<PAGE>
PART A
ATLAS INSURANCE TRUST
---------------------------
PROSPECTUS
---------------------------
<PAGE>
[LOGO OF ATLAS ANNUITIES APPEARS HERE]
ATLAS INSURANCE TRUST
794 DAVIS STREET
SAN LEANDRO, CA 94577
1-800-933-ATLAS (1-800-933-2852)
ATLAS INSURANCE TRUST
Atlas Insurance Trust (the "Trust") is an open-end, management investment
company, or mutual fund, offering a choice of investment portfolios or funds
to investors through the purchase of the Atlas Portfolio Builder variable
annuity contracts issued by PFL Life Insurance Company ("PFL Life"). The Trust
currently consists of one investment portfolio, the Atlas Balanced Growth
Portfolio (the "Portfolio"). The Portfolio invests in up to eight underlying
Atlas Funds representing different combinations of equity, fixed income, and
money market securities and reflecting varying degrees of investment risk and
potential reward.
Please read this Prospectus dated August 7, 1997 before investing and keep
it for future reference. It provides important information about the Trust and
the Portfolio and will help you decide whether the Portfolio is appropriate
for you. A Statement of Additional Information (the "SAI") further describing
the Trust and the Portfolio, dated August 7, 1997 was filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. A copy of a current SAI is available without charge by calling or
writing the Trust.
The Atlas Portfolio Builder variable annuity contracts are described in a
separate prospectus issued by PFL Life which should be read in conjunction
with this prospectus.
ATLAS SECURITIES, INC. (DBA ATLAS FUNDS DISTRIBUTORS, INC. IN ARIZONA), THE
DISTRIBUTOR OF THE TRUST'S SHARES, IS NOT A SAVINGS AND LOAN ASSOCIATION OR A
BANK. TRUST SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF A SAVINGS AND LOAN
ASSOCIATION OR A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL ENTITY INCLUDING THE SECURITIES INVESTOR
PROTECTION CORPORATION. TRUST SHARES ARE NOT INSURED OR GUARANTEED BY ANY
PRIVATE INSURANCE COMPANY. THE VALUE OF SHARES OF THE PORTFOLIO WILL VARY IN
RESPONSE TO MARKET CONDITIONS.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO AT A GLANCE..................................................... 3
WHAT IS THE PORTFOLIO'S INVESTMENT OBJECTIVE AND STRATEGIES?.............. 4
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?............................... 7
WHAT ARE THE OBJECTIVES AND CHARACTERISTICS OF THE UNDERLYING ATLAS
FUNDS?................................................................... 8
WHAT ARE THE PORTFOLIO'S INVESTMENT LIMITATIONS?.......................... 10
WHAT COMPANIES ARE AFFILIATED WITH THE TRUST?............................. 10
HOW IS THE PORTFOLIO ADMINISTERED?........................................ 10
WHAT IS THE TRUST'S CAPITAL STRUCTURE?.................................... 11
HOW IS THE PORTFOLIO'S NET ASSET VALUE DETERMINED?........................ 11
HOW ARE THE PORTFOLIO'S SHARES PURCHASED AND REDEEMED?.................... 11
HOW DOES THE PORTFOLIO HANDLE DIVIDENDS AND TAXES?........................ 11
APPENDIX I--WHAT ARE THE UNDERLYING ATLAS FUNDS' INVESTMENT POLICIES AND
PRACTICES?............................................................... 13
APPENDIX II--DESCRIPTION OF RATINGS....................................... 19
</TABLE>
PORTFOLIO AT A GLANCE
INVESTMENT OBJECTIVE
The ATLAS BALANCED GROWTH PORTFOLIO seeks long-term growth of capital, and
moderate current income. The Portfolio is designed to provide broad one-stop
diversification among equity, fixed income, and money market securities. The
Portfolio is suitable for investors seeking a reasonable level of stock-market
exposure, but who are not comfortable taking the substantial market risk of a
more aggressive investment program. Of course there can be no assurance that
the Portfolio's investment objective will be achieved.
STRATEGY
The Portfolio diversifies its assets within set limits among eight
underlying Atlas Funds. Allocation decisions reflect Atlas Advisers, Inc.'s
("Advisers") outlook for the economy, financial markets, and the relative
valuations of the underlying Atlas Funds.
The Portfolio's strategy of investing in other mutual funds results in
greater expenses than you would incur if you invested in the underlying Atlas
Funds directly. However, the underlying Atlas Funds are not available through
the purchase of variable annuity contracts.
RISK CONSIDERATIONS
Like most mutual funds, an investment in the Portfolio involves risk,
principally stock market risk and interest rate risk. STOCK MARKET RISK is the
possibility that stock prices in general will decline over short or extended
periods. Stock markets tend to be cyclical with periods when stock prices
generally rise or fall. The Portfolio also will have varying exposure to
foreign stock markets, which are generally thought to be riskier than domestic
markets. INTEREST RATE RISK is the possibility that bond prices will decline
over short or long periods due primarily to changes in market interest rates.
The ATLAS BALANCED GROWTH PORTFOLIO will have greatest exposure to stock
market risk because of its significant investment in those Atlas Funds that
focus on equity securities. It will have lower exposure to interest rate risk
because of the smaller investment exposure it will have in those Atlas Funds
that focus on or make a significant investment in fixed income securities.
Investors in the Portfolio should be prepared for share price volatility and
the possibility of losing money. Before investing, you should carefully
consider the risks explained in more detail in "What are some of the
Portfolio's potential risks?"
-2-
<PAGE>
INVESTMENT MANAGER/ADMINISTRATOR:
Advisers, a Golden West Financial Corporation subsidiary and an affiliate of
World Savings and Loan Association ("World"), was organized solely to manage
Atlas mutual fund investments and began its operations on January 10, 1990.
Advisers has retained professionals with substantial fund experience. Advisers
has day-to-day responsibility for administering the Portfolio's operations and
for developing and executing the Portfolio's investment program.
HOW TO INVEST:
Call 1-800-933-ATLAS (1-800-933-2852) and speak to an Atlas Investment
Representative or meet with one in person at most World branches. Just call 1-
800-933-ATLAS for more information on this Person-to-Person program or to make
an appointment. You can also pick up Atlas Annuities literature at any World
branch. The Portfolio is currently offered exclusively by Atlas Securities,
Inc. (the "Distributor").
When you purchase an Atlas Portfolio Builder variable annuity contract, you
may allocate all or a portion of your premium payments to the Portfolio as an
investment option under such contract. The Atlas Portfolio Builder, in turn,
places orders to purchase and redeem shares of the Portfolio based on the
amount of premium payments to be invested and surrender and transfer requests
to be effected on that date.
WHAT ARE THE PORTFOLIO'S INVESTMENT OBJECTIVE AND STRATEGIES?
The investment objective of the Atlas Balanced Growth Portfolio is to seek
long-term growth of capital with moderate current income. In pursuit of its
objective, the Portfolio will allocate its assets among a group of the
following eight diversified underlying Atlas Funds: Atlas U.S. Treasury Money
(the "Money Fund"), Atlas U.S. Government and Mortgage Securities (the
"Government Fund"), Atlas Strategic Income (the "Strategic Income Fund"),
Atlas Balanced (the "Balanced Fund"), Atlas Growth and Income (the "Growth and
Income Fund"), Atlas Strategic Growth (the "Strategic Growth Fund"), Atlas
Global Growth (the "Global Growth Fund"), and Atlas Emerging Growth (the
"Emerging Growth Fund"). The Government and Strategic Income Funds will be
referred to herein as the "Atlas Bond Funds", and the Balanced, Growth and
Income, Strategic Growth, Global Growth, and Emerging Growth will be referred
to as the "Atlas Stock Funds". The Portfolio will diversify within set limits
based on Advisers' outlook for the economy, financial markets, and relative
market valuation of each underlying fund. The amounts allocated to each
underlying Atlas Fund will vary within the ranges specified below.
<TABLE>
<CAPTION>
INVESTMENT RANGE
FOR THE
ATLAS FUND PORTFOLIO
---------- ----------------
<S> <C>
Money Fund.................................................... 0-25%
Government Fund............................................... 0-25%
Strategic Income Fund......................................... 0-25%
Balanced Fund................................................. 10-40%
Growth and Income Fund........................................ 10-40%
Strategic Growth Fund......................................... 10-40%
Global Growth Fund............................................ 10-40%
Emerging Growth Fund.......................................... 10-40%
</TABLE>
ASSET ALLOCATION FRAMEWORK
Asset allocation amongst equity, fixed income, and cash and money market
securities is the most critical investment decision an investor makes.
Determining the investments to make to implement an asset allocation strategy
can be an arduous and time-consuming process. The Portfolio provides investors
with an easy way to achieve broad diversification among asset classes with a
single investment.
