase. See "How to Buy, Sell
and Exchange Shares".
3
<PAGE>
The table is provided to help you understand the expenses of investing in
the Fund and your share of the operating expenses that the Fund incurs. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in the Fund. The Fund understands that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect
to those accounts. See "Other Information Concerning the Fund."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
both Class A and Class B shares. The information for each of the five years
in the period ended August 31, 1995 has been audited by Price Waterhouse LLP,
the Fund's independent accountants, whose report on the financial statements
which include this information and the financial statements are incorporated
by reference into the SAI. The Fund's Annual Report for the fiscal year ended
August 31, 1995 includes these financial statements and is available without
charge upon request.
Vista Tax Free Income Fund
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Year 11/1/93 Year ended
ended through ---------------------------------------------
8/31/95 8/31/94+ 10/31/93 10/31/92 10/31/91 10/31/90
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ............ $ 11.70 $ 12.70 $ 11.52 $ 11.12 $10.43 $10.58
-------- -------- -------- -------- ------- -------
Income from Investment Operations:
Net Investment Income ...................... 0.585 0.475 0.662 0.731 0.727 0.723
Net Gains or Losses in Securities
(both realized and unrealized) ............. 0.147 (0.847) 1.412 0.556 0.693 0.094)
-------- -------- -------- -------- ------- -------
Total from Investment Operations ............. 0.732 (0.372) 2.074 1.287 1.420 0.629
-------- -------- -------- -------- ------- -------
Less Distributions:
Dividends from net investment income ........ 0.582 0.475 0.662 0.731 0.726 0.726
Distributions from capital gains ............ -- 0.153 0.237 0.156 -- 0.055
-------- -------- -------- -------- ------- -------
Total Distributions .......................... 0.582 0.628 0.899 0.887 0.726 0.781
-------- -------- -------- -------- ------- -------
Net Asset Value, End of Period ................. $ 11.85 $ 11.70 $ 12.70 $ 11.52 $11.12 $10.43
======== ======== ======== ======== ======= =======
Total Return (1) ............................... 6.53% (2.99%) 18.72% 11.99% 13.98% 6.18%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ...... $88,783 $98,054 $83,672 $17,548 $5,425 $3,973
Ratio of Expenses to Average Net Assets ...... 0.85% 0.58%# 0.23% 0.00% 0.04% 0.12%
Ratio of Net Income to Average Net Assets .... 5.07% 4.75%# 5.25% 6.26% 6.71% 6.86%
Ratio of Expenses without waivers and
assumption of expenses to
Average Net Assets ......................... 1.47% 1.29%# 1.20% 2.34% 4.04% 2.50%
Ratio of Net Investments Income
without waivers and assumption of
expenses to Average Net Assets............... 4.45% 4.03%# 4.28% 3.92% 2.71% 4.48%
Portfolio Turnover Rate ......................... 233% 258% 149% 266% 211% 89%
</TABLE>
5
<PAGE>
Vista Tax Free Income Fund
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ------------------------
Year ended 9/4/87* Year 11/4/93**
------------------------- to ended through
10/31/89 10/31/88 10/31/87 8/31/95 8/31/94+
-------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period .......... $ 10.63 $ 10.08 $ 10.00 $ 11.65 $ 12.51
------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income ..................... 0.756 0.738 0.059 0.498 0.423
Net Gains or Losses in Securities
(both realized and unrealized) .......... 0.006 0.603 0.021 0.140 (0.707)
------- ------- ------- ------- -------
Total from Investment Operations ............ 0.762 1.341 0.080 0.638 (0.284)
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income ...... 0.759 0.791 -- 0.518 0.423
Distributions from capital gains .......... 0.053 -- -- -- 0.153
------- ------- ------- ------- -------
Total Distributions ......................... 0.812 0.791 -- 0.518 0.576
------- ------- ------- ------- -------
Net Asset Value, End of Period ................ $ 10.58 $ 10.63 $ 10.08 $ 11.77 $ 11.65
======= ======= ======= ======= =======
Total Return (1) .............................. 7.48% 13.83% 5.41% 5.70% (2.35%)
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ...... $ 3,196 $ 1,197 $ 101 $14,265 $11,652
Ratio of Expenses to Average Net Assets ...... 0.00% 0.00% 0.00%# 1.61% 1.47%#
Ratio of Net Income to Average Net Assets .... 7.06% 7.50% 7.35%# 4.31% 3.95%#
Ratio of Expenses without waivers and
assumption of expenses to Average Net Assets 2.50% 2.00% 2.00%# 1.97% 1.81%#
Ratio of Net Investments Income without
waivers and assumption of expenses to
Average Net Assets ......................... 4.56% 5.50% 5.35%# 3.95% 3.61%#
Portfolio Turnover Rate ....................... 257% 422% 94% 233% 258%
</TABLE>
- ---------------
# Periods less than one year have been annualized.
* Commencement of operations.
** Commencement of offering of shares.
+ In 1994 the Tax Free Income Fund changed ifs fiscal year-end from October
31 to August 31.
6
<PAGE>
FUND OBJECTIVES
Vista Tax Free Income Fund seeks to provide monthly dividends which are
excluded from gross income for federal tax purposes, as well as to protect
the value of its shareholders' investment, by investing primarily (i.e., at
least 80% of its assets under normal conditions) in Municipal Obligations.
The Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
INVESTMENT POLICIES
Investment Approach
The Fund invests primarily in Municipal Obligations (as defined under
"Municipal Obligations"). As a fundamental policy, under normal market
conditions, the Fund will have at least 80% of its assets in Municipal
Obligations the interest on which, in the opinion of bond counsel, is
excluded from gross income for federal income tax purposes and does not
constitute a preference item which would be subject to the federal
alternative minimum tax on individuals (these preference items are referred
to as "AMT Items"). The Fund reserves the right under normal market
conditions to invest up to 20% of its total assets in AMT Items or securities
the interest on which is subject to federal income tax. For temporary
defensive purposes, the Fund may exceed this limitation.
The Fund's investments may include, among other instruments, fixed,
variable or floating rate general obligation and revenue bonds, zero coupon
securities, inverse floaters and bonds with interest rate caps. The Fund's
Municipal Obligations will be rated at time of purchase at least in the
category Baa, MIG-3 or VMIG-3 by Moody's Investors Service, Inc. ("Moody's"),
or BBB or SP-2 by Standard & Poor's Corporation ("S&P"), or BBB or FIN-3 by
Fitch Investors Service, Inc. ("Fitch") or comparably rated by another
national rating organization, or, if unrated, considered by the Fund's
advisers to be of comparable quality.
There is no restriction on the maturity of the Fund's portfolio or any
individual portfolio security. The Fund's advisers may adjust the average
maturity of the Fund's portfolio based upon their assessment of the relative
yields available on securities of different maturities and their expectations
of future changes in interest rates.
The Fund is classified as a "non-diversified" fund under federal
securities law. The Fund's assets may be more concentrated in the securities
of any single issuer or group of issuers than if the Fund were diversified.
For temporary defensive purposes, the Fund may invest without limitation
in high quality money market instruments and repurchase agreements, the
interest income from which may be taxable to shareholders as ordinary income
for federal income tax purposes.
In lieu of investing directly, the Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the Fund.
Municipal Obligations
"Municipal Obligations" are obligations issued by or on behalf of states,
territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on
which, in the opinion of bond counsel, is excluded from gross income for
federal income tax purposes (without regard to whether the interest thereon
is also exempt from the personal income taxes of any state or whether the
interest thereon constitutes a preference item for purposes of the federal
alternative minimum tax). These securities are issued to obtain funds for
various public purposes, such as the construction of public facilities, the
payment of
7
<PAGE>
general operating expenses or the refunding of outstanding debts. They may
also be issued to finance various private activities, including the lending
of funds to public or private institutions for the construction of housing,
educational or medical facilities, and may include certain types of
industrial development bonds, private activity bonds or notes issued by
public authorities to finance privately owned or operated facilities, or to
fund short-term cash requirements. Short-term Municipal Obligations may be
issued as interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes.
The two principal classifications of Municipal Obligations are general
obligation and revenue obligation securities. General obligation securities
involve a pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Revenue
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds are in most cases
revenue obligation securities, the credit quality of which is directly
related to the private user of the facilities.
From time to time, the Fund may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental issuers such as hospitals or airports,
provided, however, that the Fund may not invest more than 25% of the value of
its total assets in such bonds if the issuers are in the same industry.
Municipal Lease Obligations. The Fund may invest in municipal lease
obligations. These are participations in a lease obligation or installment
purchase contract obligation and typically provide a premium interest rate.
Municipal lease obligations do not constitute general obligations of the
municipality. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
or installment payments in future years unless money is later appropriated
for such purpose. Although "non- appropriation" lease obligations are secured
by the leased property, disposition of the property in the event of
foreclosure might prove difficult. Certain investments in municipal lease
obligations may be illiquid.
Other Investment Practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices,
and certain associated risks, are more fully described in the SAI.
Money Market Instruments. The Fund may invest in cash or high-quality,
short-term money market instruments. Such instruments may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money
market instruments may involve certain risks associated with foreign
investment.
U.S. Government Obligations. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase Agreements and Forward Commitments. The Fund may enter into
agreements to purchase and resell securities at an agreed-upon price and
time. The Fund may purchase securities for delivery at a future date, which
may increase its overall investment exposure and involves a risk of loss if
the value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should
8
<PAGE>
default on its obligation and the Fund is delayed or prevented from
recovering the collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). The Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, the Fund would acquire
the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to
the Fund if the other party should default on its obligation and the Fund is
delayed or prevented from recovering the collateral or completing the
transaction. Acquisition of puts will have the effect of increasing the cost
of the securities subject to the put and thereby reducing the yields
otherwise available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of its
total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government,
including instruments known as "STRIPS". The Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. The
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Fund may invest include
participation certificates and certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by
others; certificates of indebtedness or safekeeping are documentary receipts
for such original securities held in custody by others. As a result of the
floating or variable rate nature of these investments, the Fund's yield may
decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, the Fund's yield may increase and it may have reduced risk of
capital depreciation. Demand features on certain floating or variable rate
securities may obligate the Fund to pay a "tender fee" to a third party.
Demand features provided by foreign banks involve certain risks associated
with foreign investments. The Internal Revenue Service has not ruled on
whether interest on participations in floating or variable rate municipal
obligations is tax exempt, and the Fund would purchase such instruments based
on opinions of bond counsel.
Inverse Floaters and Interest Rate Caps. The Fund may invest in inverse
floaters and in securities with interest rate caps. Inverse floaters are
instruments whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index, and their price may be
considerably more volatile than a fixed-rate
9
<PAGE>
security. Interest rate caps are financial instruments under which payments
occur if an interest rate index exceeds a certain predetermined interest rate
level, known as the cap rate, which is tied to a specific index. These
financial products will be more volatile in price than municipal securities
which do not include such a structure.
Other Investment Companies. The Fund may invest up to 10% of its total
assets in shares of other investment companies, subject to applicable
regulatory limitations.
Derivatives and Related Instruments. The Fund may invest its assets in
derivative and related instruments to hedge various market risks or to
increase the Fund's income or gain. Some of these instruments will be subject
to asset segregation requirements to cover the Fund's obligations. The Fund
may (i) purchase, write and exercise call and put options on securities and
securities indexes (including using options in combination with securities,
other options or derivative instruments); (ii) enter into swaps, futures
contracts and options on futures contracts; (iii) employ forward interest
rate contracts; and (iv) purchase and sell structured products, which are
instruments designed to restructure or reflect the characteristics of certain
other investments.
There are a number of risks associated with the use of derivatives and
related instruments and no assurance can be given that any strategy will
succeed. The value of certain derivatives or related instruments in which the
Fund invests may be particularly sensitive to changes in prevailing economic
conditions and market value. The ability of the Fund to successfully utilize
these instruments may depend in part upon the ability of the Fund's advisers
to forecast these factors correctly. Inaccurate forecasts could expose the
Fund to a risk of loss. There can be no guarantee that there will be a
correlation between price movements in a hedging instrument and in the
portfolio assets being hedged. The Fund is not required to use any hedging
strategies. Hedging strategies, while reducing risk of loss, can also reduce
the opportunity for gain. Derivatives transactions not involving hedging may
have speculative characteristics, involve leverage and result in more risk to
the Fund than hedging strategies using the same instruments. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to
close out a derivatives position. Activities of large traders in the futures
and securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in derivatives markets. In
certain instances, particularly those involving over-the-counter transactions
or forward contracts, there is a greater potential that a counterparty or
broker may default. In the event of a default, the Fund may experience a
loss. For additional information concerning derivatives, related instruments
and the associated risks, see the SAI.
Portfolio Turnover. The frequency of the Fund's portfolio transactions
will vary from year to year. The Fund's investment policies may lead to
frequent changes in investments, particularly in periods of rapidly changing
market conditions. High portfolio turnover rates would generally result in
higher transaction costs, including brokerage commissions or dealer mark-ups,
and would make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. See "How Distributions are Made;
Tax Information" and "Other Information Concerning the Fund--Certain
Regulatory Matters."
Limiting Investment Risks
Specific investment restrictions help the Fund limit investment risks for
its shareholders. These restrictions prohibit the Fund from: (a) investing
more than 15% of its net assets in illiquid securities (which include
securities restricted as to resale unless they are determined to be readily
marketable in accordance with procedures established by the Board of
Trustees); or (b) investing more than 25% of its total assets in any one
industry (this would apply to municipal obligations backed only by the assets
and revenues of nongovernmental users, but excludes obligations of states,
cities, municipalities or other public authorities). A complete description
of these and other investment policies is included in the SAI. Except for the
Fund's investment objective, restriction (b) above and
10
<PAGE>
investment policies designated as fundamental above or in the SAI, the Fund's
investment policies are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
Changes in interest rates may affect the value of the obligations held by
the Fund. The value of fixed income securities varies inversely with changes
in prevailing interest rates. For a discussion of certain other risks
associated with the Fund's additional investment activities, see "Other
Investment Practices" and "Municipal Obligations."
Because the Fund will invest primarily in obligations issued by states,
cities, public authorities and other municipal issuers, the Fund is
susceptible to factors affecting such states and their municipal issuers. A
number of municipal issuers have a recent history of significant financial
and fiscal difficulties. If an issuer in which the Fund invests is unable to
meet its financial obligations, the income derived by the Fund and the Fund's
ability to preserve capital and liquidity could be adversely affected. See
the SAI for further information.
Interest on certain Municipal Obligations (including certain industrial
development bonds), while exempt from federal income tax, is a preference
item for the purpose of the alternative minimum tax. Where a mutual fund
receives such interest, a proportionate share of any exempt-interest dividend
paid by the mutual fund may be treated as such a preference item to
shareholders. Federal tax legislation enacted over the past few years has
limited the types and volume of bonds which are not AMT Items and the
interest on which is not subject to federal income tax. This legislation may
affect the availability of Municipal Obligations for investment by the Fund.
The Fund may invest up to 25% of its total assets in Municipal Obligations
secured by letters of credit or guarantees from U.S. and foreign banks, and
other foreign institutions. The dependence on banking institutions may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.
Obligations backed by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of obligations of domestic issuers, including risks relating to
future political and economic developments, more limited liquidity of foreign
obligations than comparable domestic obligations, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization
of foreign assets, and the possible establishment of exchange controls or
other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or
enforcing a judgment against a foreign issuer (including branches) and
accounting, auditing and financial reporting standards and practices may
differ from those applicable to U.S. issuers. In addition, foreign banks are
not subject to regulations comparable to U.S. banking regulations.
Because the Fund is "non-diversified," the value of its shares is more
susceptible to developments affecting issuers in which the Fund invests. In
addition, more than 25% of the Fund's assets may be invested in securities to
be paid from revenue of similar projects, which may cause the Fund to be more
susceptible to similar economic, political, or regulatory developments.
11
<PAGE>
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the Fund
pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board
of Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan
Corporation, a bank holding company. Chase and its predecessors have over 100
years of money management experience. For its investment advisory services to
the Fund, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.30% of the Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to the Fund pursuant to a Sub-Investment Advisory
Agreement between CAM and Chase. CAM is a wholly-owned operating subsidiary
of Chase. CAM makes investment decisions for the Fund on a day-to-day basis.
For these services, CAM is entitled to receive a fee, payable by Chase from
its advisory fee, at an annual rate equal to 0.15% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for
CAM. CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
Pamela Hunter, Vice President of Chase, has been responsible for the
day-to-day management of the Fund since its inception in 1987. Ms. Hunter is
part of a team providing fixed income strategy and product development. Ms.
Hunter has been employed at Chase (including its predecessors) since 1980.
ABOUT YOUR INVESTMENT
Alternative Sales Arrangements
Class A shares. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject
to any sales charges when they are redeemed. Certain purchases of Class A
shares qualify for reduced sales charges. Class A shares have lower combined
12b-1 and service fees than Class B shares. See "How to Buy, Sell and
Exchange Shares" and "Other Information Concerning the Fund."
Class B shares. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge ("CDSC") if redeemed
within a specified period after purchase. Class B shares also have higher
combined 12b-1 and service fees than Class A shares.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year after purchase.
For more information about the conversion of Class B shares, see the SAI.
This discussion will include information about how shares acquired through
reinvestment of distributions are treated for conversion purposes. Class B
shares provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made. Until conversion, Class
B shares will have a higher expense ratio and pay lower dividends than Class
A shares because of the higher combined 12b-1 and service fees. See "How to
Buy, Sell and Exchange Shares" and "Other Information Concerning the Fund."
Which arrangement is best for you? The decision as to which class of
shares provides a more suitable investment for an investor depends on a
number of factors, including the amount and intended length of the
investment. Investors making investments that qualify for reduced sales
charges might consider Class A shares. Investors who
12
<PAGE>
prefer not to pay an initial sales charge might consider Class B shares. In
almost all cases, investors planning to purchase $250,000 or more of the
Fund's shares will pay lower aggregate charges and expenses by purchasing
Class A shares.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
You can open a Fund account with as little as $2,500 ($1,000 for IRAs,
SEP-IRAs and the Systematic Investment Plan) and make additional investments
at any time with as little as $100. You can buy Fund shares three
ways-through an investment representative, through the Fund's distributor by
calling the Vista Service Center, or through the Systematic Investment Plan.
All purchases made by check should be in U.S. dollars and made payable to
the Vista Funds. Third party checks, credit cards and cash will not be
accepted. The Fund reserves the right to reject any purchase order or cease
offering shares for purchase at any time. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which
may take 15 calendar days or longer. In addition, the redemption of shares
purchased through ACH will not be allowed until clearance of your payment,
which may take 7 business days or longer.
Buying shares through the Fund's distributor. Complete and return the
enclosed application and your check in the amount you wish to invest to the
Vista Service Center.
Buying shares through systematic investing. You can make regular
investments of $100 or more per transaction through automatic periodic
deduction from your bank checking or savings account. Shareholders electing
to start this Systematic Investment Plan when opening an account should
complete Section 8 of the account application. Current shareholders may begin
such a plan at any time by sending a signed letter with signature guarantee
and a deposit slip or voided check to the Vista Service Center. Call the
Vista Service Center at 1-800-34-VISTA for complete instructions.
Shares are sold at the public offering price based on the net asset value
next determined after the Vista Service Center receives your order in proper
form. In most cases, in order to receive that day's public offering price,
the Vista Service Center must receive your order before the close of regular
trading on the New York Stock Exchange. If you buy shares through your
investment representative, the representative must receive your order before
the close of regular trading on the New York Stock Exchange to receive that
day's public offering price. Orders for shares are accepted by the Fund after
funds are converted to federal funds. Orders paid by check and received by
2:00 p.m., Eastern Time will generally be available for the purchase of
shares the following business day.
If you are considering redeeming or exchanging shares or transferring
shares to another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption, exchange or
transfer. Otherwise the Fund may delay payment until the purchase price of
those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date. To eliminate the need for safekeeping,
the Fund will not issue certificates for your Class A shares unless you
request them. Due to the conversion feature of Class B shares, certificates
for Class B shares will not be issued and all Class B shares will be held in
book entry form.
Class A Shares
The public offering price of Class A shares is the net asset value plus a
sales charge that varies depending on the size of your purchase. The Fund
receives the net asset value. The sales charge is allocated between your
broker-dealer and the Fund's distributor as shown in the following table,
except when the Fund's distributor, in its discretion, allocates the entire
amount to your broker-dealer.
13
<PAGE>
<TABLE>
<CAPTION>
Sales charge as a
percentage of:
-------------------- Amount of sales charge
Amount of transaction at Offering Net Amount reallowed to dealers as a
offering price($) Price Price percentage of offering price
- ------------------------------------- -------- ---------- ----------------------------
<S> <C> <C> <C>
Under 100,000 ...................... 4.50 4.71 4.00
100,000 but under 250,000 .......... 3.75 3.90 3.25
250,000 but under 500,000 .......... 2.50 2.56 2.25
500,000 but under 1,000,000 ........ 2.00 2.04 1.75
</TABLE>
There is no initial sales charge on purchases of Class A shares of $1
million or more.
The Fund's distributor pays broker-dealers commissions on net sales of
Class A shares of $1 million or more based on an investor's cumulative
purchases. Such commissions are paid at the rate of 0.75% of the amount under
$2.5 million, 0.50% of the next $7.5 million, 0.25% of the next $40 million
and 0.15% thereafter. The Fund's distributor may withhold such payments with
respect to short-term investments.
Class B Shares
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may be
redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a
percentage of the purchase of the current market value or the cost of shares
being redeemed.
Year 1 2 3 4 5 6 7 8+
- -------------------------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the CDSC period. When a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. For information on how sales charges are calculated if you
exchange your shares, see "How to Exchange Your Shares." The Fund's
distributor pays broker-dealers a commission of 4.00% of the offering price
on sales of Class B shares, and the distributor receives the entire amount of
any CDSC you pay.
General
You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment representative or the Vista Service Center for
details about Vista's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employee benefit plans,
and other plans. Descriptions are also included in the enclosed application
and in the SAI. In addition, sales charges will not apply to shares purchased
with redemption proceeds received within the prior ninety days from non-Vista
mutual funds on which the investor paid a front-end or contingent deferred
sales charge.
A participant-directed employee benefit plan participating in a
"multi-fund" program approved by the Board of Trustees may include amounts
invested in the other mutual funds participating in such program for purposes
of determining whether the plan may purchase Class A shares at net asset
value. These investments will also be included for purposes of the discount
privileges and programs described above.
The Fund may sell Class A shares at net asset value without an initial
sales charge to the current and retired Trustees (and their immediate
families), current and retired employees (and their immediate families) of
Chase,
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the Fund's distributor and transfer agent or any affiliates or subsidiaries
thereof, registered representatives and other employees (and their immediate
families) of broker-dealers having selected dealer agreements with the Fund's
distributor, employees (and their immediate families) of financial
institutions having selected dealer agreements with the Fund's distributor
(or otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Vista fund shares) financial institution
trust departments investing an aggregate of $1 million or more in the Vista
Family of Funds and clients of certain administrators of tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in the Vista Family of Funds.
No initial sales charge will apply to the purchase of Class A shares of
the Fund by an investor seeking to invest the proceeds of a qualified
retirement plan where a portion of the plan was invested in the Vista Family
of Funds, any qualified retirement plan with 50 or more participants, or an
individual participant in a tax-qualified plan making a tax-free rollover or
transfer of assets from the plan in which Chase or an affiliate serves as
trustee or custodian of the plan or manages some portion of the plan's
assets.
Purchases of Class A shares of the Fund may be made with no initial sales
charge through an investment adviser or financial planner that charges a fee
for its services. Purchases of Class A shares of the Fund may be made with no
initial sales charge (i) by an investment adviser, broker or financial
planner, provided arrangements are preapproved and purchases are placed
through an omnibus account with the Fund or (ii) by clients of such
investment adviser or financial planner who place trades for their own
accounts, if such accounts are linked to a master account of such investment
adviser or financial planner on the books and records of the broker or agent.
Such purchases may be made for retirement and deferred compensation plans and
trusts used to fund those plans.
Purchases of Class A shares of the Fund may be made with no initial sales
charge in accounts opened by a bank, trust company or thrift institution
which is acting as a fiduciary exercising investment discretion, provided
that appropriate notification of such fiduciary relationship is reported at
the time of the investment to the Fund, the Fund's distributor or the Vista
Service Center.
Shareholders of record of any Vista fund as of November 30, 1990 and
certain immediate family members may purchase Class A shares of the Fund with
no initial sales charge for as long as they continue to own Class A shares of
any Vista fund, provided there is no change in account registration.
Shareholders of record of any portfolio of The Hanover Funds, Inc. or The
Hanover Investment Funds, Inc. as of May 3, 1996 and certain related
investors may purchase Class A shares of the Fund with no initial sales
charge for as long as they continue to own shares of any Vista fund following
this date, provided there is no change in account registration.
The Fund may sell Class A shares at net asset value without an initial
sales charge in connection with the acquisition by the Fund of assets of an
investment company or personal holding company. The CDSC will be waived on
redemption of Class B shares arising out of death or disability or in
connection with certain withdrawals from IRA or other retirement plans. Up to
12% of the value of Class B shares subject to a systematic withdrawal plan
may also be redeemed each year without a CDSC, provided that the Class B
account had a minimum balance of $20,000 at the time the systematic
withdrawal plan was established. The SAI contains additional information
about purchasing the Fund's shares at reduced sales charges.
The Fund reserves the right to change any of these policies on purchases
without an initial sales charge at any time and may reject any such purchase
request.
Shareholders of other Vista funds may be entitled to exchange their shares
for, or reinvest distributions from their funds in, shares of the Fund at net
asset value.
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How to Sell Shares
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The
Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of instruction
to the Vista Service Center, along with any certificates that represent
shares you want to sell. The price you will receive is the next net asset
value calculated after the Fund receives your request in proper form, less
any applicable CDSC. In order to receive that day's net asset value, the
Vista Service Center must receive your request before the close of regular
trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
See the SAI for more information about where to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
The Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the business day
after your request is received in proper form, assuming the Fund has
collected payment of the purchase price of your shares. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with the
Fund. Unless an investor indicates otherwise on the account application, the
Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, the Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither the Fund nor its
agents will be liable for any loss, liability, cost or expense arising out of
any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Systematic withdrawal. You can make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a
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systematic withdrawal plan for Class A accounts. Call the Vista Service
Center at 1-800-34-VISTA for complete instructions.
Selling shares through your investment representative. Your investment
representative must receive your request before the close of regular trading
on the New York Stock Exchange to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Vista Service Center, and may charge you for its
services.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem your
shares if at such time the aggregate net asset value of the shares in your
account is less than $500 or if you purchase through the Systematic
Investment Plan and fail to meet the Fund's investment minimum within a
twelve month period. In the event of any such redemption, you will receive at
least 60 days notice prior to the redemption. In the event the Fund redeems
Class B shares pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain other
Vista funds at net asset value beginning 15 days after purchase. Not all
Vista funds offer all classes of shares. The prospectus of the other Vista
fund into which shares are being exchanged should be read carefully and
retained for future reference. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you redeem the
shares acquired through the exchange, the redemption may be subject to the
CDSC, depending upon when you originally purchased the shares. The CDSC will
be computed using the schedule of any fund into or from which you have
exchanged your shares that would result in your paying the highest CDSC
applicable to your class of shares. In computing the CDSC, the length of time
you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
An exchange of Class B shares into any of the Vista money market funds
other than the Class B shares of the Vista Prime Money Market Fund will be
treated as a redemption--and therefore subject to the conditions of the
CDSC--and a subsequent purchase. Class B shares of any Vista non-money market
fund may be exchanged into the Class B shares of the Vista Prime Money Market
Fund in order to continue the aging of the initial purchase of such shares.
For federal income tax purposes, an exchange is treated as a sale of
shares and generally results in a capital gain or loss.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. The Telephone
Exchange Privilege is not available if you were issued certificates for
shares that remain outstanding. Ask your investment representative or the
Vista Service Center for prospectuses of other Vista funds. Shares of certain
Vista funds are not available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees believe doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving the Fund in
a year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by
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law. Consult the Vista Service Center before requesting an exchange. See the
SAI to find out more about the exchange privilege.
Reinstatement privilege. Class A shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with such
redemption may purchase Class A shares with no initial sales charge (in an
amount not in excess of their redemption proceeds) if the purchase occurs
within 90 days of the redemption of the Class B shares.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is determined once
daily based upon prices determined as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m., Eastern time, however, options
are priced at 4:15 p.m., Eastern time), on each business day of the Fund, by
dividing the net assets of the Fund attributable to that class by the total
number of outstanding shares of that class. Values of assets held by the Fund
are determined on the basis of their market or other fair value, as described
in the SAI.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares dividends daily and distributes any net investment
income at least monthly. The Fund distributes any net realized capital gains
at least annually. Distributions from capital gains are made after applying
any available capital loss carryovers. Distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with
respect to Class B shares because expenses attributable to Class B shares
will generally be higher.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2) receive
distributions from net investment income in cash or by ACH to a
pre-established bank account while reinvesting capital gains distributions in
additional shares without a sales charge; or (3) receive all distributions in
cash or by ACH. You can change your distribution option by notifying the
Vista Service Center in writing. If you do not select an option when you open
your account, all distributions will be reinvested. All distributions not
paid in cash or by ACH will be reinvested in shares of the class on which the
distributions are paid. You will receive a statement confirming reinvestment
of distributions in additional Fund shares promptly following the quarter in
which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a
specified period, the Vista Service Center will notify you that you have the
option of requesting another check or reinvesting the distribution in the
Fund or in another Vista fund. If the Vista Service Center does not receive
your election, the distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or the Vista Service Center is returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund intends to distribute substantially all
of its income and gains on a current basis. If the Fund does not qualify as a
regulated investment company for any taxable year or does not make such
distributions, the Fund will be subject to tax on all of its income and
gains.
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Distributions by the Fund of its tax-exempt interest income will not be
subject to federal income tax. Such distributions will generally be subject
to state and local taxes, but may be exempt if paid out of interest on
municipal obligations of the state or locality in which the shareholder
resides.
All other Fund distributions will be taxable as ordinary income, except
that any distributions of net long- term capital gains will be taxable as
such, regardless of how long you have held the shares. Distributions will be
treated in the same manner for Federal income tax purposes whether received
in cash or in shares through the reinvestment of distributions.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next distribution date. Those investors purchasing
shares just prior to a distribution will be taxed on the entire amount of the
taxable distribution received, even though the net asset value per share on
the date of such purchase reflected the amount of such distribution.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Trust
has adopted Rule 12b-1 distribution plans for Class A and Class B shares
which provide that the Fund will pay distribution fees at annual rates of up
to 0.25% and 0.75% of the average daily net assets attributable to Class A
and Class B shares of the Fund, respectively. Payments under the distribution
plans shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class A and Class B shares, and are not tied to the amount of
actual expenses incurred. Payments may be used to compensate broker-dealers
with trail or maintenance commissions at an annual rate of up to 0.25% of the
average daily net asset value of Class A or Class B shares maintained in the
Fund by customers of these broker-dealers. Trail or maintenance commissions
are paid to broker- dealers beginning the 13th month following the purchase
of shares by their customers. Some activities intended to promote the sale of
Class A and Class B shares will be conducted generally by the Vista Family of
Funds, and activities intended to promote the Fund's Class A or Class B
shares may also benefit the Fund's other shares and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket
to a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging
and meals, in connection with attendance at training and educational meetings
within and outside the U.S.
Shareholder Servicing Agents
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own Class A or Class B shares of the Fund. These
services include assisting
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with purchase and redemption transactions, maintaining shareholder accounts
and records, furnishing customer statements, transmitting shareholder reports
and communications to customers and other similar shareholder liaison
services. For performing these services, each shareholder servicing agent
receives an annual fee of up to 0.25% of the average daily net assets of
Class A and Class B shares of the Fund held by investors for whom the
shareholder servicing agent maintains a servicing relationship. Shareholder
servicing agents may subcontract with other parties for the provision of
shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures for the purchase and redemption
of Fund shares, such as pre-authorized or systematic purchase and redemption
plans. Each shareholder servicing agent may establish its own terms and
conditions, including limitations on the amounts of subsequent transactions,
with respect to such services. Certain shareholder servicing agents may
(although they are not required by the Trust to do so) credit to the accounts
of their customers from whom they are already receiving other fees an amount
not exceeding such other fees or the fees for their services as shareholder
servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it
will be paid by Chase.
Administrator and Sub-Administrator
Chase act as the Fund's administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub- administration agreement and is entitled to receive a
fee for these services from the Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee
to pay for certain expenses incurred in connection with organizing new series
of the Trust and certain other ongoing expenses of the Trust. VFD is located
at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and receives
compensation under an agreement with the Trust. Fund securities and cash may
be held by sub-custodian banks if such arrangements are reviewed and approved
by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Fund.
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Shareholder servicing and distribution fees are allocated to specific classes
of the Fund. In addition, the Fund may allocate transfer agency and certain
other expenses by class. Service providers to the Fund may, from time to
time, voluntarily waive all or a portion of any fees to which they are
entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional
series and classes. Each share of a series or class represents an equal
proportionate interest in that series or class with each other share of that
series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Shares
have no preemptive or conversion rights. Shares when issued are fully paid
and non-assessable, except as set forth below. Shareholders are entitled to
one vote for each whole share held, and each fractional share shall be
entitled to a proportionate fractional vote, except that Trust shares held in
the treasury of the Trust shall not be voted. Shares of each class of the
Fund generally vote together except when required under federal securities
laws to vote separately on matters that only affect a particular class, such
as the approval of distribution plans for a particular class.
The Fund issues multiple classes of shares. This Prospectus relates to
Class A and Class B shares of the Fund. The Fund may offer other classes of
shares in addition to these classes. The categories of investors that are
eligible to purchase shares and minimum investment requirements may differ
for each class of Fund shares. In addition, other classes of Fund shares may
be subject to differences in sales charge arrangements, ongoing distribution
and service fee levels, and levels of certain other expenses, which would
affect the relative performance of the different classes. Investors may call
1-800-34-VISTA to obtain additional information about other classes of shares
of the Fund that are offered. Any person entitled to receive compensation for
selling or servicing shares of the Fund may receive different levels of
compensation with respect to one class of shares over another.
The business affairs of the Trust are managed under the general direction
and supervision of the Trust's Board of Trustees. The Trust is not required
to hold annual meetings of shareholders but will hold special meetings of
shareholders of all series or classes when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote. The
Trustees will promptly call a meeting of shareholders to remove a trustee(s)
when requested to do so in writing by record holders of not less than 10% of
all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required Chase to alter or
discontinue any of these services, it is expected that the Board of Trustees
would recommend alternative arrangements and that investors would not suffer
adverse
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financial consequences. State securities laws may differ from the
interpretations of banking law described above and banks may be required to
register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations
and municipal obligations to, and purchase them from, other investment
companies sponsored by the Fund's distributor or affiliates of the
distributor. Chase will not invest the Fund's assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by the Fund. Chase has informed the Fund that
in making its investment decisions, it does not obtain or use material inside
information in the possession of any other division or department of Chase,
including the division that performs services for the Fund as custodian, or
in the possession of any affiliate of Chase. Shareholders of the Fund should
be aware that, subject to applicable legal or regulatory restrictions, Chase
and its affiliates may exchange among themselves certain information about
the shareholder and his account. Transactions with affiliated broker-dealers
will only be executed on an agency basis in accordance with applicable
federal regulations.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. Performance is calculated separately for each
class of shares. "Yield" for each class of shares is calculated by dividing
the annualized net investment income calculated pursuant to federal rules per
share during a recent 30-day period by the maximum public offering price per
share of such class on the last day of that period. "Effective yield" is the
"yield" calculated assuming the reinvestment of income earned, and will be
slightly higher than the "yield" due to the compounding effect of this
assumed reinvestment. "Tax equivalent yield" is the yield that a taxable fund
would have to generate in order to produce an after-tax yield equivalent to
the Fund's yield. The tax equivalent yield of the Fund can then be compared
to the yield of a taxable fund. Tax equivalent yields can be quoted on either
a "yield" or "effective yield" basis.
"Total return" for the one-, five- and ten-year periods (or for the life
of a class, if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in
the Fund invested at the maximum public offering price (in the case of Class
A shares) or reflecting the deduction of any applicable contingent deferred
sales charge (in the case of Class B shares). Total return may also be
presented for other periods or without reflecting sales charges. Any
quotation of investment performance not reflecting the maximum initial sales
charge or contingent deferred sales charge would be reduced if such sales
charges were used.
All performance data is based on the Fund's past investment results and
does not predict future performance. Investment performance, which will vary,
is based on many factors, including market conditions, the composition of the
Fund's portfolio, the Fund's operating expenses and which class of shares you
purchase. Investment performance also often reflects the risks associated
with the Fund's investment objectives and policies. These factors should be
considered when comparing the Fund's investment results to those of other
mutual funds and other investment vehicles. Quotation of investment
performance for any period when a fee waiver or expense limitation
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was in effect will be greater than if the waiver or limitation had not been
in effect. The Fund's performance may be compared to other mutual funds,
relevant indices and rankings prepared by independent services. See the SAI.
MAKE THE MOST OF YOUR VISTA PRIVILEGES
The following services are available to you as a Vista mutual fund
shareholder.
(bullet) SYSTEMATIC INVESTMENT PLAN--Invest as much as you wish ($100
or more) in the first or third week of any month. The amount will be
automatically transferred from your checking or savings account.
(bullet) SYSTEMATIC WITHDRAWAL--Make regular withdrawals of $50 or more
($100 or more for Class B accounts) monthly, quarterly or semiannually. A
minimum account balance of $5,000 is required to establish a systematic
withdrawal plan for Class A accounts.
(bullet) SYSTEMATIC EXCHANGE--Transfer assets automatically from one
Vista account to another on a regular, prearranged basis. There is no
additional charge for this service.
(bullet) FREE EXCHANGE PRIVILEGE--Exchange money between Vista funds in
the same class of shares without charge. The exchange privilege allows you
to adjust your investments as your objectives change.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange and systematic withdrawal or exchange.
(bullet) REINSTATEMENT PRIVILEGE--Class A shareholders have a one time
privilege of reinstating their investment in the Fund at net asset value
next determined subject to written request within 90 calendar days of the
redemption, accompanied by payment for the shares (not in excess of the
redemption).
Class B shareholders who have redeemed their shares and paid a CDSC with
such redemption may purchase Class A shares with no initial sales charge
(in an amount not in excess of their redemption proceeds) if the purchase
occurs within 90 days of the redemption of the Class B shares.
For more information about any of these services and privileges, call your
shareholder servicing agent, investment representative or the Vista Service
Center at 1-800-34-VISTA. These privileges are subject to change or
termination.
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[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
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Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
VTFI-1-596CX
[VISTA LOGO]
Tax Free
Income Fund
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Prospectus
and Application
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
May 6, 1996
PROSPECTUS
VISTA[SM] PRIME MONEY MARKET FUND
Class B Shares
Investment Strategy: Current Income
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Fund in its May 6, 1996 Statement of
Additional Information, as amended periodically (the "SAI"). For a free copy
of the SAI, call the Vista Service Center at 1-800-34-VISTA. The SAI has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
Investors should be aware that Class B shares of the Fund are made
available for exchange purposes only and that the yield on Class B shares
will be substantially lower than other classes of shares of the Fund. Class B
shares of the Fund carry the same 0.75% distribution fee as other Vista B
shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUND ARE SUBJECT TO RISK--INCLUDING POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK OR ANY OF ITS AFFILIATES
AND ARE NOT INSURED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY.
<PAGE>
TABLE OF CONTENTS
Expense Summary ........................................................... 3
The expenses you pay on your Fund investment, including examples
Financial Highlights ..................................................... 5
The Fund's financial history
Fund Objective and Investment Approach .................................... 6
Other Investment Practices ................................................ 6
Management ................................................................ 9
Chase Manhattan Bank, the Fund's adviser; Chase Asset Management, the Fund's
sub-adviser
About Your Investment .................................................... 10
How to Buy, Sell and Exchange Shares ...................................... 10
How the Fund Values Its Shares ........................................... 13
How Dividends and Distributions Are Made; Tax Information ................ 13
How the Fund distributes its earnings, and tax treatment related to
those earnings
Other Information Concerning the Funds .................................... 14
Distribution plans, shareholder servicing agents, administration,
custodian, expenses, organization and regulatory matters
Performance Information ................................................... 17
How performance is determined, stated and/or advertised
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing. The
following table summarizes your costs from investing in the Fund based on
expenses incurred in the most recent fiscal year. The examples show the
cumulative expenses attributable to a hypothetical $1,000 investment over
specified periods.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- ---------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ............................................... None
Maximum Deferred Sales Charge
(as a percentage of the lower of original purchase price or redemption proceeds)*.. 5.00%
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Investment Advisory Fee ............................................................ 0.10%
12b-1 Fee ** ....................................................................... 0.75%
Shareholder Servicing Fee (after estimated waiver)*** .............................. 0.00%
Other Expenses (after estimated waiver and reimbursement)*** ........................ 0.62%
------
Total Fund Operating Expenses (after waiver of fee and expense reimbursement) *** ... 1.47%
======
</TABLE>
Example
- -------
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B Shares:
Assuming complete redemption at the end of the period+ ....... $67 $80 $104 $160
Assuming no redemptions ....................................... $15 $46 $ 80 $160
</TABLE>
- -------------
* The maximum deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally
declines by 1% annually thereafter (except in the fourth year), reaching
zero after six years. See "How to Buy, Sell and Exchange Shares."
** Long-term shareholders in mutual funds with 12b-1 fees, such as Class B
shareholders of the Fund, may pay more than the economic equivalent of
the maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
*** Reflects current fee waiver and expense subsidy arrangements to maintain
Total Fund Operating Expenses at the level indicated in the table above.
Absent such arrangements, the Shareholder Servicing Fee and Other
Expenses would be 0.25%, and 1.02%, respectively, and Total Fund
Operating Expenses would be 2.12%.
+ Assumes deduction at the time of redemption of the maximum applicable
deferred sales charge.
The table is provided to help you understand the expenses of investing in
the Fund and your share of the operating expenses that the Fund incurs. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN SHOWN.
3
<PAGE>
Charges or credits, not reflected in the expense table above, may be
incurred directly by customers of financial institutions in connection with
an investment in the Fund. The Fund understands that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect
to those accounts. See "Other Information Concerning the Fund".
4
<PAGE>
FINANCIAL HIGHLIGHTS
The table set forth below provides selected per share data and ratios for
a share outstanding throughout each period shown. This information is
supplemented by financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995, which is incorporated by reference into the SAI. Shareholders may
obtain a copy of this Annual Report by contacting the Fund or their
Shareholder Servicing Agent. The financial statements and notes, as well as
the financial information set forth in the table below, have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is also
included in the Annual Report to Shareholders.
Vista Prime Money Market Fund
<TABLE>
<CAPTION>
Class B Shares
---------------------
Year 4/21/94*
ended through
8/31/95 8/31/94+
--------- ---------
<S> <C> <C>
Per Share Operating Performance
- -------------------------------
Net Asset Value, Beginning of Period ........................... $ 1.00 $ 1.00
------- -------
Income from Investment Operations:
Net investment income ........................................ 0.043 0.011
Net Realized Loss on Securities .............................. (0.003) --
------- -------
Total Income from Investment Operations .................... 0.040 0.011
------- -------
Voluntary Capital Contribution ............................... 0.003 --
------- -------
Less Distributions:
Dividends from Net Investment Income ......................... 0.043 0.011
------- -------
Net Asset Value, End of Period ................................ $ 1.00 $ 1.00
======= =======
Total Return ................................................... 4.37% 1.11%
Ratios/Supplemental Data:
- -------------------------------
Net Assets, End of Period (000 omitted) ...................... $4,880 $1,452
Ratio of Expenses to Average Net Assets # .................... 1.47% 1.47%
Ratio of Net Investment Income to Average Net Assets # ....... 4.33% 2.96%
Ratio of Expenses without waivers and assumption of expenses to
Average Net Assets # ....................................... 2.53% 1.67%
Ratio of Net Investment Income without waivers and assumption
of expenses to Average Net Assets # ......................... 3.27% 2.76%
</TABLE>
--------------
# Short periods have been annualized.
+ In 1994 the Prime Money Market Fund changed its fiscal year-end from October
31 to August 31.
* Commencement of offering of class of shares.
5
<PAGE>
FUND OBJECTIVE AND INVESTMENT APPROACH
The Fund's objective is to provide maximum current income consistent with
the preservation of capital and maintenance of liquidity.
The Fund invests in high quality, short-term U.S. dollar-denominated money
market instruments. The Fund invests principally in (i) high quality
commercial paper and other short-term obligations, including floating and
variable rate master demand notes of U.S. and foreign corporations; (ii) U.S.
dollar-denominated obligations of foreign governments and supranational
agencies (e.g., the International Bank for Reconstruction and Development);
(iii) obligations issued or guaranteed by U.S. banks with total assets
exceeding $1 billion (including obligations of foreign branches of such
banks) and by foreign banks with total assets exceeding $10 billion (or the
equivalent in other currencies) which have branches or agencies in the U.S.
(including U.S. branches of such banks), or such other U.S. or foreign
commercial banks which are judged by the Fund's advisers to meet comparable
credit standing criteria; (iv) securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (v) repurchase agreements.
The dollar weighted average maturity of the Fund will be 60 days or less.
In lieu of investing directly, the Fund is authorized to seek to achieve
its objective by investing all of its investable assets in an investment
company having substantially the same investment objective and policies as
the Fund.
The Fund is classified as a "diversified" fund under federal securities
law.
OTHER INVESTMENT PRACTICES
The Fund seeks to maintain a net asset value of $1.00 per share.
The Fund invests only in U.S. dollar-denominated high quality obligations
which are determined to present minimal credit risks. This credit
determination must be made in accordance with procedures established by the
Board of Trustees. Each investment must be rated in the highest short-term
rating category by at least two national rating organizations ("NROs") (or
one NRO if the instrument was rated only by one such organization) or, if
unrated, must be determined to be of comparable quality in accordance with
the procedures of the Trustees. If a security has an unconditional guarantee
or similar enhancement, the issuer of the guarantee or enhancement may be
relied upon in meeting these ratings requirements rather than the issuer of
the security. Securities in which the Fund invests may not earn as high a
level of current income as long-term or lower quality securities.
The Fund purchases only instruments which have or are deemed to have
remaining maturities of 397 days or less in accordance with federal
regulations. Although the Fund seeks to be fully invested, at times it may
hold uninvested cash reserves, which would adversely affect its yield.
There can be no assurance that the Fund will achieve its investment
objective.
The Fund may also engage in the following investment practices, when
consistent with its overall objective and policies. These practices, and
certain associated risks, are more fully described in the SAI.
U.S. Government Obligations. The Fund may invest in direct obligations of
the U.S. Treasury. The Fund may also invest in other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
(collectively, "U.S. Government Obligations"). Certain U.S. Government
Obligations, such as U.S. Treasury securities and direct pass-through
certificates of the Government National
6
<PAGE>
Mortgage Association (GNMA), are backed by the "full faith and credit" of the
U.S. Government. Other U.S. Government Obligations, such as obligations of
Federal Home Loan Banks and the Federal Home Loan Mortgage Corporation, are
not backed by the "full faith and credit" of the U.S. Government. In the case
of securities not backed by the "full faith and credit" of the U.S.
Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Repurchase Agreements, Securities Loans and Forward Commitments. The Fund
may enter into agreements to purchase and resell securities at an agreed-upon
price and time. The Fund also has the ability to lend portfolio securities in
an amount equal to not more than 30% of its total assets to generate
additional income. These transactions must be fully collateralized at all
times. The Fund may purchase securities for delivery at a future date, which
may increase its overall investment exposure and involve a risk of loss if
the value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default
on its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow money
from banks for temporary or short-term purposes, but will not borrow for
leveraging purposes. The Fund may also sell and simultaneously commit to
repurchase a portfolio security at an agreed-upon price and time, to avoid
selling securities during unfavorable market conditions in order to meet
redemptions. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account in which it will maintain liquid assets
on a daily basis in an amount at least equal to the repurchase price
(including accrued interest). The Fund would be required to pay interest on
amounts obtained through reverse repurchase agreements, which are considered
borrowings under federal securities laws.
Stand-By Commitments. The Fund may enter into put transactions, including
transactions sometimes referred to as stand-by commitments, with respect to
securities in its portfolio. In these transactions, the Fund would acquire
the right to sell a security at an agreed upon price within a specified
period prior to its maturity date. These transactions involve some risk to
the Fund if the other party should default on its obligation and the Fund is
delayed or prevented from recovering the collateral or completing the
transaction. Acquisition of puts will have the effect of increasing the cost
of the securities subject to the put and thereby reducing the yields
otherwise available from such securities.
STRIPS and Zero Coupon Obligations. The Fund may invest up to 20% of its
total assets in separately traded principal and interest components of
securities backed by the full faith and credit of the U.S. Government,
including instruments known as "STRIPS". The Fund may also invest in zero
coupon obligations. Zero coupon obligations are debt securities that do not
pay regular interest payments, and instead are sold at substantial discounts
from their value at maturity. The value of STRIPS and zero coupon obligations
tends to fluctuate more in response to changes in interest rates than the
value of ordinary interest-paying debt securities with similar maturities.
The risk is greater when the period to maturity is longer.
Floating and Variable Rate Securities; Participation Certificates. The
Fund may invest in floating rate securities, whose interest rates adjust
automatically whenever a specified interest rate changes, and variable rate
securities, whose interest rates are periodically adjusted. Certain of these
instruments permit the holder to demand payment of principal and accrued
interest upon a specified number of days' notice from either the issuer or a
third party. The securities in which the Fund may invest include par-
7
<PAGE>
ticipation certificates and certificates of indebtedness or safekeeping.
Participation certificates are pro rata interests in securities held by
others; certificates of indebtedness or safekeeping are documentary receipts
for such original securities held in custody by others. As a result of the
floating or variable rate nature of these investments, the Fund's yield may
decline and it may forego the opportunity for capital appreciation during
periods when interest rates decline; however, during periods when interest
rates increase, the Fund's yield may increase and it may have reduced risk of
capital depreciation. Demand features on certain floating or variable rate
securities may obligate the Fund to pay a "tender fee" to a third party.
Demand features provided by foreign banks involve certain risks associated
with foreign investments.
Other Money Market Funds. The Fund may invest up to 10% of its total
assets in shares of other money market funds, subject to applicable
regulatory limitations.
Bank Obligations. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by U.S. banks
(including their foreign branches) and foreign banks (including their U.S.
branches). These obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation
or by government regulation. Foreign bank obligations involve certain risks
associated with foreign investing.
Asset-Backed Securities. Asset-backed securities represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables or credit card receivables.
Municipal Obligations. The Fund may invest in high-quality, short-term
municipal obligations that carry yields that are competitive with those of
other types of money market instruments in which it may invest. Dividends
paid by the Fund that are derived from interest on municipal obligations will
be taxable to shareholders for federal income tax purposes.
Securities of Foreign Governments and Supranational Agencies. The Fund
intends to invest a substantial portion of its assets from time to time in
securities of foreign governments and supranational agencies. The Fund will
limit its investments in foreign government obligations to the commercial
paper and other short-term notes issued or guaranteed by the governments of
Western Europe, Australia, New Zealand, Japan and Canada. Obligations of
supranational agencies, such as the International Bank for Reconstruction and
Development (also known as the World Bank) are supported by subscribed, but
unpaid, commitments of its member countries. There is no assurance that these
commitments will be undertaken or complied with in the future, and foreign
and supranational securities are subject to certain risks associated with
foreign investing.
Custodial Receipts. The Fund may acquire securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in
connection with programs sponsored by banks and brokerage firms. These are
not deemed U.S. Government securities. These notes and bonds are held in
custody by a bank on behalf of the owners of the receipts.
Portfolio Turnover. It is intended that the Fund will be fully managed by
buying and selling securities, as well as holding securities to maturity. The
frequency of the Fund's portfolio transactions will vary from year to year.
In managing the Fund, the Fund's advisers will seek to take advantage of
market developments, yield disparities and variations in the creditworthiness
of issuers. More frequent turnover will generally result in higher
transactions costs, including dealer mark-ups.
8
<PAGE>
Limiting Investment Risks
Specific regulations and investment restrictions help the Fund limit
investment risks for shareholders. These regulations and restrictions
prohibit the Fund from: (a) with certain limited exceptions, investing more
than 5% of its total assets in the securities of any one issuer (this
limitation does not apply to U.S. Government Obligations held by the Fund);
(b) investing more than 10% of its net assets in illiquid securities (which
include securities restricted as to resale unless they are determined to be
readily marketable in accordance with procedures established by the Board of
Trustees); or (c) investing more than 25% of its total assets in any one
industry (excluding U.S. Government Obligations and bank obligations). A
complete description of these and other investment policies is included in
the SAI. Except for the Fund's investment objective, restriction (c) above
and investment policies designated as fundamental above or in the SAI, the
Fund's investment policies are not fundamental. The Trustees may change any
non-fundamental investment policy without shareholder approval.
Risk Factors
There can be no assurance that the Fund will be able to maintain a stable
net asset value. Changes in interest rates may affect the value of the
obligations held by the Fund. The value of fixed income securities varies
inversely with changes in prevailing interest rates, although money market
instruments are generally less sensitive to changes in interest rates than
are longer-term securities. For certain other risks associated with the
Fund's additional investment activities, see the above discussion of those
activities.
The Fund is permitted to invest any portion of its assets in obligations
of domestic banks (including their foreign branches), and in obligations of
foreign issuers. The ability to concentrate in the banking industry may
involve certain credit risks, such as defaults or downgrades, if at some
future date adverse economic conditions prevail in such industry. U.S. banks
are subject to extensive governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.
Securities issued by foreign banks, foreign branches of U.S. banks and
foreign governmental and private issuers involve investment risks in addition
to those of domestic obligations of domestic issuers, including risks
relating to future political and economic developments, more limited
liquidity of foreign obligations than comparable domestic obligations, the
possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign assets, and the possible establishment
of exchange controls or other restrictions. There may be less publicly
available information concerning foreign issuers there may be difficulties in
obtaining or enforcing a judgment against a foreign issuer (including
branches) and accounting, auditing and financial reporting standards and
practices may differ from those applicable to U.S. issuers. In addition,
foreign banks are not subject to regulations comparable to U.S. banking
regulations.
MANAGEMENT
The Fund's Advisers
The Chase Manhattan Bank ("Chase") acts as investment adviser to the Fund
pursuant to an Investment Advisory Agreement and has overall responsibility
for investment decisions of the Fund, subject to the oversight of the Board
of Trustees. Chase is a wholly-owned subsidiary of The Chase Manhattan
9
<PAGE>
Corporation, a bank holding company. Chase and its predecessors have over 100
years of money management experience. For its investment advisory services to
the Fund, Chase is entitled to receive an annual fee computed daily and paid
monthly at an annual rate equal to 0.10% of the Fund's average daily net
assets. Chase is located at 270 Park Avenue, New York, New York 10017.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to the Fund pursuant to a Sub-Investment Advisory
Agreement between CAM and Chase. CAM is a wholly-owned operating subsidiary
of Chase. CAM makes investment decisions for the Fund on a day-to-day basis.
For these services, CAM is entitled to receive a fee, payable by Chase from
its advisory fee, at an annual rate equal to 0.03% of the Fund's average
daily net assets. CAM was recently formed for the purpose of providing
discretionary investment advisory services to institutional clients and to
consolidate Chase's investment management function. The same individuals who
serve as portfolio managers for Chase also serve as portfolio managers for
CAM. CAM is located at 1211 Avenue of the Americas, New York, New York 10036.
ABOUT YOUR INVESTMENT
Investors should be aware that Class B shares of the Fund are made
available only for purposes of exchanges from Class B shares of other Vista
funds. These shares are subject to a contingent deferred sales charge
("CDSC") if redeemed within a specified period after purchase. However, no
contingent deferred sales charge is imposed on the Class B shares being
disposed of in an exchange into the Fund.
Class B shares automatically convert into Class A shares, based on
relative net asset value, at the beginning of the ninth year. For more
information about the conversion of Class B shares, see the SAI. This
discussion will include information about how shares acquired through
reinvestment of distributions are treated for conversion purposes. Class B
shares provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made. Until conversion, Class
B shares will have a higher expense ratio and pay lower dividends than Class
A shares because of the higher combined 12b-1 and service fees. See "Other
Information Concerning the Fund."
HOW TO BUY, SELL AND EXCHANGE SHARES
How to Buy Shares
Class B shares of the Fund may only be acquired via exchange from the same
class of another Vista fund and only if the account registrations are
identical. Class B shares of the Fund are sold by the Fund's distributor
without an initial sales load at the net asset value next determined after
your exchange order is received in proper form on any business day during
which the Federal Reserve Bank of New York and the New York Stock Exchange
are open for business ("Fund Business Day"). To receive that day's dividend,
the Vista Service Center or your investment representative or shareholder
servicing agent must generally receive your order prior to the Fund's Cut-off
Time, which is 2:00 p.m., Eastern time. Orders for shares received after the
Fund's Cut-off Time and prior to 4:00 p.m., Eastern time on any Fund Business
Day will not be accepted and executed on the same day except at the Fund's
discretion. Orders received and not accepted after the Fund's Cut-off Time
will be considered received prior to the Fund's Cut-off Time on the following
Fund Business Day and processed accordingly. The Fund reserves the right to
reject any purchase order.
10
<PAGE>
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within a specified period after
purchase, as shown in the table below. The following types of shares may be
redeemed without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described
below. For other shares, the amount of the charge is determined as a
percentage of the lesser of the current market value or purchase price of
shares being redeemed.
Year 1 2 3 4 5 6 7 8+
- ---------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0% 0%
In determining whether a CDSC is payable on any redemption, the Fund will
first redeem shares not subject to any charge, and then shares held longest
during the CDSC period. The holding period of Class B shares of the Fund will
be calculated from the date that the Class B shares were initially acquired
in one of the other Vista funds. Those Class B shares being redeemed will be
considered to represent capital appreciation or dividend and capital gain
distribution reinvestments in other funds (if applicable) and then shares
held for the longest period of time. As a result, the CDSC imposed should be
the lowest possible rate. When a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. For further information on how sales charges are calculated
if you exchange your shares, see "How to Exchange Your Shares."
The CDSC will be waived on redemption of Class B shares arising out of
death or disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of Class B shares subject to a
systematic withdrawal plan may also be redeemed each year without a CDSC,
provided that the Class B account had a minimum balance of $20,000 at the
time the systematic withdrawal plan was established. The SAI contains
additional information about CDSC waivers.
How to Sell Shares
You can sell your Fund shares on any Fund Business Day either directly or
through your investment representative or shareholder servicing agent. The
Fund will only forward redemption payments on shares for which it has
collected payment of the purchase price.
Selling shares directly to the Fund. Send a signed letter of instruction
to the Vista Service Center. The price you receive is the next net asset
value calculated after your request is received in proper form, less any
applicable CDSC.
If you want your redemption proceeds sent to an address other than your
address as it appears on Vista's records, a signature guarantee is required.
The Fund may require additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Vista Service Center for details.
The Fund generally sends you payment for your shares the Fund Business Day
after your request is received in proper form, provided your request is
received by the Vista Service Center prior to the Fund's Cut-off Time, and
assuming the Fund has collected payment of the purchase price of your shares.
Under unusual circumstances, the Fund may suspend redemptions, or postpone
payment for more than seven business days, as permitted by federal securities
laws.
You may use Vista's Telephone Redemption Privilege to redeem shares from
your account unless you have notified the Vista Service Center of an address
change within the preceding 30 days. Telephone redemption requests in excess
of $25,000 will only be made by wire to a bank account on record with
11
<PAGE>
the Fund. Unless an investor indicates otherwise on the account application,
the Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Vista Service Center will employ these and other reasonable procedures
to confirm that instructions communicated by telephone are genuine; if it
fails to employ reasonable procedures, the Fund may be liable for any losses
due to unauthorized or fraudulent instructions. An investor agrees, however,
that to the extent permitted by applicable law, neither the Fund nor its
agents will be liable for any loss, liability, cost or expense arising out of
any redemption request, including any fraudulent or unauthorized request. For
information, consult the Vista Service Center.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Vista Service Center by telephone. In
this event, you may wish to submit a written redemption request, or contact
your investment representative or shareholder servicing agent. The Telephone
Redemption Privilege may be modified or terminated without notice.
Systematic Withdrawal Plan. Make regular withdrawals of $100 or more
monthly, quarterly or semi-annually. Call the Vista Service Center at
1-800-34-VISTA for complete instructions.
Selling shares through your investment representative or your shareholder
servicing agent. Your investment representative or your shareholder servicing
agent must receive your request before the Fund's Cut-off Time to receive
that day's net asset value. Your representative will be responsible for
furnishing all necessary documentation to the Vista Service Center.
Involuntary Redemption of Accounts. The Fund may involuntarily redeem your
shares if the aggregate net asset value of the shares in your account is less
than $500. In the event of any such redemption, you will receive at least 60
days' notice prior to the redemption. In the event the Fund redeems Class B
shares pursuant to this provision, no CDSC will be imposed.
How to Exchange Your Shares
You can exchange your shares for shares of the same class of certain other
Vista funds at net asset value beginning 15 days after purchase, subject to
any minimum investment requirement. Not all Vista funds offer all classes of
shares. The prospectus of the other Vista fund into which shares are being
exchanged should be read carefully and retained for future reference. If you
exchange shares subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the exchange, the
redemption may be subject to the CDSC, depending upon when you originally
purchased the shares. The CDSC will be computed using the schedule of any
fund into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares. In computing
the CDSC, the length of time you have owned your shares will be measured from
the date of original purchase and will not be affected by any exchange.
A Telephone Exchange Privilege is currently available. Call the Vista
Service Center for procedures for telephone transactions. Ask your investment
representative or the Vista Service Center for prospectuses of other Vista
funds. Shares of certain Vista funds are not available to residents of all
states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Vista management or the
Trustees
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believe doing so would be in the best interests of the Fund, the Fund
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. In addition, any
shareholder who makes more than ten exchanges of shares involving the Fund in
a year or three in a calendar quarter will be charged a $5.00 administration
fee for each such exchange. Shareholders would be notified of any such action
to the extent required by law. Consult the Vista Service Center before
requesting an exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class of the Fund's shares is currently
determined daily as of 4:00 p.m., Eastern time on each Fund Business Day by
dividing the net assets of the Fund attributable to such class by the number
of shares of such class outstanding at the time the determination is made.
Effective with the anticipated introduction of certain automated share
purchase programs, the net asset value of shares of each class of the Fund
will also be determined as of 6:00 p.m., Eastern time on each Fund Business
Day if the Fund is available through these programs.
The portfolio securities of the Fund are valued at their amortized cost in
accordance with federal securities laws, certain requirements of which are
summarized under "Other Investment Practices." This method increases
stability in valuation, but may result in periods during which the stated
value of a portfolio security is higher or lower than the price the Fund
would receive if the instrument were sold. It is anticipated that the net
asset value of each share will remain constant at $1.00 and the Fund will
employ specific investment policies and procedures to accomplish this result,
although no assurance can be given that it will be able to do so on a
continuing basis. The Board of Trustees will review the holdings of the Fund
at intervals it deems appropriate to determine whether the Fund's net asset
value calculated by using available market quotations (or an appropriate
substitute which reflects current market conditions) deviates from $1.00 per
share based upon amortized cost. In the event the Trustees determine that a
deviation exists that may result in material dilution or other unfair results
to investors or existing shareholders, the Trustees will take such corrective
action as they regard as necessary and appropriate.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
The net investment income of each class of shares of the Fund is declared
as a dividend to the shareholders on each Fund Business Day. Dividends are
declared as of the time of day which corresponds to the latest time on that
day that the Fund's net asset value is determined. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly.
Unless a shareholder arranges to receive dividends in cash or by ACH to a
pre-established bank account, dividends are distributed in the form of
additional shares. Dividends that are otherwise taxable are still taxable to
you whether received in cash or additional shares. Net realized short-term
capital gains, if any, will be distributed at least annually. The Fund does
not expect to realize net long-term capital gains.
Net investment income for the Fund consists of all interest accrued and
discounts earned less, amortization of any market premium on the portfolio
assets of the Fund, and the accrued expenses of the Fund.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to you. The Fund intends to distribute substantially all of its
ordinary income and
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capital gain net income on a current basis. If the Fund does not qualify as a
regulated investment company for any taxable year or does not make
distributions as it intends, the Fund will be subject to tax on all of its
income and gains.
Distributions by the Fund of its ordinary income and short-term capital
gains are generally taxable to you as ordinary income. Such distributions
will generally be subject to state and local taxes, but may be exempt if paid
out of interest on municipal obligations of the state or locality in which
you reside. Distributions by the Fund of any net long-term capital gains
would be taxable as such, regardless of the length of time you have held your
shares. Distributions will be taxable in the same manner for federal income
tax purposes whether received in cash or in shares through the reinvestment
of distributions.
To the extent distributions are attributable to interest from obligations
of the U.S. Government and certain of its agencies and instrumentalities,
such distributions may be exempt from certain types of state and local taxes.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you for the preceding year. The foregoing is
a summary of certain federal income tax consequences of investing in the
Fund. You should consult your tax adviser to determine the precise effect of
an investment in the Fund on your particular tax situation (including
possible liability for state and local taxes and, for foreign shareholders,
U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plans
The Fund's distributor is Vista Fund Distributors, Inc. ("VFD"). VFD is a
subsidiary of The BISYS Group, Inc. and is unaffiliated with Chase. The Fund
has adopted a Rule 12b-1 distribution plan which provides that the Fund will
pay distribution fees at annual rates of up to 0.75% of the average daily net
assets attributable to its Class B shares. Payments under the distribution
plan shall be used to compensate or reimburse the Fund's distributor and
broker-dealers for services provided and expenses incurred in connection with
the sale of Class B shares, and are not tied to the amount of actual expenses
incurred. Some activities intended to promote the sale of Class B shares will
be conducted generally by the Vista Family of Funds, and activities intended
to promote the Fund's Class B shares may also benefit the Fund's other shares
and other Vista funds.
VFD may provide promotional incentives to broker-dealers that meet
specified sales targets for one or more Vista Funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket
to a sporting event or theater or entertainment for broker-dealers and their
guests; and payment or reimbursement for travel expenses, including lodging
and meals, in connection with attendance at training and educational meetings
within and outside the U.S.
Shareholder Servicing Agents
The Fund has entered into shareholder servicing agreements with certain
shareholder servicing agents (including Chase) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers, including assisting with purchase and redemption transactions,
maintaining shareholder accounts and records, furnishing customer statements,
transmitting shareholder reports and communications to customers and other
similar shareholder liaison services. For performing these services, each
shareholder servicing agent receives an annual fee of up to 0.25% of the
average daily
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net assets of the Class B shares of the Fund held by investors for whom the
shareholder servicing agent maintains a servicing relationship. Shareholder
servicing agents may subcontract with other parties for the provision of
shareholder support services.
Shareholder servicing agents may offer additional services to their
customers, including specialized procedures and payment for the purchase and
redemption of Fund shares, such as pre-authorized or systematic purchase and
redemption programs, "sweep" programs, cash advances and redemption checks.
Each shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain shareholder servicing agents may (although they are
not required by the Trust to do so) credit to the accounts of their customers
from whom they are already receiving other fees amounts not exceeding such
other fees or the fees for their services as shareholder servicing agents.
Chase may from time to time, at its own expense, provide compensation to
certain selected dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. The amount of such compensation may be up to 0.10%
annually of the average net assets of the Fund attributable to shares of the
Fund held by customers of such selected dealers. Such compensation does not
represent an additional expense to the Fund or its shareholders, since it
will be paid by Chase.
Administrator and Sub-Administrator
Chase acts as the Fund's administrator and is entitled to receive a fee
computed daily and paid monthly at an annual rate equal to 0.05% of the
Fund's average daily net assets.
VFD provides certain sub-administrative services to the Fund pursuant to a
distribution and sub- administration agreement and is entitled to receive a
fee for these services from the Fund at an annual rate equal to 0.05% of the
Fund's average daily net assets. VFD has agreed to use a portion of this fee
to pay for certain expenses incurred in connection with organizing new series
of the Trust and certain other ongoing expenses of the Trust. VFD is located
at 101 Park Avenue, New York, New York 10178.
Custodian
Chase acts as custodian and fund accountant for the Fund and receives
compensation under an agreement with the Fund. Securities and cash of the
Fund may be held by sub-custodian banks if such arrangements are reviewed and
approved by the Trustees.
Expenses
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Trust. These expenses include investment
advisory and administrative fees; the compensation of the Trustees;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of preparing and mailing reports to investors and to
government offices and commissions; expenses of meetings of investors; fees
and expenses of independent accountants, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Trust; insurance
premiums; and expenses of calculating the net asset value of, and the net
income on, shares of the Fund. Shareholder servicing and distribution fees
are allocated to specific classes of the Fund. In addition, the Fund may
allocate transfer agency and certain
15
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other expenses by class. Service providers to the Fund may, from time to
time, voluntarily waive all or a portion of any fees to which they are
entitled.
Organization and Description of Shares
The Fund is a portfolio of Mutual Fund Trust, an open-end management
investment company organized as a Massachusetts business trust in 1994 (the
"Trust"). The Trust has reserved the right to create and issue additional
series and classes. Each share of a series or class represents an equal
proportionate interest in that series or class with each other share of that
series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class. Shares
have no preemptive or conversion rights. Shares when issued are fully paid
and non-assessable, except as set forth below. Shareholders are entitled to
one vote for each whole share held, and each fractional share shall be
entitled to a proportionate fractional vote, except that Trust shares held in
the treasury of the Trust shall not be voted. Shares of each class of the
Fund generally vote together except when required under federal securities
laws to vote separately on matters that only affect a particular class, such
as the approval of distribution plans for a particular class. Fund shares
will be maintained in book entry form, and no certificates representing
shares owned will be issued to shareholders.
The Fund issues multiple classes of shares. This Prospectus relates only
to Class B shares of the Fund. The Fund offers other classes of shares in
addition to this class. The categories of investors that are eligible to
purchase shares and minimum investment requirements may differ for each class
of Fund shares. In addition, other classes of Fund shares may be subject to
differences in sales charge arrangements, ongoing distribution and service
fee levels, and levels of certain other expenses, which will affect the
relative performance of the different classes. Investors may call
1-800-34-VISTA to obtain additional information about other classes of shares
of the Fund that are offered. Any person entitled to receive compensation for
selling or servicing shares of the Fund may receive different levels of
compensation with respect to one class of shares over another.
The business and affairs of the Trust are managed under the general
direction and supervision of the Trust's Board of Trustees. The Trust is not
required to hold annual meetings of shareholders but will hold special
meetings of shareholders of all series or classes when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. The Trustees will promptly call a meeting of shareholders to remove a
trustee(s) when requested to do so in writing by record holders of not less
than 10% of all outstanding shares of the Trust.
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Certain Regulatory Matters
Banking laws, including the Glass-Steagall Act as currently interpreted,
prohibit bank holding companies and their affiliates from sponsoring,
organizing, controlling, or distributing shares of, mutual funds, and
generally prohibit banks from issuing, underwriting, selling or distributing
securities. These laws do not prohibit banks or their affiliates from acting
as investment adviser, administrator or custodian to mutual funds or from
purchasing mutual fund shares as agent for a customer. Chase and the Trust
believe that Chase (including its affiliates) may perform the services to be
performed by it as described in this Prospectus without violating such laws.
If future changes in these laws or interpretations required
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Chase to alter or discontinue any of these services, it is expected that the
Board of Trustees would recommend alternative arrangements and that investors
would not suffer adverse financial consequences. State securities laws may
differ from the interpretations of banking law described above and banks may
be required to register as dealers pursuant to state law.
Chase and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Chase and its
affiliates deal, trade and invest for their own accounts in U.S. Government
obligations, municipal obligations and commercial paper and are among the
leading dealers of various types of U.S. Government obligations and municipal
obligations. Chase and its affiliates may sell U.S. Government obligations
and municipal obligations to, and purchase them from, other investment
companies sponsored by the Fund's distributor or affiliates of the
distributor. Chase will not invest any Fund assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself
or any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which Chase or
an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by the Fund. Chase has informed the Fund that
in making its investment decisions, it does not obtain or use material inside
information in the possession of any other division or department of Chase or
in the possession of any affiliate of Chase, including the division that
performs services for the Trust as custodian. Shareholders of the Fund should
be aware that, subject to applicable legal or regulatory restrictions, Chase
and its affiliates may exchange among themselves certain information about
the shareholders and their accounts. Transactions with affiliated
broker-dealers will only be executed on an agency basis in accordance with
applicable federal regulations.
PERFORMANCE INFORMATION
The Fund may advertise its annualized "yield" and its "effective yield".
Annualized "yield" is determined by assuming that income generated by an
investment in the Fund over a stated seven-day period (the "yield") will
continue to be generated each week over a 52-week period. It is shown as a
percentage of such investment. "Effective yield" is the annualized "yield"
calculated assuming the reinvestment of the income earned during each week of
the 52-week period. The "effective yield" will be slightly higher than the
"yield" due to the compounding effect of this assumed reinvestment.
Investment performance may from time to time be included in advertisements
about the Fund. Performance is calculated separately for each class of
shares. Because this performance information is based on historical earnings,
it should not be considered as an indication or representation of future
performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's
portfolio, the Fund's operating expenses and which class of shares you
purchase. Investment performance also reflects the risks associated with the
Fund's investment objective and policies. These factors should be considered
when comparing the Fund's investment results to those of other mutual funds
and investment vehicles. Quotations of investment performance for any period
when an expense limitation was in effect will be greater if the limitation
had not been in effect. The Fund's performance may be compared to other
mutual funds, relevant indices and rankings prepared by independent services.
See the SAI.
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[VISTA LOGO]
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141-6392
- ----------------------------------------
Transfer Agent and Dividend Paying Agent
DST Systems, Inc.
210 West 10th Street
Kansas City, MO 64105
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
[VISTA LOGO]
Prime Money
Market Fund
- ---------------------------------
Prospectus
May 6, 1996
<PAGE>
Rule 497(c)
File Nos. 33-75250
and 811-8358
STATEMENT OF
ADDITIONAL INFORMATION
May 6, 1996
VISTA[SM] U.S. GOVERNMENT MONEY MARKET FUND
VISTA[SM] 100% U.S. TREASURY SECURITIES MONEY MARKET FUND
VISTA[SM] CASH MANAGEMENT FUND
VISTA[SM] PRIME MONEY MARKET FUND
VISTA[SM] FEDERAL MONEY MARKET FUND
VISTA[SM] TREASURY PLUS MONEY MARKET FUND
VISTA[SM] TAX FREE MONEY MARKET FUND
VISTA[SM] CALIFORNIA TAX FREE MONEY MARKET FUND
VISTA[SM] NEW YORK TAX FREE MONEY MARKET FUND
VISTA[SM] TAX FREE INCOME FUND
VISTA[SM] NEW YORK TAX FREE INCOME FUND
VISTA[SM] CALIFORNIA INTERMEDIATE TAX FREE INCOME FUND
101 Park Avenue, New York, New York 10178
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectuses offering shares of the Funds. This Statement of Additional
Information should be read in conjunction with the Prospectuses offering
shares of Vista Tax Free Income Fund, Vista California Intermediate Tax Free
Income Fund and Vista New York Tax Free Income Fund (collectively the "Income
Funds"), and Vista U.S. Government Money Market Fund, Vista 100% U.S.