In order to achieve its investment objective, the Portfolio allocates its
assets among the underlying Atlas Funds, reflecting varying degrees of
potential investment risk and reward. Under
-3-
<PAGE>
normal market conditions, the ATLAS BALANCED GROWTH PORTFOLIO expects to
allocate its assets through its varying investment in the eight underlying
Atlas Funds so as to maintain an allocation of approximately 40-75% Stock
Funds, 10-30% Bond Funds, and 0-20% Money Funds and cash.
It is important to understand that, because each of the underlying Atlas
Stock Funds may invest a varying portion of its assets in fixed income
securites, and because each of the underlying Atlas Funds may invest a varying
portion of assets in money market securites, allocations to underlying Atlas
Funds do not necessarily correspond with a percentage investment in a
particular type of security by an underlying Atlas Fund. For example, a 50%
allocation of the Portfolio's assets to the Atlas Stock Funds would result in
less than 50% of the Portfolio's assets exposed to market risk.
WHAT ARE SOME OF THE PORTFOLIO'S POTENTIAL RISKS?
The Portfolio's share price will fluctuate with changing market conditions
as the share prices of the underlying Atlas Funds rise or fall. The risks are
generally the same as with other mutual funds:
. Market risk: the market value of equity securities (which constitute the
primary investment of the Portfolio) will fluctuate with changing market
and economic conditions.
. Interest rate risk: the market value of fixed income securities can be
expected to vary inversely in response to changes in interest rates.
. Credit risk: the possibility exists that individual debt securities held
by the underlying Atlas Funds could default or have their credit ratings
downgraded, potentially reducing such fund's share price and income
level. This risk is even greater with high-yield ("junk") bonds, whose
issuers are more vulnerable to business setbacks and to economic changes,
such as a recession, that might impair their ability to make timely
interest and principal payments.
. Prepayment risk: with mortgage-backed securities, there is a chance that,
when interest rates are falling, homeowners will accelerate principal
payments on mortgages and the underlying Atlas Fund will be forced to
reinvest prepayments in lower yielding securities. Also prepayments can
result in losses to investors in mortgage securities that were originally
purchased at a price above par.
. Currency risk: the risk that weak foreign currencies versus the U.S.
dollar could result in losses for U.S. investors in foreign securities.
A significant portion of the total assets of the Portfolio may also be
exposed to the risks of foreign investing, including currency risk, as
previously defined. The economies, markets, and political structures of some
countries in which certain of the underlying Atlas Funds can invest, such as
underdeveloped or emerging market countries, do not compare favorably with the
U.S. and other mature economies in terms of wealth and stability. Therefore,
investments in these countries will be riskier and more subject to erratic and
abrupt price movements.
WHAT ARE SOME OF THE PORTFOLIO'S POTENTIAL REWARDS?
The Portfolio offers a professionally managed allocation of assets among a
broad range of underlying Atlas Funds. By investing in a variety of underlying
Atlas Funds, the Portfolio's performance could benefit from the diversified
returns of many types of securities.
The Portfolio invests in Atlas Funds holding domestic and foreign stocks,
small-, mid- and large-cap stocks, and growth and value stocks. To a lesser
extent, the Portfolio can invest in Atlas Funds holding high-quality domestic
and foreign corporate and government bonds, high-yield bonds and convertible
securities. The diversified nature of the Portfolio's investments should
cushion declines in falling markets, especially when the bond and stock
markets move in opposite directions, or when U.S. and foreign markets are not
closely correlated.
The theory of diversification holds that investors can reduce their overall
risk by spreading assets among a variety of investments. Each type of
investment follows a cycle of its own and responds differently to changes in
the economy and the marketplace. A decline in one investment can be balanced
by returns in other investments that are stable or rising. Therefore, a major
benefit of the Portfolio is the potential for attractive long-term returns
with reduced volatility.
-4-
<PAGE>
HOW CAN I DECIDE WHETHER THE PORTFOLIO IS RIGHT FOR ME?
If you seek broad diversification in a single investment and a reasonable
level of stock-market exposure in an effort to achieve long-term capital
appreciation, the ATLAS BALANCED GROWTH PORTFOLIO could be an appropriate part
of your overall investment strategy. The Portfolio is suitable for investors
who are not willing to take the substantial market risks of a more aggressive
investment program, but can accept the possibility of share price declines.
If you have any questions or wish to schedule an appointment with an Atlas
Investment Representative to learn more about the Portfolio, just call 1-800-
933-ATLAS (1-800-933-2852) for assistance.
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
The Portfolio pays Advisers a fee for investment management and
administrative services for facilitating and overseeing all aspects of its
operations and establishing and implementing its investment program. Such fee
is at an annual rate of 0.25% of the Portfolio's average daily net assets.
Like other mutual funds, the Portfolio is responsible for its own operating
expenses in addition to Advisers' fee including, but not limited to: transfer
agent, custodian, legal, and auditing fees and expenses; compensation of
Trustees who are not interested persons of Advisers; taxes, if any; costs and
expenses of calculating its daily net asset value, accounting, bookkeeping,
and recordkeeping required under the 1940 Act; insurance premiums; trade
association dues; fees and expenses of registering and maintaining
registration of its shares for sale under federal and applicable state
securities laws; all costs associated with shareholders' meetings and the
preparation and dissemination of proxy materials which are appropriately
allocable to the Portfolio; printing and mailing prospectuses, statements of
additional information, and reports to existing shareholders; and other
expenses relating to the Portfolio's operations. ADVISERS HAS AGREED TO REDUCE
ITS FEE AND ASSUME EXPENSES OF THE PORTFOLIO TO THE EXTENT NECESSARY TO LIMIT
THE PORTFOLIO'S TOTAL DIRECT OPERATING EXPENSES TO 0.50% THROUGH AT LEAST
APRIL 30, 1998.
The Portfolio will also indirectly bear its pro rata share of fees and
expenses incurred by the underlying Atlas Funds and the investment return of
the Portfolio will be net of the expenses of the underlying Atlas Funds. The
following chart provides the expense ratios for each of the underlying Atlas
Funds in which the Portfolio will invest (based on information as of December
31, 1996). Where applicable, expense ratios are restated to reflect current
fees that are expected to be in effect during the Portfolio's first year of
operations.
<TABLE>
<CAPTION>
EXPENSE
UNDERLYING ATLAS FUND RATIO
--------------------- -------
<S> <C>
Money Fund.............................................................. 0.52%
Government Fund......................................................... 1.03%
Strategic Income Fund................................................... 0.75%
Balanced Fund .......................................................... 1.27%
Growth and Income Fund ................................................. 1.16%
Strategic Growth Fund .................................................. 1.31%
Global Growth Fund ..................................................... 1.72%
Emerging Growth Fund ................................................... 1.50%
</TABLE>
Based on the foregoing, the range of the average weighted expense ratio for
the Portfolio is expected to be 1.61% to 1.81%. A range is provided since the
average assets of the Portfolio invested in each of the underlying Atlas Funds
will fluctuate.
-5-
<PAGE>
WHAT ARE THE OBJECTIVES AND CHARACTERISTICS OF THE UNDERLYING ATLAS FUNDS?
The objectives and major characteristics of the underlying Atlas Funds are
as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
U.S. TREASURY AND MORTGAGE STRATEGIC
MONEY FUND(1) SECURITIES FUND INCOME FUND
------------- ----------------- ------------
<S> <C> <C> <C>
Investment Strategy and Risk Seeks yield Seeks liquidity Seeks high
Consideration combined with and higher pre- current
maximum tax yield than income. In
safety, short-term addition to
liquidity, investments may interest
and provide. Subject rate and
preservation to interest rate prepayment
of principal and prepayment risk,
through a risk subject to
stable share the special
price risks
involved
with foreign
investing,
use of
derivatives
and high-
yield,
lower-rated
securities.
Investment Objectives(2) A high level A high level of A high level
of current current income of current
income consistent with income
consistent prudent consistent
with maximum investment with prudent
safety, management and risk
liquidity and preservation of management
stability of capital and
principal, preservation
exempt from of capital
state income
tax in most
states
Portfolio Securities(3) Short-term Intermediate and U.S.
obligations long-term U.S. Government
directly Government securities,
issued by the obligations and debt
U.S. Treasury mortgage related securities
securities issued of foreign
by U.S. governments
Government and
agencies or companies,
instrumentalities and lower-
or private rated, high-
issuers yield debt
securities
of U.S.
companies
Quality of Debt Securities(4) Highest Quality--three Full Range--
Quality-- highest rating All rating
supported by quality grades, quality
the full such as Moody's grades, such
faith and (Aaa, Aa, A) or as Moody's
credit of the S&P (AAA, AA, A); (Aaa, Aa, A,
U.S. primarily highest Baa, Ba, B,
Government quality Caa, Ca, C,
D) or S&P
(AAA, AA, A,
BBB, BB, B,
CCC, CC, C,
D)
</TABLE>
- --------
(1) There can be no assurance that a stable net asset value will always be
achieved.