Treasury Securities Money Market Fund, Vista Cash Management Fund, Vista
Prime Money Market Fund, Vista Federal Money Market Fund, Vista Treasury Plus
Money Market, Vista Tax Free Money Market Fund, Vista California Tax Free
Money Market Fund and Vista New York Tax Free Money Market Fund (collectively
the "Money Market Funds"). Any reference to a "Prospectus" in this Statement
of Additional Information is a reference to one or more of the foregoing
Prospectuses, as the context requires. Copies of each Prospectus may be
obtained by an investor without charge by contacting Vista Fund Distributors,
Inc. ("VFD"), the Funds' distributor (the "Distributor"), at the above-listed
address.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
For more information about your account, simply call or write the Vista
Service Center at:
1-800-622-4273
Vista Service Center
P.O. Box 419392
Kansas City, MO 64141
MFT-SAI
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Table of Contents Page
----------------------------------------------------------------------------------------------------
The Funds .................................................................................... 3
Investment Policies and Restrictions ......................................................... 3
Performance Information ...................................................................... 20
Determination of Net Asset Value ............................................................. 25
Purchases, Redemptions and Exchanges ......................................................... 25
Tax Matters .................................................................................. 27
Management of the Trust and Funds ............................................................ 33
Independent Accountants ...................................................................... 48
General Information .......................................................................... 48
Appendix A--Description of Certain Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities .............................................................. A-1
Appendix B--Description of Ratings ........................................................... B-1
Appendix C--Special Investment Considerations Relating to New York Municipal Obligations ..... C-1
Appendix D--Special Investment Considerations Relating to California Municipal Obligations ... D-1
</TABLE>
2
<PAGE>
THE FUNDS
Mutual Fund Trust (the "Trust") is an open-end management investment
company which was organized as a business trust under the laws of the
Commonwealth of Massachusetts on February 4, 1994. The Trust presently
consists of 12 separate series (the "Funds"). Certain of the Funds are
diversified and other Funds are non-diversified, as such term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). The shares
of the Funds are collectively referred to in this Statement of Additional
Information as the "Shares." The Income Funds, Tax Free Money Market Fund,
New York Tax Free Money Market Fund and California Tax Free Money Market Fund
are collectively referred to herein as the "Tax Free Funds."
On August 25, 1994, the shareholders of each of the existing classes of
Shares of the Vista U.S. Government Money Market Fund, Vista Global Money
Market Fund, Vista Prime Money Market Fund, Vista Tax Free Money Market Fund,
Vista California Money Market Fund, Vista New York Tax Free Money Market
Fund, Vista Tax Free Income Fund, Vista New York Tax Free Income Fund and the
Vista California Intermediate Tax Free Income Fund approved the
reorganization of each of such Funds into newly-created series of Mutual Fund
Trust, effective October 28, 1994. Prior to such approvals, each of such
Funds were series of Mutual Fund Group, an affiliated investment company.
On December 4, 1992, the shareholders of each of the existing classes of
Shares of Vista Global Money Market Fund and Vista U.S. Government Money
Market Fund approved the reorganization of each of such Funds into
newly-created series of Mutual Fund Group, effective January 1, 1993. Prior
to such approvals, on December 4, 1992, the shareholders of each of the five
existing series of Trinity Assets Trust (Trinity Money Market Fund, Trinity
Government Fund, Trinity Bond Fund, Trinity Short-Term Bond Fund and Trinity
Equity Fund) (collectively, the "Trinity Funds") approved the reorganization
of each of the Trinity Funds into newly-created series of the Trust,
effective January 1, 1993. Vista Global Money Market Fund and Trinity Money
Market Fund were reorganized into classes of Shares of "Vista Worldwide Money
Market Fund", which changed its name to "Vista Global Money Market Fund" as
of December 31, 1992. Vista U.S. Government Money Market Fund and Trinity
Government Fund were reorganized into classes of Shares of "Vista Government
Cash Fund", which changed its name to "Vista U.S. Government Money Market
Fund" as of December 31, 1992.
On May 3, 1996, The U.S. Treasury Money Market Fund of The Hanover Funds,
Inc. ("Hanover") merged into the Vista Shares of Treasury Plus Money Market
Fund, The Government Money Market Fund of Hanover merged into the Vista
Shares of U.S. Government Money Market Fund, The Cash Management Fund of
Hanover merged into the Vista Shares of Vista Global Money Market Fund (The
Cash Management Fund of Hanover was the accounting survivor of this merger),
The Tax Free Money Market Fund of Hanover merged into the Vista Shares of Tax
Free Money Market Fund, The New York Tax Free Money Market Fund of Hanover
merged into the Vista Shares of New York Tax Free Money Market Fund, and The
100% U.S. Treasury Securities Money Market Fund of Hanover merged into the
Vista Shares of The 100% U.S. Treasury Securities Money Market Fund. The
foregoing mergers are referred to herein as the "Hanover Reorganization."
Effective as of May 6, 1996, Vista Global Money Market Fund changed its
name to Vista Cash Management Fund.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Funds. The Chase Manhattan Bank ("Chase")
is the investment adviser for the Funds. Chase also serves as the Trust's
administrator (the "Administrator") and supervises the overall administration
of the Trust, including the Funds. A majority of the Trustees of the Trust
are not affiliated with the investment adviser or sub- advisers.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies
The Prospectuses set forth the various investment policies applicable to
each Fund. The following information supplements and should be read in
conjunction with the related sections of each Prospectus.
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<PAGE>
As used in this Statement of Additional Information, with respect to those
Funds and policies for which they apply, the terms "Municipal Obligations"
and "tax-exempt securities" have the meanings given to them in the relevant
Fund's Prospectus. For descriptions of the securities ratings of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P")
and Fitch Investors Service, Inc. ("Fitch"), see Appendix B. For a general
discussion of special investment considerations relating to investing in (i)
New York and (ii) California Municipal Obligations, see Appendices C and D,
respectively.
The management style used for the Funds emphasizes several key factors.
Portfolio managers consider the security quality--that is, the ability of the
debt issuer to make timely payments of principal and interest. Also important
in the analysis is the relationship of a bond's yield and its maturity, in
which the managers evaluate the risks of investing in long-term
higher-yielding securities. Managers also use a computer model to simulate
possible fluctuations in prices and yields if interest rates change. Another
step in the analysis is comparing yields on different types of securities to
determine relative risk/reward profiles.
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including U.S. Treasury bills (maturities
of one year or less), U.S. Treasury notes (maturities of one to ten years)
and U.S. Treasury bonds (generally maturities of greater than ten years); and
(2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain
obligations of the U.S. Government agency or instrumentality or (d) the
credit of the agency or instrumentality. Agencies and instrumentalities of
the U.S. Government include but are not limited to: Federal Land Banks,
Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit
Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Student Loan Marketing
Association, United States Postal Service, Chrysler Corporate Loan Guarantee
Board, Small Business Administration, Tennessee Valley Authority and any
other enterprise established or sponsored by the U.S. Government. Certain
U.S. Government Securities, including U.S. Treasury bills, notes and bonds,
Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or guaranteed by
federal agencies or government sponsored enterprises and are not supported by
the full faith and credit of the United States. These securities include
obligations that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of Federal Home Loan Banks, and
obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. Vista Federal Money
Market Fund generally limits its investments in agency and instrumentality
obligations to obligations the interest on which is generally not subject to
state and local income taxes by reason of federal law. Agencies and
instrumentalities issuing such obligations include the Farm Credit System
Financial Assistance Corporation, the Federal Financing Bank, The General
Services Administration, Federal Home Loan Banks, the Tennessee Valley
Authority and the Student Loan Marketing Association. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small
Business Administration, Federal Aviation Administration, Department of
Defense, Bureau of Indian Affairs and Private Export Funding Corporation,
which often provide higher yields than are available from the more common
types of government-backed instruments. However, such specialized instruments
may only be available from a few sources, in limited amounts, or only in very
large denominations; they may also require specialized capability in
portfolio servicing and in legal matters related to government guarantees.
While they may frequently offer attractive yields, the limited-activity
markets of many of these securities means that, if a Fund were required to
liquidate any of them, it might not be able to do so advantageously;
accordingly, each Fund investing in such securities intends normally to
4
<PAGE>
hold such securities to maturity or pursuant to repurchase agreements, and
would treat such securities (including repurchase agreements maturing in more
than seven days) as illiquid for purposes of its limitation on investment in
illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those of
U.S. banks (including their foreign branches) which have total assets at the
time of purchase in excess of $1 billion and the deposits of which are
insured by either the Bank Insurance Fund or the Savings and Loan Insurance
Fund of the Federal Deposit Insurance Corporation, and foreign banks
(including their U.S. branches) having total assets in excess of $10 billion
(or the equivalent in other currencies), and such other U.S. and foreign
commercial banks which are judged by the advisers to meet comparable credit
standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit
is a short-term negotiable certificate issued by a commercial bank against
funds deposited in the bank and is either interest-bearing or purchased on a
discount basis. A bankers' acceptance is a short-term draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction. The borrower is liable for payment as is the bank,
which unconditionally guarantees to pay the draft at its face amount on the
maturity date. Fixed time deposits are obligations of branches of United
States banks or foreign banks which are payable at a stated maturity date and
bear a fixed rate of interest. Although fixed time deposits do not have a
market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party. Fixed time deposits
subject to withdrawal penalties and with respect to which a Fund cannot
realize the proceeds thereon within seven days are deemed "illiquid" for the
purposes of its restriction on investments in illiquid securities. Deposit
notes are notes issued by commercial banks which generally bear fixed rates
of interest and typically have original maturities ranging from eighteen
months to five years.
Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may
be made and the interest rates and fees that may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect
a bank's ability to meet its obligations. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Investors
should also be aware that securities of foreign banks and foreign branches of
United States banks may involve foreign investment risks in addition to those
relating to domestic bank obligations.
Commercial Paper and Other Short-Term Obligations. The commercial paper
and other short- term obligations of U.S. and foreign corporations which may
be purchased by the Vista Prime Money Market Fund and the Vista Cash
Management Fund, other than those of bank holding companies, include
obligations which are (i) rated Prime-1 by Moody's, A-1 by S&P, or F-1 by
Fitch, or comparably rated by another NRO; or (ii) determined by the advisers
to be of comparable quality to those rated obligations which may be purchased
by the Vista Prime Money Market Fund and the Vista Cash Management Fund at
the date of purchase or which at the date of purchase have an outstanding
debt issue rated in the highest rating category by Moody's, S&P, Fitch or
another NRO. The commercial paper and other short-term obligations of U.S.
banks holding companies which may be purchased by the Vista Prime Money
Market Fund and the Vista Cash Management Fund include obligations issued or
guaranteed by bank holding companies with total assets exceeding $1 billion.
For purposes of the size standards with respect to banks and bank holding
companies, "total deposits" and "total assets" are determined on an annual
basis by reference to an institution's then most recent annual financial
statements.
Repurchase Agreements. A Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and securities dealers
believed creditworthy, and only if fully collateralized
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by securities in which such Fund is permitted to invest. Under the terms of a
typical repurchase agreement, a Fund would acquire an underlying debt
instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase the instrument and the
Fund to resell the instrument at a fixed price and time, thereby determining
the yield during the Fund's holding period. This procedure results in a fixed
rate of return insulated from market fluctuations during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements are considered under the 1940
Act to be loans collateralized by the underlying securities. All repurchase
agreements entered into by a Fund will be fully collateralized at all times
during the period of the agreement in that the value of the underlying
security will be at least equal to 102% of the amount of the loan, including
the accrued interest thereon, and the Fund its custodian or sub-custodian
will have possession of the collateral, which the Board of Trustees believes
will give it a valid, perfected security interest in the collateral. Whether
a repurchase agreement is the purchase and sale of a security or a
collateralized loan has not been conclusively established. This might become
an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities
would not be owned by a Fund, but would only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, a Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Board of Trustees believes that the collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by a Fund. Repurchase
agreements will give rise to income which will not qualify as tax-exempt
income when distributed by a Tax Free Fund. Repurchase agreements maturing in
more than seven days are treated as illiquid for purposes of the Funds'
restrictions on purchases of illiquid securities. Repurchase agreements are
also subject to the risks described below with respect to stand-by
commitments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve sales
of portfolio securities of a Fund to member banks of the Federal Reserve
System or securities dealers believed creditworthy, concurrently with an
agreement by such Fund to repurchase the same securities at a later date at a
fixed price which is generally equal to the original sales price plus
interest. A Fund retains record ownership and the right to receive interest
and principal payments on the portfolio security involved.
High Quality Municipal Obligations. Investments by the Tax Free Money
Market Funds will be made in unrated Municipal Obligations only if they are
determined to be of comparable quality to permissable rated investments on
the basis of the advisers' credit evaluation of the obligor or of the bank
issuing a participation certificate, letter of credit or guaranty, or
insurance issued in support of the obligation. High Quality instruments may
produce a lower yield than would be available from less highly rated
instruments. The Board of Trustees has determined that Municipal Obligations
which are backed by the credit of the U.S. Government will be considered to
have a rating equivalent to Moody's Aaa.
If, subsequent to purchase by a Tax Free Money Market Fund, (a) an issue
of rated Municipal Obligations ceases to be rated in the highest short-term
rating category (the two highest categories in the case of the New York and
California Tax Free Money Market Funds) by at least two rating organizations
(or one rating organization if the instrument was rated by only one such
organization) or the Board of Trustees determines that it is no longer of
comparable quality or (b) a Money Market Fund's advisers become aware that
any portfolio security not so highly rated or any unrated security has been
given a rating by any rating organization below the rating organization's
second highest rating category, the Board of Trustees will reassess promptly
whether such security presents minimal credit risk and will cause such Money
Market Fund to take such action as it determines is in its best interest and
that of its shareholders; provided that the reassessment required by clause
(b) is not required if the portfolio security is disposed of or matures
within five business days of the advisers becoming aware of the new rating
and the Fund's Board is subsequently notified of the adviser's actions.
To the extent that a rating given by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Funds will attempt to use comparable
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ratings as standards for their investments in accordance with the investment
policies contained in the Prospectuses and this Statement of Additional
Information. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the Municipal Obligations which they undertake to rate.
It should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the advisers also
will evaluate these securities and the creditworthiness of the issuers of
such securities.
Forward Commitments. In order to invest a Fund's assets immediately, while
awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will
normally be purchased. Although, with respect to any Tax Free Fund,
short-term investments will normally be in tax-exempt securities or Municipal
Obligations, short-term taxable securities or obligations may be purchased if
suitable short-term tax-exempt securities or Municipal Obligations are not
available. When a commitment to purchase a security on a forward commitment
basis is made, procedures are established consistent with the General
Statement of Policy of the Securities and Exchange Commission concerning such
purchases. Since that policy currently recommends that an amount of the
respective Fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, a separate account of such
Fund consisting of cash, cash equivalents or high quality debt securities
equal to the amount of such Fund's commitments will be established at such
Fund's custodian bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market
value. If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be placed in the account daily
so that the value of the account will equal the amount of such commitments by
the respective Fund.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis
may involve more risk than other types of purchases. Securities purchased on
a forward commitment basis and the securities held in the respective Fund's
portfolio are subject to changes in value based upon the public's perception
of the creditworthiness of the issuer and changes, real or anticipated, in
the level of interest rates. Purchasing securities on a forward commitment
basis can involve the risk that the yields available in the market when the
delivery takes place may actually be higher or lower than those obtained in
the transaction itself. On the settlement date of the forward commitment
transaction, the respective Fund will meet its obligations from then
available cash flow, sale of securities held in the separate account, sale of
other securities or, although it would not normally expect to do so, from
sale of the forward commitment securities themselves (which may have a value
greater or lesser than such Fund's payment obligations). The sale of
securities to meet such obligations may result in the realization of capital
gains or losses, which, for consideration by investors in the Tax Free Funds,
are not exempt from federal, state or local taxation.
To the extent a Fund engages in forward commitment transactions, it will
do so for the purpose of acquiring securities consistent with its investment
objective and policies and not for the purpose of investment leverage, and
settlement of such transactions will be within 90 days from the trade date.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, each Fund may elect to treat as liquid, in accordance
with procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule
144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers. Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors such as a Fund who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale of Section
4(2) paper by the purchaser must be in an exempt transaction.
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One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid
market for Rule 144A securities or Section 4(2) paper will develop or be
maintained. The Trustees have adopted policies and procedures for the purpose
of determining whether securities that are eligible for resale under Rule
144A and Section 4(2) paper are liquid or illiquid for purposes of the
limitation on investment in illiquid securities. Pursuant to those policies
and procedures, the Trustees have delegated to the advisers the determination
as to whether a particular instrument is liquid or illiquid, requiring that
consideration be given to, among other things, the frequency of trades and
quotes for the security, the number of dealers willing to sell the security
and the number of potential purchasers, dealer undertakings to make a market
in the security, the nature of the security and the time needed to dispose of
the security. The Trustees will periodically review the Funds' purchases and
sales of Rule 144A securities and Section 4(2) paper.
Stand-by Commitments. When a Fund purchases securities it may also acquire
stand-by commitments with respect to such securities. Under a stand-by
commitment, a bank, broker-dealer or other financial institution agrees to
purchase at a Fund's option a specified security at a specified price.
The amount payable to a Money Market Fund upon its exercise of a stand-by
commitment with respect to a Municipal Obligation normally would be (i) the
acquisition cost of the Municipal Obligation (excluding any accrued interest
paid by the Fund on the acquisition), less any amortized market premium or
plus any amortized market or original issue discount during the period the
Fund owned the security, plus (ii) all interest accrued on the security since
the last interest payment date during the period the security was owned by
the Fund. Absent unusual circumstances relating to a change in market value,
a Money Market Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during
the time a stand-by commitment is exercisable would be substantially the same
as the market value of the underlying Municipal Obligation. The Money Market
Funds value stand-by commitments at zero for purposes of computing their net
asset value per share.
The stand-by commitments that may be entered into by the Funds are subject
to certain risks, which include the ability of the issuer of the commitment
to pay for the securities at the time the commitment is exercised, the fact
that the commitment is not marketable by a Fund, and that the maturity of the
underlying security will generally be different from that of the commitment.
Not more than 10% of the total assets of a Money Market Fund will be invested
in Municipal Obligations that are subject to stand-by commitments from the
same bank or broker-dealer.
Floating and Variable Rate Securities; Participation
Certificates. Floating and variable rate demand instruments permit the holder
to demand payment upon a specified number of days' notice of the unpaid
principal balance plus accrued interest either from the issuer or by drawing
on a bank letter of credit, a guarantee or insurance issued with respect to
such instrument. Investments by the Income Funds in floating or variable rate
securities normally will involve industrial development or revenue bonds that
provide for a periodic adjustment in the interest rate paid on the obligation
and may, but need not, permit the holder to demand payment as described
above. While there is usually no established secondary market for issues of
these types of securities, the dealer that sells an issue of such security
frequently will also offer to repurchase the securities at any time at a
repurchase price which varies and may be more or less than the amount the
holder paid for them. The floating or variable rate demand instruments in
which the Money Market Funds may invest are payable on demand on not more
than seven calendar days' notice.
The terms of these types of securities provide that interest rates are
adjustable at intervals ranging from daily to up to six months and the
adjustments are based upon the prime rate of a bank or other short-term
rates, such as Treasury Bills or LIBOR (London Interbank Offered Rate), as
provided in the respective instruments. The Funds will decide which floating
or variable rate securities to purchase in accordance with procedures
prescribed by Board of Trustees of the Trust in order to minimize credit
risks.
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In the case of a Money Market Fund, the Board of Trustees may determine
that an unrated floating or variable rate security meets the Fund's high
quality criteria if it is backed by a letter of credit or guarantee or is
insured by an insurer that meets such quality criteria, or on the basis of a
credit evaluation of the underlying obligor. If the credit of the obligor is
of "high quality", no credit support from a bank or other financial
institution will be necessary. The Board of Trustees will re-evaluate each
unrated floating or variable rate security on a quarterly basis to determine
that it continues to meet a Money Market Fund's high quality criteria. If an
instrument is ever deemed to fall below a Money Market Fund's high quality
standards, either it will be sold in the market or the demand feature will be
exercised.
The securities in which certain Funds may be invested include
participation certificates, issued by a bank, insurance company or other
financial institution, in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate
gives a Fund an undivided interest in the security in the proportion that the
Fund's participation interest bears to the total principal amount of the
security and generally provides the demand feature described below. Each
Participation Certificate is backed by an irrevocable letter of credit or
guaranty of a bank (which may be the bank issuing the Participation
Certificate, a bank issuing a confirming letter of credit to that of the
issuing bank, or a bank serving as agent of the issuing bank with respect to
the possible repurchase of the certificate of participation) or insurance
policy of an insurance company that the Board of Trustees of the Trust has
determined meets the prescribed quality standards for a particular Fund.
A Fund may have the right to sell the Participation Certificate back to
the institution and draw on the letter of credit or insurance on demand after
the prescribed notice period, for all or any part of the full principal
amount of the Fund's participation interest in the security, plus accrued
interest. The institutions issuing the Participation Certificates would
retain a service and letter of credit fee and a fee for providing the demand
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the Participation Certificates
were purchased by a Fund. The total fees would generally range from 5% to 15%
of the applicable prime rate or other short-term rate index. With respect to
insurance, a Fund will attempt to have the issuer of the Participation
Certificate bear the cost of any such insurance, although the Funds retain
the option to purchase insurance if deemed appropriate. Obligations that have
a demand feature permitting a Fund to tender the obligation to a foreign bank
may involve certain risks associated with foreign investment. A Fund's
ability to receive payment in such circumstances under the demand feature
from such foreign banks may involve certain risks such as future political
and economic developments, the possible establishments of laws or
restrictions that might adversely affect the payment of the bank's
obligations under the demand feature and the difficulty of obtaining or
enforcing a judgment against the bank.
The advisers have been instructed by the Board of Trustees to monitor on
an ongoing basis the pricing, quality and liquidity of the floating and
variable rate securities held by the Funds, including Participation
Certificates, on the basis of published financial information and reports of
the rating agencies and other bank analytical services to which the Funds may
subscribe. Although these instruments may be sold by a Fund, it is intended
that they be held until maturity. Participation Certificates will only be
purchased by a Tax Free Fund if, in the opinion of counsel to the issuer,
interest income on such instruments will be tax-exempt when distributed as
dividends to shareholders of such Fund.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the
underlying floating or variable rate securities may change with changes in
interest rates generally, the floating or variable rate nature of the
underlying floating or variable rate securities should minimize changes in
value of the instruments. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
rate securities. A Fund's portfolio may contain floating or variable rate
securities on which stated minimum or maximum rates, or maximum rates set by
state law, limit the degree to which interest on such floating or variable
rate
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securities may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the floating or variable rate
securities is made in relation to movements of the applicable banks' "prime
rates" or other short-term rate adjustment indices, the floating or variable
rate securities are not comparable to long-term fixed rate securities.
Accordingly, interest rates on the floating or variable rate securities may
be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of (i)
the notice period required before a Fund is entitled to receive payment of
the principal amount of the security upon demand or (ii) the period remaining
until the security's next interest rate adjustment. With respect to a Money
Market Fund, the maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. With respect to the Income Funds,
if variable rate securities are not redeemed through the demand feature, they
mature on a specified date which may range up to thirty years from the date
of issuance.
Tender Option Floating or Variable Rate Certificates. The Money Market
Funds may invest in tender option bonds. A tender option bond is a synthetic
floating or variable rate security issued when long term bonds are purchased
in the secondary market and are then deposited into a trust. Custodial
receipts are then issued to investors, such as the Funds, evidencing
ownership interests in the trust. The trust sets a floating or variable rate
on a daily or weekly basis which is established through a remarketing agent.
These types of derivatives, to be money market eligible under Rule 2a-7, must
have a liquidity facility in place which provides additional comfort to the
investors in case the remarketing fails. The sponsor of the trust keeps the
difference between the rate on the long term bond and the rate on the short
term floating or variable rate security.
Supranational Obligations. Supranational organizations include
organizations such as The World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union
of various European nations steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations of the Asian and Pacific regions.
Securities Loans. To the extent specified in its Prospectus, each Fund is
permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of a Fund's total assets. In
connection with such loans, a Fund will receive collateral consisting of
cash, cash equivalents, U.S. Government securities or irrevocable letters of
credit issued by financial institutions. Such collateral will be maintained
at all times in an amount equal to at least 102% of the current market value
plus accrued interest of the securities loaned. A Fund can increase its
income through the investment of such collateral. A Fund continues to be
entitled to the interest payable or any dividend-equivalent payments received
on a loaned security and, in addition, to receive interest on the amount of
the loan. However, the receipt of any dividend-equivalent payments by a Fund
on a loaned security from the borrower will not qualify for the
dividends-received deduction. Such loans will be terminable at any time upon
specified notice. A Fund might experience risk of loss if the institutions
with which it has engaged in portfolio loan transactions breach their
agreements with such Fund. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of the securities or the possible
loss of rights in the collateral should the borrower experience financial
difficulty. Loans will be made only to firms deemed by the advisers to be of
good standing and will not be made unless, in the judgment of the advisers,
the consideration to be earned from such loans justifies the risk.
Zero Coupon and Stripped Obligations. The principal and interest
components of United States Treasury bonds with remaining maturities of
longer than ten years are eligible to be traded independently
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under the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. Under the STRIPS program, the principal and interest
components are separately issued by the United States Treasury at the request
of depository financial institutions, which then trade the component parts
separately. The interest component of STRIPS may be more volatile than that
of United States Treasury bills with comparable maturities.
Zero coupon obligations are sold at a substantial discount from their
value at maturity and, when held to maturity, their entire return, which
consists of the amortization of discount, comes from the difference between
their purchase price and maturity value. Because interest on a zero coupon
obligation is not distributed on a current basis, the obligation tends to be
subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying securities with similar maturities.
The value of zero coupon obligations appreciates more than such ordinary
interest-paying securities during periods of declining interest rates and
depreciates more than such ordinary interest-paying securities during periods
of rising interest rates. Under the stripped bond rules of the Internal
Revenue Code of 1986, as amended, investments in zero coupon obligations will
result in the accrual of interest income on such investments in advance of
the receipt of the cash corresponding to such income.
Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the
coupon payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury
Receipts, are examples of stripped U.S. Treasury securities separated into
their component parts through such custodial arrangements.
Additional Policies Regarding Derivative and Related Transactions
Introduction. As explained more fully below, the Income Funds may employ
derivative and related instruments as tools in the management of portfolio
assets. Put briefly, a "derivative" instrument may be considered a security
or other instrument which derives its value from the value or performance of
other instruments or assets, interest or currency exchange rates, or indexes.
For instance, derivatives include futures, options, forward contracts,
structured notes and various other over-the-counter instruments.
Like other investment tools or techniques, the impact of using derivatives
strategies or similar instruments depends to a great extent on how they are
used. Derivatives are generally used by portfolio managers in three ways:
First, to reduce risk by hedging (offsetting) an investment position. Second,
to substitute for another security particularly where it is quicker, easier
and less expensive to invest in derivatives. Lastly, to speculate or enhance
portfolio performance. When used prudently, derivatives can offer several
benefits, including easier and more effective hedging, lower transaction
costs, quicker investment and more profitable use of portfolio assets.
However, derivatives also have the potential to significantly magnify risks,
thereby leading to potentially greater losses for a Fund.
Each Income Fund may invest its assets in derivative and related
instruments subject only to the Fund's investment objective and policies and
the requirement that the Fund maintain segregated accounts consisting of
liquid assets, such as cash, U.S. Government securities, or other high-grade
debt obligations (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under such instruments
with respect to positions where there is no underlying portfolio asset so as
to avoid leveraging the Fund.
The value of some derivative or similar instruments in which the Income
Funds invest may be particularly sensitive to changes in prevailing interest
rates or other economic factors, and--like other investments of the Funds--
the ability of a Fund to successfully utilize these instruments may depend in
part upon the ability of the advisers to forecast interest rates and other
economic factors correctly. If the advisers accurately forecast such factors
and has taken positions in derivative or similar instruments contrary to
prevailing
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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.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no
guarantee that there will be a correlation between price movements in a
hedging vehicle and in the portfolio assets being hedged. An incorrect
correlation could result in a loss on both the hedged assets in a Fund and
the hedging vehicle so that the portfolio return might have been greater had
hedging not been attempted. The advisers may accurately forecast interest
rates, market values or other economic factors in utilizing a derivatives
strategy. In such a case, the Fund may have been in a better position had it
not entered into such strategy. Hedging strategies, while reducing risk of
loss, can also reduce the opportunity for gain. In other words, hedging
usually limits both potential losses as well as potential gains. Strategies
not involving hedging may increase the risk to a Fund. Certain strategies,
such as yield enhancement, can have speculative characteristics and may
result in more risk to a Fund than hedging strategies using the same
instruments. There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out an option, futures contract or other
derivative or related position. Many exchanges and boards of trade limit the
amount of fluctuation permitted in option or futures contract prices during a
single day; once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition,
certain instruments are relatively new and without a significant trading
history. As a result, there is no assurance that an active secondary market
will develop or continue to exist. Finally, over-the-counter instruments
typically do not have a liquid market. Lack of a liquid market for any reason
may prevent a Fund from liquidating an unfavorable position. Activities of
large traders in the futures and securities markets involving arbitrage,
"program trading," and other investment strategies may cause price
distortions in these markets. In certain instances, particularly those
involving over-the-counter transactions, forward contracts there is a greater
potential that a counterparty or broker may default or be unable to perform
on its commitments. In the event of such a default, a Fund may experience a
loss.
Specific Uses and Strategies. Set forth below are explanations various
strategies involving derivatives and related instruments which may be used by
the Income Funds.
Options on Securities and Securities Indexes. The Funds may PURCHASE, SELL
or EXERCISE call and put options on (i) securities, (ii) securities indexes,
and (iii) debt instruments.
Although in most cases these options will be exchange-traded, the Funds
may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over- the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities a Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund may also
use combinations of options to minimize costs, gain exposure to markets or
take advantage of price 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
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held by the fund) has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying securities
above the exercise price, but has retained the risk of loss should the price
of the underlying securities decline. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities at the
exercise price. The Funds will not write uncovered options.
If a put or call option purchased by a Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, such Fund
will lose its entire investment in the option. Also, where a put or call
option on a particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may move more or
less than the price of the related security. There can be no assurance that a
liquid market will exist when a Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the
options markets, a Fund may be unable to close out a position.
Futures Contracts and Options on Futures Contracts. The Funds may purchase
or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments or indices, and (iii) options on these futures
contracts ("futures options").
The futures contracts and futures options may be based on various
instruments or indices in which the Funds may invest such as foreign
currencies, certificates of deposit, Eurodollar time deposits, securities
indices, economic indices (such as the Consumer Price Indices compiled by the
U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For
example, a Fund may sell a futures contract--or buy a futures option--to
protect against a decline in value, or reduce the duration, of portfolio
holdings. Likewise, these instruments may be used where a Fund intends to
acquire an instrument or enter into a position. For example, a Fund may
purchase a futures contract--or buy a futures option--to gain immediate
exposure in a market or otherwise offset increases in the purchase price of
securities or currencies to be acquired in the future. Futures options may
also be written to earn the related premiums.
When writing or purchasing options, the Funds may simultaneously enter
into other transactions involving futures contracts or futures options in
order to minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks
in certain instances. Funds may engage in cross-hedging by purchasing or
selling futures or options on a security different from the security position
being hedged to take advantage of relationships between the two securities.
Investments in futures contracts and options thereon involve risks similar
to those associated with options transactions discussed above. The Funds will
only enter into futures contracts or options on futures contracts which are
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system.
Forward Contracts. A Fund may also use forward contracts to hedge against
changes in interest- rates, increase exposure to a market or otherwise take
advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at
a future date.
Interest Rate Transactions. The Income Funds may employ interest rate
management techniques, including transactions in options (including yield
curve options), futures, options on futures, forward exchange contracts, and
interest rate swaps.
An Income Fund will only enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Income Fund receiving
or paying, as the case may be, only the net amount of the two payments.
Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest
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payments that an Income Fund is contractually obligated to make. If the other
party to and interest rate swap defaults, an Income Fund's risk of loss
consists of the net amount of interest payments that the Fund is
contractually entitled to receive. Since interest rate swaps are individually
negotiated, each Income Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its interest rate swap
position.
An Income Fund may enter into interest rate swaps to the maximum allowed
limits under applicable law. An Income Fund will typically use interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by an Income Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments.
Structured Products. The Income Funds may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, or specified instruments (such as commercial bank loans) and the
issuance by that entity of one or more classes of securities ("structured
products") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured products to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured products is dependent on the extent of the cash
flow on the underlying instruments. A Fund may invest in structured products
which represent derived investment positions based on relationships among
different markets or asset classes.
The Income Funds may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by
a formula to the price of an underlying instrument. Inverse floaters have
coupon rates that vary inversely at a multiple of a designated floating rate
(which typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the cost
of Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon
rate while any drop in the reference rate of an inverse floater causes an
increase in the coupon rate. A spread trade is an investment position
relating to a difference in the prices or interest rates of two securities
where the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities. When an Income Fund invests in notes linked to the
price of an underlying instrument, the price of the underlying security is
determined by a multiple (based on a formula) of the price of such underlying
security. A structured product may be considered to be leveraged to the
extent its interest rate varies by a magnitude that exceeds the magnitude of
the change in the index rate of interest. Because they are linked to their
underlying markets or securities, investments in structured products
generally are subject to greater volatility than an investment directly in
the underlying market or security. Total return on the structured product is
derived by linking return to one or more characteristics of the underlying
instrument. Because certain structured products of the type in which the
Income Fund anticipates it will invest may involve no credit enhancement, the
credit risk of those structured products generally would be equivalent to
that of the underlying instruments. An Income Fund is permitted to invest in
a class of structured products that is either subordinated or unsubordinated
to the right of payment of another class. Subordinated structured products
typically have higher yields and present greater risks than unsubordinated
structured products. Although an Income Fund's purchase of subordinated
structured products would have similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leverage for purposes of an Income Fund's fundamental investment limitation
related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, an Income Fund's
investments in these structured products may be limited by the restrictions
contained in the 1940 Act. Structured products are typically sold in private
placement transactions, and there currently is no active trading market for
structured products. As a result, certain structured products in which the
Income Funds invest may be deemed illiquid and subject to their limitation on
illiquid investments.
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Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
In addition, because structured products are typically sold in private
placement transactions, there currently is no active trading market for
structured products.
Additional Restrictions on the Use of Futures and Option Contracts. None
of the Funds is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that a Fund may enter into such transactions for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5%
of the liquidation value of the Fund's portfolio, provided, further, that, in
the case of an option that is in-the-money, the in-the-money amount may be
excluded in calculating the 5% limitation.
When an Income Fund purchases a futures contract, an amount of cash or
cash equivalents or high quality debt securities will be deposited in a
segregated account with such Fund's custodian so that the amount so
segregated, plus the initial deposit and variation margin held in the account
of its broker, will at all times equal the value of the futures contract,
thereby insuring that the use of such futures is unleveraged.
The Income Funds' ability to engage in the transactions described herein
may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition
of securities held for less than three months.
In addition to the foregoing requirements, the Board of Trustees has
adopted an additional restriction on the use of futures contracts and options
thereon, requiring that the aggregate market value of the futures contracts
held by an Income Fund not exceed 50% of the market value of its total
assets. Neither this restriction nor any policy with respect to the
above-referenced restrictions, would be changed by the Board of Trustees
without considering the policies and concerns of the various federal and
state regulatory agencies.
Investment Restrictions
The Funds have adopted the following investment restrictions which may not
be changed without approval by a "majority of the outstanding shares" of a
Fund which, as used in this Statement of Additional Information, means the
vote of the lesser of (i) 67% or more of the shares of a Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of a Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of a Fund.
Each Fund may not:
(1) borrow money, except that each Fund may borrow money for
temporary or emergency purposes, or by engaging in reverse repurchase
transactions, in an amount not exceeding 33-1/3% of the value of its total
assets at the time when the loan is made and may pledge, mortgage or
hypothecate no more than 1/3 of its net assets to secure such borrowings.
Any borrowings representing more than 5% of a Fund's total assets must be
repaid before the Fund may make additional investments;
(2) make loans, except that each Fund may: (i) purchase and hold
debt instruments (including without limitation, bonds, notes, debentures
or other obligations and certificates of deposit, bankers' acceptances and
fixed time deposits) in accordance with its investment objectives and
policies; (ii) enter into repurchase agreements with respect to portfolio
securities; and (iii) lend portfolio securities with a value not in excess
of one-third of the value of its total assets;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's total assets would be invested in the
securities of com-
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panies whose principal business activities are in the same industry.
Notwithstanding the foregoing, (i) with respect to a Fund's permissible
futures and options transactions in U.S. Government securities, positions
in options and futures shall not be subject to this restriction; (ii) the
Money Market Funds may invest more than 25% of their total assets in
obligations issued by banks, including U. S. banks; (iii) New York Tax
Free Money Market Fund, California Tax Free Money Market Fund and Tax Free
Money Market Fund may invest more than 25% of their respective assets in
municipal obligations secured by bank letters of credit or guarantees,
including participation certificates and (iv) more than 25% of the assets
of California Intermediate Tax Free Income Fund may be invested in
municipal obligations secured by bank letters of credit or guarantees;
(4) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments but this shall not
prevent a Fund from (i) purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities or (ii) engaging in forward purchases or sales of
foreign currencies or securities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
Investments by a Fund in securities backed by mortgages on real estate or
in marketable securities of companies engaged in such activities are not
hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except
that (a) a Fund may engage in transactions that may result in the issuance
of senior securities to the extent permitted under applicable regulations
and interpretations of the 1940 Act or an exemptive order; (b) a Fund may
acquire other securities, the acquisition of which may result in the
issuance of a senior security, to the extent permitted under applicable
regulations or interpretations of the 1940 Act; and (c) subject to the
restrictions set forth above, a Fund may borrow money as authorized by the
1940 Act. For purposes of this restriction, collateral arrangements with
respect to a Fund's permissible options and futures transactions,
including deposits of initial and variation margin, are not considered to
be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as
a Fund may technically be deemed to be an underwriter under the Securities
Act of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, a Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as
the Fund. For purposes of investment restriction (5) above, real estate
includes Real Estate Limited Partnerships. For purposes of investment
restriction (3) above, industrial development bonds, where the payment of
principal and interest is the ultimate responsibility of companies within the
same industry, are grouped together as an "industry." Investment restriction
(3) above, however, is not applicable to investments by a Fund in municipal
obligations where the issuer is regarded as a state, city, municipality or
other public authority since such entities are not members of any "industry."
Supranational organizations are collectively considered to be members of a
single "industry" for purposes of restriction (3) above.
In addition, each Fund is subject to the following nonfundamental
investment restrictions which may be changed without shareholder approval:
(1) Each Fund other than the Tax Free Funds may not, with respect
to 75% of its assets, hold more than 10% of the outstanding voting
securities of any issuer or invest more than 5% of its assets in the
securities of any one issuer (other than obligations of the U.S.
Government, its agencies and instrumentalities); each Tax Free Fund may
not, with respect to 50% of its assets, hold more than 10% of the
outstanding voting securities of any issuer.
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(2) Each Fund may not make short sales of securities, other than
short sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment program
of a Fund.
(3) Each Fund may not purchase or sell interests in oil, gas or
mineral leases.
(4) Each Income Fund may not invest more than 15% of its net assets
in illiquid securities; each Money Market Fund may not invest more than
10% of its net assets in illiquid securities.
(5) Each Fund may not write, purchase or sell any put or call
option or any combination thereof, provided that this shall not prevent
(i) the writing, purchasing or selling of puts, calls or combinations
thereof with respect to portfolio securities or (ii) with respect to a
Fund's permissible futures and options transactions, the writing,
purchasing, ownership, holding or selling of futures and options positions
or of puts, calls or combinations thereof with respect to futures.
(6) Each Fund may invest up to 5% of its total assets in the
securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of
its total assets in the securities of other investment companies.
It is the Trust's position that proprietary strips, such as CATS and
TIGRS, are United States Government securities. However, the Trust has been
advised that the staff of the Securities and Exchange Commission's Division
of Investment Management does not consider these to be United States
Government securities, as defined under the 1940 Act.
For purposes of the Funds' investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.
In order to permit the sale of its shares in certain states, a Fund may
make commitments more restrictive that the investment policies and
limitations described above and in its Prospectus. Should a Fund determine
that any such commitment is no longer in its best interests, it will revoke
the commitment by terminating sales of its shares in the state involved.
In order to comply with certain federal and state statutes and regulatory
policies, as a matter of operating policy, each Fund will not invest for the
purpose of exercising control or management.
As a nonfundamental operating policy, the California Intermediate Tax Free
Income Fund will limit its investments in municipal obligations secured by
bank letters of credit or guarantees to not more than 25% of its total
assets. As a nonfundamental operating policy, the Money Market Funds will not
invest more than 25% of their respective total assets in obligations issued
by foreign banks (other than foreign branches of U.S. banks), and the Tax
Free Money Market Funds will not invest more than 25% of their respective
total assets in obligations secured by letters of credit or guarantees from
foreign banks (other than foreign branches of U.S. banks).
If a percentage or rating restriction on investment or use of assets set
forth herein or in a Prospectus is adhered to at the time, later changes in
percentage or ratings resulting from any cause other than actions by a Fund
will not be considered a violation. If the value of a Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable
at the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
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Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for a Fund are made by a
portfolio manager who is an employee of the adviser or sub-adviser to such
Fund and who is appointed and supervised by senior officers of such adviser
or sub-adviser. Changes in the Funds' investments are reviewed by the Board
of Trustees. The Funds' portfolio managers may serve other clients of the
advisers in a similar capacity. Money market instruments are generally
purchased in principal transactions; thus, the Money Market Funds generally
pay no brokerage commissions.
The frequency of an Income Fund's portfolio transactions--the portfolio
turnover rate--will vary from year to year depending upon market conditions.
Because a high turnover rate may increase transaction costs and the
possibility of taxable short-term gains, the advisers will weigh the added
costs of short-term investment against anticipated gains. Each Income Fund
will engage in portfolio trading if its advisers believe a transaction, net
of costs (including custodian charges), will help it achieve its investment
objective.
For the fiscal year ended October 31, 1993, the period from November 1,
1993 through August 31, 1994 and the fiscal year ended August 31, 1995, the
annual rates of portfolio turnover for the following Funds were as follows:
The Tax Free Income Fund: 149%, 258% and 233%, respectively;
The New York Tax Free Income Fund: 150%, 162% and 122%, respectively;
For the period July 16, 1993 through October 31, 1993, from November 1,
1993 through August 31, 1994 and the fiscal year ended August 31, 1995, the
California Intermediate Tax Free Income Fund had portfolio turnover rates of
40%, 93% and 94%, respectively.
Under the advisory agreement and the sub-advisory agreements, the adviser
and sub-advisers shall use their best efforts to seek to execute portfolio
transactions at prices which, under the circumstances, result in total costs
or proceeds being the most favorable to the Funds. In assessing the best
overall terms available for any transaction, the adviser and sub-advisers
consider all factors they deem relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, research services provided to
the adviser or sub-advisers, and the reasonableness of the commissions, if
any, both for the specific transaction and on a continuing basis. The adviser
and sub- advisers are not required to obtain the lowest commission or the
best net price for any Fund on any particular transaction, and are not
required to execute any order in a fashion either preferential to any Fund
relative to other accounts they manage or otherwise materially adverse to
such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case
of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown),
the adviser or sub- adviser to a Fund normally seeks to deal directly with
the primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
adviser or sub-adviser on the tender of a Fund's portfolio securities in
so-called tender or exchange offers. Such soliciting dealer fees are in
effect recaptured for the Funds by the adviser and sub-advisers. At present,
no other recapture arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by Section
28(e) of the Securities Exchange Act of 1934, the adviser or sub-advisers may
cause the Funds to pay a broker-dealer which provides brokerage and research
services to the adviser or sub-advisers, the Funds and/or other accounts for
which they exercise investment discretion an amount of commission for
effecting a securities transaction for
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the Funds in excess of the amount other broker-dealers would have charged for
the transaction if they determine in good faith that the total commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of either that
particular transaction or their overall responsibilities to accounts over
which they exercise investment discretion. Not all of such services are
useful or of value in advising the Funds. The adviser and sub-advisers report
to the Board of Trustees regarding overall commissions paid by the Funds and
their reasonableness in relation to the benefits to the Funds. The term
"brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of purchasers or sellers of
securities, furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts, and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
The management fees that the Funds pay to the adviser will not be reduced
as a consequence of the adviser's or sub-advisers' receipt of brokerage and
research services. To the extent the Funds' portfolio transactions are used
to obtain such services, the brokerage commissions paid by the Funds will
exceed those that might otherwise be paid by an amount which cannot be
presently determined. Such services would be useful and of value to the
adviser or sub-advisers in serving one or more of their other clients and,
conversely, such services obtained by the placement of brokerage business of
other clients would be useful to the adviser and sub-advisers in carrying out
their obligations to the Funds. While such services are not expected to
reduce the expenses of the adviser or sub-advisers, they would, through use
of the services, avoid the additional expenses which would be incurred if
they should attempt to develop comparable information through their own
staff.
In certain instances, there may be securities that are suitable for one or
more of the Funds as well as one or more of the adviser's or sub-advisers'
other clients. Investment decisions for the Funds and for other clients are
made with a view to achieving their respective investment objectives. It may
develop that the same investment decision is made for more than one client or
that a particular security is bought or sold for only one client even though
it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. In executing portfolio
transactions for a Fund, the adviser or sub-advisers may, to the extent
permitted by applicable laws and regulations, but shall not be obligated to,
aggregate the securities to be sold or purchased with those of other Funds or
their other clients if, in the adviser's or sub-advisers' reasonable
judgment, such aggregation (i) will result in an overall economic benefit to
the Fund, taking into consideration the advantageous selling or purchase
price, brokerage commission and other expenses, and trading requirements, and
(ii) is not inconsistent with the policies set forth in the Trust's
registration statement and the Fund's Prospectus and Statement of Additional
Information. In such event, the adviser or a sub- adviser will allocate the
securities so purchased or sold, and the expenses incurred in the
transaction, in an equitable manner, consistent with its fiduciary
obligations to the Fund and such other clients. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as a Fund is concerned. However, it is believed that the
ability of the Funds to participate in volume transactions will generally
produce better executions for the Funds.
PERFORMANCE INFORMATION
From time to time, a Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based
on past investment results, it should not be considered as an indication or
representation of the performance of any classes of a Fund in the future.
From time to time, the performance and yield of classes of a Fund may be
quoted and compared to those of other mutual funds with similar invest-
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ment objectives, unmanaged investment accounts, including savings accounts,
or other similar products and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund or its classes may be compared to data prepared by
Lipper Analytical Services, Inc. or Morningstar Mutual Funds on Disc, widely
recognized independent services which monitor the performance of mutual
funds. Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or in local or regional
publications, may also be used in comparing the performance and yield of a
Fund or its classes. A Fund's performance may be compared with indices such
as the Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers
Government Bond Index, the Lehman Government Bond 1-3 Year Index and the
Lehman Aggregate Bond Index; the S&P 500 Index, the Dow Jones Industrial
Average or any other commonly quoted index of common stock prices; and the
Russell 2000 Index and the NASDAQ Composite Index. Additionally, a Fund may,
with proper authorization, reprint articles written about such Fund and
provide them to prospective shareholders.
A Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in
a Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class
B shares, the average annual total rate of return figures will assume
deduction of the applicable contingent deferred sales charge imposed on a
total redemption of shares held for the period. One-, five-, and ten-year
periods will be shown, unless the class has been in existence for a
shorter-period.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the yields and the net asset values (in the case of
the Income Funds) of the classes of shares of a Fund will vary based on
market conditions, the current market value of the securities held by a Fund
and changes in the Fund's expenses. The advisers, Shareholder Servicing
Agents, the Administrator, the Distributor and other service providers may
voluntarily waive a portion of their fees on a month-to-month basis. In
addition, the Distributor may assume a portion of a Fund's operating expenses
on a month-to-month basis. These actions would have the effect of increasing
the net income (and therefore the yield and total rate of return) of the
classes of shares of a Fund during the period such waivers are in effect.
These factors and possible differences in the methods used to calculate the
yields and total rates of return should be considered when comparing the
yields or total rates of return of the classes of shares of a Fund to yields
and total rates of return published for other investment companies and other
investment vehicles (including different classes of shares). The Trust is
advised that certain Shareholder Servicing Agents may credit to the accounts
of their customers from whom they are already receiving other fees amounts
not exceeding the Shareholder Servicing Agent fees received, which will have
the effect of increasing the net return on the investment of customers of
those Shareholder Servicing Agents. Such customers may be able to obtain
through their Shareholder Servicing Agents quotations reflecting such
increased return.
In connection with the Hanover Reorganization, the Vista 100% U.S.
Treasury Securities Money Market Fund was established to receive the assets
of The 100% U.S. Treasury Securities Money Market Fund of Hanover, and the
Vista Cash Management Fund (formerly known as the Vista Global Money Market
Fund), which received the assets of The Cash Management Fund of Hanover,
adopted the financial history of The Cash Management Fund of Hanover.
Performance results presented for each class of the Vista 100% U.S. Treasury
Securities Money Market Fund and the Vista Cash Management Fund will be based
upon the performance of The 100% U.S. Treasury Securities Money Market Fund
and The Cash Management Fund of Hanover, respectively, for periods prior to
the consummation of the Hanover Reorganization.
Advertising or communications to shareholders may contain the views of the
advisers as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to a
Fund.
20
<PAGE>
Advertisements for the Vista funds may include references to the asset
size of other financial products made available by Chase, such as the
offshore assets of other funds.
Total Rate of Return
A Fund's or class's total rate of return for any period will be calculated
by (a) dividing (i) the sum of the net asset value per share on the last day
of the period and the net asset value per share on the last day of the period
of shares purchasable with dividends and capital gains declared during such
period with respect to a share held at the beginning of such period and with
respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day
of such period, and (b) subtracting 1 from the result. The average annual
rate of return quotation will be calculated by (x) adding 1 to the period
total rate of return quotation as calculated above, (y) raising such sum to a
power which is equal to 365 divided by the number of days in such period, and
(z) subtracting 1 from the result.
The average annual total rate of return figures for the Class A shares of
the following Funds, reflecting the initial investment and reinvested
dividends (but excluding the effects of any applicable sales charges) for the
one and five year periods ended August 31, 1995, and for the period from
September 8, 1987 (commencement of business operations) to August 31, 1995,
were as follows:
The Tax Free Income Fund: 6.53%, 9.81% and 9.41%, respectively;
The New York Tax Free Income Fund: 6.82%, 9.01% and 8.86%, respectively.
With the current maximum sales charge for Class A shares of 4.50%
reflected, the average annual total rate of return figures for the same
periods would be as follows:
The Tax Free Income Fund: 1.74%, 8.87% and 8.78%, respectively;
The New York Tax Free Income Fund: 2.01%, 8.01% and 8.24%, respectively.
The average rate of total return for the California Intermediate Tax Free
Income Fund (excluding the effects of any applicable sales charges) for the
one year period ended August 31, 1995 and from the inception date of July 15,
1993 through August 31, 1995 were 7.55% and 4.23%, respectively. With the
current maximum sales charge of 4.50% reflected, the average annual total
rate of return for the same periods would be 2.71% and 2.00%, respectively.
The average annual total rate of return figures for the Class B shares of
the following Funds, reflecting the initial investment and reinvested
dividends for the one year period ended August 31, 1995, and for the period
from commencement of business operations on November 4, 1993 to August 31,
1995 were as follows:
The Tax Free Income Fund: 5.70% and 1.75%, respectively;
The New York Tax Free Income Fund: 5.99% and 2.61%, respectively.
The Funds may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance
of a Fund with other measures of investment return.
Yield Quotations
Any current "yield" quotation for a class of shares of an Income Fund
shall consist of an annualized hypothetical yield, carried at least to the
nearest hundredth of one percent, based on a thirty calendar day period and
shall be calculated by (a) raising to the sixth power the sum of 1 plus the
quotient obtained by dividing the Fund's net investment income earned during
the period by the product of the average daily number of shares outstanding
during the period that were entitled to receive dividends and the maximum
offering
21
<PAGE>
price per share on the last day of the period, (b) subtracting 1 from the
result, and (c) multiplying the result by 2.
Any current "yield" for a class of shares of a Money Market Fund which is
used in such a manner as to be subject to the provisions of Rule 482(d) under
the Securities Act of 1933, as amended, shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven calendar day period and shall be calculated by
dividing the net change in the value of an account having a balance of one
Share at the beginning of the period by the value of the account at the
beginning of the period and multiplying the quotient by 365/7. For this
purpose, the net change in account value would reflect the value of
additional Shares purchased with dividends declared on the original Share and
dividends declared on both the original Share and any such additional Shares,
but would not reflect any realized gains or losses from the sale of
securities or any unrealized appreciation or depreciation on portfolio
securities. In addition, any effective yield quotation for a class of shares
of a Money Market Fund so used shall be calculated by compounding the current
yield quotation for such period by multiplying such quotation by 7/365,
adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result. A portion of a Tax Free Money Market Fund's
income used in calculating such yields may be taxable.
Any taxable equivalent yield quotation of a class of shares of a Tax Free
Fund, whether or not it is a Money Market Fund, shall be calculated as
follows. If the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield will be the current yield quotation (as determined
in accordance with the appropriate calculation described above) divided by 1
minus a stated income tax rate or rates. If a portion of the current yield
quotation is not tax-exempt, the tax equivalent yield will be the sum of (a)
that portion of the yield which is tax-exempt divided by 1 minus a stated
income tax rate or rates and (b) the portion of the yield which is not
tax-exempt.
<TABLE>
<CAPTION>
Current Effective Compound
Annualized Yield Annualized Yield
----------------- --------------------
as of 8/31/95 as of 8/31/95
<S> <C> <C>
U. S. Government Money Market Fund
Vista Shares 5.02% 5.15%
Premier Shares 5.27% 5.41%
Institutional Shares 5.54% 5.69%
Prime Money Market Fund
B Shares 4.43% 4.53%
Premier Shares 5.46% 5.61%
Institutional Shares 5.63% 5.79%
Federal Money Market Fund
Vista Shares 5.12 5.25%
Premier Shares 5.32% 5.46%
Institutional Shares 5.50% 5.65%
Treasury Plus Money Market Fund
Premier Shares 5.20% 5.33%
Institutional Shares 5.38% 5.52%
100% U.S. Treasury Securities
Money Market Fund* as of 11/30/95 as of 11/30/95
Vista Shares 4.86% 4.98%
Premier Shares 4.86% 4.98%
Institutional Shares 4.86% 4.98%
Cash Management Fund*
Vista Shares 5.22% 5.36%
Premier Shares 5.22% 5.36%
Institutional Shares 5.22% 5.36%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Effective
Current Compound Annualized
Annualized Annualized Tax Equivalent
Yield Yield Yield**
------------ ------------ --------------
as of 8/31/95 as of 8/31/95 as of 8/31/95
<S> <C> <C> <C>
Tax Free Money Market Fund
Vista Shares 2.96% 3.01% 4.91%
Premier Shares 3.24% 3.30% 5.37%
Institutional Shares 3.52% 3.58% 5.83%
California Tax Free
Money Market Fund 3.12% 3.17% 5.80%
New York Tax Free
Money Market Fund 2.81% 2.85% 5.28%
</TABLE>
<TABLE>
<CAPTION>
Tax Equivalent
Thirty-Day Thirty-Day
Yield Yield**
------------ ----------------
as of 8/31/95 as of 8/31/95
<S> <C> <C>
Tax Free Income Fund:
Class A Shares 4.11% 6.80%
Class B Shares 3.56% 5.89%
New York Tax Free Income Fund:
Class A Shares 4.41% 8.29%
Class B Shares 3.87% 7.27%
California Intermediate Tax Free
Income Fund 4.63% 8.61%
</TABLE>
* Performance presented in the table for each class of these Funds is based
upon the performance of their respective predecessor funds (which had
fiscal years ending on November 30, 1995). PERFORMANCE PRESENTED FOR EACH
CLASS OF EACH OF THESE FUNDS IS BASED ON THE HISTORICAL EXPENSES AND
PERFORMANCE OF THE SINGLE CLASS OF SHARES OF ITS PREDECESSOR FUND AND DOES
NOT REFLECT THE CURRENT DISTRIBUTION, SERVICE AND/OR OTHER EXPENSES THAT
AN INVESTOR WOULD INCUR AS A HOLDER OF VISTA, PREMIER OR INSTITUTIONAL
SHARES OF SUCH FUND. Vista Shares of these Funds currently bear expenses
in excess of those borne by Premier Shares and Premier Shares currently
bear expenses in excess of those borne by Institutional Shares. If such
current expenses were reflected in the yields presented for these Funds,
the yields for Institutional Shares would exceed those presented for
Premier Shares and the yields for Premier Shares would exceed those
presented for Vista Shares.
** The tax equivalent yields assume a federal income tax rate of 39.6% for
the Tax Free Money Market Fund and Tax Free Income Fund, a combined New
York State, New York City and federal income tax rate of 46.80% for the
New York Tax Free Money Market Fund and New York Tax Free Income Fund and
a combined California State and federal income tax rate of 46.24% for the
California Tax Free Money Market Fund and California Intermediate Tax Free
Income Fund.
Non-Standardized Performance Results
The table below reflects the net change in the value of an assumed initial
investment of $10,000 in the following Funds (excluding the effects of any
applicable sales charges) for the period from the commencement date of
business for each such Fund (i.e., either September 8, 1987 for the Tax Free
Income and New York Tax Free Income Funds or July 16, 1993 for the California
Intermediate Tax Free Income Fund.) The values reflect an assumption that
capital gain distributions and income dividends, if any, have been invested
in additional shares of the same class. From time to time, the Funds may
provide these performance results in addition to the total rate of return
quotations required by the Securities and Exchange Commission. As discussed
more fully in the Prospectuses, neither these performance results, nor total
rate of return quotations, should be considered as representative of the
performance of the Funds in the future. These factors and the possible
differences in the methods used to calculate performance results and total
rates of return should be considered when comparing such performance results
and total rate of return quotations of the Funds with those published for
other investment companies and other investment vehicles.
23
<PAGE>
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of
Period Ended $10,000 Gains Reinvested Total
August 31, 1995 Investment Distribution Dividends Value
- -------------------------------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
The Tax Free Income Fund:
A Shares $11,850 $1,116 $7,541 $20,507
B Shares 9,424 125 827 10,376
The New York Tax Free Income Fund:
A Shares 11,470 1,477 6,838 19,785
B Shares 9,422 242 856 10,520
The California Intermediate Tax Free
Income Fund 9,687 126 1,164 10,977
</TABLE>
With the current maximum sales charge of 4.50% for Class A shares, and the
currently applicable CDSC for Class B shares for each period length,
reflected, the figures for the same periods would be as follows:
<TABLE>
<CAPTION>
Value of Value of
Initial Capital Value of
Period Ended $10,000 Gains Reinvested Total
August 31, 1995 Investment Distributions Dividends Value
- -------------------------------------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C>
The Tax Free Income Fund:
A Shares $11,317 $1,066 $7,202 $19,585
B Shares 9,047 125 827 9,999
The New York Tax Free Income Fund:
A Shares 10,954 1,410 6,531 18,895
B Shares 9,045 242 856 10,143
The California Intermediate Tax Free
Income Fund 9,251 120 1,112 10,483
</TABLE>
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Money Market Funds' portfolio securities are valued at their amortized
cost. Amortized cost valuation involves valuing an instrument at its cost and
thereafter accrediting discounts and amortizing premiums at a constant rate
to maturity. Pursuant to the rules of the Securities and Exchange Commission,
the Board of Trustees has established procedures to stabilize the net asset
value of each Money Market Fund at $1.00 per share. These procedures include
a review of the extent of any deviation of net asset value per share, based
on available market rates, from the $1.00 amortized cost price per share. If
fluctuating interest rates cause the market value of a Money Market Fund's
portfolio to approach a deviation of more than 1/2 of 1% from the value
determined on the basis of amortized cost, the Board of Trustees will
consider what action, if any, should be initiated. Such action may include
redemption of shares in kind (as described in greater detail below), selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations.
The Money Market Funds have established procedures designed to ensure that
their portfolio securities meet their high quality criteria.
Bonds and other fixed income securities (other than short-term
obligations) in a Fund's portfolio are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the
Board of Trustees. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques
that take into account appropriate factors such as institutional-size trading
in similar groups 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
24
<PAGE>
prices, since such valuations are believed to reflect more accurately the
fair value of such securities. Short- term obligations which mature in 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Futures and option contracts that are
traded on commodities or securities exchanges are normally valued at the
settlement price on the exchange on which they are traded. Portfolio
securities (other than short-term obligations) for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees.
Interest income on long-term obligations in an Income Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of
discount (the difference between acquisition price and stated redemption
price at maturity) and premiums (the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest and discount accrued less amortization of
premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Funds' Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectuses are not
available until a completed and signed account application has been received
by the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in Section 6 of the Account Application.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, a Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their
latest account application or other written request for services, including
purchasing, exchanging, or redeeming shares of such Fund and depositing and
withdrawing monies from the bank account specified in the Bank Account
Registration section of the shareholder's latest account application or as
otherwise properly specified to such Fund in writing.
Subject to compliance with applicable regulations, each Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio
securities (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the net asset
value for the shares being sold. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting
the securities to cash. The Trust has filed an election under Rule 18f-1
committing to pay in cash all redemptions by a shareholder of record up to
amounts specified by the rule (approximately $250,000).
Investors in Class A shares may qualify for reduced initial sales charges
by signing a statement of intention (the "Statement"). This enables the
investor to aggregate purchases of Class A shares in the Fund with purchases
of Class A shares of any other Fund in the Trust (or if a Fund has only one
class, shares of such Fund), excluding shares of any Vista money market fund,
during a 13-month period. The sales charge is based on the total amount to be
invested in Class A shares during the 13-month period. All Class A or other
qualifying shares of these funds currently owned by the investor will be
credited as purchases (at their current offering prices on the date the
Statement is signed) toward completion of the Statement. A 90-day back-dating
period can be used to include earlier purchases at the investor's cost. The
13-month period would then begin on the date of the first purchase during the
90-day period. No retroactive adjustment will be made if purchases exceed the
amount indicated in the Statement. A shareholder must notify the Transfer
Agent or Distributor whenever a purchase is being made pursuant to a
Statement.
Under the Exchange Privilege, shares may be exchanged for shares of
another fund only if shares of the fund exchanged into are registered in the
state where the exchange is to be made. Shares of a Fund
25
<PAGE>
may only be exchanged into another fund if the account registrations are
identical. With respect to exchanges from any Vista money market fund,
shareholders must have acquired their shares in such money market fund by
exchange from one of the Vista non-money market funds or the exchange will be
done at relative net asset value plus the appropriate sales charge. Any such
exchange may create a gain or loss to be recognized for federal income tax
purposes. Normally, shares of the fund to be acquired are purchased on the
redemption date, but such purchase may be delayed by either fund for up to
five business days if a fund determines that it would be disadvantaged by an
immediate transfer of the proceeds.
The contingent deferred sales charge for Class B shares will be waived for
certain exchanges and for redemptions in connection with a Fund's systematic
withdrawal plan, subject to the conditions described in the Prospectuses. In
addition, subject to confirmation of a shareholder's status, the contingent
deferred sales charge will be waived for: (i) a total or partial redemption
made within one year of the shareholder's death or initial qualification for
Social Security disability payments; (ii) a redemption in connection with a
Minimum Required Distribution form an IRA, Keogh or custodial account under
section 403(b) of the Internal Revenue Code or a mandatory distribution from
a qualified plan; (iii) redemptions made from an IRA, Keogh or custodial
account under section 403(b) of the Internal Revenue Code through an
established Systematic Redemption Plan; (iv) a redemption resulting from an
over-contribution to an IRA; and (v) an involuntary redemption of an account
balance under $500.
Class B shares automatically convert to Class A shares (and thus are then
subject to the lower expenses borne by Class A shares) after a period of time
specified below has elapsed since the date of purchase (the "CDSC Period"),
together with the pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares
attributable to the Class B shares then converting. The conversion of Class B
shares purchased on or after May 1, 1996, will be effected at the relative
net asset values per share of the two classes on the first business day of
the month following the eighth anniversary of the original purchase. The
conversion of Class B shares purchased prior to May 1, 1996, will be effected
at the relative net asset values per share of the two classes on the first
business day of the month following the seventh anniversary of the original
purchase. If any exchanges of Class B shares during the CDSC Period occurred,
the holding period for the shares exchanged will be counted toward the CDSC
Period. At the time of the conversion the net asset value per share of the
Class A shares may be higher or lower than the net asset value per share of
the Class B shares; as a result, depending on the relative net asset values
per share, a shareholder may receive fewer or more Class A shares than the
number of Class B shares converted.
A Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described
in the Prospectuses. A Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A
signature guarantee may be obtained from a bank, trust company, broker-dealer
or other member of a national securities exchange. Please note that a notary
public cannot provide a signature guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described
in the respective Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussions here and in each Fund's Prospectus are not intended as
substitutes for careful tax planning.
Qualification as a Regulated Investment Company
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
26
<PAGE>
gains over capital losses) that it distributes to shareholders, provided that
it distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement. Because
certain Funds invest all of their assets in Portfolios which will be
classified as partnerships for federal income tax purposes, such Funds will
be deemed to own a proportionate share of the income of the Portfolio into
which each contributes all of its assets for purposes of determining whether
such Funds satisfy the Distribution Requirement and the other requirements
necessary to qualify as a regulated investment company (e.g., Income
Requirement (hereinafter defined), etc.).
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive of
certain gains on designated hedging transactions that are offset by realized
or unrealized losses on offsetting positions) from the sale or other
disposition of stock, securities or foreign currencies (or options, futures
or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income
includes tax-exempt income. However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options
or futures thereon). Because of the Short-Short Gain Test, a Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent a Fund from
disposing of investments at a loss, since the recognition of a loss before
the expiration of the three-month holding period is disregarded for this
purpose. Interest (including original issue discount) received by a Fund at
maturity or upon the disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of the Short-Short Gain Test.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including a municipal obligation) purchased
by a Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
the market discount which accrued during the period of time the Fund held the
debt obligation.
Further, the Code also treats as ordinary income, a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property
by such Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning
of Section 1092 of the Code; (3) the transaction is one that was marketed or
sold to such Fund on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as
capital gain; or (4) 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
27
<PAGE>
to: (1) prior inclusions of ordinary income items from the conversion
transaction; and (2) the capitalized interest on acquisition indebtedness
under Code Section 263(g). Built-in losses will be preserved where a Fund has
a built-in loss with respect to property that becomes a part of a conversion
transaction. No authority exists that indicates that the converted character
of the income will not be passed to a Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if: (1) the asset
is used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset
so used, (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the
Fund grants a qualified covered call option (which, among other things, must
not be deep-in-the-money) with respect thereto); or (3) the asset is stock
and the Fund grants an in-the- money qualified covered call option with
respect thereto. However, for purposes of the Short-Short Gain Test, the
holding period of the asset disposed of may be reduced only in the case of
clause (1) above. In addition, a Fund may be required to defer the
recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option
written by a Fund will commence on the date it is written and end on the date
it lapses or the date a closing transaction is entered into. Accordingly, a
Fund may be limited in its ability to write options which expire within three
months and to enter into closing transactions at a gain within three months
of the writing of options.
Transactions that may be engaged in by certain of the Funds (such as
regulated futures contracts, certain foreign currency contracts, and options
on stock indexes and futures contracts) will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as
if they are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for the taxable year together with any other gain or loss
that was previously recognized upon the termination of Section 1256 contracts
during that taxable year. Any capital gain or loss for the taxable year with
respect to Section 1256 contracts (including any capital gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long- term capital gain or loss and 40% short-term capital
gain or loss. A Fund, however, may elect not to have this special tax
treatment apply to Section 1256 contracts that are part of a "mixed straddle"
with other investments of the Fund that are not Section 1256 contracts. The
Internal Revenue Service (the "IRS") has held in several private rulings that
gains arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) for any
taxable year, to elect (unless it has made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
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
28
<PAGE>
of other issuers (as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. Generally, an option (call or put) with respect
to a security is treated as issued by the issuer of the security not the
issuer of the option. However, with regard to forward currency contracts,
there does not appear to be any formal or informal authority which identifies
the issuer of such instrument. For purposes of asset diversification testing,
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government such as the Federal Agricultural Mortgage Corporation, the Farm
Credit System Financial Assistance Corporation, a Federal Home Loan Bank, the
Federal Home Loan Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government Securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election"))(Tax-exempt interest on municipal obligations is not subject to
the excise tax). The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar
year (and, instead, include such gains and losses in determining ordinary
taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end
of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the 70%
dividends-received deduction for corporate shareholders of a Fund. Dividends
paid on Class A and Class B shares are calculated at the same time. In
general, dividends on Class B shares are expected to be lower than those on
Class A shares due to the higher distribution expenses borne by the Class B
shares. Dividends may also differ between classes as a result of differences
in other class specific expenses.
29
<PAGE>
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result
that each shareholder will be required to report his pro rata share of such
gain on his tax return as long-term capital gain, will receive a refundable
tax credit for his pro rata share of tax paid by the Fund on the gain, and
will increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Each Tax Free Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Tax Free
Fund's taxable year at least 50% of the its total assets consists of
tax-exempt municipal obligations. Distributions from a Tax Free Fund will
constitute exempt-interest dividends to the extent of its tax-exempt interest
income (net of expenses and amortized bond premium). Exempt-interest
dividends distributed to shareholders of a Tax Free Fund are excluded from
gross income for federal income tax purposes. However, shareholders required
to file a federal income tax return will be required to report the receipt of
exempt-interest dividends on their returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes,
they may be subject to alternative minimum tax ("AMT") in certain
circumstances and may have other collateral tax consequences as discussed
below. Distributions by a Tax Free Fund of any investment company taxable
income or of any net capital gain will be taxable to shareholders as
discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for
noncorporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act
of 1986, a tax is imposed for taxable years beginning after 1986 and before
1996 at the rate of 0.12% on the excess of a corporate taxpayer's AMTI
(determined without regard to the deduction for this tax and the AMT net
operating loss deduction) over $2 million. Exempt- interest dividends derived
from certain "private activity" municipal obligations issued after August 7,
1986 will generally constitute an item of tax preference includable in AMTI
for both corporate and noncorporate taxpayers. In addition, exempt-interest
dividends derived from all municipal obligations, regardless of the date of
issue, must be included in adjusted current earnings, which are used in
computing an additional corporate preference item (i.e., 75% of the excess of
a corporate taxpayer's adjusted current earnings over its AMTI (determined
without regard to this item and the AMT net operating loss deduction))
includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must
be included in an individual shareholder's gross income and subject to
federal income tax. Further, a shareholder of a Tax Free Fund is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Fund. Moreover, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds
held by a Tax Free Fund will likely be subject to tax on dividends paid by
the Tax Free Fund which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade
or business in the United States. Prospective investors should consult their
own tax advisers as to such consequences.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with
30
<PAGE>
many foreign countries which entitle any such Fund to a reduced rate of, or
exemption from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of any such Fund's
assets to be invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a
return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of
his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31
of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the
year.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all,
(2) who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient."
Sale or Redemption of Shares
Each Money Market Fund seeks to maintain a stable net asset value of $1.00
per share; however, there can be no assurance that a Money Market Fund will
do this. In such a case and any case involving the Income Funds, a
shareholder will recognize gain or loss on the sale or redemption of shares
of a Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated
as arising from) the sale or redemption of shares of a Fund will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less
will be disallowed to the extent of the amount of exempt-interest dividends
received on such shares and (to the extent not disallowed) will be treated as
a long-term capital loss to 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.
31
<PAGE>
If a shareholder (1) incurs a sales load in acquiring shares of a Fund,
(2) disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales
load on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
Although the Funds generally retains the right to pay the redemption price
of shares in kind with securities (instead of cash) the Trust has filed an
election under Rule 18f-1 of the Investment Company Act of 1940, as amended
(the "1940 Act"), committing to pay in cash all redemptions by a shareholder
of record up to the amounts specified in the rule (approximately $250,000).
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Such a foreign shareholder would generally be exempt from U.S. federal income
tax on gains realized on the sale of shares of the Fund, capital gain
dividends and exempt-interest dividends and amounts retained by the Fund that
are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that
are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
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.
32
<PAGE>
MANAGEMENT OF THE TRUST AND THE FUNDS
Trustees and Officers
The Trustees and of the Trust officers and their principal occupations for
at least the past five years are set forth below. Their titles may have
varied during that period.
Fergus Reid, III--Chairman of the Trust. Chairman and Chief Executive
Officer, Lumelite Corporation, since September 1985; Trustee, Morgan Stanley
Funds. Age: 63. Address: 202 June Road, Stamford, CT 06903.
Richard E. Ten Haken--Trustee; Chairman of the Audit Committee. Formerly
District Superintendent of Schools, Monroe No. 2 and Orleans Counties, New
York; Chairman of the Board and President, New York State Teachers'
Retirement System. Age: 61. Address: 4 Barnfield Road, Pittsford, NY 14534.
William J. Armstrong--Trustee. Vice President and Treasurer,
Ingersoll-Rand Company (Woodcliff Lake, New Jersey). Age: 54. Address: 49
Aspen Way, Upper Saddle River, NJ 07458.
John R.H. Blum--Trustee. Attorney in private practice; formerly a Partner
in the law firm of Richards, O'Neil & Allegaert; Commissioner of
Agriculture--State of Connecticut, 1992-1995. Age: 66. Address: 322 Main
Street, Lakeville,CT 06039.
Joseph J. Harkins--Trustee. Retired; Commercial Sector Executive and
Executive Vice President of The Chase Manhattan Bank, N.A. from 1985 through
1989. He has been employed by Chase in numerous capacities and offices since
1954. Director of Blessings Corporation, Jefferson Insurance Company of New
York, Monticello Insurance Company and Nationar. Age: 64. Address: 257
Plantation Circle South, Ponte Vedra Beach, FL 32082.
*H. Richard Vartabedian--Trustee and President of the Trust. Consultant,
Republic Bank of New York; formerly, Senior Investment Officer, Division
Executive of the Investment Management Division of The Chase Manhattan Bank,
N.A., 1980-1991. Age: 60. Address: P.O. Box 296, Beach Road, Hendrick's Head,
Southport, ME 04576.
Stuart W. Cragin, Jr.--Trustee. Retired; formerly President, Fairfield
Testing Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Age: 63. Address: 108 Valley
Road, Cos Cob, CT 06807.
Irving L. Thode--Trustee. Retired; formerly Vice President of Quotron
Systems. He has previously served in a number of executive positions with
Control Data Corp., including President of its Latin American Operations, and
General Manager of its Data Services business. Age: 64. Address: 80 Perkins
Road, Greenwich, CT 06830.
*W. Perry Neff--Trustee. Independent Financial Consultant; Director of
North America Life Assurance Co., Petroleum & Resources Corp. and The Adams
Express Co.; Director and Chairman of The Hanover Funds, Inc.; Director,
Chairman and President of The Hanover Investment Funds, Inc. Age: 68.
Address: RR 1 Box 102, Weston, VT 05181.
Roland R. Eppley, Jr.--Trustee. Retired; formerly President and Chief
Executive Officer, Eastern States Bankcard Association Inc. (1971-1988);
Director, Janel Hydraulics, Inc.; Director of The Hanover Funds, Inc. Age:
63. Address: 105 Coventry Place, Palm Beach Gardens, FL 33418.
33
<PAGE>
W.D. MacCallan--Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer
of The Adams Express Co. and Petroleum & Resources Corp.; Director of The
Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Age: 68. Address:
624 East 45th Street, Savannah, GA 31405.
Martin R. Dean--Treasurer and Assistant Secretary. Associate Director,
Accounting Services, BISYS Fund Services; formerly Senior Manager, KPMG Peat
Marwick (1987-1994). Age:32. Address: 3435 Stelzer Road, Columbus, OH 43219.
Ann E. Bergin--Secretary. First Vice President, BISYS Fund Services, Inc.;
formerly, Senior Vice President, Administration, Concord Financial Group
(1991-1995); Assistant Vice President, Dreyfus Service Corporation
(1982-1991). Age: 35. Address: 125 West 55th Street, New York, NY 10019.
- ---------------
*Asterisks indicate those Trustees that are "interested persons" (as defined
in the 1940 Act). Mr. Reid is not an interested person of the Trust's
investment advisers or principal underwriter, but may be deemed an interested
person of the Trust solely by reason of being an officer of the Trust.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Blum,
Cragin, Thode, Armstrong, Harkins, Reid and Vartabedian. The function of the
Audit Committee is to recommend independent auditors and monitor accounting
and financial matters. The Audit Committee met two times during the fiscal
period ended August 31, 1995.