(2) These investment objectives are fundamental and cannot be changed without
shareholder approval.
(3) Please read Appendix I for a more detailed description of securities and
strategies.
-6-
<PAGE>
<TABLE>
<CAPTION>
BALANCED GROWTH AND STRATEGIC GLOBAL EMERGING
FUND INCOME FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ------------ ------------ ------------- ---------------------------------
<S> <C> <C> <C> <C>
Seeks a Seeks growth Seeks growth Seeks growth of Seeks growth of
balance of of capital, of capital capital only. capital only.
capital with some only. Subject Subject to Subject to
growth and current to market market risk and market risk and
high current income. risk. the special the special
income. Subject to risks involved risks involved
Subject to market risk. with substantial with investing
market risk foreign in small
and interest investing. companies.
rate risk.
Long-term Long-term Long-term Long-term Long-term
capital capital capital capital growth, capital growth,
growth and a growth and growth, without without
high level some current without consideration of consideration of
of current income consideration current income, current income,
income consistent of current consistent with consistent with
consistent with prudent income, prudent prudent
with prudent investment consistent investment investment
investment management with prudent management management
management investment
and management
preservation
of capital
Common and Common and Common and Common and Common and
preferred preferred preferred preferred stocks preferred
stocks, stocks and stocks and and convertible stocks,
convertible convertible convertible securities of convertible
securities securities securities U.S. and foreign securities,
and bonds selected selected companies rights, warrants
primarily solely for and options of
for their their "growth-type"
appreciation appreciation companies with
potential potential emphasis on
and, in many small or
instances, emerging growth
for their companies.
dividend
paying
ability
Investment Grade--four highest rating Full Range--All rating quality
quality grades such as Moody's (Aaa, grades, such as Moody's (Aaa,
Aa, A, Baa) or S&P (AAA, AA, A, BBB) Aa, A, Baa, Ba, B, Caa, Ca, C, D)
or S&P (AAA,
AA, A, BBB, BB, B, CCC, CC,
C, D)
</TABLE>
(4) Based on ratings of nationally recognized credit rating agencies such as
Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or, if not rated, of comparable quality in the opinion
of Advisers, or the Subadviser if applicable. Applies only to debt
securities. Rating agencies do not rate equity securities. Please read the
Appendix II for a more detailed description of quality standards.
-7-
<PAGE>
WHAT ARE THE PORTFOLIO'S INVESTMENT LIMITATIONS?
The Portfolio operates under the following limitations:
DIVERSIFICATION. The Portfolio is a "nondiversified" investment company for
purposes of the 1940 Act because it invests in the securities of a limited
number of mutual funds. However, the underlying Atlas Funds themselves are
diversified investment companies. The Portfolio intends to qualify as a
diversified investment company for the purposes of Subchapter M of the
Internal Revenue Code.
FUNDAMENTAL INVESTMENT POLICIES. As a matter of fundamental policy, the
Portfolio will not: (i) invest more than 25% of its total assets in any one
industry, except for investment companies which are members of the Atlas
family of funds; and (ii) borrow money, except temporarily to facilitate
redemption requests, in amounts exceeding 30% of the Portfolio's total assets
valued at market.
OTHER RESTRICTIONS. As a matter of operating policy the Portfolio will limit
its investment in illiquid assets, such as restricted securities or repurchase
agreements and time deposits with more than seven days to maturity, to no more
than 10% of total assets. Additional investment restrictions are described in
the Trust's Statement of Additional Information.
WHAT COMPANIES ARE AFFILIATED WITH THE TRUST?
Atlas Insurance Trust (the "Trust") was organized by Golden West Financial
Corporation ("Golden West Financial"). Golden West Financial is a New York
Stock Exchange listed savings and loan holding company, headquartered in
Oakland, California, with assets at December 31, 1996 in excess of $37
billion. The Trust has engaged Atlas Advisers, Inc. ("Advisers") and Atlas
Securities, Inc. (the "Distributor"), two wholly owned subsidiaries of Golden
West Financial, to provide investment advice and distribution services to the
Portfolio. Advisers and the Distributor provide similar services to the Atlas
Funds.
Advisers is a registered investment adviser. Advisers has overall
responsibility for the investment advisory and administrative services
provided to the Portfolio, including formulating the Portfolio's investment
policies, analyzing market conditions, providing portfolio management services
to the Portfolio, and monitoring and evaluating services provided to the
Portfolio by others.
The Distributor is a broker-dealer registered with the Securities and
Exchange Commission ("SEC") and maintains membership with the National
Association of Securities Dealers. It is the principal underwriter and sole
distributor of the Trust's shares. Advisers and the Distributor have
contracted with World Savings and Loan Association ("World Savings" or
"World"), Golden West Financial's principal operating subsidiary, for certain
services and facilities to be used in the conduct of mutual fund operations.
The Distributor has established Atlas Investment Centers in Arizona,
California, Colorado, Florida, Kansas, New Jersey and Texas branches of World
Savings, a federally chartered institution with branches in 7 states, as
of December 31, 1996. NEITHER THE TRUST, THE ATLAS FUNDS, ADVISERS, NOR THE
DISTRIBUTOR IS A SAVINGS AND LOAN ASSOCIATION OR A BANK, AND THE PORTFOLIO'S
SHARES ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENT OR PRIVATE INSURANCE
COMPANY.
HOW IS THE PORTFOLIO ADMINISTERED?
The Board of Trustees supervises the business activities of the Trust, which
include the hiring and supervision of professionals to administer the
Portfolio, approval of contracts, election of officers, and approval of
auditor selection and reports. The Trustees bring to the Portfolio extensive
experience in investments, financial services management, economics, and
accounting. Their primary responsibility in overseeing the Portfolio is to
serve the investors' best interests. You will find information about each
Trustee's background in the SAI.
ADVISERS provides portfolio management services to the Portfolio, the Atlas
U.S. Treasury Money Fund and the Atlas U.S. Government and Mortgage Securities
Fund and, with respect to the
-8-
<PAGE>
other underlying Atlas Funds, supervises the provision of similar services by
OppenheimerFunds, Inc. (the "Subadviser") located at Two World Trade Center,
New York, New York 10048. Advisers is responsible for providing or overseeing
all aspects of the Portfolio's day-to-day operations and implementing the
Portfolio's investment programs. Advisers has retained investment
professionals with substantial experience in managing institutional and
individual investments.
THE DISTRIBUTOR. The shares of the Portfolio are distributed by Atlas
Securities, Inc. (the "Distributor"), which serves as the principal
underwriter of the Portfolio's shares.
WHAT IS THE TRUST'S CAPITAL STRUCTURE?
The Trust was organized as a business trust under the laws of Delaware on
October 23, 1996. The Trust may issue an unlimited number of shares of
beneficial interest all having no par value. Since the Trust may offer
multiple investment Portfolios, it is known as a "series company." Shares of a
Portfolio have equal noncumulative voting rights and equal rights with respect
to dividends, assets and liquidation of such Portfolio. Shares are fully paid
and nonassessable when issued, and have no preemptive or conversion rights.
The Trust is not required to hold annual shareholders' meetings and does not
intend to do so. However, it will hold special meetings as required or deemed
desirable for such purposes as electing trustees, changing fundamental
policies or approving an investment advisory contract. If shares of more than
one Portfolio are outstanding, shareholders will vote by Portfolio and not in
the aggregate except when voting in the aggregate is permitted under the 1940
Act, such as for the election of trustees. The Board of Trustees may authorize
the issuance of additional Portfolios if deemed desirable, each with its own
investment objective, policies and restrictions.
HOW IS THE PORTFOLIO'S NET ASSET VALUE DETERMINED?
The net asset value per share for the Portfolio is determined as of the
regular close of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each day that the Exchange is open for trading. The net asset value
per share is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. This determination is made by appraising
the Portfolio's underlying investments (i.e., the underlying Atlas Funds) at
the price of each such Fund determined at the close of the Exchange.
HOW ARE THE PORTFOLIO'S SHARES PURCHASED AND REDEEMED?
PFL Life places orders to purchase and redeem shares of the Portfolio based
on, among other things, the amount of premium payments to be invested and
surrender and transfer requests to be effected on that day pursuant to
variable annuity contracts. The shares of the Portfolio are purchased and
redeemed at the net asset value of the Portfolio's shares as computed on the
business day (a day that the Exchange is open for trading) immediately
preceding the receipt of an order in proper form.
Although it is not expected to do so, the Trust may, from time to time,
temporarily suspend the offering of shares of the Portfolio. During the period
of such suspension, shareholders of the Portfolio are normally permitted to
continue to purchase additional shares and to have dividends reinvested.
No fee is charged shareholders when they purchase or redeem Portfolio
shares.
HOW DOES THE PORTFOLIO HANDLE DIVIDENDS AND TAXES?
DIVIDENDS. The Trust normally follows the practice of declaring and
distributing substantially all the net investment income and any net short-
term and long-term capital gains of the Portfolio at least annually.
-9-
<PAGE>
TAXES. Under the current Internal Revenue Code ("Code"), PFL Life is taxed
as a life insurance company and the operation of its separate account is taxed
as part of its total operations. Under current interpretations of existing
federal income tax law, investment income and capital gains of separate
accounts are not subject to federal income tax to the extent applied to
increase the values of variable annuity contracts. Tax consequences to
variable annuity contract holders are described in the separate prospectus
issued by PFL Life.
The Portfolio intends to qualify as a regulated investment company under
subchapter M of the Code. As a result, with respect to any fiscal year in
which the Portfolio distributes all its net investment income and net realized
capital gains, the Portfolio will not be subject to federal income tax.
Subchapter M includes other requirements relating to the diversification of
investments. Subchapter M's diversification requirements are in addition to
diversification requirements under Section 817(h) of the Code and the 1940
Act. Each applicable law's diversification requirement could require the sale
of assets of the Portfolio, which could have an adverse impact on the net
asset value of the Portfolio.
Because the Trust is established as an investment medium for variable
annuity contracts, Section 817(h) of the Code imposes additional
diversification requirements on the Portfolio. These requirements generally
are that as of the end of each quarter or within 30 days thereafter, no more
than 55% of the value of the total assets of the Portfolio may be represented
by any one investment; no more than 70% by any two investments; no more than
80% by any three investments; and no more than 90% by any four investments.
For these purposes, each underlying Atlas Fund is treated as a single
investment.
The preceding is a brief summary of certain of the relevant tax
considerations. The Statement of Additional Information includes a more
detailed discussion. This discussion is not intended, even as supplemented by
the State of Additional Information, as a complete explanation or a substitute
for careful tax planning and consultation with individual tax advisers.
-10-
<PAGE>
APPENDIX I--
WHAT ARE THE UNDERLYINGATLAS FUNDS' INVESTMENT POLICIES AND PRACTICES?
In pursuing their investment objectives and strategies, each of the
underlying Atlas Funds is permitted to engage in a wide range of investment
policies. Certain of these policies are described in the following paragraphs
and further information about the underlying Atlas Funds is contained in the
Statement of Additional Information as well as the prospectus of such Funds.
Because the Portfolio invests in the underlying Atlas Funds, shareholders of
the Portfolio will be affected by these investment policies in direct
proportion to the amount of assets the Portfolio allocates to the underlying
Funds pursuing such policies.
The ATLAS U.S. TREASURY MONEY FUND maximizes safety by investing in debt
securities issued by the U.S. Treasury. These securities, the only securities
in which this Fund will invest, are guaranteed as to principal and interest by
the full faith and credit of the U.S. Government and are of the highest
possible credit quality. Though such securities involve little risk of loss of
principal, if held to maturity, like any debt obligation they are subject to
variations in market value due to fluctuations in interest rates. The Money
Fund reduces this market risk by investing only in securities maturing in 13
months or less and by maintaining an average weighted maturity of 90 days or
less.
The ATLAS U.S. GOVERNMENT AND MORTGAGE SECURITIES FUND will, under normal
market conditions, invest at least 80% of its assets in U.S. Government
securities, mortgage securities, and in repurchase agreements collateralized
by mortgage securities. U.S. Government securities are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and include mortgage-
backed securities issued by the Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC"). At least 50% of this Fund's assets will be
invested in U.S. Government securities (including GNMA government securities,
and FNMA and FHLMC government agency mortgage securities) and at least 25% of
its assets will be invested in mortgage securities (including U.S. Government
and government agency mortgage securities, and privately issued mortgage
related and mortgage-backed securities).
The ATLAS STRATEGIC INCOME FUND will, under normal market conditions, invest
in each of three market sectors: (1) U.S. Government securities, (2) debt
securities of foreign governments and companies, and (3) lower-rated, high-
yield debt securities of U.S. companies. From time to time the amounts the
Fund invests in each sector will be adjusted.
By investing in all three sectors, this Fund seeks to reduce the volatility
of fluctuations in its net asset value per share, because the overall
securities price and interest rate movements in each of the different sectors
are not necessarily correlated with each other. Changes in one sector may be
offset by changes in another sector that moves in a different direction.
Therefore, this strategy may help reduce some of the risks from negative
market movements and interest rate changes in any one sector. However, the
Fund may invest up to 100% of its assets in any one sector if its Subadviser
believes that in doing so the Fund can achieve its objective without undue
risk to the Fund's assets.
When investing this Fund's assets, the Subadviser considers many factors,
including general economic conditions in the U.S. and abroad, prevailing
interest rates, and the relative yields of U.S. and foreign securities. While
the Fund may seek to earn income by writing covered call options, market price
movements may make it disadvantageous to do so. The Fund may also try to hedge
against losses by using hedging strategies described below. When market
conditions are unstable, the Fund may invest substantial amounts of its assets
in money market instruments for defensive purposes. These strategies are
described in greater detail in the Statement of Additional Information.
The ATLAS BALANCED FUND will, under normal market conditions, invest
primarily in a combination of income-producing equity securities (defined as
common stocks, preferred stocks,
-11-
<PAGE>
and securities having the investment characteristics of common stock, such as
securities convertible into common stock). To achieve its additional objective
of conserving principal while seeking moderate capital appreciation, the Fund
will invest in securities of the type described above thought by the Fund's
Subadviser to provide opportunities for growth without undue risk. The
proportion of this Fund's assets invested in the particular types of
securities described above will vary from time to time, with emphasis on
income producing equity securities but with at least 25% of assets invested in
fixed income senior debt.
The ATLAS GROWTH AND INCOME FUND will, under normal market conditions,
invest at least 65% of its assets in equity securities (as previously defined)
expected by the Subadviser to grow at a rate that outperforms the general
market over the long-term. Many of these securities will pay dividends.
Companies will be evaluated by the Fund's Subadviser based on a variety of
factors including: quality of management, undervalued assets, or higher
projected earnings growth relative to recognized market benchmark indicators
such as the Standard & Poor's 500 composite index of companies.
The ATLAS STRATEGIC GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) considered by the
Fund's Subadviser to have better-than-expected earnings prospects and below-
normal valuations. Current income is not a consideration in selecting
portfolio securities.
The ATLAS GLOBAL GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) of corporations of
growth-oriented companies that are traded in markets of at least three
different countries (which may include the United States). These securities
tend to be issued by companies that may be developing new products or
services, or expanding into new markets for their products. The Fund may
invest in securities of smaller, less well-known companies as well as those of
large, well-known companies. Current income is not a consideration in
selecting portfolio securities.
The Fund's Subadviser currently employs an investment strategy in selecting
foreign and domestic securities that considers the effects of worldwide trends
on the growth of various business sectors. These trends or "global themes"
currently include telecommunications expansion, emerging consumer markets,
infra-structure development, natural resource use and development, corporate
restructuring, capital market development in foreign countries, health care
expansion, and global integration. These trends, which may affect the growth
of companies having business in these sectors, may suggest opportunities for
investing the Fund's assets. The Subadviser does not invest a fixed or
specific amount of the Fund's assets in any one sector, and these themes or
this approach may change over time.
The Fund may also seek to take advantage of changes in the business cycle by
investing in companies that are sensitive to those changes as well as in
"special situations" the Subadviser believes present opportunities for capital
growth. For example, when a country's economy is expanding, companies in the
financial services and consumer products industries may be in a position to
benefit from changes in the business cycle and may present long-term growth
opportunities.
The ATLAS EMERGING GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) of growth-type issuers
with market capitalization less than $1 billion, including emerging growth
companies. The Fund's Subadviser considers growth-type issuers to be those
companies whose goods or services have relatively favorable long-term
prospects for increasing demand, or companies that develop new products,
services, or markets and normally retain a relatively large part of their
earnings for research, development and investment in capital assets. It is
expected that a substantial portion of the Fund's assets will be invested in
over-the-counter securities, which will often be smaller, less well-known
companies. Emerging growth companies in which the Fund may invest are
typically beyond their initial start-up periods but have not yet reached a
state of established growth or maturity. The rate of growth of such companies
at times may be dramatic. However, investments of this type generally involve
greater risk than is customarily associated with large, more seasoned
companies. Current income will not be a consideration in selecting portfolio
securities.
-12-
<PAGE>
Each Stock Fund may seek investment opportunities among securities of
smaller, less well known ("unseasoned") companies as well as securities of
large, well known companies. Each Stock Fund may also invest in investment
grade bonds and notes issued by U.S. and foreign governments and corporations,
and money market securities.
Each of the Stock Funds may invest in corporate and taxable government debt
securities and money market instruments. As a temporary defensive strategy,
each Stock Fund may also invest up to 100% of its assets in debt securities or
money market instruments when market conditions make pursuing the Fund's basic
investment strategy inconsistent with the best interests of its shareholders.
WHAT ARE THE UNDERLYING ATLAS FUNDS' INVESTMENT PRACTICES?