The Board of Trustees of the Trust has established an Investment
Committee. The members of the Investment Committee are Messrs. Vartabedian
(Chairman) and Reid, as well as Leonard M. Spalding, President of Vista
Capital Management. The function of the Investment Committee is to review the
investment management process of the Trust.
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisers is compensated for his or her services according to
a fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the advisers. Each Trustee
receives a fee, allocated among all investment companies for which the
Trustee serves, which consists of an annual retainer component and a meeting
fee component. Effective August 21, 1995, each Trustee of the Vista Funds
receives a quarterly retainer of $12,000 and an additional per meeting fee of
$1,500. Members of committees receive a meeting fee only if the committee
meeting is held on a day other than a day on which a regularly scheduled
meeting is held. Prior to August 21, 1995, the annual retainer was $36,000
and the per-meeting fee was $1,000. The Chairman of the Trustees and the
Chairman of the Investment Committee each receive a 50% increment over
regular Trustee total compensation for serving in such capacities for all the
investment companies advised by the adviser.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended August 31, 1995 for each Trustee of the Trust:
34
<PAGE>
<TABLE>
<CAPTION>
U.S. New York California
Government Tax Free Prime Tax Free Tax Free
Money Cash Money Money Money Money
Market Management Market Market Market Market
Fund Fund Fund Fund Fund Fund
--------- --------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fergus Reid, III, $12,789.94 $10,079.61 $4,097.69 $2,974.65 $3,453.60 $531.54
Trustee
Richard E. Ten Haken, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
William J. Armstrong, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
John R.H. Blum, 8,306.57 6,575.89 2,687.12 1,948.80 2,303.73 347.07
Trustee
Joseph J. Harkins, 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Trustee
H. Richard 8,526.62 6,713.78 2,731.79 1,983.08 2,362.41 354.38
Vartabedian, Trustee
Stuart W. Cragin, 8,536.29 6,521.36 2,655.31 1,942.65 2,302.01 344.80
Jr., Trustee
Irving L. Thode, 8,536.29 6,521.36 2,655.31 1,942.65 2,302.01 344.80
Trustee
W. Perry Neff, Trustee 0 0 0 0 0 0
Roland R. Eppley, Jr., 0 0 0 0 0 0
Trustee
W.D. MacCallan, 0 0 0 0 0 0
Trustee
</TABLE>
<TABLE>
<CAPTION>
Treasury California
Federal Plus New York Tax Intermediate
Money Money Tax Free Free Tax Free
Market Maket Income Income Income
Fund Fund Fund Fund Fund
---------- --------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C>
Fergus Reid, III, $3,377.47 $489.54 $1,052.32 $971.82 $314.23
Trustee
Richard E. Ten 2,251.63 326.37 701.55 647.85 209.49
Haken, Trustee
William J. 2,251.63 326.37 701.55 647.85 209.49
Armstrong, Trustee
John R.H. Blum, 2,187.37 323.30 685.48 633.77 204.80
Trustee
Joseph J. Harkins, 2,251.63 326.37 701.55 647.85 209.49
Trustee
H. Richard 2,251.63 326.37 701.55 647.85 209.49
Vartabedian, Trustee
Stuart W. Cragin, Jr. 2,243.38 323.47 683.69 629.99 209.49
Trustee
Irving L. Thode, 2,243.38 323.47 683.69 629.99 209.49
Trustee
W. Perry Neff, 0 0 0 0 0
Trustee
Roland R. Eppley, Jr. 0 0 0 0 0
Trustee
W.D. MacCallan, 0 0 0 0 0
Trustee
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued from
as Fund "Fund Complex"
Expenses (1)
------------- --------------
<S> <C> <C>
Fergus Reid, III, Trustee 0 $78,456.65
Richard E. Ten Haken, Trustee 0 52,304.39
William J. Armstront, Trustee 0 52,304.39
John R.H. Blum, Trustee 0 51,304.37
Joseph J. Harkins, Trustee 0 52,304.39
H. Richard Vartabedian, Trustee 0 74,804.44
Stuart W. Cragin, Jr., Trustee 0 52,304.39
Irving L. Thode, Trustee 0 52,304.39
W. Perry Neff, Trustee 0 0
Roland R. Eppley, Jr., Trustee 0 0
W.D. MacCallan, Trustee 0 0
</TABLE>
- ---------------
(1) Data reflects total compensation earned during the period January 1, 1995
to December 31, 1995 for service as a Trustee to all Funds advised by the
adviser.
Vista Funds Retirement Plan for Eligible Trustees
Effective August 21, 1995, the Trustees also instituted a Retirement Plan
for Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not
an employee of any of the Funds, the advisers, administrator or distributor
or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board of Trustees. Pursuant to the Plan, the normal
retirement date is the date on which the eligible Trustee has attained age 65
and has completed at least five years of continuous service with one or more
of the investment companies advised by the adviser or sub-adviser
(collectively, the "Covered Funds"). Each Eligible Trustee is entitled to
receive from the Covered Funds an annual benefit commencing on the first day
of the calendar quarter coincident with or following his date of retirement
equal to 10% of the highest annual compensation received from the Covered
Funds multiplied by the number of such Trustee's years of service (not in
excess of 10 years) completed with respect to any of the Covered Funds. Such
benefit is payable to each eligible Trustee in monthly installments for the
life of the Trustee.
Set forth below in the table are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service for
Messrs. Reid, Ten Haken, Armstrong, Blum, Harkins, Vartabedian, Cragin, and
Thode are 11, 11, 8, 11, 5, 3, 3 and 3 respectively.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by All Vista Funds
-----------------------------------------------------
$40,000 $45,000 $50,000 $55,000
Years of
Service Estimated Annual Benefits Upon Retirement
- --------- -----------------------------------------------------
<S> <C> <C> <C> <C>
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 advisers,
administrator or distributor or any of their affiliates) may enter into
agreements with the
36
<PAGE>
Funds whereby payment of the Trustee's fees are deferred until the payment
date elected by the Trustee (or the Trustee's termination of service). The
deferred amounts are invested in shares of Vista funds selected by the
Trustee. The deferred amounts are paid out in a lump sum or over a period of
several years as elected by the Trustee at the time of deferral. If a
deferring Trustee dies prior to the distribution of amounts held in the
deferral account, the balance of the deferral account will be distributed to
the Trustee's designated beneficiary in a single lump sum payment as soon as
practicable after such deferring Trustee's death.
Messrs. Ten Haken, Thode and Vartabedian have each executed a deferred
compensation agreement for the 1996 calendar year and as of March 29, 1996
they had contributed $4,700, $9,500 and $14,250, respectively.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
the Trust, unless, as to liability to the Trust or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their
offices or with respect to any matter unless it is finally adjudicated that
they did not act in good faith in the reasonable belief that their actions
were in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court
or other body approving the settlement or other disposition, or by a
reasonable determination based upon a review of readily available facts, by
vote of a majority of disinterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
As of April 15, 1996, the Trustees and officers as a group owned less than
1% of each Fund's outstanding shares, all of which were acquired for
investment purposes. For the fiscal year ended August 31, 1995, the Trust
paid to its disinterested Trustees fees and expenses for all meetings of the
Board and any committees attended in the aggregate amount of approximately
$250,682 which amount is then apportioned between the Funds comprising the
Trust.
Adviser and Sub-Advisers
Chase acts as investment adviser to the Funds pursuant to an Investment
Advisory Agreement, dated as of May 6, 1996 (the "Advisory Agreement").
Subject to such policies as the Board of Trustees may determine, Chase is
responsible for investment decisions for the Funds. Pursuant to the terms of
the Advisory Agreement, Chase provides the Funds with such investment advice
and supervision as it deems necessary for the proper supervision of the
Funds' investments. The advisers continuously provide investment programs and
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the Funds' assets shall be held uninvested. The
advisers to the Funds furnish, at their own expense, all services, facilities
and personnel necessary in connection with managing the investments and
effecting portfolio transactions for the Funds. The Advisory Agreement for
the Funds will continue in effect from year to year only if such continuance
is specifically approved at least annually by the Board of Trustees or by
vote of a majority of a Fund's outstanding voting securities and by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Under the Advisory Agreement, the adviser may utilize the specialized
portfolio skills of all its various affiliates, thereby providing the Funds
with greater opportunities and flexibility in accessing investment expertise.
Pursuant to the terms of the Advisory Agreement and the sub-advisers'
agreements with the adviser, the adviser and sub-advisers are permitted to
render services to others. Each advisory agreement is terminable without
penalty by the Trust on behalf of the Funds on not more than 60 days', nor
less than 30 days', written notice when authorized either by a majority vote
of a Fund's shareholders or by a vote of a majority
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of the Board of Trustees of the Trust, or by the adviser or sub-adviser on
not more than 60 days', nor less than 30 days', written notice, and will
automatically terminate in the event of its "assignment" (as defined in the
1940 Act). The advisory agreements provide that the adviser or sub-adviser
under such agreement shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or
omission in the execution of portfolio transactions for the respective Fund,
except for wilful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties thereunder.
In the event the operating expenses of the Funds, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to the Funds imposed by the securities laws or
regulations thereunder of any state in which the shares of the Funds are
qualified for sale, as such limitations may be raised or lowered from time to
time, the adviser shall reduce its advisory fee (which fee is described
below) to the extent of its share of such excess expenses. The amount of any
such reduction to be borne by the adviser shall be deducted from the monthly
advisory fee otherwise payable with respect to the Funds during such fiscal
year; and if such amounts should exceed the monthly fee, the adviser shall
pay to a Fund its share of such excess expenses no later than the last day of
the first month of the next succeeding fiscal year.
Under the Advisory Agreement, Chase may delegate a portion of its
responsibilities to a sub-adviser. In addition, the Advisory Agreement
provides that Chase may render services through its own employees or the
employees of one or more affiliated companies that are qualified to act as an
investment adviser of the Fund and are under the common control of Chase as
long as all such persons are functioning as part of an organized group of
persons, managed by authorized officers of Chase.
Chase, on behalf of the Funds (other than the Cash Management Fund and the
Tax Free Money Market Fund), has entered into an investment sub-advisory
agreement dated as of May 6, 1996 with Chase Asset Management, Inc. ("CAM").
Texas Commerce Bank, National Association ("TCB") is the sub-investment
adviser to the Cash Management Fund and the Tax Free Money Market Fund
pursuant to a separate sub- investment advisory agreement between Chase and
TCB dated as of May 6, 1996. With respect to the day- to-day management of
the Funds, under the sub-advisory agreements, the sub-advisers make decisions
concerning, and place all orders for, purchases and sales of securities and
help maintain the records relating to such purchases and sales. The
sub-advisers may, in their discretion, provide such services through their
own employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser to the Company under applicable
laws and are under the common control of Chase; provided that (i) all
persons, when providing services under the sub-advisory agreement, are
functioning as part of an organized group of persons, and (ii) such organized
group of persons is managed at all times by authorized officers of the
sub-adviser. This arrangement will not result in the payment of additional
fees by the Funds.
Chase, a wholly-owned subsidiary of The Chase Manhattan Corporation, a
registered bank holding company, is a commercial bank offering a wide range
of banking and investment services to customers throughout the United States
and around the world. The Chase Manhattan Corporation is the entity resulting
from the merger of The Chase Manhattan Corporation into Chemical Banking
Corporation on March 31, 1996. Chemical Banking Corporation was thereupon
renamed The Chase Manhattan Corporation. Also included among the Chase
accounts are commingled trust funds and a broad spectrum of individual trust
and investment management portfolios. These accounts have varying investment
objectives.
CAM is a wholly-owned operating subsidiary of the Adviser. CAM is
registered with the Securities and Exchange Commission as an investment
adviser and was formed for the purpose of providing discretionary investment
advisory services to institutional clients and to consolidate Chase's
investment management function, and the same individuals who serve as
portfolio managers for CAM also serve as portfolio managers for Chase.
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TCB has been in the investment counselling business since 1987 and is
ultimately controlled and owned by Chase Manhattan Corporation. TCB renders
investment advice to a wide variety of corporations, pension plans, foundations,
trusts and individuals.
In consideration of the services provided by the adviser pursuant to the
Advisory Agreement, the adviser is entitled to receive from each Fund an
investment advisory fee computed daily and paid monthly based on a rate equal
to a percentage of such Fund's average daily net assets specified in the
relevant Prospectuses. However, the adviser may voluntarily agree to waive a
portion of the fees payable to it on a month- to-month basis. For its
services under its sub-advisory agreement, CAM (or TCB in the case of the
Cash Management Fund and the Tax Free Money Market Fund) will be entitled to
receive with respect to each such Fund, such compensation, payable by the
adviser out of its advisory fee, as is described in the relevent
Prospectuses.
For the fiscal years ended October 31, 1993, the period from November 1,
1993 through August 31, 1994, and the year ended August 31, 1995, Chase was
paid or accrued the following investment advisory fees with respect to the
following Funds, and voluntarily waived the amounts in parentheses following
such fees with respect to each such period:
Tax Free Money Market Fund: $486,073 ($17,981), $371,535, and $440,282,
respectively;
New York Tax Free Money Market Fund: $454,872 ($22,825), $279,493 and
$381,647 respectively;
Tax Free Income Fund: $127,952 ($127,952), $252,244 ($219,741) and
$307,093 ($287,095) respectively;
New York Tax Free Income Fund: $267,793 ($118,398), $288,134 ($172,770)
and $333,493 ($219,772), respectively.
For the period April 18, 1994 through August 31, 1994, Chase was paid or
accrued investment advisory fees, and voluntarily waived the amounts in
parentheses, $32,325 ($31,465) and $6,249 ($5,890) for the Federal Money
Market Fund, the Treasury Plus Money Market Fund, respectively. For the year
ended August 31, 1995, Chase was paid or accrued advisory fees, and
voluntarily waived the amounts in parentheses, $389,075 ($118,975) and
$22,663 for the Federal Money Market Fund and the Treasury Money Market Fund,
respectively.
For the period November 15, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees,
and voluntarily waived the amounts in parentheses, $234,255 ($76,970) and
$352,679 ($216,306), respectively, for the Prime Money Market Fund.
For the period October 31, 1993 through August 31, 1994, and for the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees,
and voluntarily waived the amounts in parentheses, $100,182 ($100,182) and
$102,004 ($102,004) for the California Intermediate Tax Free Income Fund.
For the fiscal period ended October 31, 1992, 1993, and the period from
November 1, 1993 through August 31, 1994, Chase was paid or accrued
investment advisory fees with respect to the California Tax Free Money Market
Fund and voluntarily waived the amount in parentheses following such fees:
$22,640 ($22,640), $74,175 ($67,313) and $47,854 ($43,069). For the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees,
and voluntarily waived the amounts in parentheses $55,870 ($44,112) for the
California Tax Free Money Market Fund.
For the period November 1, 1993 through August 31, 1994, and for the year
ended August 31, 1995, Chase was paid or accrued investment advisory fees
with respect to the U.S. Government Money Market Fund: of $887,334 and
$1,440,186, respectively.
39
<PAGE>
Administrator
Pursuant to an Administration Agreement (the "Administration Agreement"),
Chase serves as administrator of the Funds. Chase provides certain
administrative services to the Funds, including, among other
responsibilities, coordinating the negotiation of contracts and fees with,
and the monitoring of performance and billing of, the Funds' 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 Funds and providing, at its
own expense, office facilities, equipment and personnel necessary to carry
out its duties. Chase in its capacity as administrator does not have any
responsibility or authority for the management of the Funds, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
Under the Administration Agreement Chase is permitted to render
administrative services to others. The Administration Agreement 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 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, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust, or by Chase on 60 days' written notice, and will
automatically terminate in the event of its "assignment" (as defined in the
1940 Act). The Administration Agreement also provides that neither Chase nor
its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration of the Funds, 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 Agreement.
In addition, the Administration Agreement provides 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 years; 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 Agreement, Chase receives from each Fund a fee computed daily
and paid monthly at an annual rate equal to 0.10% of each of the Fund's
average daily net assets, on an annualized basis for the Fund's then-current
fiscal year. Chase may voluntarily waive a portion of the fees payable to it
with respect to each Fund on a month-to-month basis.
For the fiscal years ended October 31, 1992 and 1993, and the period from
November 1, 1993 through August 31, 1994, and the year ended August 31, 1995,
Chase was paid or accrued the following administration fees and voluntarily
waived the amounts in parentheses following such fees:
U.S. Government Money Market Fund: $564,610 ($24,783), $1,040,090,
$443,694 and $720,093; Tax Free Money Market Fund: $197,227 ($30,601),
$324,048 ($22,244), $185,769 and $220,141;
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<PAGE>
New York Tax Free Money Market Fund: $277,855 ($24,360), $303,249
($15,216), $139,747 and $190,823;
Tax Free Income Fund: $9,919 ($9,919), $42,651 ($42,651), $84,082
($68,719) and $102,364 ($64,572);
New York Tax Free Income Fund: $34,704 ($24,262), $89,264 ($39,466),
$96,046 ($61,425) and $111,164 ($81,265);
For the period November 15, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued administration fees, and
voluntarily waived the amounts in parentheses, $117,129 ($18,992) and
$176,340 ($88,982), respectively for the Prime Money Market Fund.
For the period April 18, 1994 through August 31, 1994, and the year ended
August 31, 1995, Chase was paid or accrued administration fees, and
voluntarily waived the amounts in parentheses, $16,161 ($3,123), $194,538
(61,243) for the Federal Money Market Fund and $3,123 ($2,944),
$11,331($11,331) for the Treasury Plus Money Market Fund, respectively.
For the fiscal period ended October 31, 1992, 1993, and the period from
November 1, 1993 through August 31, 1994, and the year ended August 31, 1995,
Chase was paid or accrued the following administration fees with respect to
the California Tax Free Money Market Fund and voluntarily waived the amounts
in parentheses: $15,094 ($15,094), $49,449 ($44,875), $23,926 ($19,141), and
$27,935 ($21,527), respectively.
For the period November 1, 1993 through August 31, 1994, and the year
ended August 31, 1995, Chase was paid or accrued administration fees, and
voluntarily waived the amounts in parentheses $33,394 ($33,394) and $34,001
($34,001) for the California Intermediate Tax Free Income Fund, respectively.
Distribution Plans
The Trust has adopted separate plans of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") including Distribution Plans
on behalf of the Class A and Class B shares of the Tax Free Income Fund and
the New York Tax Free Income Fund, the Class B shares of the Prime Money
Market Fund, the shares of the California Intermediate Tax Free Income Fund,
the Vista Shares of the Money Market Funds (except the Cash Management Fund),
and the Premier Shares of the U.S. Government Money Market Fund, which
provides that each of such classes of such Funds shall pay for distribution
services a distribution fee (the "Distribution Fee"), including payments to
the Distributor, at annual rates not to exceed the amounts set forth in their
respective Prospectuses. There is no distribution plan for the Cash
Management Fund. The Distributor may use all or any portion of such
Distribution Fee to pay for Fund expenses of printing prospectuses and
reports used for sales purposes, expenses of the preparation and printing of
sales literature and other such distribution-related expenses.
Class B shares pay a Distribution Fee of up to 0.75% of average daily net
assets. The Distributor currently expects to pay sales commissions to a
dealer at the time of sale of Class B shares of the Income Funds of up to
4.00% of the purchase price of the shares sold by such dealer. The
Distributor will use its own funds (which may be borrowed or otherwise
financed) to pay such amounts. Because the Distributor will receive a maximum
Distribution Fee of 0.75% of average daily net assets with respect to Class B
shares, it will take the Distributor several years to recoup the sales
commissions paid to dealers and other sales expenses.
No class of shares of a Fund will make payments or be liable for any
distribution expenses incurred by other classes of shares of such Fund.
The Institutional Shares of the Money Market Funds have no distribution
plan. There is no distribution plan for Premier Shares for any Money Market
Fund other than the U.S. Government Money Market Fund.
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<PAGE>
Some payments under the Distribution Plans may be used to compensate
broker-dealers with trail or maintenance commissions in an amount not to
exceed 0.25% annualized of the average net asset value of Class A shares,
0.25% annualized of the average net asset value of the Class B shares, or
0.25% annualized of the average daily net asset value of the shares of the
California Intermediate Tax Free Income Fund maintained in a Fund by such
broker-dealers' customers. Trail or maintenance commissions will be paid to
broker-dealers beginning the 13th month following the purchase of such
shares. Since the distribution fees are not directly tied to expenses, the
amount of distribution fees paid by a class of a Fund during any year may be
more or less than actual expenses incurred pursuant to the Distribution
Plans. For this reason, this type of distribution fee arrangement is
characterized by the staff of the Securities and Exchange Commission as being
of the "compensation variety" (in contrast to "reimbursement" arrangements by
which a distributor's payments are directly linked to its expenses). With
respect to Class B shares of the Income Funds, because of the 0.75% annual
limitation on the compensation paid to the Distributor during a fiscal year,
compensation relating to a large portion of the commissions attributable to
sales of Class B shares in any one year will be accrued and paid by a Fund to
the Distributor in fiscal years subsequent thereto. However, the Shares are
not liable for any distribution expenses incurred in excess of the
Distribution Fee paid. In determining whether to purchase Class B shares of
the Income Funds, investors should consider that compensation payments could
continue until the Distributor has been fully reimbursed for the commissions
paid on sales of Class B shares.
Each class of shares is entitled to exclusive voting rights with respect
to matters concerning its Distribution Plan.
Each Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually
by a vote of both a majority of the Trustees and a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreement related to such Plan ("Qualified
Trustees"). The continuance of each Distribution Plan was most recently
approved on October 13, 1995. Each Distribution Plan requires that the Trust
shall provide to the Board of Trustees, and the Board of Trustees shall
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. Each Distribution Plan
further provides that the selection and nomination of Qualified Trustees
shall be committed to the discretion of the disinterested Trustees (as
defined in the 1940 Act) then in office. Each Distribution Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or,
with respect to a particular Fund, by vote of a majority of the outstanding
voting Shares of the class of such Fund to which it applies (as defined in
the 1940 Act). Each Distribution Plan may not be amended to increase
materially the amount of permitted expenses thereunder without the approval
of shareholders and may not be materially amended in any case without a vote
of the majority of both the Trustees and the Qualified Trustees. Each of the
Funds will preserve copies of any plan, agreement or report made pursuant to
a Distribution Plan for a period of not less than six years from the date of
the Distribution Plan, and for the first two years such copies will be
preserved in an easily accessible place.
For the fiscal year ended August 31, 1995, the Distributor was paid or
accrued the following Basic Distribution Fees and voluntarily waived the
amounts in parenthesis following such fees with respect to the Shares of each
Fund:
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);
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<PAGE>
California Tax Free Money Market Fund: $139,675 ($69,435);
Tax Free Income Fund--A Shares: $223,990 ($44,798);
Tax Free Income Fund--B Shares: $95,763;
New York Tax Free Income Fund--A Shares: $256,481 ($51,296);
New York Tax Free Income Fund--B Shares: $64,290;
California Intermediate Fund:$85,003 ($78,626);
With respect to the Vista Shares of the New York Tax Free Money Market
Fund, the Basic Distribution Fee of $429,953 accrued or paid to the
Distributor was allocated as follows: printing postage and handling--
$91,967; sales compensation--$263,561; advertising and administrative
filings--$74,339;
With respect to the Vista Shares of the Tax Free Money Market Fund, the
Basic Distribution Fee of $2,155 accrued or paid to the Distributor was
allocated as follows: printing postage and handling--$461; sales
compensation--$1,321; advertising & administrative filings--$373;
With respect to the Vista Shares of the Federal Money Market Fund, the
Basic Distribution Fee of $133,561 accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $28,569; sales
compensation--$81,873; advertising & administrative filings--$23,093;
With respect to the Shares of the California Tax Free Money Market Fund,
the Basic Distribution Fee of $70,240 accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $15,024; sales
compensation--$43,057; advertising & administrative filings--$12,144;
With respect to the A Shares of the Tax Free Income Fund, the Basic
Distribution Fee of $179,192 accrued or paid to the Distributor was allocated
as follows: printing postage and handling--$38,329; sales
compensation--$109,845; advertising & administrative filings--$30,982;
With respect to the A Shares of the New York Tax Free Income Fund, the
Basic Distribution Fee of $205,185; accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $43,889; sales
compensation--$125,778; advertising & administrative filings--$35,476;
With respect to Shares of the California Intermediate Tax Free Income
Fund, the Basic Distribution Fee of $6,377 accrued or paid to the Distributor
was allocated as follows: printing postage and handling-- $1,364; sales
compensation--$3,909; advertising & administrative filings--$1,103;
With respect to the Vista Shares of the U.S. Government Money Market Fund,
the Basic Distribution Fee of $326,670 accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $69,875; sales
compensation--$200,249; advertising & administrative filings--$56,481.
With respect to the B Shares of the Tax Free Income Fund, the Basic
Distribution Fee of $95,763 accrued or paid to the Distributor was allocated
as follows: printing postage and handling--$20,484; sales
compensation--$58,703; advertising & administrative filings--$16,557;
With respect to the B Shares of the New York Tax Free Income Fund, the
Basic Distribution Fee of $649,290 accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $13,752; sales
compensation--$39,410; advertising & administrative filings--$11,116;
With respect to the B Shares of the Prime Money Market Fund, the Basic
Distribution Fee of $30,239 accrued or paid to the Distributor was allocated
as follows: printing postage and handling--$6,468; sales
compensation--$18,537; advertising & administrative filings--$30,239;
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<PAGE>
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 $172,388 accrued or paid to the Distributor was
allocated as follows: printing postage and handling-- $36,874; sales
compensation--$105,674; advertising & administrative filings--$29,806
With respect to the Premier Shares of the U.S. Government Money Market
Fund, the Basic Distribution Fee of $684,952 accrued or paid to the
Distributor was allocated as follows: printing postage and handling--
$146,461; sales compensation--$419,730; advertising & administrative
filings--$118,387
Distribution and Sub-Administration Agreement
The Trust has entered into a Distribution and Sub-Administration Agreement
dated August 24, 1995 (prior to such date, the Distributor served the Trust
pursuant to a contract dated August 23, 1994 (April 15, 1994 with respect to
the Treasury Plus Money Market Fund and Federal Money Market Fund)) (the
"Distribution Agreement") with the Distributor, pursuant to which the
Distributor acts as the Funds' exclusive underwriter, provides certain
administration services and promotes and arranges for the sale of each class
of Shares. The Distributor is a wholly-owned subsidiary of BISYS Fund
Services, Inc. The Distribution Agreement provides that the Distributor will
bear the expenses of printing, distributing and filing prospectuses and
statements of additional information and reports used for sales purposes, and
of preparing and printing sales literature and advertisements not paid for by
the Distribution Plans. The Trust pays for all of the expenses for
qualification of the shares of each Fund for sale in connection with the
public offering of such shares, and all legal expenses in connection
therewith. In addition, pursuant to the Distribution Agreement, the
Distributor provides certain sub-administration services to the Trust,
including providing officers, clerical staff and office space.
The Distribution Agreement is currently in effect and will continue in
effect with respect to each Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of such Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf
of each Fund on 60 days' written notice when authorized either by a majority
vote of such Fund's shareholders or by vote of a majority of the Board of
Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, or by the
Distributor on 60 days' written notice, and will automatically terminate in
the event of its "assignment" (as defined in the 1940 Act). The Distribution
Agreement also provides that neither the Distributor nor its personnel shall
be liable for any act or omission in the course of, or connected with,
rendering services under the Distribution Agreement, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties.
In the event the operating expenses of any Fund, including all investment
advisory, administration and sub-administration fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to that Fund imposed by the securities laws or
regulations thereunder of any state in which the shares of such Fund are
qualified for sale, as such limitations may be raised or lowered from time to
time, the Distributor shall reduce its sub-administration 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
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<PAGE>
the monthly sub-administration fee otherwise payable with respect to such
Fund during such fiscal year; and if such amounts should exceed the monthly
fee, the Distributor shall pay to such Fund its share of such excess expenses
no later than the last day of the first month of the next succeeding fiscal
year.
In consideration of the sub-administration services provided by the
Distributor pursuant to the Distribution Agreement, the Distributor receives
an annual fee, payable monthly, of 0.05% of the net assets of each Fund. The
Distributor may voluntarily agree to from time to time waive a portion of the
fees payable to it under the Distribution Agreement with respect to each Fund
on a month-to-month basis. For the fiscal years ended October 31, 1992,
1993,the period November 1, 1993 through August 31, 1994 and for the year
ended August 31, 1995, the Distributor was paid or accrued the following
sub-administration fees under the Distribution Agreement, and voluntarily
waived the amounts in parentheses following such fees:
The Tax Free Money Market Fund: $98,614 ($15,299), $162,025 ($11,123),
$185,769 and $220,141;
The New York Tax Free Money Market Fund: $138,928 ($12,180), $151,622
($7,608), $139,747 and $190,823;
The Tax Free Income Fund--A Shares: $4,960 ($4,960), $21,325 ($21,325),
$42,041 ($2,137) and $44,798;
The Tax Free Income Fund--B Shares:$6,384;
The New York Tax Free Income Fund--A Shares: $17,364 ($12,131), $44,633
($19,733), $48,024 and $51,439;
The New York Tax Free Income Fund--B Shares: $4,286;
The California Intermediate Tax Free Income Fund: $16,096 and $17,001
($17,001).
For the fiscal period ended October 31, 1992, with respect to the
California Tax Free Money Market Fund the Distributor voluntarily waived its
entire fee of $7,547. For the fiscal year ended October 31, 1993 the
Distributor was paid or accrued $24,726 and voluntarily waived $22,438. For
the fiscal period from November 1, 1993 through August 31, 1994 the
Distributor was paid or accrued $23,926. For the year ended August 31,
1995,the Distributor was paid $27,935.
For the fiscal period from November 15, 1993 through August 31, 1994 the
Prime Money Market Fund paid or accrued $117,129, For the year ended August
31, 1995, the Distributor was paid or accrued $176,342 of sub-administration
fee for the Prime Money Market Fund.
For the fiscal period from April 18, 1994 through August 31, 1994 the
Federal Money Market Fund and the Treasury Plus Money Market Fund paid or
accrued $16,161 and $3,123 and voluntarily waived $15,733 and $2,944,
respectively. For the year ended August 31, 1995, the Federal Money Market
Fund paid or accrued $194,538 and voluntarily waived $9,048, For the year
ended August 31, 1995, the Treasury Plus Money Market Fund paid or accrued
$11,325 and voluntarily waived $11,331.
For the fiscal year November 1, 1993 through August 31, 1994, the U.S.
Government Money Market Fund paid or accrued distribution and
sub-administration fees of $443,694. For the year ended August 31, 1995, the
U.S. Government Money Market Fund was paid or accrued $720,093.
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent to provide certain services
including but not limited to the following: answer customer inquiries
regarding account status and history, the manner in which purchases and
redemptions of shares may be effected for the Fund as to which the
Shareholder Servicing Agent is so acting and certain
45
<PAGE>
other matters pertaining to the Fund; assist shareholders in designating and
changing dividend options, account designations and addresses; provide
necessary personnel and facilities to establish and maintain shareholder
accounts and records; assist in processing purchase and redemption
transactions; arrange for the wiring of funds; transmit and receive funds in
connection with customer orders to purchase or redeem shares; verify and
guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a shareholder
by a Shareholder Servicing Agent) quarterly and year-end statements and
confirmations of purchases and redemptions; transmit, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other
communications to shareholders of the Fund; receive, tabulate and transmit to
the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund
or a shareholder may request. Shareholder servicing agents may be required to
register pursuant to state securities law.
Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement
with respect to each Fund on a month-to-month basis. Fees payable to the
Shareholder Servicing Agents (all of which currently are related parties) and
the amounts voluntarily waived for the following periods were as follows:
<TABLE>
<CAPTION>
11/1/92 11/1/93 9/1/94
through through through
10/31/93 8/31/94 8/31/95
---------------- ---------------- ------------------
Fund payable waived payable waived payable waived
- ---------------------- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Goverment
Money Market Fund
Vista Shares n/a -- 713,799 -- 742,938 --
Premier Shares 745,518 -- 518,683 -- 684,715 --
Cash Management
Money Market Fund
Vista Shares n/a -- 559,995 50,574 348,526 106,710
Premier Shares 353,935 -- 401,859 -- 422,032 46
Treasury Plus
Money Market Fund
Premier Shares n/a n/a 17 17 2,970 2,970
Federal Money
Market Fund
Vista Shares n/a n/a 2,635 2,635 353,730 140,653
Premier Shares n/a n/a 3,571 3,571 112,976 15,780
Prime Money
Market Fund
B Shares n/a n/a 930 -- 10,108 5,488
Premier Shares n/a n/a 217,100 -- 82,694 10,159
Tax Free Money
Market Fund
Vista Shares 328,100 245,074 312,937 -- 366,838 --
Premier Shares 353,241 226,331 345,282 131,039
N.Y. Tax Free
Money Market Fund 931,475 51,107 698,735 -- 953,852 --
California Tax Free
Money Market Fund n/a n/a 119,635 119,635 139,735 139,735
46
<PAGE>
11/1/92 11/1/93 9/1/94
through through through
10/31/93 8/31/94 8/31/95
---------------- ---------------- ------------------
Fund payable waived payable waived payable waived
- ---------------------- ------ ------ ------ ------ ------ --------
Tax Free Income Fund
A Shares 111,375 111,375 196,918 169,386 223,990 179,192
B Shares n/a n/a 13,285 -- 31,921 --
N.Y. Tax Free Income
Fund
A Shares 240,920 107,693 233,497 179,497 257,194 205,755
B Shares n/a n/a 6,614 -- 21,430 --
California
Intermediate Tax
Free Fund n/a n/a 83,485 83,485 85,003 85,003
</TABLE>
There is no Shareholder Servicing Agent, and thus no shareholder servicing
fees, for the Institutional Shares of the Money Market Funds.
The Trust has also entered into a Transfer Agency Agreement with DST
Systems, Inc. ("DST") pursuant to which DST acts as transfer agent for the
Trust. DST's address is 210 West 10th Street, Kansas City, MO 64105.
Pursuant to a Custodian Agreement, Chase acts as the custodian of the
assets of each Fund for which Chase receives such compensation as is from
time to time agreed upon by the Trust and Chase. As custodian, Chase provides
oversight and record keeping for the assets held in the portfolios of each
Fund. Chase also provides fund accounting services for the income, expenses
and shares outstanding for the Funds. Chase is located at 3 Metrotech Center,
Brooklyn, NY 11245. For additional information, see the Prospectuses.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated herein by reference from the Trust's
Annual Reports to Shareholders for the fiscal year ended August 31, 1995, and
the related financial highlights which appear in the Prospectuses, have been
incorporated herein and included in the Prospectuses in reliance on the
reports of Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants of the Funds, given on the authority of
said firm as experts in accounting and auditing. Price Waterhouse LLP
provides the Funds with audit services, tax return preparation and assistance
and consultation with respect to the preparation of filings with the
Securities and Exchange Commission.
The financial statements incorporated herein by reference from The Hanover
Funds, Inc.'s Annual Reports to Shareholders for the fiscal year ended
November 30, 1995, and the related financial highlights which appear in the
Prospectuses, have been incorporated herein and included in the Prospectuses
in reliance on the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in
accounting and auditing. KPMG Peat Marwick LLP has offices at 345 Park
Avenue, New York, New York 10154.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Mutual Fund Trust is an open-end, management investment company organized
as Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on February 4, 1994. Because certain of the Funds comprising
the Trust are "non-diversified", more than 5% of any of the assets of any
such Fund
47
<PAGE>
may be invested in the obligations of any single issuer, which may make the
value of the shares in such a Fund more susceptible to certain risks than
shares of a diversified mutual fund. The fiscal year-end of the Funds in the
Trust is August 31.
The Trust currently consists of 12 series of shares of beneficial
interest, par value $.001 per share. With respect to the Money Market Funds
and certain of the Income Funds, the Trust may offer more than one class of
shares. The Trust has reserved the right to create and issue additional
series or classes. Each share of a series or class represents an equal
proportionate interest in that series or class with each other share of that
series or class. The shares of each series or class participate equally in
the earnings, dividends and assets of the particular series or class.
Expenses of the Trust which are not attributable to a specific series or
class are allocated amount all the series in a manner believed by management
of the Trust to be fair and equitable. Shares have no pre-emptive or
conversion rights. Shares when issued are fully paid and non-assessable,
except as set forth below. Shareholders are entitled to one vote for each
share held. Shares of each series or class generally vote together, except
when required under federal securities laws to vote separately on matters
that may affect a particular class, such as the approval of distribution
plans for a particular class. With respect to shares purchased through a
Shareholder Servicing Agent and, in the event written proxy instructions are
not received by a Fund or its designated agent prior to a shareholder meeting
at which a proxy is to be voted and the shareholder does not attend the
meeting in person, the Shareholder Servicing Agent for such shareholder will
be authorized pursuant to an applicable agreement with the shareholder to
vote the shareholder's outstanding shares in the same proportion as the votes
cast by other Fund shareholders represented at the meeting in person or by
proxy.
Shareholders of the Vista Shares, Premier Shares and Institutional Shares
of the Money Market Funds bear the fees and expenses described herein and in
the Prospectuses. The fees paid by the Vista Shares to the Distributor and
Shareholder Servicing Agent under the distribution plans and shareholder
servicing arrangements for distribution expenses and shareholder services
provided to investors by the Distributor and Shareholder Servicing Agents,
absent waivers, generally are more than the respective fees paid under
distribution plans and shareholder servicing arrangements adopted for the
Premier Shares. The Institutional Shares pay no distribution or Shareholder
Servicing fee. As a result, absent waivers, at any given time, the net yield
on the Vista Shares will be lower than the yield on the Premier Shares and
the yield on the Premier Shares will be lower than the yield on Institutional
Shares. Standardized yield quotations will be computed separately for each
class of shares of a Fund.
The Vista Tax Free Income Fund and Vista New York Tax Free Income Fund
offer both Class A and Class B shares. The classes of shares have several
different attributes relating to sales charges and expenses, as described
herein and in the Prospectuses. In addition to such differences, expenses
borne by each class of a Fund may differ slightly because of the allocation
of other class-specific expenses. For example, a higher transfer agency fee
may be imposed on Class B shares than on Class A shares. The relative impact
of initial sales charges, contingent deferred sales charges, and ongoing
annual expenses will depend on the length of time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of shares rather than another.