LENDING OF PORTFOLIO SECURITIES. Like other mutual funds, the underlying
Atlas Funds may lend securities to broker-dealers, other institutions, or
other persons to earn additional income. The principal risk is the potential
insolvency of the broker-dealer or other borrower. In this event, the
underlying Atlas Funds could experience delays in recovering their securities
and possibly capital losses.
FOREIGN SECURITIES. The Portfolio will invest in certain underlying Atlas
Funds that invest all or a portion of their assets in foreign securities.
These investments in foreign securities include nondollar-denominated
securities traded outside of the U.S. and dollar-denominated securities of
foreign issuers. Such investments increase the Portfolio's diversification and
may enhance return, but they also involve some special risks such as exposure
to potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity and higher
volatility; possible problems arising from accounting, disclosure, settlement,
and regulatory practices that differ from U.S. standards; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value). To the extent the underlying Atlas
Funds invest in developing countries, these risks are increased.
DERIVATIVE INVESTMENTS. The Strategic Income and Emerging Growth Funds can
invest in a number of different kinds of "derivative investments." These Funds
may use some types of derivatives for hedging purposes, and may invest in
others because they offer the potential for increased income and principal
value. In general, a "derivative investment" is a specially-designed
investment whose performance is linked to the performance of another
investment or security, such as an option, future, index or currency.
Derivative investments include exchange-traded options and futures contracts
which the other underlying Atlas Funds may also utilize.
One risk of investing in derivative investments is that the company issuing
the instrument might not pay the amount due on the maturity of the instrument.
There is also the risk that the underlying investment or security might not
perform the way the Subadviser expected it to perform. The performance of
derivative investments may also be influenced by interest rate changes in the
U.S. and abroad. All of these risks can mean that a Fund will realize less
income than expected from its investments, which will affect that Fund's share
price. Certain derivative investments held by a Fund may trade in the over-
the-counter markets and may be illiquid. If that is the case, the Fund's
investment in them will be limited. A description of additional derivative
investments in which the Strategic Income and Emerging Growth Funds may invest
is contained in the Statement of Additional Information.
OPTIONS AND FUTURES STRATEGIES. The underlying Atlas Funds, other than the
Treasury Money Fund, may engage in options on securities, options on futures
and futures contract strategies to hedge their investments against changes in
interest rates, securities prices and foreign currencies, to manage cash flow,
to attempt to enhance income, or as a temporary substitute for purchases or
sales of actual securities. They will not engage in such transactions for
speculation. Their ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed.
-13-
<PAGE>
These underlying Atlas Funds may purchase, sell, or write call and put
options and futures contracts on securities, financial indices, and foreign
currencies. The underlying Atlas Funds may also enter into foreign currency
exchange contracts to hedge specific transactions or portfolio positions
against changes in currency exchange rates. These strategies involve risks and
transaction costs to which the Funds would otherwise not be subject. If the
Adviser's or a Subadviser's prediction of the direction of market movements in
the underlying instruments or indices is inaccurate, the Fund involved may be
left in a worse position than if such strategies were not used.
A more thorough description of these investment practices and their
associated risks is contained in the Statement of Additional Information. The
underlying Atlas Funds will not use leverage in futures, options on futures
and options on securities transactions, and are not commodity pools. When
required by SEC guidelines, each Fund will maintain a segregated account with
the Custodian with sufficient cash, U.S. Government securities or other
liquid, high grade securities to cover its potential futures and options
obligations.
REVERSE REPURCHASE AND DOLLAR REVERSE REPURCHASE AGREEMENTS. May be entered
into by the underlying Atlas Funds. A reverse repurchase agreement is the sale
of a security by a Fund and its agreement to repurchase the security at a
specified time and price. In addition, the Government and Strategic Income
Funds may enter into similar transactions, known as dollar reverse repurchase
agreements, with respect to mortgage-backed securities. Dollar reverse
repurchase agreements differ from reverse repurchase agreements only with
respect to the securities repurchased by a Fund, which are substantially
similar but not identical to the securities the Fund sold. Each underlying
Fund will maintain in a segregated account with the Custodian cash, U.S.
Government securities or other appropriate liquid, securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(but no collateral is required on such agreements with banks). Under the 1940
Act, these agreements are considered borrowings by a Fund. Accordingly, each
underlying Fund will limit its investments in such agreements, together with
any bank borrowings, to no more than one-third of each underlying Fund's total
assets. Reverse repurchase and dollar reverse repurchase agreements create
leverage, which is speculative, and increase a Fund's investment risk. If the
income and gains on securities purchased with the proceeds of these agreements
exceed the costs of the agreements, an underlying Fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely if the
income and gains fail to exceed the costs, earnings or net asset value would
decline faster than otherwise would be the case.
REVERSE DOLLAR REVERSE REPURCHASE AGREEMENTS. May be engaged in by the
Government and Strategic Income Funds. These Funds may purchase mortgage-
backed securities together with an agreement to sell similar securities at a
future date. Such reverse dollar reverse repurchase agreements are subject to
the same risks and restrictions as repurchase agreements. Cash, U.S.
Government securities or other liquid securities will be segregated to meet
these obligations when due. The Funds will not engage in these transactions in
an amount that exceeds one-third of each of their total assets.
SPECIAL RISKS OF LOWER-RATED SECURITIES. In seeking high current income, the
Atlas Strategic Income Fund may invest in higher-yielding, lower-rated debt
securities. There is no restriction on the amount of that Fund's assets that
could be invested in these types of securities. The Atlas Global Growth and
Emerging Growth Funds may also invest in lower-rated securities, but to a much
more limited extent. Lower-rated debt securities are those rated below
"investment grade," such as debt securities that have a rating lower than
"Baa" by Moody's Investors Services, Inc. ("Moody's") or "BBB" by Standard &
Poor's Corporation ("S&P"). These securities may be rated as low as "C" or "D"
or may be in default at the time of purchase.
High yield, lower-grade securities, whether rated or unrated, have
speculative characteristics. Lower-grade securities have special risks that
make them riskier investments than investment grade securities. They may be
subject to greater market fluctuations and risk of loss of income and
principal than lower yielding, investment grade securities. There may be less
of a market for them and therefore they may be harder to sell at an acceptable
price. There is a relatively greater possibility that the issuer's earnings
may be insufficient to make the payments of interest due on the bonds. The
issuer's low creditworthiness may increase the potential for its insolvency.
-14-
<PAGE>
These risks mean that the Funds may not achieve the expected income from
lower-grade securities, and that the Portfolio's net asset value per share may
be affected by declines in value of these securities.
MORTGAGE-BACKED SECURITIES. The Government Fund and the Strategic Income
Fund may invest substantially in mortgage-backed securities issued by GNMA,
FNMA, and FHLMC and privately issued mortgage related bonds and mortgage-
backed securities. Mortgage-backed securities are backed by a pool of mortgage
loans and provide a monthly payment of principal and interest, which is passed
through as payments are made on the underlying mortgages. Additional payments
may be made from unscheduled repayments of principal due to refinancing, sale
or foreclosure of the underlying property.
If interest rates decline, these prepayments tend to increase due to
refinancing of mortgages. Therefore, the average life, or effective maturity
of mortgage-backed securities is normally shorter than the typical 30-year
maturity of the underlying mortgages. Since the prepayment rate varies with
market conditions, it is not possible to accurately anticipate what the
average maturity of the portfolio will be. The yield of the Funds will be
affected by reinvestment of prepayments at higher or lower rates than the
original investment. Also, to the extent the Funds purchase mortgage
securities at a premium, prepayments will result in some loss to the extent of
the premium. Like other debt securities, mortgage related securities' values,
including government related mortgage securities, fluctuate inversely in
response to interest rates.
Prompt payment of principal and interest on GNMA certificates is backed by
the full faith and credit of the United States. FNMA guaranteed pass-through
certificates and FHLMC participation certificates are supported by the credit
of the issuing agency. The U.S. Government is not legally obligated to provide
financial support to FNMA and FHLMC, but may do so in its discretion. As with
any debt obligation, the value of U.S. Government and mortgage securities will
fluctuate with changes in interest rates or market perceptions of the
creditworthiness of the issuer. Additional description of mortgage-backed
securities is contained in the Statement of Additional Information.
HOW ARE THE INVESTMENTS OF THE UNDERLYING ATLAS FUNDS MANAGED?
Advisers provides portfolio management services to the Atlas U.S. Treasury
Money Fund and the Atlas U.S. Government and Mortgage Securities Fund, and
supervises the provision of similar services to the other underlying Atlas
Funds by OppenheimerFunds, Inc. (the "Subadviser").
Roberta A. Conger, Group Senior Vice President and Treasurer of World
Savings, and Tim Stare, Vice President of World Savings, are the persons
primarily responsible for the day-to-day management of the portfolios of the
Government Fund and the Money Fund. Ms. Conger has more than 26 years
experience as a trader and portfolio manager of fixed-income securities,
including the last 12 years involved in managing the investments of Golden
West Financial's over $2 billion portfolio of mortgage-backed and mortgage-
related securities, money market instruments, bonds, other debt obligations,
and U.S. Government securities. Mr. Stare has over 20 years experience as a
trader and portfolio manager of fixed-income securities, including the last
six years managing the investment portfolios for World Savings and Golden West
Financial.
The Subadviser is owned by Oppenheimer Acquisition Corp., a holding company
owned in part by senior management of the Subadviser and ultimately controlled
by Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies. As of
December 31, 1996, the Subadviser and its affiliates advised U.S. investment
companies with aggregate assets in excess of $62 billion, of which
approximately $29 billion was invested in equity funds.
Arthur P. Steinmetz and David P. Negri have been the individuals primarily
responsible for the day-to-day management of the Atlas Strategic Income Fund
since that Fund's inception of operations on May 20, 1996. During the past
five years, Mr. Steinmetz, a Senior Vice President and Portfolio Manager of
the Subadviser, and Mr. Negri, a Vice President and Portfolio Manager of the
Subadviser, have each served as officers and portfolio managers of various
funds managed by the Subadviser.
-15-
<PAGE>
John P. Doney, Vice President and Portfolio Manager of the Stock Funds'
Subadviser, has been the person primarily responsible for the day-to-day
management of the Atlas Balanced Fund since the Fund's inception of operations
on October 1, 1993. During the past five years, Mr. Doney has served as
portfolio manager of various funds managed by the Subadviser.
The Portfolio Managers of the Atlas Growth and Income Fund are Bruce
Bartlett and Diane L. Sobin. They have been the persons principally
responsible for the day-to-day management of that Fund since July 5, 1995.
During the past five years, Mr. Bartlett, a Vice President and Portfolio
Manager of the Subadviser, was previously a Vice President and Senior
Portfolio Manager with First of America Investment Corporation. During the
past five years, Ms. Sobin, a Vice President and Portfolio Manager of the
Subadviser, was previously a Vice President and Senior Portfolio Manager with
Dean Witter InterCapital, Inc.
Robert C. Doll, Jr., Executive Vice President, Director of Equity
Investments, and Portfolio Manager of the Subadviser, has been the person
primarily responsible for the day-to-day management of the Atlas Strategic
Growth Fund since the Fund's inception of operations on October 1, 1993.
During the past five years, Mr. Doll has served as officer and portfolio
manager of various funds managed by the Subadviser.
William L. Wilby has been the person primarily responsible for the day-to-
day management of the Atlas Global Growth Fund since that Fund's inception of
operations on April 15, 1996. During the past five years, Mr. Wilby, a Senior
Vice President and Portfolio Manager of the Subadviser, has served as an
officer and portfolio manager for other funds managed by the Subadviser, prior
to which he was an international investment strategist at Brown Brothers,
Harriman & Co. and a Managing Director and Portfolio Manager at AIG Global
Investors.
Jay W. Tracey, III, Vice President and Portfolio Manager of the Subadviser,
has been the person primarily responsible for the day-to-day management of the
Atlas Emerging Growth Fund since that Fund's inception of operations on April
30, 1997. During the past five years, Mr. Tracey has served as an officer and
portfolio manager for other funds managed by the Subadviser. Mr. Tracey also
served as a managing director of Buckingham Capital Management. Prior to
joining the Subadviser, Mr. Tracey was a Senior Vice President of Founders
Asset Management Inc., prior to which he was a securities analyst and
portfolio manager for Berger Associates, Inc.
The Subadviser may be removed by Advisers at any time, in which event,
Advisers would directly manage the Fund or another Subadviser would be engaged
for that purpose.
-16-
<PAGE>
APPENDIX II:
DESCRIPTION OF RATINGS
In general, the ratings of Moody's Investors Services, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"), and the other nationally recognized
statistical rating organizations, represent the opinions of these agencies as
to the quality of securities which they rate. It should be emphasized,
however, that such ratings are relative and subjective and are not absolute
standards of quality. Consequently, debt securities with the same maturity,
coupon and rating may have different yields, while debt securities of the same
maturity and coupon with different ratings may have the same yield. These
ratings will be used by the Funds as initial criteria for the selection of
portfolio securities, but the Funds will also rely upon the independent advice
of the Adviser and their respective Subadvisers (if any) to evaluate potential
investments. This Appendix contains further information concerning the ratings
of Moody's and S&P and their significance. Subsequent to its purchase by a
Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event
will require sale of such securities by the Fund, but the Adviser or
Subadviser will consider such event in its determination of whether the Fund
should continue to hold the securities. To the extent that the rating given by
Moody's or S&P for securities may change as a result of changes in such
organizations or their rating systems, the Funds will attempt to use
comparable ratings as standards for their investments in accordance with the
investment policies contained in this Prospectus and in the Statement of
Additional Information.
MOODY'S INVESTORS SERVICE, INC. describes its ratings for debt securities as
follows:
BONDS--
AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely 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 magnitude or there may be other elements
present which make the long-term risks appear somewhat larger than the 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 some time in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be overly moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
-17-
<PAGE>
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTES AND VARIABLE RATE OBLIGATIONS--
MIG 1/VMIG 1. The MIG 1 (or VMIG 1 for an issue with a variable rate demand
feature) designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad-
based access to the market for refinancings.
MIG 2/VMIG 2. The MIG 2 (or VMIG 1 for an issue with a variable rate demand
feature) designation denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
COMMERCIAL PAPER--
PRIME-1. 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:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2. 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 appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
STANDARD & POOR'S CORPORATION describes its ratings for debt securities as
follows:
BONDS--
AAA. Bonds which are rated AAA have the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely strong.
AA. Bonds which are rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A. Bonds which are 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 bonds in higher rated
categories.
BBB. Bonds which are rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits 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.
-18-
<PAGE>
BB, B, CCC AND CC. Bonds which are rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C AND D. The rating C is reserved for income bonds on which no interest is
being paid. Bonds rated D are in default and payment of interest and/or
repayment of principal is in arrears.
NOTES--
SP-1. The SP-1 rating denotes a 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. The SP-2 rating denotes a satisfactory capacity to pay principal and
interest.
COMMERCIAL PAPER--
A-1. The A-1 designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2. The A-2 designation indicates a capacity for timely payment on issues
so designated is strong; however, the relative degree of safety is not as high
as for issues designated A-1.
-19-
<PAGE>
ATLAS INSURANCE TRUST
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
1-800-933-ATLAS (1-800-933-2852)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("Statement"), which may be amended
from time to time, concerning Atlas Insurance Trust (the "Trust") is not a
Prospectus for the Trust. This Statement supplements the Prospectus dated
August 7, 1997 and investors should read it in conjunction with that
Prospectus. A copy of the Prospectus, which may be amended from time to time,
is available without charge by writing or calling the Trust at the address or
telephone number printed above.
The date of this Statement of Additional Information is August 7, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Certain Securities and Investment Policies.................. B-3
Fundamental Investment Restrictions........................................ B-20
Portfolio Turnover......................................................... B-21
Management of the Trust.................................................... B-22
Investment Management and Other Services................................... B-24
Execution of Portfolio Transactions........................................ B-24
Determination of Net Asset Value........................................... B-24
Taxes...................................................................... B-27
Additional Information..................................................... B-27
Investment Results......................................................... B-28
Financial Statements....................................................... B-29
Appendix--Industry Classifications......................................... B-34
</TABLE>
-B-2-
<PAGE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT POLICIES
The investment objectives and policies of the Atlas Balanced Growth
Portfolio and the underlying Atlas Funds are described in the Prospectus.
Supplemental information about those policies is set forth below. As set forth
in the Prospectus, the Portfolio invests in the underlying Atlas Funds. As a
result, shareholders of the Portfolio will be affected by the policies of such
funds in direct proportion to the amount of assets the Portfolio allocates to
the Funds pursuing such policies. Certain capitalized terms used in this
Statement are defined in the Prospectus.
Investment Risks.
The various risks associated with an investment in the Portfolio are
described in the Prospectus. Like other mutual funds that invest primarily in
equity securities, an investment in the Portfolio involves stock market risk
and to a lesser extent interest rate risk. Specific risks encountered by the
underlying Atlas Funds are described in the following paragraphs.
With the exception of U.S. Government securities, the debt securities the
Atlas Strategic Income Fund invests in will have one or more types of
investment risk: credit risk, interest rate risk or foreign exchange risk.
Credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they become due. Generally, higher yielding bonds are
subject to credit risk to a greater extent than higher quality bonds. Interest
rate risk refers to the fluctuations in value of debt securities resulting
solely from the inverse relationship between price and yield of outstanding
debt securities. An increase in prevailing interest rates will generally
reduce the market value of debt securities, and a decline in interest rates
will tend to increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. Fluctuations in the market value of debt securities subsequent to
their acquisition will not affect the interest payable on those securities,
and thus the cash income from such securities, but will be reflected in the
valuations of these securities used to compute the Fund's net asset values.