The 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
48
<PAGE>
amendment. The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Trust or of any series or class, a Shareholder Servicing
Agent may vote any shares as to which such Shareholder Servicing Agent is the
agent of record and which are not represented in person or by proxy at the
meeting, proportionately in accordance with the votes cast by holders of all
shares of that portfolio otherwise represented at the meeting in person or by
proxy as to which such Shareholder Servicing Agent is the agent of record.
Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements. Shares have
no preemptive or conversion rights. Shares, when issued, are fully paid and
non-assessable, except as set forth below. Any series or class may be
terminated (i) upon the merger or consolidation with, or the sale or
disposition of all or substantially all of its assets to, another entity, if
approved by the vote of the holders of two-thirds of its outstanding shares,
except that if the Board of Trustees recommends such merger, consolidation or
sale or disposition of assets, the approval by vote of the holders of a
majority of the series' or class' outstanding shares will be sufficient, or
(ii) by the vote of the holders of a majority of its outstanding shares, or
(iii) by the Board of Trustees by written notice to the series' or class'
shareholders. Unless each series and class is so terminated, the Trust will
continue indefinitely.
Certificates are issued only upon the written request of a shareholder,
subject to the policies of the investor's Shareholder Servicing Agent, but
the Trust will not issue a stock certificate with respect to shares that may
be redeemed through expedited or automated procedures established by a
Shareholder Servicing Agent. No certificates are issued for shares of the
Money Market Funds or Class B shares of the Income Funds.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of
the Trust. The Trust's Declaration of Trust also provides that the Trust
shall maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action
or failure to act, errors of judgment or mistakes of fact or law, but nothing
in the Declaration of Trust protects a Trustee against any liability to which
he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of his office.
The Board of Trustees has adopted a Code of Ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The Code of Ethics substantially conforms to the
recommendations made by the Investment Company Institute ("ICI") (except
where noted) and includes such provisions as:
(bullet) Prohibitions on investment personnel acquiring securities in initial
offerings;
(bullet) A requirement that access persons obtain prior to acquiring
securities in a private placement and that the officer granting such
approval have no interest in the issuer making the private
placement;
(bullet) A restriction on access persons executing transactions for
securities on a recommended list until 14 days after distribution of
the list;
(bullet) A prohibition on access persons acquiring securities that are
pending execution by one of the Funds or Portfolios until 7 days
after the transactions of the Funds or Portfolios are completed;
49
<PAGE>
(bullet) A prohibition of any buy or sell transaction in a particular
security in a 30-day period, except as may be permitted in certain
hardship cases or exigent circumstances where prior approval is
obtained. This provision differs slightly from the ICI
recommendation;
(bullet) A requirement for pre-clearance of any buy or sell transaction in a
particular security after 30 days, but within 60 days;
(bullet) A requirement that any gift exceeding $75.00 from a customer must be
reported to the appropriate compliance officer;
(bullet) A requirement that access persons submit in writing any request to
serve as a director or trustee of a publicly traded company;
(bullet) A requirement that all securities transactions in excess of $1,000
be pre-cleared, except that if a person has engaged in more than
$10,000 of securities transactions in a calendar quarter all
securities of such person require pre-clearance (this de minimus
exception differs slightly from ICI recommendations);
(bullet) A requirement that all access persons direct their broker-dealer to
submit duplicate confirmation and customer statements to the
appropriate compliance unit; and
(bullet) A requirement that all access persons sign a Code of Ethics
acknowledgement, affirming that they have read and understood the
Code and submit a personal security holdings report upon
commencement of employment or status and a personal security
transaction report within 10 days of each calendar quarter
thereafter.
Principal Holders
As of March 31, 1996, the following persons owned of record, directly or
indirectly, 5% or more of the outstanding shares of the following classes of
the following Funds:
Vista US Government Money Market Fund--Vista Shares
<TABLE>
<CAPTION>
<S> <C>
Cudd & Company 68.78%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 13.7%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue-2
New Hyde Park, NY 11042-1081
Vista US Government Money Market Fund--Premier Shares
Chase Manhattan Bank N/A 28.04%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor Brooklyn, NY 11245-0002
50
<PAGE>
National Financial Serv Corp 6.99%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Penlin & Co. 8.36%
Chase Lincoln First Bank
Attn: P. Whalen
PO Box 1412
Rochester, NY 14603-1412
Chase Manhattan Bank NA 31.70%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista US Government Money Market Fund--Institutional Shares
Chase Manhattan Bank N/A 13.29%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Cudd & Company 7.39%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 45.09%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Cash Management Fund--Vista Shares
Croydon Company Inc. 5.17%
7272 Morgan Road
Liverpool, NY 13090-4535
Chase Manhattan Bank NA 23.90%
Metropolitan Community Bank
Attn: John Molloy
Proof & Control
1985 Marcus Avenue-2
New Hyde Park, NY 11042-1081
51
<PAGE>
Vista Cash Management Fund--Premier Shares
Cudd & Company 5.08%
Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank N/A 31.44%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor Brooklyn, NY 11245-0002
National Financial Serv Corp 20.53%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Chase Manhattan Bank NA 5.82%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
2000 Marcus Avenue--1
New Hyde Park, NY 11042-1063
Chase Manhattan Bank NA 7.44%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Cash Management Fund--Institutional Shares
Chase Manhattan Bank N/A 25.64%
25.64% Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor Brooklyn, NY 11245-0002
Cudd & Company 18.43%
18.43% Omnibus Account #1
PTIS Div Attn: Andrew C. Olson
35th Floor 1211 Avenue of the Americas
New York, NY 10036-8701
Frenkel & Co. Inc. 9/10%
123 Williams Street
New York, NY 10038
Carriers ILA CFS Trust Fund 7.39%
c/o CCC Inc.
One Evertrust Plaza
Jersey City, NJ 07302-3051
52
<PAGE>
Vista Prime Money Market Fund-- Institutional Shares
Chase Manhattan Bank N/A 10.05%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Chase Manhattan Bank NA 76.23%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza
New York, NY 10081-1001
Vista Prime Money Market Fund--Premier Shares
Chase Manhattan Bank NA 77.19%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Treasury Plus Money Market Fund--Premier Shares
Chase Manhattan Bank NA 75.75%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4 New York, NY 10081-1001
Photronics Incorporated 11.28%
Attn: Robert J. Bollo 1
5 Secor Road
Brookfield, CT 06804-3937
Vista Treasury Plus Money Market Fund--Institutional Shares
Trenwick America Reinsurance Corp. 21.08%
Trenwick c/o Lori Stalowicz
Metro Center One Station Place
Stamford, CT 06902
Chase Manhattan Bank NA 26.82%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Chase Manhattan Bank as TTEE 37.00%
for Dade County Fla.
Attn: Ronald J. Halleran
4 Chase Metro Tech Center
Brooklyn, NY 11245-0001
53
<PAGE>
Vista Federal Money Market Fund--Vista Shares
Chase Manhattan Bank NA 25.74%
Metropolitan Community Bank
Attn: John Molloy Proof & Control
1985 Marcus Avenue--2
New Hyde Park, NY 11042-1081
Vista Federal Money Market Fund--Premier Shares
Chase Manhattan Bank NA 26.78%
Special Activity AC for Exclusive
Benefit of CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue--2
New Hyde Park, NY 11042-1081
National Financial Serv Corp for the 49.84%
Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Vista Federal Money Market Fund--Institutional Shares
Cudd & Company 42.70%
Omnibus Account #1 PTIS Div
Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 40.57%
Attn: Deborah Derenzo
2 Chase Manhattan Plaza Floor 4
New York, NY 10081-1001
Vista Tax Free Money Market Fund--Vista Shares
Cudd & Company 73.92%
Omnibus Account #1 PTIS Div
Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Chase Manhattan Bank NA 15.35%
Special Activity AC for Exclusive Benefit of CPA Customers
of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue--2
New Hyde Park, NY 11042-1081
54
<PAGE>
Vista Tax Free Money Market Fund--
Premier Shares
Cudd & Company 37.03%
Chase Manhattan Bank NA PTIS Div
Attn: Andrew C. Olson 35th Floor 1211 Avenue of the
Americas
New York, NY 10036-8701
Chase Manhattan Bank of 7.65%
Florida Institutional Omnibus Account
Attn: WMA Dept. 4925 Independent Parkway Tampa Bay, FL
33634-7524
National Financial Serv Corp 13.20%
for the Excl Ben of Our Cust
Attn: Mike McLaughlin
Church Street Station
PO Box 3908
New York, NY 10008-3908
Vista Tax Free Money Market Fund--Institutional Shares
Cudd & Company 60.60%
Omnibus Account #1
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
Union Bank of Switzerland, 5.38%
NY Branch, as Custodian
Attn: Andrew Fox 1345
Avenue of the Americas
New York, NY 10105-0199
Chase Manhattan Bank N/A 5.84%
Global SEC Services Omnibus
Attn: Alex Kwong
3 Chase Metro Tech Center
7th Floor
Brooklyn, NY 11245-0002
Nomura Research Institute 10.00%
America Inc. Nicholas Curcio,
VP Controller
2 World Financial Center,
18th Floor
New York, NY 10281-1197
Vista New York, Tax Free Money Market Fund
Chase Manhattan Bank NA 28.38%
Metropolitan Community Bank
Attn: John Molloy Proof & Control 1985
Marcus Avenue--2
New Hyde Park,
NY 11042-1081
55
<PAGE>
National Financial Serv Corp 5.06%
for the Excl Ben of Our Cust
Attn: Mike McLauglin
Church Street Station PO Box 3908
New York, NY 10008-3908
Chase Manhattan Bank NA 9.59
Special Activity AC for Exclusive Benefit of
CPA Customers of CMB NA
Proof & Control/Attn: John Molloy
1985 Marcus Avenue--2
New Hyde Park, NY 11042-1081
Cudd & Company 30.17%
c/o Chase Manhattan Bank PTIS Div
Attn: Andrew C. Olson
1211 Avenue of the Americas
35th Floor
New York, NY 10036-8701
Vista California Tax-Free Money Market Fund
Cudd & Company 55.37%
c/o Chase Manhattan Bank PTIS Div
Attn: Andrew C. Olson
35th Floor
1211 Avenue of the Americas
New York, NY 10036-8701
National Financial Serv Corp 21.38
for the Excl Ben of Our Cust
Attn: Mike McLaughlin Church
Street Station
PO Box 3908
New York, NY 10008-3908
Union Bank of Switzerland, 17.42%
NY Branch
Attn: Andrew Fox, VP
1345 Avenue of the Americas
New York, NY 10105-0199
Vista New York Tax Free Income Fund--A Shares
Cudd & Company 18.66%
Custody Division 1211
6th Avenue 35th Floor
New York, NY 10036-8701
Vista New York Tax Free Income Fund--B Shares
Jeane B. Mahony
38 Hutchinson Blvd.
Scarsdale, NY 10583-6524
56
<PAGE>
Union Bank of Switzerland NY 5.84%
Attn: Andrew Fox VP
299 Park Avenue
40th Floor
New York, NY 10171-0026
National Financial Serv Corp for the %
Excl Ben of Our Cust
Attn: Mike McLaughlin
200 Liberty Street
New york, NY 10281-1003
</TABLE>
Financial Statements
The 1995 Annual Report to Shareholders of each Fund other than the Vista
100% U.S. Treasury Securities Money Market Fund and Vista Cash Management
Fund, including the reports of independent accountants, financial highlights
and financial statements for the fiscal year ended August 31, 1995 contained
therein, are incorporated herein by reference. The 1995 Annual Report to
Shareholders of each of The 100% U.S. Treasury Securities Money Market Fund
and The Cash Management Fund of The Hanover Funds, Inc., including the
reports of independent auditors, financial highlights and financial
statements for the fiscal year ended November 30, 1995 contained therein, are
incorporated herein by reference.
<TABLE>
<CAPTION>
<S> <C>
Specimen Computations of Offering Prices Per Share
New York Tax Free Income Fund (specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.47
Maximum Offering Price per Share ($ 11.47 divided by .955)
(reduced on purchases of $100,000 or more) $12.01
New York Tax Free Income Fund--B Shares
(specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.41
Tax Free Income Fund (specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.85
Maximum Offering Price per Share ($11.85 divided by .955)
(reduced on purchases of $100,000 or more) $12.41
Tax Free Income Fund--B Shares (specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $11.77
California Intermediate Tax Free Income Fund (specimen computations)
Net Asset Value and Redemption Price per Share of Beneficial
Interest at August 31, 1995 $ 9.89
Maximum Offering Price per Share ($ 9.89 divided by .955)
(reduced on purchases of $100,000 or more) $10.36
The Shares of the Money Market Funds are offered for sale at Net Asset
Value.
</TABLE>
57
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of
the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees Paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary form their coupon rates for the following reasons: (i)
Certificates may be issued at a premium or discount, rather than at par; (ii)
Certificates may trade in the secondary market at a premium or discount after
issuance; (iii) interest is earned and compounded monthly which has the
effect of raising the effective yield earned on the Certificates; and (iv)
the actual yield of each Certificate is affected by the prepayment of
mortgages included in the mortgage pool underlying the Certificates.
Principal which is so prepaid will be reinvested, although possibly at a
lower rate. In addition, prepayment of mortgages included in the mortgage
pool underlying a GNMA Certificate purchased at a premium could result in a
loss to a Fund. Due to the large amount of GNMA Certificates outstanding and
active participation in the secondary market by securities dealers and
investors, GNMA Certificates are highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and depend on,
among other things, the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages backing each
Certificate. If agency securities are purchased at a premium above principal,
the premium is not guaranteed by the issuing agency and a decline in the
market value to par may result in a loss of the premium, which may be
particularly likely in the event of a prepayment. When and if available, U.S.
Government obligations may be purchased at a discount from face value.
GNMA FHLMC Bonds and GNMA FNMA Bonds--are mortgage-backed bonds issued by
the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by
the General Services Administration of the U.S. Government and are guaranteed
by the U.S. Government.
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New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development
Act of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of
Housing and Urban Development of the U.S. Government, the payment of which is
secured by the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by
the Washington Metropolitan Area Transit Authority and guaranteed by the U.S.
Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and Bonds--are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import
Bank of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
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APPENDIX B
DESCRIPTION OF RATINGS*
The ratings of Moody's and Standard & Poor's represent their opinions as
to the quality of various Municipal Obligations. It should be emphasized,
however, that ratings are not absolute standards of quality. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields while Municipal Obligations of the same maturity and coupon
with different ratings may have the same yield.
Description of Moody's
four highest municipal bond ratings:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Description of Moody's two highest ratings
of state and municipal notes:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run. Symbols used are as follows:
MIG-1--Notes bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or
both.
MIG-2--Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
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* As described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may from time
to time revise such ratings, they undertake no obligation to do so.
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Description of Standard & Poor's four highest municipal bond ratings:
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AAA--Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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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.
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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.
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BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
- --------
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Standard & Poor's
ratings of municipal notes and tax-exempt demand bonds:
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely receive
a long-term debt rating. The following criteria will be used in making that
assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
--Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/B-1+"). For the newer "demand notes," S&P's note
rating symbols, combined with the commercial paper symbols, are used (for
example, "SP-1+/A-1+").
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.
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B-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Description of Moody's
two highest commercial paper ratings:
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2 and Prime-3.
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions in well-established industries;
(2) high rates of return on funds employed; (3) conservative capitalization
structures with moderate reliance on debt and ample asset protection; (4)
broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and (5) well-established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Description of Fitch's ratings of municipal notes
and tax-exempt demand bonds
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issuer, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's financial strength and
credit quality.
AAA--Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1.
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.
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Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
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APPENDIX C
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
NEW YORK MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the investments
of the Vista New York Tax Free Money Market Fund and the Vista New York Tax
Free Income Fund in New York municipal securities are summarized below. The
following information constitutes only a brief summary, does not purport to
be a complete description and is largely based on information drawn from
official statements relating to securities offerings of New York municipal
obligations available as of the date of this Statement of Additional
Information. The accuracy and completeness of the information contained in
such offering statements has not been independently verified.
NEW YORK STATE
New York State Financing Activities. There are a number of methods by
which New York State (the "State") may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term general obligation borrowing (i.e., borrowing for more
than one year) unless the borrowing is authorized in a specific amount for a
single work or purpose by the New York State Legislature (the "Legislature")
and approved by the voters. There is no limitation on the amount of long-term
general obligation debt that may be so authorized and subsequently incurred
by the State. With the exception of general obligation housing bonds (which
must be paid in equal annual installments or installments that result in
substantially level or declining debt service payments, within 50 years after
issuance, commencing no more than three years after issuance), general
obligation bonds must be paid in equal annual installments or installments
that result in substantially level or declining debt service payments, within
40 years after issuance, beginning not more than one year after issuance of
such bonds.
In April 1993, legislation was also enacted providing for significant
constitutional changes to the long- term financing practices of the State and
the Authorities.
In June 1994, the Legislature passed a proposed constitutional amendment
that would permit the State, within a formula-based cap, to issue revenue
bonds, which would be debt of the State secured solely by a pledge of certain
State tax receipts (including those allocated to State funds dedicated for
transportation purposes), and not by the full faith and credit of the State.
In addition, the proposed amendment would permit multiple purpose general
obligation bond proposals to be proposed on the same ballot, require that
State debt be incurred only for capital projects included in a multi-year
capital financing plan and prohibit, after its effective date, lease-
purchase and contractual-obligation financing mechanisms for State
facilities.
Public hearings were held on the proposed constitutional amendment during
1993. Following these hearings, in February 1994, Governor Cuomo and the
State Comptroller recommended a revised constitutional amendment which would
further tighten the ban on lease-purchase and contractual-obligation
financing, incorporate existing lease-purchase and contractual-obligation
debt under the proposed revenue bond cap while simultaneously reducing the
size of the cap. After considering these recommendations, the Legislature
passed a revised constitutional amendment which tightens the ban, and
provides for a phase-in to a lower cap (4.4 percent of personal income).
Although the State Senate and Assembly passed the amendment, the voters
defeated it in November 1995.
The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes ("TRANs"), and (ii) in anticipation of the receipt
of proceeds from the sale of duly authorized but unissued bonds, by issuing
bond anticipation notes ("BANs"). TRANs must mature within one year from
their dates of issuance and may not be refunded or refinanced beyond such
period. BANS may only be issued for the purposes and within the amounts for
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which bonds may be issued pursuant to voter authorizations. Such BANs must be
paid from the proceeds of the sale of bonds in anticipation of which they
were issued or from other sources within two years of the date of issuance
or, in the case of BANs for housing purposes, within five years of the date
of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State
Constitution provides for the State guarantee of the repayment of certain
borrowings for designated projects of the New York State Thruway Authority,
the Job Development Authority and the Port Authority of New York and New
Jersey. The State has never been called upon to make any direct payments
pursuant to such guarantees. The constitutional provisions allowing a
State-guarantee of certain Port Authority of New York and New Jersey debt
stipulates that no such guaranteed debt may be outstanding after December 31,
1996.
Payments of debt service on State general obligation and State-guaranteed
bonds and notes are legally enforceable obligations of the State.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual- obligation financing, which involve
obligations of public authorities or municipalities that are State-supported
but not general obligations of the State. Under these financing arrangements,
certain public authorities and municipalities have issued obligations to
finance the construction and rehabilitation of facilities or the acquisition
and rehabilitation of equipment, and expect to meet their debt service
requirements through the receipt of rental or other contractual payments made
by the State. Although these financing arrangements involve a contractual
agreement by the State to make payments to a public authority, municipality
or other entity, the State's obligation to make such payments is generally
expressly made subject to appropriation by the Legislature and the actual
availability of money to the State for making the payments. The State has
also entered into a contractual-obligation financing arrangement with the New
York Local Government Assistance Corporation ("LGAC") to restructure the way
the States makes certain local aid payments. The State also participates in
the issuance of certificates of participation ("COPs") in a pool of leases
entered into by the State's Office of General Services on behalf of several
State departments and agencies interest in acquiring operational equipment,
or in certain cases, real property.
The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon
to make any direct payments pursuant to its guarantees.
The State also employs moral obligations financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and includes statutory provisions requiring the State,
subject to appropriation by the Legislature, to make up any deficiencies
which may occur in the issuer's debt service reserve fund. There has never
been a default on any moral obligation debt of any public authority.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1995-96 fiscal
year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in COPs during the State's
1995-96 fiscal year for equipment purchases and $14 million for capital
purposes. The projection of the State regarding its borrowings for the
1995-96 fiscal year may change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million during
the State's 1995-96 fiscal year, to redeem notes sold in June 1995.
Borrowings by other public authorities pursuant to lease-purchase and
contractual- obligation financings for capital programs of the State are
projected to total $2.7 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for
1994-95 capital projects. Included therein are borrowings by (i) the
Dormitory Authority of the State of New York ("DA") for State University of
New York ("SUNY"), The City University of New York ("CUNY"), and health
facilities, (ii) the New
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York State Medical Care Facilities Finance Agency ("MCFFA") for mental health
facilities; (iii) Thruway Authority for the Dedicated Highway and Bridge
Trust Fund and Consolidated Highway Improvement Program; (iv) UDC for prison
and youth facilities and economic development programs; (v) the Housing
Finance Agency ("HFA") for housing programs; and (vi) other borrowings by the
Environmental Facilities Corporation ("EFC") and the Energy Research and
Development Authority ("ERDA").
In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to
aid financially troubled localities. The Municipal Assistance Corporation for
The City of New York ("MAC"), created to provide financing assistance to New
York City (the "City"), is the only municipal assistance corporation created
to date. To enable MAC to pay debt service on its obligations, MAC receives,
subject to annual appropriation by the Legislature, receipts from the 4% New
York State Sales Tax for the Benefit of New York City, the State-imposed
Stock Transfer Tax and, subject to certain prior liens, certain local
assistance payments otherwise payable to the City. The legislation creating
MAC also includes a moral obligation provision. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984.
State Financial Operations. The State has historically been one of the
wealthiest states in the nation. For decades, however, the State economy has
grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to
the suburbs and an influx of generally less affluent residents. Regionally,
the older Northeast cities have suffered because of the relative success that
the South and the West have had in attracting people and business. The City
has also had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on the
specialized services traditionally available almost exclusively in the City.
Although the State ranks 22nd in the nation for its State tax burden, the
State has the second highest combined state and local tax burden in the
United States. In 1991, total State and local taxes in New York were $3,349
per capita, compared with $1,475 per capita in 1980. Between 1980 and 1991,
State and local taxes per capita increased at approximately the same rate in
the State as in the nation as a whole with per capita taxes in the State
increasing by 127% while such taxes increased 111% in the nation. The State
Division of the Budget ("DOB") believes, however, that it is more informative
to describe the state and local tax burden in terms of its relationship to
personal income. In 1992, total State and local taxes in New York were
$154.70 per $1,000 of personal income, compared with $152.70 in 1980. Between
1980 and 1992, State and local taxes per $1,000 of personal income increased
at a slower rate in the State than in the nation as a whole with such taxes
in the State increasing by 1.3 percent while such taxes increased 4 percent
in the nation. The burden of State and local taxation, in combination with
the many other causes of regional economic dislocation, may have contributed
to the decisions of some businesses and individuals to relocate outside, or
not locate within the State. The State and its localities have used these
taxes to develop and maintain their respective transportation networks,
public schools and colleges, public health systems, other social services,
and recreational facilities. Despite these benefits, the burden of State and
local taxation, in combination with the many other causes of regional
economic dislocation, may have contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the
State.
The national economy began expanding in 1991 and has added over 7 million
jobs since early 1992. However, the recession lasted longer in the State and
the State's economic recovery has lagged behind the nation's. Although the
State has added approximately 185,000 jobs since November 1992, employment
growth in the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility, defense, and
banking industries. DOB forecasted that national economic growth would
weaken, but not turn negative, during the course of 1995 before beginning to
rebound. This dynamic is often described as a "soft landing."
The national economy achieved the desired "soft landing" in 1995, as
growth slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit
the buildup of inflationary pressures. This was achieved without
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any material pause in the economic expansion, although recession worries
flared in the late spring and early summer. Growth in the national economy is
expected to moderate during 1996. Real GDP grew only 0.9 percent in the
fourth quarter of 1995, and there were declines in the leading economic
indicators in four of the past five months. It is anticipated that slow
economic growth will continue through the first half of 1996 and inflationary
pressures will be modest in 1996. Economic growth will gradually accelerate
in the second half of 1996 as the lower level of interest rates over the last
year is expected to stimulate economic activity. Economic growth, as measured
by the nation's nominal GDP, is projected to expand by 4.3 percent in 1996
versus 4.6 in 1995. In 1992 dollars, real GDP is expected to grow 1.8 percent
as compared with the 2.1 percent growth in 1995. By either measure, economic
growth is projected to be noticeably slower for 1996 than 1995.
To stimulate economic growth, the State has developed programs, including
the provision of direct financial assistance, designed to assist businesses
to expand existing operations located within the State and to attract new
businesses to the State. In addition, the State has provided various tax
incentives to encourage business relocation and expansion. These programs
include direct tax abatements from local property taxes for new facilities
(subject to locality approval) and investment tax credits that are applied
against the State corporation franchise tax. Furthermore, the State has
created 40 "economic development zones" in economically distressed regions of
the States. Businesses in these zones are provided a variety of tax and other
incentives to create jobs and make investments in the zones. There can be no
assurance that these programs will be successful.
From 1994 to 1995 the annual growth rates of most economic indicators for
the State improved. The pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell
as workforce reductions were implemented at federal, State and local levels.
Similar to the nation, some moderation of growth is expected in the year
ahead. Private sector employment is expected to continue to rise, although
somewhat more slowly than in 1995, while public employment should continue to
fall, reflecting government budget cutbacks. Anticipated continued restraint
in wage settlements, a lower rate of employment growth and falling interest
rates are expected to slow personal income growth significantly.
The State's current fiscal year commenced on April 1, 1995, and ends on
March 31, 1996, and is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for the 1995-96 fiscal year (the
"1995-96 State Financial Plan") was formulated on June 20, 1995 and is based
on the State's budget as enacted by the Legislature and signed into law by
the Governor. The State Financial Plan is updated quarterly pursuant to law
in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
Governor George Pataki, who assumed office on January 1, 1995. It is the
first budget in over half a century which proposed and, as enacted, projects
an absolute year-over-year decline in General Fund disbursements. Spending
for State operations is projected to drop even more sharply, by 4.6 percent.
Nominal spending from all State funding sources (i.e., excluding Federal aid)
is proposed to increase by only 2.5 percent from the prior fiscal year, in
contrast to the prior decade when such spending growth averaged more than 6.0
percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the 1995- 96 State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of
unfunded 1994-95 initiatives, primarily for local aid programs; and the use
of one-time solutions, primarily surplus funds from the prior year, to fund
recurring spending in the 1994-95 budget. The
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Governor proposed additional tax cuts to spur economic growth and provide
relief for low and middle-income tax payers, which were larger than those
ultimately adopted, and which added $240 million to the then projected
imbalance or budget gap, bringing the total to approximately $5 billion.
The 1995-96 State Financial Plan contemplates closing this gap based on
the enacted budget, through a series of actions, mainly spending reductions
and cost containment measures and certain reestimates that are expected to be
recurring, but also through the use of one-time solutions. The 1995-96 State
Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to
reduce spending on the State workforce, SUNY and CUNY, mental hygiene
programs, capital projects, the prison system and fringe benefits; (iii) $300
million in savings from local assistance reforms, including actions affecting
school aid and revenue sharing while proposing program legislation to provide
relief from certain mandates that increase local spending; (iv) over $400
million in revenue measures, primarily a new Quick Draw Lottery game, changes
to tax payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The following discussion summarizes updates to the 1995-96 State Financial
Plan and recent fiscal years with particular emphasis on the State's General
Fund. Pursuant to statute, the State updates the financial plan at least on a
quarterly basis. Due to changing economic conditions and information, public
statements or reports may be released by the Governor, members of the
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the
State's financial condition, including potential operating results for the
current fiscal year and projected baseline gaps for future fiscal years, that
may vary materially and adversely from the information provided herein.
The General Fund is the principal operating fund of the State and is used
to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1995-96 fiscal year, the General Fund is expected by
the State to account for approximately 49 percent of total governmental-fund
receipts and 71 percent of total governmental-fund disbursements. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts are projected to be $33.110 billion, an
increase of $48 million over total receipts in the prior fiscal year. Total
General Fund disbursements are projected to be $33.055 billion, an increase
of $344 million over the total amount disbursed and transferred in the prior
fiscal year.
In addition to the General Fund, the State Financial Plan includes Special
Revenue Funds, Capital Projects Funds and Debt Service Funds.
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise more than 40
percent of total government funds receipts and disbursements in the 1995-96
fiscal year, about three-quarters of that activity relates to
Federally-funded programs.
Projected receipts in this fund type total $25.547 billion, an increase of
$1.316 billion over the prior year. Projected disbursements in this fund type
total $26.002 billion, an increase of $1.641 billion over 1994-95 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs, are projected to total $19.209 billion in the
1995-96 fiscal year. Remaining projected spending of $6.793 billion primarily
reflects aid to SUNY supported by tuition and dormitory fees, education aid
funded from lottery receipts, operating aid payments to the Metropolitan
Transportation Authority (the "MTA") funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs
which deliver services financed by user fees.
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Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major State
capital facilities and for capital assistance grants to certain local
governments or public authorities. This fund type consists of the Capital
Projects Fund, which is supported by tax dollars transferred from the General
Fund, and 37 other capital funds established to distinguish specific capital
construction purposes supported by other revenues. In the 1995-96 fiscal
year, activity in these funds is expected to comprise 7 percent of total
governmental receipts and disbursements.
Disbursements from this fund type are projected to increase by $541
million over prior- year levels, primarily reflecting higher spending for
transportation and mental hygiene projects. The Dedicated Highway and Bridge
Trust Fund is projected to comprise 23 percent of the activity in this fund
type$936 million in 1995- 96and is the single largest dedicated fund.
Projected disbursements from this dedicated fund reflect an increase of $80
million over 1994-95 levels. Spending for capital projects will be financed
through a combination of sources: Federal grants (25 percent), public
authority bond proceeds (38 percent), general obligation bond proceeds (9
percent), and current revenues (28 percent). Total receipts in this fund type
are projected at $4.170 billion, not including $364 million expected to be
available from the proceeds of general obligation bonds.
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual- obligation financing arrangements. This
fund is expected to comprise 4 percent of total governmental fund receipts
and disbursements in the 1995-96 fiscal year. Receipts in these funds in
excess of debt service requirements are transferred to the General Fund and
Special Revenue Funds, pursuant to law.
The Debt Service Fund type consists of the General Debt Service Fund,
which is supported primarily by tax dollars transferred from the General
Fund, and seven other funds. In the 1995-96 fiscal year, total disbursements
in this fund type are projected at $2.506 billion, an increase of $303
million or 13.8 percent. The transfer from the General Fund of $1.583 billion
is expected to finance 63 percent of these payments.
The State contemplates financing the remaining payments by pledged
revenues, including $1.794 billion in taxes, $228 million in dedicated fees,
and $2.200 billion in patient revenues, including transfers of Federal
reimbursements. After impoundment for debt service, as required, $3.481
billion is expected to be transferred to the General Fund and other funds in
support of State operations. The largest transfer$1.761 billionis made to the
Special Revenue Fund type, in support of operations of the mental hygiene
agencies. Another $1.341 billion in excess sales taxes is expected to be
transferred to the General Fund, following payment of projected debt service
on bonds of LGAC.
The State issued the first of the three required quarterly updates to the
1995-96 cash-basis State Financial Plan on July 28, 1995 (the "First Quarter
Update"). The First Quarter Update projected continued balance in the State's
1995-96 Financial Plan, and incorporated few revisions to the initial State
Financial Plan of June 20, 1995. The economic forecast was unchanged. A
number of small, offsetting changes were made to the annual receipts and
disbursements estimates. The First Quarter Update also incorporated the
restatement of three transactions within the budget so that these
transactions conformed with accounting treatments utilized by the Office of
the State Comptroller. These restatements had the net effect of reducing both
General Fund receipts and disbursements by $251 million; therefore, they had
no impact on the closing balance of the General Fund.
The State issued its second quarterly update to the cash-basis 1995-96
State Financial Plan (the "Mid- Year Update") on October 26, 1995. The
Mid-Year Update projected continued balance in the State's 1995-96 Financial
Plan, with estimated receipts reduced by a net $71 million and estimated
disbursements reduced by a net $30 million as compared to the First Quarter
Update. The resulting General Fund balance decreased from $213 million in the
First Quarter Update to $172 million in the Mid-Year Update, reflecting the
expected use of $41 million from the Contingency Reserve Fund for payments of
litigation and disallowance expenses. The Mid-Year Update also incorporated
changes resulting from implementation of the Governor's Management Review
Plan which was released on October 12, 1995. The Management Review Plan is
expected
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to produce savings of $148 million in State fiscal year 1995-96, primarily
through Medicaid Utilization controls, consolidation of State agency staffing
and office space, controls on staffing, overtime and contractual expenses,
and increased productivity. Of the $148 million in savings attributable to
the Management Review Plan, $146 million was reflected in low spending from
the General Fund and $2 million was reflected in increased General Fund
receipts.
The State revised the cash-basis 1995-96 Financial Plan on December 15,
1995 (the "December 15 Update"), in conjunction with the release of the
Executive Budget for the 1996-97 fiscal year.
The December 15 Update projected continued balance in the 1995-96 General
Fund Financial Plan, with reductions on projected receipts offset by an
equivalent reduction in projected disbursements. Modest changes were made to
the Mid-Year Update, reflecting two more months of actual results, deficiency
requests by State agencies (the largest of which is for school aid resulting
from revisions to data submitted by school districts), and administrative
efficiencies achieved by State agencies. Total General Fund receipts are
expected to be approximately $73 million lower than estimated at the time of
the Mid-Year Update. Tax receipts are now projected to be $29.57 billion, $8
million less than in the earlier plan. Miscellaneous receipts and transfers
from other funds are estimated at $3.15 billion, $65 million lower than in
the Mid-Year Update. The largest single change in these estimates is
attributable to the lag in achieving $50 million in proceeds from sales of
State assets, which are unlikely to be completed prior to the end of the
fiscal year.
Projected General Fund disbursements are reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending masks the impact of
deficiency requests totaling more than $140 million, primarily for school aid
and tuition assistance to college students. Offsetting reductions in spending
are attributable to the continued maintenance of strict controls on spending
through the fiscal year by State agencies, yielding savings of $50 million.
Reductions of $49 million in support for capital projects reflect a stringent
review of all capital spending. Reductions of $30 million in debt service
costs reflect savings from refundings undertaken in the current fiscal year,
as well as savings from lower interest rates in the financial market.
Finally, the 1995-96 Financial Plan reflects reestimates based on actual
results through November, the largest of which is a reduction of $70 million
in projected costs for income maintenance. This reduction is consistent with
declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year is
expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into
that Fund. A $40 million deposit in the Contingency Reserve Fund included as
part of the enacted 1995-96 budget will not be made, and the minor balance of
$1 million currently in the Fund will be transferred to the General Fund.
These Contingency Reserve Fund monies are expected to support payments from
the General Fund for litigation related to the State's Medicaid program, and
for federal disallowances.
Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could
create adverse developments, the scope of which can not be estimated at this
time. The major remaining uncertainties in the 1995-96 State Financial Plan
continue to be those related to the economy and tax collections, which could
produce either favorable or unfavorable variances during the balances of the
year.
The State issued its third required quarterly update to the 1995-96
cash-basis State Financial Plan on January 30, 1996 (the "Third Quarterly
Update"). The Third Quarterly Update was published two weeks after the
closure of the Governor's 30-day amendment period, during the Governor
revised the 1996-97 State Financial Plan.
The Third Quarterly Update reflected actual results through the third
quarter of the State's fiscal year, quarterly and year-end tax payments
received in December and January, and modest changes in spending to reflect
the current year impact of certain 30-day amendments. The 1995-96 General
Fund State Financial Plan was projected to remain in balance on a cash basis,
with both receipts and disbursements projected to be $47 million higher than
in the December 15 Update. Total taxes were projected to be $29.66 billion,
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$88 million higher than in the December 15 Update. Miscellaneous receipts and
transfers were expected to total $3.1 billion, down $41 million from the
December 15 Update. Total disbursements were projected to be $32.75 billion.
Spending in Governmental Funds were projected at $63.31 billion, an increase
of $15 million from the December 15 Update.
The Governor presented his 1996-97 Executive Budget to the Legislature on
December 15, 1995, and subsequently amended it. The Executive Budget also
contains financial projections for the State's 1997-98 and 1998-99 fiscal
years and an updated Capital Plan. As provided by the State Constitution, the
Governor submitted amendments to his 1996-97 Executive Budget within 30 days
following submission and after the 30-day amendment period. Those amendments
are reflected in the discussion of the 1996-97 Executive Budget contained in
this Statement of Additional Information. The 1996-1997 Executive Budget was
not adopted by the State Legislature by the statutory deadline of April 1,
1996. There can be no assurance that the Legislature will enact the Executive
Budget as proposed by the Governor into law, or that the State's adopted
budget projections will not differ materially and adversely from the
projections set forth in this Statement of Additional Information.
The 1996-97 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $1.5 billion from spending
totals projected for the current fiscal year. After adjustments and transfers
for comparability between the 1995-96 and 1996-97 State Financial Plans, the
Executive Budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability. On April 3, 1996, the State
announced that the General Fund for the State's 1996 fiscal year is expected
to be balanced on a cash basis, with an operating surplus of $445 million.
There can be no assurance that the General Fund will yield such a surplus.
The Executive Budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the
Governor to restrain spending, General Fund disbursements for 1996-97 were
projected at $35 billion, an increase of $2.3 billion or 7 percent from
1995-96. This increase would have resulted from growth in Medicaid,
inflationary increases in school aid, higher fixed costs such as pensions and
debt service, collective bargaining agreements, inflation, and the loss of
non-recurring resources that offset spending in 1995-96. Receipts would have
been expected to fall by $1.6 billion. This reduction would have been
attributable to modest growth in the State's economy and underlying tax base,
the loss of non-recurring revenues available in 1995-96 and implementation of
previously enacted tax reduction programs.
The Executive Budget proposes to close this gap primarily through a series
of spending reductions and cost containment measures. The Executive Budget
projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental programs; (ii) $1.3 billion in savings from a reduced State
General Fund share of Medicaid made available from anticipated changes in the
federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance
in educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions
in other State programs. The assumption regarding an increased share of
federal Medicaid funding has received bipartisan Congressional support and
would benefit 32 states, including New York.
The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund.
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The Governor has submitted several amendments to the Executive Budget.
These amendments have a nominal impact on the State's Financial Plan for
1996-97 and the subsequent years. The net impact of the amendments leaves
unchanged the total estimated amount of General Fund spending in 1996-97,
which continues to be projected at $31.22 billion. All funds spending in
1996-97 is increased by $68 million, primarily reflecting adjustments to
projections of federal funds, and now totals $63.87 billion.
The budget amendments advanced by the Governor are largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a
declining caseload) and debt service (reflecting lower interest rates and
recent bond sales). Disbursement increases are projected for snow and ice
control, the AIDS Institute, Health Department utilization review programs
and other items. Estimated disbursements for other funds are increased to
accommodate updated projections of federal funding in certain categorical
grant programs and reduced for welfare as noted for the General Fund.
On March 15, 1996, two weeks before the start of the 1996-97 fiscal year,
the Governor presented additional amendments to the 1996-97 Executive Budget
which address two potential outcomes of the federal debate on entitlement
reform:
(bullet) Contingency Plan If the federal government fails to adopt
entitlement changes assumed to produce savings in the Executive
Budget for the State's 1996-97 fiscal year, the Governor has
identified $2.01 billion in new or redirected resources to
replace these savings in order to preserve budget balance in the
1996-97 State Financial Plan.
(bullet) Balanced Budget Bonus Plan If the federal government acts,
through legislation or through waivers of existing federal
provisions, and any necessary conforming changes are adopted by
the State Legislature, the State could receive all or a portion
of the $2.01 billion benefit anticipated in the original 1996-97
Executive Budget. As a result, a portion of the new resources
identified in the Contingency Plan would then be available to
make restorations or add new spending to the 1996-97 State
budget. The Balanced Budget Bonus Plan sets priorities for up to
$1.42 billion in potential recurring and non-recurring spending
increases.
There can be no assurance that the Legislature will enact the Executive
Budget or any of the amendments proposed by the Governor, that the State's
adopted budget projections will not differ materially and adversely from the
projections set forth in this Statement of Additional Information, or that
the State's actions will be sufficient to maintain budgetary balance in 1996-
97 or future fiscal years. Further, since the amendments implementing the
Contingency Plan and the Balanced Budget Bonus Plan have been submitted after
the 30-day amendment period, the Legislature must consent to their
introduction.
DOB believes that its economic assumptions and its projections of receipts
and disbursements for the 1996-97 Executive Budget as amended by the
Contingency Plan and the Balanced Budget Bonus Plan are reasonable. However,
various financial, social, economic, and political factors can affect these
projections, of which certain factors, such as action by the federal
government, are outside the State's control. Because of the uncertainty and
unpredictability of these factors, their impact cannot be fully anticipated
in the assumptions underlying the State's projections.
The 1996-97 Executive Budget includes actions that will have an impact on
receipts and disbursements in future fiscal years. The Governor has proposed
closing the 1996-97 budget gap primarily through expenditures reductions and
without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the Executive Budget submitted during the
30-day amendment period, the net impact of these actions is expected to
produce a potential imbalance in the 1997-98 fiscal year of $1.44 billion and
in the 1998-99 fiscal year of $2.46 billion, assuming implementation of the
1996-97 Executive Budget recommendations. For 1997-98, receipts are estimated
at $30.62 billion and disbursements at $32.05 billion. For 1998-99, receipts
are estimated at $31.85 billion and disbursements at $34.32 billion.
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For 1996-97 the closing fund balance in the General Fund is projected to
be $272 million. The required deposit to the Tax Stabilization Reserve Fund
adds $15 million to the 1995-96 balance of $172 million in that fund,
bringing the total to $187 million at the close of 1996-97. The remaining
General Fund balance reflects the deposit of $85 million to the Contingency
Reserve Fund, to provide resources to finance potential costs associated with
litigation against the State. This deposit is expected to be made pursuant to
legislation submitted with the Executive Budget which will require the State
share of certain non-recurring federal recoveries to be deposited to the
Contingency Reserve Fund.
For 1996-97, the Financial Plan projects disbursements of $28.93 billion
from this Fund. This includes $7.65 billion from Special Revenue Funds
containing State revenues, and $21.28 billion from funds containing federal
grants, primarily for social welfare programs.
The 1996-97 Executive Budget recommends that all of the SUNY's revenues be
consolidated in a single fund, permitting SUNY more flexibility and control
in the use of its revenues. As a result of this proposal, General Fund
support would be transferred to this fund, rather than spent directly from
the General Fund. SUNY's spending from this fund is projected to total $2.55
billion in 1996-97. The Mass Transportation Operating Assistance Fund and the
Dedicated Mass Transportation Trust Fund, which receive taxes earmarked for
mass transportation programs throughout the State, are projected to have
total disbursements of $1.23 billion in 1996-97. Disbursements also include
$1.63 billion in lottery proceeds which, after payment of administrative
expenses, permit the distribution of $1.43 billion for education purposes.
One hundred million dollars of lottery proceeds will be reserved in a
separate account for a local school tax reduction program to be agreed upon
by the Governor and the Legislature for disbursement in State fiscal year
1997-98. Disbursements of $650 million in 1996-97 from the Disproportionate
Share Medicaid Assistance Fund constitutes most of the remaining estimated
State Special Revenue Funds disbursements.
Federal Special Revenue Fund projections for 1996-97 were developed in the
midst of considerable uncertainty as to the ultimate composition of the
federal budget, including uncertainties regarding major federal entitlement
reforms. Disbursements are estimated at $21.27 billion in 1996-97, an
increase of $2.02 billion, or 10.5 percent from 1995-96. The projections
included in the 1996-97 State Financial Plan assume that the federal Medicaid
program will be reformed generally along the lines of the congressional
MediGrant program. This would include an increase from 50 percent to 60
percent in the federal share of New York's Medicaid expenses. A repeal of the
federal Boren amendment regarding provider rates is also anticipated. As a
result of these changes, the Executive Budget projects the receipt of $13.1
billion in total federal Medicaid reimbursements in 1996-97, an increase of
approximately $915 million from the 1995-96 level.
The second largest projected increase in federal reimbursement is for the
State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626
million.
Disbursements from the Capital Projects Funds in 1996-97 are estimated at
$3.76 billion. This estimate is $332 million less than the 1995-96
projections. The spending reductions are the result of program restructuring,
achieved in 1995-96 and continued in the 1996-97 Financial Plan. The spending
plan includes:
(bullet) $2.5 billion in disbursements for the second year of the
five-year $12.6 billion State and local highway and bridge
program;
(bullet) Environmental Protection Fund spending of $106.5 million;
(bullet) Correctional services spending of $153 million; and
(bullet) SUNY and CUNY capital spending of $196 million and $87 million,
respectively.
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The share of capital projects to be financed by "pay-as-you-go" resources
is projected to hold steady in 1996-97 at approximately 27 percent.
State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.
Disbursements from the Debt Service Fund are estimated at $2.64 billion in
1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the State
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new
debt service on prisons recently purchased from New York City, and $27
million is for the mental hygiene programs financed through the Mental Health
Services Fund. Debt service for LGAC bonds increases only slightly after
years of significant increases, as the new- money bond issuance portion of
the LGAC program was completed in State fiscal year 1995-96. Increased debt
service costs primarily reflect prior capital commitments financed by bonds
issued by the State and its public authorities, the reduced use of
capitalized interest, and the use of shorter term bonds, such as the 10 year
average maturity for the Dedicated Highway and Bridge Trust Fund bonds.
The 1995-96 State Financial Plans and the 1996-97 Executive Budget are
based upon forecasts of national and State economic and financial conditions.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, can vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State but also by entities, such as
the federal government, that are outside the State's control. Because of the
uncertainty and unpredictability of changes in these factors, their impact
cannot be fully included in the assumptions underlying the State's
projections. There can be no assurance that the State economy will not
experience results in the 1995-96 and the 1996-97 fiscal years that are worse
than predicted, with corresponding material and adverse effects on the
State's financial projections.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
TRANs. First, the national recession, and then the lingering economic
slowdown in the New York and regional economy, resulted in repeated
shortfalls in receipts and three budget deficits. For its 1992-93, 1993-94
and 1994-95 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in 1992-93 and 1993-94, and a smaller
fund balance in 1994-95 as described below.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in
the Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve
Fund ("CRF"). The CRF was established in State fiscal year 1993-94, funded
partly with surplus moneys, to assist the State in financing the 1994- 95
fiscal year costs of extraordinary litigation known or anticipated at that
time; the opening fund balance in State fiscal year 1994-95 was $265 million.
The $241 million change in the fund balance reflects the use of $264 million
in the CRF as planned, as well as the required deposit of $23 million to the
Tax Stabilization Reserve Fund. In addition, $278 million was on deposit in
the tax refund reserve account, $250 million of which was deposited at the
end of the State's 1994-95 fiscal year to continue the process of
restructuring the State's cash flow as part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June 16,
1994, reported receipts fell short of original projections by $1.163 billion,
primarily in the categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and
salary growth, more severe reductions in brokerage industry bonuses than
projected earlier, and deferral of capital gains realizations in anticipation
of potential Federal tax changes. Business taxes fell short by $373 million,
primarily reflecting lower payments from banks as substantial overpayments of
1993 liability depressed net collections in the 1994-95 fiscal year. These
shortfalls were offset by better performance in the remaining taxes,
particularly the user taxes and fees, which exceeded projections by $210
million. Of this amount, $227 million was attributable to certain
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restatements for accounting treatment purposes pertaining to the CRF and
LGAC; these restatements had no impact on balance in the General Fund.
Disbursements were also reduced from original projections by $848 million.
After adjusting for the net impact of restatements relating to the CRF and
LGAC which raised disbursements by $38 million, the variance is $886 million.
Well over two-thirds of this variance is in the category of grants to local
governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated in
January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a
hiring freeze, halting the development of certain services, and the
suspension of non-essential capital projects. These actions, together with
$71 million in other measures comprised the Governor's $259 million
gap-closing plan, submitted to the Legislature in connection with the 1995-96
Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion
in its tax refund reserve account, $265 million in its CRF and $134 million
in its Tax Stabilization Reserve Fund. These fund balances were primarily the
result of an improving national economy, State employment growth, tax
collections that exceeded earlier projections and disbursements that were
below expectations. Deposits to the personal income tax refund reserve have
the effect of reducing reported personal income tax receipts in the fiscal
year when made and withdrawals from such reserve increase receipts in the
fiscal year when made. The balance in the tax refund reserve account will be
used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account, $1.026
billion was available for budgetary planning purposes in the 1994-95 fiscal
year. The remaining $114 million was redeposited in the tax refund reserve
account at the end of the State's 1994-95 fiscal year to continue the process
of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF will be used to meet the cost of litigation facing the
State. The Tax Stabilization Reserve Fund may be used only in the event of an
unanticipated General Fund cash-basis deficit during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in the 1993-94 fiscal year exceeded those originally
projected when the State Financial Plan for that year was formulated on April
16, 1993 by $1.002 billion. Greater-than-expected receipts in the personal
income tax, the bank tax, the corporation franchise tax and the estate tax
accounted for most of this variance, and more than offset
weaker-than-projected collections from the sales and use tax and
miscellaneous receipts.
Collections from individual taxes were affected by various factors
including changes in Federal business laws, sustained profitability of banks,
strong performance of securities firms, and higher-than-expected consumption
of tobacco products following price cuts.
The higher receipts resulted, in part, because the State economy performed
better than forecasted. Employment growth started in the first quarter of the
State's 1993-94 fiscal year, and, although this lagged behind the national
economic recovery, the growth in New York began earlier than forecasted. The
State economy exhibited signs of strength in the service sector, in
construction, and in trade. Long Island and the Mid-Hudson Valley continued
to lag behind the rest of the State in economic growth. The DOB believes that
approximately 100,000 jobs were added during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were $303 million below
the level that was projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid billings,
which in the April 1993 State Financial Plan were planned to be deferred into
the 1994-95
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fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted from lower spending
for Medicaid, capital projects, and debt service (due to refundings) and $114
million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher-than-expected for general support for
public schools, the State share of income maintenance, overtime for prison
guards, and highway snow and ice removal. The State also made the first of
six required payments to the State of Delaware related to the settlement of
Delaware's litigation against the State regarding the disposition of
abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded the
CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal
year. In addition, the State augmented this initial deposit with $132 million
in debt service savings attributable to the refinancing of State and public
authority bonds during 1993-94. A year-end transfer of $36 million was also
made to the CRF, which, after a disbursement for authorized fund purposes,
brought the CRF balance at the end of 1993-94 to $265 million. This amount
was $165 million higher than the amount originally targeted for this reserve
fund.
The State ended its 1992-93 fiscal year with a balance of $671 million in
the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund.
The State's 1992-93 fiscal year was characterized by performance that was
better than projected for the national and regional economies. National gross
domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992.
This favorable economic performance, particularly at year end, combined
with a tax-induced acceleration of income into 1992, was the primary cause of
the General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated
payment components of the tax.
There were large, but mainly offsetting, variances in other categories of
receipts. Significantly higher- than-projected business tax collections and
the receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200-million Federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable
court decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections made in April 1992, although this includes a $150 million payment
to health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105
million lower than projected. This reduction primarily reflected lower costs
in virtually all categories of spending, including Medicaid, local health
programs, agency operations, fringe benefits, capital projects and debt
service as partially offset by higher-than-anticipated costs for education
programs.
The financial condition of the State is affected by several factors,
including the strength of the State and regional economy and actions of the
Federal government, as well as State actions affecting the level of receipts
and disbursements. Owing to these and other factors, the State may, in future
years, face substantial potential budget gaps resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the future costs of maintaining State programs at current levels. Any
such recurring imbalance would be exacerbated if the State were to use a
significant amount of nonrecurring resources to balance the budget in a
particular fiscal year. To address a potential imbalance for a given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the
State Constitution the Governor is required to propose a balanced budget each
year. To correct recurring budgetary imbalances, the State would need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. There can be no assurance, how-
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ever, that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally
funded through the State's annual seasonal borrowing. The legislation
authorized LGAC to issue its bonds and notes in an amount not in excess of
$4.7 billion (exclusive of certain refunding bonds) plus certain other
amounts. Over a period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was expected to
eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent
State sales and use tax to pay debt service on these bonds. The legislation
also imposed a cap on the annual seasonal borrowing of the State at $4.7
billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. This
provision capping the seasonal borrowing was included as a covenant with
LGAC's bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds
of $4.7 billion completing the program. The impact of LGAC's borrowing is
that the State is able to meet its cash flow needs in the first quarter of
the fiscal year without relying on short-term seasonal borrowings. The
1995-96 State Financial Plan includes no spring borrowing nor did the 1994-95
State Financial Plan, which was the first time in 35 years there was no
short-term seasonal borrowing.
On January 13, 1992, Standard & Poor's ("S&P") lowered its rating on the
State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. S&P also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993 S&P revised
the rating outlook assessment to stable. On February 14, 1994, S&P revised
its outlook to positive and, on October 3, 1995, confirmed its A- rating. On
January 6, 1992, Moody's reduced its ratings on outstanding limited-liability
State lease purchase and contractual obligations from A to Baa1. On October
2, 1995, Moody's reconfirmed its A rating on the State's general obligation
long-term indebtedness.
On June 6, 1990, Moody's changed its ratings on all of the State's
outstanding general obligation bonds from A1 to A, the rating having been A1
since May 27, 1986. On November 12, 1990, Moody's confirmed the A rating. In
1992, S&P lowered the State's general obligation bond rating to A-, where it
currently remains and was affirmed on July 13, 1995. Prior to this, on March
26, 1990, S&P lowered its rating of all of the State's outstanding general
obligation bonds from AA- to A. Previous S&P ratings were AA- from August,
1987 to March, 1990 and A+ from November, 1982 to August, 1987.
Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds
and notes within the amounts of, and as otherwise restricted by, their
legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially adversely affected, if any of its public authorities were to
default on their respective obligations. As of September 30, 1994, the date
of the latest data available, there were 18 Authorities that had outstanding
debt of $100 million or more, and the aggregate outstanding debt, including
refunding bonds, of these 18 Authorities was $70.3 billion. As of March 31,
1995, aggregate Authority debt outstanding as State-supported debt was $27.9
billion and as State-related debt was $36.1 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing
public facilities. Public authority operating expenses and debt
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service costs are generally paid by revenues generated by the projects
financed or operated, such as tolls charged for the use of highways, bridges
or tunnels, rentals charged for housing units, and charges for occupancy at
medical care facilities.
In addition, State legislation authorizes several financing techniques for
public authorities. Also, there are statutory arrangements providing for
State local assistance payments otherwise payable to localities to be made
under certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to public authorities under these
arrangements if local assistance payments are so diverted, the affected
localities could seek additional State assistance.
Some authorities also receive monies from State appropriations to pay for
the operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to carry out mass transit and
commuter services.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency, the New York State Urban Development
Corporation and certain other Authorities have in the past required and
continue to require substantial amounts of assistance from the State to meet
debt service costs or to pay operating expenses. Further assistance, possibly
in increasing amounts, may be required for these, or other, Authorities in
the future. In addition, certain other statutory arrangements provide for
State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to Authorities under these arrangements.
However, in the event that such local assistance payments are so diverted,
the affected localities could seek additional State funds.
Metropolitan Transportation Authority. The MTA oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus
lines in the New York Metropolitan area through MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line
on Staten Island. Through its affiliated agency, the Triborough Bridge and
Tunnel Authority (the "TBTA"), the MTA operates certain intrastate toll
bridges and tunnels. Because fare revenues are not sufficient to finance the
mass transit portion of these operations, the MTA has depended, and will
continue to depend for operating support upon a system of State, local
government and TBTA support, and, to the extent available, Federal operating
assistance, including loans, grants and operating subsidies. If current
revenue projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes--including a surcharge on
the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation
Region served by the MTA and a special one-quarter of 1 percent regional
sales and use tax--that provide revenues for mass transit purposes, including
assistance to the MTA. In addition, since 1987, State law has required that
the proceeds of a one quarter of 1% mortgage recording tax paid on certain
mortgages in the Metropolitan transportation Region be deposited in a special
MTA fund for operating or capital expenses. Further, in 1993 the State
dedicated a portion of the State petroleum business tax to fund operating or
capital assistance to the MTA. For the 1995-96 fiscal year, total State
assistance to the MTA is estimated by the State to be approximately $1.1
billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the
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1992-96 Capital Program based on this legislation from the 1992-96 Capital
Program Review Board, as State law requires. This is the third five-year plan
since the Legislature authorized procedures for the adoption, approval and
amendment of a five-year plan in 1981 for a capital program designed to
upgrade the performance of the MTA's transportation systems and to
supplement, replace and rehabilitate facilities and equipment. The MTA, the
TBTA and the TA are collectively authorized to issue an aggregate of $3.1
billion of bonds (net certain statutory exclusions) to finance a portion of
the 1992-96 Capital Program. The 1992-96 Capital Program may be financed in
significant part through dedication of State petroleum business taxes
referred to above. However, in December 1994 the proposed bond resolution
based on such tax receipts was not approved by the MTA Capital Program Review
Board. Further consideration of the resolution was deferred until 1995.
There can be no assurance that all the necessary governmental actions for
the 1992-96 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1992-96
Capital Program is delayed or reduced, ridership and fare revenues may
decline, which could, among other things, impair the MTA's ability to meet
its operating expenses without additional State assistance.
Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the 1995-96 fiscal years and thereafter. The potential impact on the State of
such actions by localities is not included in the projections of the State
receipts and disbursements for the 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re- establishment of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the Governor or the Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
Municipal Indebtedness. Municipalities and school districts have engaged
in substantial short-term and long-term borrowings. In 1993, the total
indebtedness of all localities in the State was approximately $17.7 billion.
A small portion (approximately $105 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1993.
From time to time, proposed Federal expenditure reductions could reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential
problems of declining urban population, increasing expenditures and other
economic trends could adversely affect certain localities and require
increasing State assistance in the future.
Litigation. Certain litigation pending against the State or its officers
or employees could have a substantial or long-term adverse affect on State
finances. Among the more significant of these cases are those that involve:
(i) a challenge to certain enhanced supplemental pension allowances for
members of the ose that involve state and local retirement systems; (ii)
several challenges to provisions of Chapter 81 of the Laws of 1995 which
after the nursing home Medicaid reimbursement methodology; (iii) the validity
of agreements and treaties by which various Indian tribes transferred title
to the State of certain land in central and upstate
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New York; (iv) a challenge to State regulations which reduce base prices for
the direct and indirect component of Medicaid reimbursement for rate years
commencing 1989; (v) an action against State and City officials alleging that
the present level of shelter allowance for public assistance recipients is
inadequate under statutory standards to maintain proper housing; (vi)
challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; (vii)
alleged responsibility of State officials to assist in remedying racial
segregation in the City of Yonkers; (viii) alleged responsibility of the
State Department of Environmental Conservation for a plaintiff's inability to
complete construction of a cogeneration facility in a timely fashion and the
damages suffered thereby; (ix) challenges to the promulgation of the State's
proposed procedure to determine the eligibility for and nature of home care
services for Medicaid recipients; (x) a challenge to State implementation of
a program which reduces Medicaid benefits to certain home-relief recipients;
(xi) a challenge to the constitutionality of petroleum business tax
assessments authorized by Tax Law 301; and (xii) two cases by commercial
insurers, employee welfare benefit plans, and health maintenance
organizations to provisions of Section 2807-c of the Public Health Law which
impose 13%, 11%, and 9% surcharges on inpatient hospital bills and a bad debt
and charity care allowance on all hospital bills paid by such entities were
resolved by order dated October 2, 1995, the United States District Court for
the Southern District of New York held that the 11 percent and 13 percent
surcharges are preempted by FEBHA and unenforceable against commercial
insurers which provide stop-loss coverage to self-funded ERISA plans.
Adverse developments in the proceedings described above or the initiation
of new proceedings could affect the ability of the State to maintain a
balanced 1995-96 State Financial Plan. In its Notes to its General Purpose
Financial Statements for the fiscal year ended March 31, 1994, the State
reports its estimated liability for awards and anticipated unfavorable
judgments at $675 million. There can be no assurance that an adverse decision
in any of the above cited proceedings would not exceed the amount of the
1995-96 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced
1995-96 State Financial Plan.
NEW YORK CITY
The fiscal health of the State may also be impacted by the fiscal health
of its localities, particularly the City, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its fiscal years from
1981 through 1995, which end on June 30, show a General Fund surplus reported
in accordance with generally accepted accounting principles ("GAAP"). The
City was required to close substantial budget gaps in recent years in order
to maintain balanced operating results. For fiscal year 1995, the City
adopted a budget which halted the trend in recent years of substantial
increases in City-funded spending from one year to the next. There can be no
assurance that the City will continue to maintain a balanced budget as
required by State law without additional tax or other revenue increases or
additional economic reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among these actions, the
State established the Municipal Assistance Corporation for the City of New
York ("MAC") to provide financing assistance to the City. The State also
enacted the New York State Financial Emergency Act for The City of New York
(the "Financial Emergency Act") which, among other things, established the
New York State Financial Control Board (the "Control Board") to oversee the
City's financial affairs. The State also established the Office of the State
Deputy Comptroller for the City of New York ("OSDC") to assist the Control
Board in exercising its powers and responsibilities; and a "Control Period"
from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal- monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board,
MAC and OSDC continue to exercise various fiscal-monitoring functions over
the City, and upon the occurrence or "substantial likelihood and imminence"
of the occurrence of certain events, including, but not limited to a City
operating
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budget deficit of more than $100 million, the Control Board is required by
law to reimpose a Control Period. Currently, the City and its Covered
Organizations (i.e., those which receive or may receive money from the City
directly, indirectly or contingently) operate under a four-year financial
plan, which is reviewed and revised on a quarterly basis and which includes
the City's capital revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's current
four-year financial plan projects substantial budget gaps for each of the
1997 through 1999 fiscal years, before implementation of the proposed gap-
closing program contained in the current financial plan. The City is required
to submit its financial plans to review bodies, including the New York State
Financial Control Board.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions,
are subject to various uncertainties. If, for example, expected Federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided
for in the City's financial plan or if other uncertainties materialize that
reduce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional actions,
including increases in taxes and reductions in essential City services. The
City might also seek additional assistance from the State.
On January 31, 1996, the City published the Financial Plan for the
1996-1999 fiscal years, which is a modification to a financial plan submitted
to the Control Board on July 11, 1995 (the "July Financial Plan") and which
relates to the City, the Board of Education ("BOE") and the City University
of New York ("CUNY"). The Financial Plan sets forth proposed actions by the
City for the 1996 fiscal year to close substantial projected budget gaps
resulting from lower than projected tax receipts and other revenues and
greater than projected expenditures. In addition to substantial proposed
agency expenditure reductions, the Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years, and to decrease the City's costs for Medicaid in the 1997
fiscal year and thereafter by increasing the Federal share of Medicaid costs
otherwise paid by the City. This strategy is the subject of substantial
debate, and implementation of this strategy will be significantly affected by
State and Federal budget proposals currently being considered. It is likely
that the Financial Plan will be changed significantly in connection with the
preparation of the Executive Budget for the 1997 fiscal year as a result of
the status of State and Federal budget proposals and other factors. The City
expects to submit the Executive Budget to the City Council in early May 1996.
The July Financial Plan set forth proposed actions to close a previously
projected gap of approximately $3.1 billion for the 1996 fiscal year. The
proposed actions in the July Financial Plan for the 1996 fiscal year included
(i) a reduction in spending of $400 million, primarily affecting public
assistance and Medicaid payments by the City; (ii) agency reduction programs,
totaling $1.2 billion; (iii) transitional labor savings totaling $600
million; and (iv) the phase-in of the increased annual pension funding cost
due to revisions resulting from an actuarial audit of the City pension
systems, which would reduce such costs in the 1996 fiscal year. A
modification to the July Financial Plan published on November 29, 1995 (the
"November Financial Plan") included savings from a proposed refunding of
outstanding debt and other expenditure reductions to offset a $129 million
increase in projected expenditures.
The 1996-1999 Financial Plan published on January 31, 1996 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the November Financial Plan, and projects revenues and expenditures for
the 1996 fiscal year balanced in accordance with GAAP. For the 1996 fiscal
year, the Financial Plan includes actions to offset an additional $759
million budget gap resulting primarily from (i) the failure of the Port
Authority of New York and New Jersey (the "Port Authority") to pay disputed
back rent for the City's airports in the amount included in the November
Financial Plan, (ii) shortfalls in Federal and State aid included in the
November Financial Plan, (iii) shortfalls in revenues and in amounts to be
saved through gap-closing actions at BOE, (iv) shortfalls in projected
savings from cost containment initiatives proposed in the July Financial Plan
affecting public assistance and Medicaid, and (v) the failure of the City and
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its labor unions to identify assumed savings in the City's health benefits
system. The gap-closing measures for the 1996 fiscal year set forth in the
Financial Plan include (i) additional proposed agency actions aggregating
$207 million, (ii) the receipt of $150 million from MAC, and (iii) the
receipt of $120 million from the proposed sale of mortgages, $75 million from
increased revenues from the proposed sale of City tax liens on real property
and $207 million from the proposed sale of the City's television station.
The City and MAC have reached an agreement in principle under which MAC
will develop and implement a debt restructuring program which will provide
the City with $125 million in budget relief in fiscal year 1996, in addition
to the $20 million of additional budget relief provided by MAC to the City
since January 1996. The City has agreed with MAC that it will reduce certain
expenditures by $125 million in cash of the four fiscal years starting in
fiscal year 1997. The proposed refinancing, which must satisfy MAC
refinancing criteria, is subject to market conditions. The proposed sale of
the City's television station is subject to Federal regulatory approval, and
the Federal budget negotiation process for the 1996 Federal fiscal year could
result in a reduction in, or a delay in the receipt of, Federal grants in the
City's 1996 fiscal year. If such approvals are not received on a timely
basis, the City may be required to identify alternative measures to balance
its 1996 fiscal year.
The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate a
projected gap of $2.0 billion for the 1997 fiscal year, and to reduce
projected gaps of $3.3 billion and $4.1 billion for the 1998 and 1999 fiscal
years, respectively, assuming successful implementation of the gap-closing
program for the 1996 fiscal year. The projected gaps for the 1997 through
1999 fiscal years have increased from the gaps projected in the November
Financial Plan to reflect (i) reductions in projected property taxes of $177
million, $294 million and $421 million in the 1997, 1998 and 1999 fiscal
years, respectively, due to a lower than forecast increase in the tentative
assessment roll published by the New York City Department of Finance, (ii)
reductions in other forecast tax revenues of $114 millon, $216 million and
$261 million in the 1997, 1998 and 1999 fiscal years, respectively, (iii)
reductions in tax revenues of $79 million, $224 million and $341 million in
the 1997, 1998 and 1999 fiscal years, respectively, as a result of new tax
reduction initiatives, including a proposed sales tax exemption on clothing
items under $500, and (iv) increased agency expenditures.
The proposed gap-closing actions for the 1997 through 1999 fiscal years
include (i) additional agency actions, totaling between $643 million and $691
million in each of the 1997 through 1999 fiscal years; (ii) additional
savings resulting from State and Federal aid and cost containment in
entitlement programs to reduce City expenditures and increase revenues by
$650 million in the 1997 fiscal year and by $727 million in each of the 1998
and 1999 fiscal years; (iii) additional proposed Federal aid of $50 million
in the 1997 fiscal year and State aid of $100 million in each of the 1997
through 1999 fiscal years; (iv) the receipt of $300 million in the 1997
fiscal year from privatization or other initiatives, including the sale of
the City's parking meters and associated revenues, which may require
legislative action by the City Council, or the sale of other assets; and (v)
the assumed receipt of revenues relating to rent payments for the City's
airports, totaling $244 million, $226 million and $70 million in the 1997
through 1999 fiscal years, respectively, which are currently the subject of a
dispute with the Port Authority and the collection of which is expected to
depend on the successful completion of negotiations with the Port Authority
or the enforcement of the City's remedies under the leases through pending
legal actions. The City is also preparing an additional contingency
gap-closing program for the 1997 fiscal year to be comprised of $200 million
in additional agency actions.
The Governor has released the 1996-1997 Executive Budget, on December 15,
1995. The 1996-1997 Executive Budget was not adopted by the State Legislature
by the statutory deadline of April 1, 1996. The City estimates that the
1996-1997 Executive Budget provides the City with $173 million of savings
from Medicaid cost containment proposals and $127 million of savings from
proposed reductions in welfare spending in the 1997 fiscal year. The
Financial Plan assumes that the remaining $350 million of the $650 million of
entitlement reform benefits included in the Financial Plan for the 1997
fiscal year will be generated by the State providing the City with a portion
of the additional funds received by the State as a result of the increased
Federal share of Medicaid costs proposed in the State Executive Budget.
However, the State Executive Bud-
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get does not currently contemplate sharing such funds with the City. In
addition, the President and Congress are currently considering budget
proposals for the 1996 Federal fiscal year. The Federal budget or other
factors may cause substantial amendments to the State Executive Budget.
The Federal and State budgets, when adopted, may result in substantial
reductions in revenues for the City, as well as a reduction in projected
expenditures in entitlement programs, including Medicare, Medicaid and
welfare programs. The Federal and State aid projected in the Financial Plan,
and the substantial savings assumed from cost containment in entitlement
programs included in the Financial Plan gap-closing program for the 1997
through 1999 fiscal years, will be significantly affected both by the outcome
of the current Federal budget negotiations and by the State budget proposals
made by the Governor and to be considered by the State Legislature. The
nature and extent of the impact on the City of the Federal and State budgets,
when adopted, is uncertain, and no assurance can be given that Federal or
State actions included in the Federal and State adopted budgets may not have
a significant adverse impact on the City's budget and its Financial Plan.
The projections for the 1996 through 1999 fiscal years reflect the costs
of the proposed settlement with the United Federation of Teachers ("UFT") and
the recent settlement with a coalition of unions headed by District Council
37 of the American Federation of State, County and Municipal Employees
("District Council 37"), and assume that the City will reach agreement with
its remaining municipal unions under terms which are generally consistent
with such settlements which are discussed below. The projections for the 1996
through 1999 fiscal years also assume the BOE will be able to identify
actions to offset possible substantial shortfalls in Federal, State and City
revenues.
The City's financial plans have been the subject of extensive public
comment and criticism. The City Comptroller has issued reports identifying
risks ranging between $440 million and $560 million in the 1996 fiscal year
before taking into account the availability of $160 million in the General
Reserve, and between $2.05 billion and $2.15 billion in the 1997 fiscal year
after implementation of the City's proposed gap-closing actions. With respect
to the 1997 fiscal year, the report noted that the Financial Plan assumes the
implementation of highly uncertain State and Federal actions, most of which
are unlikely to be implemented, that would provide between $1.2 billion and
$1.4 billion in relief to the City, and identified additional risks,
including risks attributable to BOE which total $415 million, without taking
into account potential reductions that will likely take place upon adoption
of the Federal and State budgets. The report concluded that the magnitude of
the budget risk for the 1997 fiscal year, after two years of large agency
cutbacks and workforce reductions, indicates the seriousness of the City's
continuing budget difficulties, and that the Financial Plan will require
substantial revision in order to provide a credible program for dealing with
the large projected budget gap for the 1997 fiscal year. In addition, the
staff of the OSDC and the staff of the Control Board have issued reports on
the Financial Plan.
Contracts with all of the City's municipal unions expired in the 1995 and
1996 fiscal years. In November 1995 the City announced a tentative settlement
with the UFT and a coalition of unions headed by District Council 37 which
represent approximately two-thirds of the City's workforce. The settlement
provides for a wage freeze in the first two years, followed by a cumulative
effective wage increase of 11% by the end of the five year period covered by
the proposed agreements, ending in fiscal years 2000 and 2001. The United
Probation Officers' Association which represents approximately 1,000
probation officers recently ratified a contract with the City which conforms
to the pattern established by the civilian coalition. Additional benefit
increases would raise the total cumulative effective increase to 13% above
present costs. The Financial Plan reflects the costs associated with the
settlements, and assumes similar increases for all other City- funded
employees, which total $49 million, $459 million and $1.2 billion in the
1997, 1998 and 1999 fiscal years, respectively. Such increases exceed $2
billion in each fiscal year after the 1999 fiscal year. District Council 37
and Local 237, representing approximately 90,000 full-time employees, have
ratified the proposed settlement. On December 7, 1995, the members of the UFT
voted on the proposed settlement with the UFT. Six chapters of the UFT,
representing approximately 18,000 full-time employees, including teaching
paraprofessionals, voted to ratify the proposed settlement, which will apply
to those chapters if approved by BOE. Five
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chapters, representing approximately 76,000 full-time employees, including
teachers, voted not to ratify the proposed settlement. A portion of the
transitional labor savings contained in the Financial Plan is dependent upon
conclusion of collective bargaining agreements with the City's workforce.
There can be no assurance that the City will reach an agreement with the
chapters of the UFT which rejected the proposed settlement on the terms
contained in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which
can impose a binding settlement except in the case of collective bargaining
with the UFT, which may be subject to non-binding arbitration. On January 23,
1996, the City requested the Office of Collective Bargaining to declare an
impasse against the Patrolmen's Benevolent Association ("PBA") and the United
Firefighters Association ("UFA").
From time to time, the Control Board staff, MAC, OSDC, the City
Comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City
to eliminate projected operating deficits. Some of these reports and
statements have warned that the City may have underestimated certain
expenditures and overestimated certain revenues and have suggested that the
City may not have adequately provided for future contingencies. Certain of
these reports have analyzed the City's future economic and social conditions
and have questioned whether the City has the capacity to generate sufficient
revenues in the future to meet the costs of its expenditure increases and to
provide necessary services. It is reasonable to expect that reports and
statements will continue to be issued and to engender public comment.
On February 29, 1996 the staff of the City Comptroller issued a report on
the Financial Plan. The report projects that there remains $408 million to
$528 million in budget risks for the 1996 fiscal year, before taking into
account the availability of $160 million in the General Reserve. The
principal risks for the 1996 fiscal year identified in the report include
$140 million to $190 million of uncertain revenues and projected savings at
BOE and the receipt by the City of $100 million to $130 million from a
proposed MAC refunding. The report also expressed concern as to whether the
required regulatory approval for the sale of the City's television station
would be received before the end of the 1996 fiscal year. In a subsequent
report, the City Comptroller increased the risks for the 1996 fiscal year by
$32 million. The report also noted that the city may be required to implement
additional cash management actions and delay payments to vendors if the
Federal budget impasse continues and the state budget process is delayed. In
addition, the report noted that tax revenues between July 1995 and February
1996 were $82.1 million below the Financial Plan projections and that tax
revenues were $10.8 million below the Financial Plan projections for the
month of February 1996, due principally to lower than forecast general
property tax receipts, which were partially offset by greater than forecast
personal income tax revenues.
With respect to the 1997 fiscal year, the report states that the Financial
Plan includes total risks of between $2.05 billion and $2.15 billion. The
report notes that the gap-closing program for the 1997 fiscal year assumes
the implementation of highly uncertain State and Federal actions that would
provide between $1.2 billion and $1.4 billion in relief to the City resulting
from proposed public assistance and medical assistance entitlement
reductions, a proposed increase in Federal Medicaid reimbursements,
additional State aid and various privatization proposals. The report
concludes that it is unlikely that the City will be able to implement most of
these initiatives due to Federal and State budget difficulties. Additional
risks for the 1997 fiscal year identified in the report include (i) risks
attributable to BOE relating to unspecified additional State aid, unspecified
expenditure reductions and proposals to reduce special education spending,
which total $415 million, without taking into account potential reductions
that will likely take place upon adoption of the Federal and State budgets;
(ii) proposals for the sale of parking meters and other assets; and (iii) the
receipt of $244 million to $294 million of lease payments from the Port
Authority for the City's airports.