Foreign exchange rate risk refers to the change in value of the currency in
which a foreign security the Fund holds is denominated against the U.S.
dollar.
Special Risks--High Yield Securities. As stated in the Prospectus, the
corporate debt securities, in which the Atlas Strategic Income Fund will
principally invest may be in the lower rating categories. The Fund may invest
in securities rated as low as "C" by Moody's or "D" by Standard & Poor's. The
Fund's Subadviser will not rely solely on the ratings assigned by rating
services and may invest, without limitation in unrated securities which offer,
in the opinion of the Subadviser, comparable yields and risks as those rated
securities in which the Fund may invest.
Risks of high yield securities may include: (i) limited liquidity and
secondary market support, (ii) substantial market price volatility resulting
from changes in prevailing interest rates, (iii) subordination to the prior
claims of banks and other senior lenders, (iv) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining
interest rates that could cause the Fund to be able to reinvest premature
redemption proceeds only in lower yielding portfolio securities, (v) the
possibility that earnings of the issuer may be insufficient to meet its debt
service, and (vi) the issuer's low creditworthiness and potential for
insolvency during periods of rising interest rates and economic downturn. As a
result of the limited liquidity of high yield securities, their prices have at
times experienced significant and rapid decline when a substantial number of
holders decided to sell. A decline is also likely in the high yield bond
market during an economic downturn. An economic downturn or an increase in
interest rates could severely disrupt the market for high yield bonds and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest.
Repurchase Agreements.
Each underlying Atlas Fund, except the U.S. Treasury Money Fund, may engage
in repurchase agreement transactions in portfolio securities with member banks
of the Federal Reserve System or
-B-3-
<PAGE>
with certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, a Fund
would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be monitored by the Adviser or by a Fund's Subadviser to
ensure that it at least equals at all times the total amount of the repurchase
obligation, including interest.
A Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert these rights.
Advisers, or the Subadviser if applicable, acting under the supervision of the
Board of Directors of the Atlas Funds, reviews, on an ongoing basis, the
creditworthiness and the values of the collateral of those banks and dealers
with which a Fund enters into repurchase agreements to evaluate potential
risks.
A repurchase agreement is considered to be a loan collateralized by the
underlying securities under the 1940 Act.
Mortgage-Backed Securities.
As noted in the Prospectus, the Government Fund and the Strategic Income
Fund may invest in mortgage-backed securities, including privately issued
mortgage related bonds and mortgage-backed securities.
Privately issued mortgage related bonds and mortgage-backed securities are
issued by financial institutions such as commercial banks, thrift
institutions, mortgage bankers and securities broker-dealers. Mortgage related
bonds are general obligation, fixed-income securities collateralized by
mortgages. These securities include collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") as authorized
under the Internal Revenue Code. CMOs are a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payments on underlying collateral to different series or
classes of the obligations. CMOs may be issued by a U.S. Government agency
such as FHLMC and collateralized by U.S. Government or government agency
mortgage securities, or by private issuers and collateralized by U.S.
Government and/or government agency mortgage securities or by privately issued
mortgage securities.
The U.S. Government and the Strategic Income Funds may invest in other
mortgage related debt obligations secured by mortgages on commercial or
residential properties and may purchase securities known as "strips." Strips
are securities in which the unmatured interest coupons have been "stripped"
from the principal portion and sold separately. The Funds may invest in the
principal portion or in the interest coupons of U.S. Government and mortgage
securities or in receipts or certificates representing interests in stripped
securities or interest coupons. The principal portion of a stripped security
pays no interest to its holder during its life, and its value consists of the
difference between its face value at maturity and its acquisition price.
Mortgage-backed securities strips are subject to increased volatility in price
due to interest rate changes, the risk that the security will be less liquid
during demand or supply imbalances, and the risk that, due to unscheduled
prepayments, the maturity date will be shorter than anticipated and
reinvestment of the proceeds may only be possible at a lower yield.
When-Issued and Delayed Delivery Transactions.
In order to secure yields or prices deemed advantageous at the time, all
underlying Atlas Funds may purchase or sell securities on a "when-issued" or
"delayed delivery" basis. The Funds will not enter into such a transaction for
the purpose of leverage. In such transactions delivery of the securities
occurs beyond the normal settlement periods (generally within two months but
not more than 120 days), but no payment or delivery is made by, and no
interest accrues to, the Fund prior to
-B-4-
<PAGE>
the actual delivery or payment by the other party to the transaction. To the
extent that assets of a Fund are not invested prior to the settlement of a
purchase of securities, the Fund will earn no income; however, it is intended
that each Fund will be fully invested to the extent practicable. While when-
issued or delayed delivery securities may be sold prior to the settlement
date, a Fund will purchase such securities for the purpose of actually
acquiring them unless a sale appears desirable for investment reasons.
At the time an underlying Atlas Fund makes the commitment to purchase a
security on a when-issued or delayed delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Funds do not believe that the net asset value or income of their
portfolios will be adversely affected by their purchase of securities on a
when-issued or delayed delivery basis.
Due to fluctuations in the value of securities purchased on a when-issued or
delayed delivery basis, the yields obtained on such securities may be higher
or lower than the yields available in the market on the dates when the
investments are actually delivered to the buyers. Similarly, the sale of
securities on a firm commitment basis can involve the risk that the prices
available in the market when delivery is made may actually be higher than
those obtained in the transaction itself.
When an underlying Atlas Fund engages in when-issued or delayed
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to
be advantageous. A Fund will establish a segregated account consisting of
cash, U.S. Government securities or other high-grade, liquid securities in an
amount equal to the amount of its when-issued or firm commitment obligation.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date.
When-issued transactions and forward commitments may be used by a Fund use
against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling prices, a Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit
its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, a Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
Dollar Reverse Repurchase and Reverse Dollar Reverse Repurchase Agreements.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may engage in dollar reverse repurchase and reverse
dollar reverse repurchase agreements with respect to mortgage-backed
securities. These agreements involve the purchase or sale by a Fund of
securities that are substantially similar to those sold or purchased by the
Fund upon the initiation of the transaction, as the case may be. For this
purpose, "substantially similar" means that the securities are issued by the
same U.S. Government agency or instrumentality, have the same original term to
maturity, and have the same original rate of interest, but may be backed by
different pools of mortgage obligations. Dollar reverse repurchase agreements
are subject to the same risks and restrictions as described in the Prospectus
with respect to reverse repurchase agreements. Reverse dollar reverse
repurchase agreements are subject to the same risks and restrictions as
described in "Repurchase Agreements" above with respect to repurchase
agreements.
Options on Securities, Indices and Currencies.
All Underlying Atlas Funds, except the Atlas U.S. Treasury Money Fund, are
eligible to use the following options.
1. PURCHASING PUT AND CALL OPTIONS ON SECURITIES.
By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the option's underlying security to the writer of the
option at a fixed strike price. The option may give the Fund the right to sell
only on the option's expiration date, or may be exercisable at any time up to
and including that date. In return for this right, the Fund pays the writer
the current market price for the option (known as an option premium).
-B-5-
<PAGE>
A Fund may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Fund will lose the entire premium it paid. If the Fund exercises
the option, it completes the sale of the underlying security at the strike
price. The Fund may also terminate a put option position by effecting a
"closing transaction" (i.e. selling an option of the same series as the option
previously purchased) in the secondary market at its current price, if a
liquid secondary market exists.
Put options may be used by a Fund to hedge against losses on sales of
securities. If securities prices fall, the value of the put option would be
expected to rise and offset all or a portion of the Fund's resulting losses in
its securities holdings. However, option premiums tend to decrease over time
as the expiration date nears. Therefore, because of the cost of the option
premium and transaction costs, the Fund would expect to suffer a loss in the
put option if prices do not decline sufficiently to offset the deterioration
in the value of the option premium. At the same time, because the maximum the
Fund has at risk is the option premium, purchasing put options offers
potential profit from an increase in the value of the securities hedged.
A Fund may also purchase options whether or not it holds such securities in
its portfolio. Buying a put option on an investment it does not own permits a
Fund either to resell the put or buy the underlying investment and sell it at
the exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. In the event
of a decline in the securities market, the Fund could exercise or sell the put
at a profit to attempt to offset some or all of its loss on its portfolio
securities.
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying security at the option's strike
price. By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying security, but with risk limited to
the cost of the option if securities prices fell. At the same time, the Fund
could expect to suffer a loss if security prices did not rise sufficiently to
offset the cost of the option. The value of debt securities underlying calls
purchased by the Atlas Strategic Income Fund will not exceed the value of the
portion of the Fund's portfolio invested in cash or cash equivalents (i.e.,
securities with maturities of less than one year).