The report concluded that the magnitude of the budget risk for the 1997
fiscal year, after two years of large agency cutbacks and work force
reductions, indicates the seriousness of the City's continuing budget
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difficulties, and that the Financial Plan will require substantial revision
in order to provide a credible program for dealing with the large projected
budget gap for the 1997 fiscal year. The report further notes that the
relative weakness of the national and City economies makes it unlikely that
new jobs and business expansion will generate significant additional tax
revenues and that proposed Federal and State reductions in funding will
reduce the levels of intergovernmental assistance for the City.
On March 6, 1996, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that there remained a budget gap for the 1996
fiscal year of $44 million, which can be closed with the $200 million General
Reserve, and additional significant risks totaling $507 million involving
actions which require the approval of the State and Federal governments or
other third parties. These risks include (i) potential delays in the sale of
the City's television station; (ii) shortfalls in projected resources from
MAC; and (iii) shortfalls of $100 million in projected State education aid
and $50 million in projected Federal assistance. In addition, the report
expressed concern that (i) the City may have to write off a portion of
approximately $300 million in State education aid that was included as
revenue in prior years' budgets, since the State has not made payment and
neither the current nor the proposed State budget include an appropriation
sufficient to cover most of this liability, and (ii) the City must complete
two transactions before the end of the fiscal year, the sale of property tax
liens and housing mortgages, that together are expected to produce resources
of $267 million.
The report also concluded that the gap for the 1997 fiscal year could be
$544 million greater than the City's projected budget gap of $2 billion,
primarily due to the failure of BOE to specify $304 million of expenditure
reductions or additional resources necessary to bring its spending in line
with the resources allocated to it in the Financial Plan. In addition, the
report noted that gap-closing proposals set forth in the Financial Plan
totalling $1.6 billion are at high risk of falling short of target. The
proposals identified in the report as high risk include (i) $800 million in
expected State and Federal assistance, primarily from savings in social
service entitlement programs, which are dependent on the ultimate resolution
of the Federal and State budgets; (ii) $300 million from initiatives to
privatize parking meters and other City assets; (iii) $244 million to be
received from the Port Authority as retroactive lease payments for the City's
two airports; and (iv) $181 million in spending cuts for BOE. Moreover, the
report expressed concern that the potential for budget cuts at BOE could
exceed $1 billion after taking into account the possible loss of $453 million
in proposed reductions in State and Federal funding. The report also stated
that non-recurring resources for the 1996 fiscal year have increased to over
$1.7 billion, approaching the unprecedented $2 billion used in the 1995
fiscal year, and that one-third of the 1997 fiscal year gap-closing program
already relies on one-time resources.
With respect to the economy, the report noted that, in a time of slow
economic growth, revenues continue to stagnate, and that the City's economic
forecast, which is premised on sluggish national growth, does not reflect the
potential for a national recession during the four years of the Financial
Plan. In addition, the report expressed concern that the City's economy, and
City and State tax revenues, are closely tied to swings in the financial
markets, such as rising interest rates, which sharply reduced the profits of
securities firms in 1994, and rising equity markets, which raised personal
income and business tax collections in 1995, as well as economic conditions
in Europe and Japan, which are currently weak.
The report noted that Federal and State assistance is likely to be
significantly reduced and that there is little potential for significant new
revenues beyond those already reflected in the Financial Plan. The report
concluded that, despite the City's success in work force reduction and
entitlement savings, the Financial Plan shows an increasing imbalance between
the City's recurring revenues and expenditures.
On March 15, 1996, the staff of the Control Board issued a report on the
Financial Plan. The report identified risks totaling $384 millon for the 1996
fiscal year, including $109 million in uncertain State aid to be received by
BOE and $130 million of the projected $150 million in budget relief from MAC
which had not yet been agreed to by MAC. In addition to these risks, the
report noted that the City must successfully implement major initiatives,
including the sale of the City's television station, which requires
regulatory approval, and the proposed property tax lien sale and the sale of
a pool of mortgages. With respect to the 1997 fiscal
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year, the report projects that the City must resolve budget problems of $1.7
billion in the 1997 fiscal year and over $2.8 billion in the 1998 fiscal
year, $3.5 billion in the 1999 fiscal year and $4.6 billion in fiscal year
2000. The projected gaps for the 1997 and subsequent fiscal years result
primarily from uncertainties concerning the ability of BOE to implement
actions necessary to achieve a balanced budget; proposed sales of assets in
the 1997 fiscal year, including the City's parking meters; projected Medicaid
entitlement reductions from the State's assumption of certain Medicaid costs,
to be funded by a change in the Federal Medicaid matching rate formula; the
projected receipt of retroactive and increased lease payments for the City's
two airports; and the possibility of larger than forecast overtime costs. In
addition, the report noted that BOE has estimated that it could lose
additional funding of up to $453 million in the 1997 fiscal year due to
reductions in Federal and State aid.
With respect to the economy, the report noted that only 80,000 of the
310,000 private sector jobs lost during 1990 and 1992 have been regained, and
that the growth in private sector employment has been substantially offset by
the continuing contraction of Federal, State and local government jobs in the
City. The report further noted that most of the growth in local output is the
result of a substantial increase in financial sector salaries and bonus
payments, rather than growth in jobs, and that such rapid compensation growth
could evaporate when stock market growth slows. The report stated that it is
unlikely that the growth in nonproperty taxes projected in the Financial Plan
can be sustained if either the securities industry or the national economy
were to experience a substantial setback at any time over the next four
years.
The report concluded that, in spite of the large gap-closing efforts of
the past several years, the City's finances have continued to deteriorate,
that revenue growth is insufficient to support planned expenditures over the
term of the Financial Plan, and that the City continues to rely heavily on
non-recurring actions to balance its budget. The report identified several
factors underlying the City's fiscal problems, including sluggish revenue
growth, which is projected to be below the rate of inflation, a decline in
the real value of Federal and State aid relative to the size of the City's
budget, and the projected growth rate of expenditures, which exceeds the rate
of inflation after the 1997 fiscal year due to the impact of recent labor
settlements, the cost of fringe benefits and growth in Medicaid and debt
service costs. The report stated that the City is at a significant
crossroads, facing a growing gap between revenues and expenditures and
approaching its constitutional borrowing limit, with prospects of receiving
additional State and Federal assistance uncertain.
On December 12, 1995, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be reduced in
future years. The report noted that, under the State constitution, the City
is permitted to issue debt in an amount not greater than 10% of the average
full value of taxable real estate for the current year and preceding four
years. The report concluded that, if the value of taxable real property in
each of 1998 and 1999 fiscal years continues to decline, reflecting the
continuing trend of lower values of taxable property, the City would have to
continue to curtail its capital program from the levels projected in the
Financial Plan to remain within the legal debt-incurring limit in those
years. The City Comptroller recommended that the City prioritize and improve
the efficiency and administration of its current capital plan to determine
which capital projects can be delayed or cancelled to further reduce capital
expenditures and thus debt service over the course of the Financial Plan.
On October 9, 1995, Standard & Poor's issued a report which concluded that
proposals to replace the graduated Federal income tax system with a "flat"
tax could be detrimental to the creditworthiness of certain municipal bonds.
The report noted that the elimination of Federal income tax deductions
currently available, including residential mortgage interest, property taxes
and state and local income taxes, could have a severe impact on funding
methods under which municipalities operate. With respect to property taxes,
the report noted that the total valuation of a municipality's tax base is
affected by the affordability of real estate and that elimination of mortgage
interest deduction would result in a significant reduction in affordability
and, thus, in the demand for, and the valuation of, real estate. The report
noted that rapid losses in property valuations would be felt by many
municipalities, hurting their revenue raising abilities. In addition, the
report noted that the loss of the current deduction for real property and
state and local income taxes from Federal income tax liability would make
rate increases more difficult and increase pressures to lower existing rates,
and that
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the cost of borrowing for municipalities could increase if the tax-exempt
status of municipal bond interest is worth less to investors. Finally, the
report noted that tax anticipation notes issued in anticipation of property
taxes could be hurt by the imposition of a flat tax, if uncertainty is
introduced with regard to their repayment revenues, until property values
fully reflect the loss of mortgage and property tax deductions.
The City since 1981 has fully satisfied its seasonal financing needs in
the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. The City's current monthly cash flow forecast for
the 1996 fiscal year shows a need of $2.4 billion of seasonal financing for
the 1996 fiscal year, a portion of which will be met with the proceeds of
notes. Seasonal financing requirements for the 1995 fiscal year increased to
$2.2 billion from $1.75 billion and $1.4 billion in the 1994 and 1993 fiscal
years, respectively. The delay in the adoption of the State's budget for its
1992 fiscal year required the City to issue $1.25 billion in short-term notes
on May 7, 1991, and the delay in the adoption of the State's budget for its
1991 fiscal year required the City to issue $900 million in short-term notes
on May 15, 1990. Seasonal financing requirements were $2.25 billion and $3.65
billion in the 1992 and 1991 fiscal years, respectively.
The 1996-1999 Financial Plan is based on numerous assumptions, including
the condition of the City's and the region's economy and a modest employment
recovery and the concomitant receipt of economically sensitive tax revenues
in the amounts projected. The 1996-1999 Financial Plan is subject to various
other uncertainties and contingencies relating to, among other factors, the
extent, if any, to which wage increases for City employees exceed the annual
wage costs assumed for the 1996 through 1999 fiscal years; continuation of
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required
pension fund contributions; the willingness and ability of the State, in the
context of the State's current financial condition, to provide the aid
contemplated by the Financial Plan and to take various other actions to
assist the City, including the proposed entitlement spending reductions; the
ability of HHC, BOE and other such agencies to maintain balanced budgets; the
willingness of the Federal government to provide the amount of Federal aid
contemplated in the Financial Plan; adoption of the City's budgets by the
City Council in substantially the forms submitted by the Mayor; the ability
of the City to implement proposed reductions in City personnel and other cost
reduction initiatives, and the success with which the City controls
expenditures; the impact of conditions in the real estate market on real
estate tax revenues; approval by MAC of the projected receipt of funds from
MAC; the City's ability to market its securities successfully in the public
credit markets; and unanticipated expenditures that may be incurred as a
result of the need to maintain the City's infrastructure. Certain of these
assumptions have been questioned by the City Comptroller and other public
officials.
On June 7, 1995, the State adopted its Budget for the State's 1996 fiscal
year, commencing April 1, 1995. Prior to adoption of the budget the State had
projected a potential budget gap of approximately $5 billion for its 1996
fiscal year. This gap is projected to be closed in the 1995-1996 State
Financial Plan based on the enacted budget, through a series of actions,
mainly spending reductions and cost containment measures and certain
reestimates that are expected to be recurring, but also through the use of
one-time solutions. The State Financial Plan projects (i) nearly $1.6 billion
in savings from cost containment, disbursement reestimates, and other savings
in social welfare programs, including Medicaid, income maintenance and
various child and family care programs; (ii) $2.2 billion in savings from
State agency actions to reduce spending on the State workforce, SUNY and
CUNY, mental hygiene programs, capital projects, the prison system and fringe
benefits; (iii) $300 million in savings from local assistance reforms,
including actions affecting school aid and revenue sharing while proposing
program legislation to provide relief from certain mandates that increase
local spending; (iv) over $400 million in revenue measures, primarily a new
Quick Draw Lottery game, changes to tax payment schedules, and the sale of
assets; and (v) $300 million from reestimates in receipts.
On April 3, 1996, the State announced that the General Fund for the
State's 1996 fiscal year is expected to be balanced on a cash basis, with an
operating surplus of $445 million. There can be no assurance that the General
Fund will yield such a surplus.
The Governor presented his 1996-1997 Executive Budget to the Legislature
on December 15, 1995, and subsequently amended it. The Legislature and the
Comptroller will review the Governor's Executive Bud-
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get and are expected to comment on it. There can be no assurance that the
Legislature will enact the Executive Budget into law, or that the State's
adopted budget projections will not differ materially and adversely from the
projections set forth in the Executive Budget.
The Governor's Executive Budget projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced
State spending, including program restructurings, reductions in social
welfare spending, and efficiency and productivity initiatives. Total General
Fund receipts and transfers from other funds are projected to be $31.3
billion, a decrease of $1.4 billion from total receipts projected in the
current fiscal year. Total General Fund disbursements and transfers to other
funds are projected to be $31.2 billion, a decrease of $1.5 billion from
spending totals projected for the current fiscal year.
The 1996-1997 Executive Budget proposes $3.9 billion in actions to balance
the 1996-97 State Financial Plan. The Executive Budget proposes to close this
gap primarily through a series of spending reductions and cost containment
measures. The Executive Budget projects (i) over $1.8 billion in savings from
cost containment and other actions in social welfare programs, including
Medicaid, welfare and various health and mental health programs; (ii) $1.3
billion in savings from a reduced State General Fund share of Medicaid made
available from anticipated changes in the Medicaid program, including an
increase in the Federal share of Medicaid; (iii) over $450 million in savings
from reforms and cost avoidance in educational services (including school aid
and higher education), while providing fiscal relief from certain State
mandates that increase local spending; and (iv) $350 million in savings from
efficiencies and reductions in other State programs. The State has noted that
there is considerable uncertainty as to the ultimate composition of the
Federal budget, including uncertainties regarding major Federal entitlement
reforms. The 1996-1997 Executive Budget seeks to lessen the effect of the
proposed cuts on localities by granting certain mandate relief to permit them
to exercise greater flexibility in allocating their resources. However, no
assurance can be given as to the amount of savings which the City might
realize from any of the Medicaid cost containment or welfare reform measures
proposed in the Executive Budget or the size of any reductions in State aid
to the City. Depending upon the amount of such savings or the size of any
such reduction in State aid, the City might be required to make substantial
additional changes in the Financial Plan.
The State Division of the Budget has noted that the economic and financial
condition of the State may be affected by various financial, social, economic
and political factors. Those factors can be very complex, can vary from
fiscal year to fiscal year, and are frequently the result of actions taken
not only by the State but also by entities, such as the Federal government,
that are outside the State's control. Because of the uncertainty and
unpredictability of these changes, their impact cannot be included in the
assumptions underlying the State's projections at this time. There can be no
assurance that the State economy will not experience results that are worse
than predicted, with corresponding material and adverse effects on the
State's financial projections.
To make progress toward addressing recurring budgetary imbalances, the
1996-97 Executive Budget proposes significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that
the State's actions will be sufficient to preserve budgetary balance or to
align recurring receipts and disbursements in future fiscal years. The
1996-1997 Executive Budget includes actions that will have an impact on
receipts and disbursements in future fiscal years. The net impact of these
actions is expected to produce a potential imbalance in State fiscal year
1997-98 of $1.4 billion and in the 1998-99 fiscal year of $2.5 billion,
assuming implementation of the 1996-97 Executive Budget recommendations. It
is expected that the Governor will propose to close these budget gaps with
future spending reductions.
Uncertainties with regard to both the economy and potential decisions at
the Federal level add further pressure on future budget balance in New York
State. For example, various proposals relating to Federal tax and spending
policies could, if enacted, have a significant impact on the State's
financial condition in the current and future fiscal years. Specifically, the
assumption of $1.3 billion in savings in the State fiscal year 1996-97 from a
reduced State General Fund share of Medicaid is contingent upon anticipated
changes
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to Federal provisions, including an increase in the Federal share of Medicaid
from 50 to 60 percent. Other budget and tax proposals under consideration at
the Federal level but not included in the State's 1996-1997 Executive Budget
forecast could also have a disproportionately negative impact on the
longer-term outlook for the State's economy as compared to other states. A
significant risk to the State's projections arises from tax legislation under
consideration by Congress and the President. Congressionally-adopted
retroactive changes to Federal tax treatment of capital gains would flow
through automatically to the State personal income tax. Such changes, if
ultimately enacted, could produce revenue losses in the 1996-1997 fiscal
year. In addition, changes in Federal aid programs, currently pending in
Congress, could result in prolonged interruptions in the receipt of Federal
grants.
On March 15, 1996, the Governor announced that additional projected
resources had been identified for the State fiscal year 1996-97, which could
be used for additional program needs if the Federal government enacts welfare
and Medicaid reform in the near future, or which could be used as part of a
contingency plan, if such reform is not enacted in the State fiscal year
1996-97, to offset the loss of welfare and Medicaid reform benefits to the
State assumed in the 1996-97 Executive Budget. In the State's 1996 fiscal
year and in certain recent fiscal years, the State has failed to enact a
budget prior to the beginning of the State's fiscal year. The State budget
for the State's 1997 fiscal year was not adopted by the statutory deadline of
April 1, 1996. However, temporary spending measures are being considered by
the State, which would maintain State spending until April 30, 1996. A
prolonged delay in the adoption of the State's budget beyond the statutory
April 1 deadline could delay the projected receipt by the City of State aid.
In addition, there can be no assurance that State budgets in future fiscal
years will be adopted by the April 1 statutory deadline.
The projections and assumptions contained in the 1996-1999 Financial Plan
are subject to revision which may involve substantial change, and no
assurance can be given that these estimates and projections, which include
actions which the City expects will be taken but which are not within the
City's control, will be realized. Changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements. The
City's projections are subject to the City's ability to implement the
necessary service and personnel reduction programs successfully.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if
any, on the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon
the City's ability to carry out the 1996-99 Financial Plan. The City is a
party to numerous lawsuits and is the subject of numerous claims and
investigations. The City has estimated that its potential future liability on
account of outstanding claims against it as of June 30, 1995 amounted to
approximately $2.5 billion. This estimate was made by categorizing the
various claims and applying a statistical model, based primarily on actual
settlements by type of claim during the preceding ten fiscal years, and by
supplementing the estimated liability with information supplied by the City's
Corporation Counsel.
On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of
persistent softness in the City's economy, highlighted by weak job growth and
a growing dependence on the historically volatile financial services sector".
Other factors identified by S&P's in lowering its rating on City bonds
included a trend of using one-time measures, including debt refinancings, to
close projected budget gaps, dependence on unratified labor savings to help
balance the Financial Plan, optimistic projections of additional federal and
State aid or mandate relief, a history of cash flow difficulties caused by
State budget delays and continued high debt levels.
Fitch Investors Service, Inc. ("Fitch") rates City general obligation
bonds A-. Moody's rating for City general obligation bonds is Baa1. On March
1, 1996, Moody's stated that the rating for the City's Baa1 general
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obligation bonds remains under review for a possible downgrade pending the
outcome of the adoption of the City's budget for the 1997 fiscal year and in
light of the status of the debate on public assistance and Medicaid reform;
the enactment of a State budget, upon which major assumptions regarding State
aid are dependent, which may be extensively delayed; and the seasoning of the
City's economy with regard to its strength and direction in the face of a
potential national economic slowdown. Since July 15, 1993, Fitch has rated
City bonds A-. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. There is no
assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such
downward revision or withdrawal could have an adverse effect on the market
prices of the City's general obligation bonds.
In 1975, S&P suspended its A rating of City bonds. This suspension
remained in effect until March 1981, at which time the City received an
investment grade rating of BBB from S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. On July
10, 1995, S&P revised its rating of City bonds downward to BBB+, as discussed
above. Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1,
in May 1988 to A and again in February 1991 to Baa1. Since July 15, 1993,
Fitch has rated City bonds A-. On July 12, 1995, Fitch stated that the City's
credit trend remains "declining."
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APPENDIX D
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO
CALIFORNIA MUNICIPAL OBLIGATIONS
Overview
The financial condition of the State of California ("California"), its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per share and the
interest income of, the Vista California Tax Free Money Market Fund or the
Vista California Intermediate Tax Free Income Fund, or result in the default
of existing obligations, including obligations which may be held by the Vista
California Tax Free Money Market Fund or the Vista California Intermediate
Tax Free Income Fund. The following section provides only a brief summary of
the complex factors affecting the financial condition of California, and is
based on information obtained from California, as publicly available prior to
the date of this Statement of Additional Information. The information
contained in such publicly available documents has not been independently
verified. It should be noted that the creditworthiness of obligations issued
by local issuers may be unrelated to the creditworthiness of California, and
that there is no obligation on the part of California to make payment on such
local obligations in the event of default in the absence of a specific
guarantee or pledge provided by California.
During the early 1990's California experienced significant financial
difficulties, which have reduced its credit standing but the state's finances
have improved since 1995. The ratings of certain related debt of other
issuers for which California has an outstanding lease purchase, guarantee or
other contractual obligation (such as for state-insured hospital bonds) are
generally linked directly to California's rating. Should the financial
condition of California deteriorate again, its credit ratings could be
further reduced, and the market value and marketability of all outstanding
notes and bonds issued by California, its public authorities or local
governments could be adversely affected.
Economic Factors. California's economy is the largest among the 50 states
(accounting for almost 13% of the nation's output of goods and services) and
one of the largest in the world. California's population of more than 32
million represents over 12% of the total United States population and grew by
27% in the 1980s. While California's substantial population growth during the
1980's stimulated local economic growth and diversification and sustained a
real estate boom between 1984 and 1990, it has increased strains on
California's limited water resources and demands for government services and
may impede future economic growth. Population growth slowed since 1991 even
while substantial immigration has continued, due to a significant increase in
outmigration by California residents. Generally, the household incomes of new
residents have been substantially lower (and their education and welfare
utilization higher) than those of departing households, which may have a
major long-term socioeconomic and fiscal impact. However, with the California
economy improving, the recent net outmigration within the Continental U.S. is
expected to decrease or be reversed.
From mid-1990 to late 1993, California's economy suffered its worst
recession since the 1930s, with over 700,000 jobs lost. The largest job
losses have been in Southern California, led by declines in the aerospace and
construction industries. Most of the losses were related to cuts in federal
defense spending.
Since the start of 1994, the California economy has shown signs of
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, electronics, exports, transportation, recreation and services. This
growth has offset the continuing but slowing job losses in the aerospace
industry and restructuring of the finance and utility sectors. Unemployment
in California was down substantially in 1994 from its 10% peak in January,
1994, but still remains higher than the national average rate. No assurance
can be given as to future economic conditions.
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Orange County. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Pooled Funds")
filed for protection under chapter 9 of the federal Bankruptcy Code, after
reports that the Pooled Funds had suffered significant market losses in their
investments causing a liquidity crisis for the Pooled Funds and the County.
More than 180 other public entities, most but not all located in the County,
were also depositors in the Pooled Funds. The County estimated the Pooled
Funds' loss at about $1.8 billion, or 22% of its initial deposits of around
$7.5 billion. Many of the entities which kept money in the Pools (Pool
participants), including the County, faced cash flow difficulties, suffered
ratings adjustments, and implemented cuts in personnel and programs. Some
obligations of the County and certain other Pool participants had technical
defaults, or were rescheduled. The Bankruptcy Court has approved a settlement
agreement between the County and most of the other Pool participants which
provided about 80% (90% in the case of school districts) return of cash
invested, with the balance to be repaid over time, including from potential
recoveries in lawsuits. The County has implemented a financial recovery plan
which includes significant personnel cuts, and refinancing of current debts
using new funds transferred to the County from certain other local
governments pursuant to special legislation adopted in late 1995.
The State of California has no existing obligation with respect to any
outstanding obligations or securities of the County or any of the other
participating entities. However, the State may be obligated to ensure that
school districts have sufficient funds to operate or to maintain certain
county administered state programs. As of January 1, 1996, no school
districts which were Pool participants had become insolvent.
Constitutional and Statutory Limitations on Taxes and Appropriations
Limitations on Taxes. Certain California Instruments may be obligations of
issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing power of California local
governments and districts is limited by Article XIIIA of the California
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts
the reassessment of property to 2% per year, except upon new construction or
change of ownership (subject to a number of exemptions). Taxing entities may,
however, raise ad valorem taxes above the 1% limit to pay debt service on
voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as
of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the
acquisition-based assessment system of Proposition 13, and on June 18, 1992
the U.S. Supreme Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax."
Court decisions, however, allowed non-voter approved levy of "general taxes"
which were not dedicated to a specific use. In response to these decisions,
the voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62," have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
Appropriation Limits. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which
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consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds
of taxes" excludes most State subventions to local governments. No limit is
imposed on appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non- tax funds, including
bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post
1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population and any transfer of service
responsibilities between governmental units. The definitions for such
adjustments were liberalized in 1990 to follow more closely growth in the
State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% paid to schools and community colleges. With more liberal annual
adjustment factors since 1988, and depressed revenues since 1990 because of
the recession, few governments, including the State, are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years.
A 1986 initiative statute, called "Proposition 62," imposed additional
limits on local governments, by requiring either majority or 2/3 voter
approval for any increases in "general taxes" or "special taxes,"
respectively (other than property taxes, which are unchangeable). Court
decisions had struck down most of Proposition 62 and many local governments,
especially cities, had enacted or raised local "general taxes" without voter
approval. In September, 1995, the California Supreme Court overruled the
prior cases, and upheld the constitutionality of Proposition 62. Many aspects
of this decision remain unclear (such as its impact on charter (home rule)
cities, and whether it will have retroactive effect), but its future effect
will be to further limit the fiscal flexibility of many local governments.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies of
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact
of Article XIIIA or Article XIIIB on California Instruments. It is not
presently possible to predict the outcome of any pending litigation with
respect to the ultimate scope, impact or constitutionality of either Article
XIIIA or Article XIIIB, or the impact of any such determinations upon State
agencies or local governments, or upon their ability to pay debt service or
their obligations. Future initiatives or legislative changes in laws or the
California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
State Debt. Under the California Constitution, debt service on outstanding
general obligation bonds is the second charge to the General Fund after
support of the public school system and public institutions of higher
education. Total outstanding general obligation bonds and lease purchase debt
of California increased from $9.4 billion at June 30, 1987 to $23.8 billion
at February 1, 1996. In FY1994-95, debt service on general obligation bonds
and lease purchase debt was approximately 5.3% of General Fund revenues.
State voters approved $5.0 billion of new bond authorizations on the March
26, 1996 ballot, and additional bonds are expected to be placed on the
November 5, 1996 ballot.
Recent Financial Results. The principal sources of General Fund revenues
in 1994-1995 were the California personal income tax (43% of total revenues),
the sales tax (34%), bank and corporation taxes
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(13%), and the gross premium tax on insurance (3%). California maintains a
Special Fund for Economic Uncertainties, derived from General Fund revenues,
as a reserve to meet cash needs of the General Fund.
General. Throughout the 1980s, California state spending increased rapidly
as California's population and economy also grew rapidly, including increased
spending for many assistance programs to local governments, which were
constrained by Proposition 13 and other laws. The largest state program is
assistance to local public school districts. In 1988, an initiative
(Proposition 98) was enacted which (subject to suspension by a two-thirds
vote of the Legislature and the Governor) guarantees local school districts
and community college districts a minimum share of California General Fund
revenues (currently about 35%).
Since the start of 1990-91 Fiscal Year, California has faced adverse
economic, fiscal and budget conditions. The economic recession seriously
affected California's tax revenues. It also caused increased expenditures for
health and welfare programs. California is also facing a structural imbalance
in its budget with the largest programs supported by the General Fund
(education, health, welfare and corrections) growing at rates higher than the
growth rates for the principal revenue sources of the General Fund. These
structural concerns will be exacerbated in coming years by the expected need
to substantially increase capital and operating funds for corrections as a
result of a "Three Strikes" law enacted in 1994.
Recent Budgets. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the budget reserve,
the SFEU approaching $2.8 billion at its peak at June 30, 1993. Starting in
the 1990-91 Fiscal Year and for each year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance and to close large "budget gaps" which were identified. The
Legislature and Governor eventually agreed on a number of different steps to
produce Budget Acts in the Years 1991-92 to 1994-95, including:
(bullet) significant cuts in health and welfare program expenditures;
(bullet) transfers of program responsibilities and some funding sources
from the State to local governments, coupled with some reduction in mandates
on local government;
(bullet) transfer of about $3.6 billion in annual local property tax
revenues from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing state funding for schools;
(bullet) reduction in growth of support for higher education programs,
coupled with increases in student fees;
(bullet) revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were for a short duration;
(bullet) increased reliance on aid from the federal government to offset
the costs of incarcerating, educating and providing health and welfare services
to undocumented aliens (although these efforts have produced much less federal
aid than the State Administration had requested); and
(bullet) various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive
balances. By the start of the 1993-94 Fiscal Year, the accumulated deficit
was so large (almost $2.8 billion) that it was impractical to budget to
retire it in one year, so a two-year program was implemented, using the
issuance of revenue anticipation warrants to carry a portion of the deficit
over the end of the fiscal year. When the economy failed to recover
sufficiently in 1993-94, a second two-year plan was implemented in 1994-95,
to carry the final retirement of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures,
and the turnaround of the economy by late 1993, finally led to the
restoration of positive financial results. While General Fund revenues and
expenditures were essentially equal in Fiscal Year 1992-93 (following two
years of excess expenditures
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over revenues), the General Fund had positive operating results in Fiscal
Year 1993-94 and 1994-95, which have reduced the accumulated budget deficit
to around $600 million as of June 30, 1995. The 1996-97 Governor's Budget
projects complete elimination of the deficit by June 30, 1996.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the
annual budget, was to significantly reduce the State's cash resources
available to pay its ongoing obligations. When the Legislature and the
Governor failed to adopt a budget for the 1992-93 Fiscal Year by July 1,
1992, which would have allowed the State to carry out its normal annual cash
flow borrowing to replenish its cash reserves, the State Controller was
forced to issue approximately $3.8 billion of registered warrants ("IOUs")
over a 2-month period to pay a variety of obligations representing prior
years' or continuing appropriations, and mandates from court orders.
Available funds were used to make constitutionally-mandated payments, such as
debt service on bonds and warrants.
The State's cash shortfalls also required the State Controller to issue
revenue anticipation warrants maturing in the following fiscal year in order
to pay the State's continuing obligations. The State was forced to rely
increasingly on external debt markets to meet its cash needs, as a succession
of notes and warrants (both forms of short-term cash flow financing) were
issued in the period from June 1992 to July 1994, often needed to pay
previously-maturing notes or warrants. These borrowings were used also in
part to spread out the repayment of the accumulated budget deficit over the
end of the fiscal year.
The State issued $7.0 billion of short-term debt in July 1994 to meet its
cash flow needs and to finance the deferral of part of its accumulated
deficit to the 1995-96 fiscal year. In order to assure repayment of $4.0
billion of this borrowing which matures on April 25, 1996, the State enacted
legislation (the "Trigger Law") which could have lead to automatic,
across-the-board budget cuts in General Fund expenditures if cash flow
projections made at certain times deteriorated from estimates made in July
1994 when the borrowings were made. However, the State's improved finances as
a result of the economic recovery have made such action unnecessary.
Current Budget. For the first time in four years, the State entered the
1995-96 fiscal year with strengthening revenues based on an improving
economy. The major feature of the Governor's proposed Budget, a 15% phased
cut in personal income and business taxes, was rejected by the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34
days after the start of the fiscal year. The Budget Act projected General
Fund revenues and transfers of $44.1 billion, a 3.5% increase from the prior
years. Expenditures were budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance's most recent projections are that, after repaying the
last of the carryover budget deficit, there would be a positive balance of
about $50 million in the budget reserve, the Special Fund for Economic
Uncertainties, at June 30, 1996.
The Department of Finance projected cash flow borrowings in the 1995-96
Fiscal Year would be the smallest in many years, comprising $2.0 billion of
notes issued in April, 1996, and maturing on June 28, 1996. With full payment
of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department predicts no further need for borrowing over the end of the fiscal
year.
The principal features of the 1995-96 Budget Act, in addition to those
noted above, were additional cuts in health and welfare expenditures (some of
which are subject to approvals or waivers by the federal government); assumed
further federal aid for illegal immigrant costs; and an increase in per-pupil
funding for public schools and community colleges, the first such significant
increase in four years.
The Governor's Proposed Budget for the 1996-97 Fiscal Year (the Governor's
Budget), released on January 10, 1996, updated financial projections for the
current year. Although improved economic conditions
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will result in substantially larger revenues, these will be offset by greater
expenditures, with no significant change in the projected year-end fund
balance.
The Governor's Budget proposes General Fund spending in 1996-97 of $45.2
billion, with revenues of $45.6 billion, leaving a budget reserve in the SFEU
of about $400 million. The Governor has again proposed a three-year phased
15% reduction of personal income and corporate tax rates. The Governor's
Budget also assumed implementation of certain previously-approved cuts in
health and welfare costs, adoption of further cuts in welfare payments, the
adoption of federal welfare reform, and receipt of new federal aid for
illegal immigrant costs. As of April, 1996, many of these federal actions had
not taken place, leaving the Governor's Budget plan with larger expenditures
than anticipated, which will have to be addressed in the final budget action.
The Governor's Budget proposed increased expenditures for K-12 school aid,
higher education, and corrections. The Governor's Budget projected annual
cash flow borrowing of about $3.2 billion.
Bond Ratings. State general obligation bond ratings were reduced in July
1994 to "A1" by Moody's Investors Services, Inc. ("Moody's") and "A" by
Standard & Poor's Ratings Group ("S&P"). Both of these ratings were reduced
from "AAA" levels which California held until late 1991. There can be no
assurance that such ratings will be maintained in the future. It should be
noted that the creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State of California, and that there is no obligation on the part of
California to make payment on such obligations in the event of default.
Legal Proceedings. Calfornia is involved in certain legal proceedings
(described in California's recent financial statements) that, if decided
against California, may require California to make significant future
expenditures or may substantially impair revenues. Trial courts have recently
entered tentative decisions or injunctions which would overturn several parts
of the state's recent budget compromises. The matters covered by these
lawsuits include a deferral of payments by California to the Public Employees
Retirement System, reductions in welfare payments and the use of certain
cigarette tax funds for health costs. All of these cases are subject to
further proceedings and appeals, and if California eventually loses, the
final remedies may not have to be implemented in one year.
Obligations of Other Issuers
Other Issuers of California Instruments. There are a number of state
agencies, instrumentalities and political subdivisions of the State of
California that issue municipal obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the
credit quality of the securities issued by them may vary considerably from
the credit quality of obligations backed by the full faith and credit of the
State of California.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
certain state revenues to local agencies and the assumption of certain
governmental functions by the State of California to assist municipal issuers
to raise revenues. Through 1990-91, local assistance (including public
schools) accounted for around 75% of General Fund spending. To reduce
California General Fund support for school districts, the 1992-93 and 1993-94
Budget Acts caused local governments to transfer a total of $3.9 billion of
property tax revenues to school districts, representing loss of all the
post-Proposition 13 "bailout" aid. The largest share of these transfers came
from counties, and the balance from cities, special districts and
redevelopment agencies. In order to make up part of this shortfall, the
Legislature proposed, and voters approved in 1993, dedicating 0.5% of the
sales tax to counties and cities for public safety purposes. In addition, the
Legislature has changed laws to relieve local governments of certain
mandates, allowing them to reduce costs.
To the extent that California should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or
other fiscal considerations, the absolute level, or the rate of growth,
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of state assistance to local governments may continue to be reduced. Any such
reductions in state aid could compound the serious fiscal constraints already
experienced by many local governments, particularly counties. At least one
rural county (Butte) publicly announced that it might enter bankruptcy
proceedings in August 1990, although such plans were put off after the
Governor approved legislation to provide additional funds for the county.
Other counties have also indicated that their budgetary condition is
extremely grave. At the start of the 1995-96 fiscal year, Los Angeles County,
the largest in the State, faced a nominal $1.2 billion gap in its $12 billion
budget, half of which was in the County health care system. The gap was
closed only with significant cuts in services and personnel, particularly in
the health care system, federal aid, and transfer of some funds from other
local governments to the County pursuant to special legislation. The County's
debt was downgraded by Moody's and S&P in the summer of 1995.
Assessment Bonds. California Instruments which are assessment bonds may be
adversely affected by a general decline in real estate values or a slowdown
in real estate sales activity. In many cases, such bonds are secured by land
which is undeveloped at the time of issuance but anticipated to be developed
within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby
increasing the risk of a default on the bonds. Because the special
assessments or taxes securing these bonds are not the personal liability of
the owners of the property assessed, the lien on the property is the only
security for the bonds. Moreover, in most cases the issuer of these bonds is
not required to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except from amounts, if any, in a reserve
fund established for the bonds.
California Long-Term Lease Obligations. Certain California long-term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being
leased in unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and there may be no
remedies available to the holders of the certificates evidencing the lease
obligation in the event abatement occurs. The most common cases of abatement
are failure to complete construction of the facility before the end of the
period during which lease payments have been capitalized and uninsured
casualty losses to the facility (e.g. due to earthquake). In the event
abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted)
and the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover
operating deficits. Following a fiscal crisis in which the District's
finances were taken over by a state receiver (including a brief period under
bankruptcy court protection), the District failed to make rental payments on
this lease, resulting in a lawsuit by the Trustee for the Certificate of
Participation holders, in which the State of California was a named defendant
(on the grounds that it controlled the District's finances). One of the
defenses raised in answer to this lawsuit was the invalidity of the
District's lease. The trial court upheld the validity of the lease, and the
case was subsequently settled. Any ultimate judgment in any future case
against the position taken by the Trustee may have adverse implications for
lease transactions of a similar nature by other California entities.
Other Considerations
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in state regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program),
including risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a
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redevelopment project area after the start of redevelopment activity. In the
event that assessed values in the redevelopment project decline (e.g. because
of major natural disaster such as an earthquake), the tax increment revenue
may be insufficient to make principal and interest payments on these bonds.
Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIIIA and XIIIB, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which typically are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been
or may be introduced which would modify existing taxes or other revenue
raising measures or which either would further limit or, alternatively, would
increase the abilities of state and local governments to impose new taxes or
increase existing taxes. It is not presently possible to predict the extent
to which any such legislation will be enacted. Nor is it presently possible
to determine the impact of any such legislation on California Instruments in
which the California Portfolio may invest, future allocations of state
revenues to local governments or the abilities of state or local governments
to pay the interest on, or repay the principal of, such California
Instruments.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars
in damages. The federal government provided more than $13 billion in aid for
both earthquakes, and neither event is expected to have any long-term
negative economic impact. Any security in the California Portfolio could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the federal or state
government to appropriate sufficient funds within their respective budget
limitations.
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