2. WRITING PUT AND CALL OPTIONS ON SECURITIES.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Fund assumes the obligation to pay the strike price for the option's
underlying security if the other party to the option chooses to exercise it.
As long as the obligation of the Fund as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through whom such option was
sold, requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. Prior to exercise, the Fund may seek to terminate its
position in a put option by effecting a closing purchase transaction with
respect to the option in the secondary market (i.e. buying an option of the
same series as the option previously written) at its current price. If the
secondary market is not liquid for an option the Fund has written, however,
the Fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its obligation.
A Fund may write a put option as an alternative to purchasing a security. If
the security's price rises, the Fund would expect the put to lapse unexercised
and to profit from a written put option, although its gain would be limited to
the amount of the premium it received. If the security's price remains the
same over time, it is likely that the Fund will also profit, because it should
be able to close out the option at a lower price. If the security's price
falls, the Fund would expect to suffer a loss. If the put is exercised, the
Fund must fulfill its obligation to purchase the underlying investment at the
exercise price, which will usually exceed the market value of the investment
at
-B-6-
<PAGE>
that time. This loss should be less than the loss the Fund would have
experienced from purchasing the underlying security directly (assuming the
secondary market for the put option and the underlying security are equally
liquid) because the premium received for writing the option should mitigate
the effect of the price decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying security, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing covered call options generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, the Fund would seek to mitigate the effects of a price
decline. At the same time, the Fund would give up some ability to participate
in security price increases when writing call options.
3. SECURITIES INDEX OPTION TRANSACTIONS.
A Fund may buy or sell a securities index option at a fixed price. No
securities actually change hands in these transactions. Instead, changes in
the underlying index's value are settled in cash. The cash settlement amounts
are based on the difference between the index's current value and the value
contemplated by the contract. Most securities index options are based on
broad-based indices reflecting the prices of a broad variety of securities,
such as the Standard & Poor's 500 Composite Stock Price Index. Some index
options are based on narrower industry averages or market segments.
The Trust expects that an underlying Atlas Fund's options transaction will
normally involve broad-based indices, though it is not limited to these
indices. Since the value of index options depends primarily on the value of
their underlying indices, the performance of broad-based indices will
generally reflect broad changes in securities prices. A Fund, however, can
invest in many different types of securities, including securities that are
not included in the underlying indices of the options available to the Fund.
In addition, a Fund's investments may be more or less heavily weighted in
securities of particular types of issuers, or securities of issuers in
particular industries, than the indices underlying its index options
positions. Therefore, while a Fund's index options should provide exposure to
changes in value of its portfolio securities (or protection against declines
in their value in the case of hedging transactions), it is likely that the
price changes of the Fund's index options positions will not match the price
changes of the Fund's other investments.
4. COMBINED OPTION POSITIONS.
A Fund may purchase and write options in combination to adjust the risk and
return characteristics of the overall position. For example, a Fund may
purchase a put option and write a call option on the same underlying security,
in order to construct a combined position with risk and return characteristics
similar to those of selling a futures contract. Another possible combined
position would involve writing a call option at one strike price and buying a
call option at a lower price, in order to reduce the risk of the written call
option in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close than single options transactions.
Combined option positions will be subject to the same overall percentage
limitation as other option strategies.
5. RISKS OF TRANSACTIONS IN OPTIONS.
An option position may be closed out only on an exchange or market which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market will exist at any particular time for
options purchased or written by a Fund. For some options no secondary market
on an exchange may exist at all. In such event, it might not be possible to
effect closing transactions in particular options, with the result that a Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities acquired through the exercise
of call options or upon the purchase of underlying securities for the exercise
of put options. If a Fund as a covered call option writer is unable to effect
a closing purchase transaction in a secondary market, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
-B-7-
<PAGE>
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volumes; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders.
In addition, options on indices are subject to certain risks that are not
present with other options. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
instrument, whether a Fund will realize a gain or loss on the purchase or sale
of an option on an index depends upon movements in the level of prices in the
market generally or in an industry or market segment rather than movements in
the price of a particular instrument. In addition, index prices may be
distorted or interrupted if trading of certain instruments included in the
index is interrupted. If this occurred, a Fund would not be able to close out
options which had been purchased or written by it and, if restrictions on
exercise were imposed, might be unable to exercise an option being held, which
could result in substantial losses to a Fund. However, it is the Funds' policy
to purchase or write options only on indices which include a sufficient number
of securities so that the likelihood of a trading halt in the index is
minimized.
The Funds may buy and sell over-the-counter puts and calls on securities and
as well as listed options. Unlike listed option positions, positions in over-
the-counter options may be closed out only with the other party to the options
transaction. Such options transactions are subject to the additional risks
that a Fund may be unable to close out a transaction with the other party when
it wishes to do so, and that the other party to the transaction may default
without the protection against default afforded by exchange clearing
corporations with respect to listed options. The eligible Funds will enter
into unlisted option transactions only with securities dealers which Advisers
or the Subadviser believes to be of high credit standing and to maintain a
liquid market for such options. Under certain conditions, the premiums a Fund
pays for unlisted options and the value of securities used to cover such
options written by the Fund are considered to be invested in illiquid assets
for purposes of the investment restriction applicable to illiquid investments.
Futures Contracts and Options on Futures Contracts.
All underlying Atlas Funds, except the U.S. Treasury Money Fund, are
eligible to enter into the following transactions:
1. INTEREST RATE FUTURES TRANSACTIONS.
The underlying Atlas Funds may purchase or sell interest rate futures
contracts in hedging transactions. When a Fund purchases a futures contract,
it agrees to purchase the underlying instrument at a specified future date and
price. When a Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date and price.
No consideration is paid or received by a Fund upon the purchase or sale of
a futures contract. Initially, a Fund will be required to deposit with the
broker through which it entered into the contract an amount of cash or cash
equivalents equal to approximately 5% of the contract amount (this amount is
subject to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This amount is
known as "initial margin" and is returned to a Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied by
the Fund.
-B-8-
<PAGE>
Subsequent payments, known as "variation margin," to and from the Fund or
the broker, as the case may be, must be made daily as the price of securities
underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable. These daily payments
to account for valuation changes are a process known as "marking-to-market."
If a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do
so. The party that has a gain is entitled to receive all or a part of this
amount. At any time prior to the expiration of a futures contract, a Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's existing position in the contract.
Initial and variation margin payments are similar to good faith deposits or
performance bonds, unlike margin extended by a securities broker, and do not
constitute purchasing securities on margin for purposes of the Fund's
investment limitations. In the event of the bankruptcy of a futures commission
merchant ("FCM") that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers. The Adviser, or Subadviser if
applicable, will attempt to minimize this risk by careful monitoring of the
creditworthiness of the FCMs with which the Fund does business.
The purpose of the acquisition or sale of a futures contract by an
underlying Fund is to protect that Fund from fluctuations in rates on
securities without actually buying or selling the securities. The value of
portfolio securities will exceed the value of the futures contracts sold by
the Fund, and an increase in the value of the futures contracts could only
mitigate--but not totally offset--the decline in the value of the portfolio.
Interest rate futures contracts are currently traded on the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile Exchange
(CME) and the New York Futures Exchange. Among the securities on which
interest rate futures contracts are currently based are long-term U.S.
Treasury bonds, U.S. Treasury notes, GNMA pass-through securities, three-month
U.S. Treasury bills, municipal bond futures and ninety-day commercial paper.
2. SECURITIES INDEX FUTURES CONTRACTS.
When a Fund purchases a securities index futures contract, it agrees to
purchase the underlying index at a specified future date and price. When a
Fund sells a securities index futures contract, it agrees to sell the
underlying index at a specified future date and price.
The majority of index futures are closed out by entering into an offsetting
purchase or sale transaction in the same contract on the exchange where they
are traded, rather than being held for the life of the contract. Futures
contracts are closed out at their current prices, which may result in a gain
or loss. If a Fund holds an index futures contract until the delivery date, it
will pay or receive a cash settlement amount based on the difference between
the index's closing price and the settlement price agreed upon when the
contract was initiated.
A Fund may purchase securities index futures contracts in an attempt to
remain fully invested in the securities market. For example, if a Fund had
cash and short-term securities on hand that it wished to invest in common
stocks, but at the same time it wished to maintain a highly liquid position in
order to be prepared to meet redemption requests or other obligations, it
could purchase a stock index futures contract in order to participate in
changes in stock prices. A Fund may also purchase futures contracts as an
alternative to purchasing actual securities. For example, if a Fund intended
to purchase stocks but had not yet done so, it could purchase a stock index
futures contract in order to lock in current stock prices while deciding on
particular investments. This strategy is sometimes known as an anticipatory
hedge. In these strategies the Fund would use futures contracts to attempt to
achieve an overall return similar to the return from the stocks included in
the underlying index, while taking advantage of potentially greater liquidity
that futures contracts may offer. Although the Fund would hold cash and liquid
debt securities in a segregated account with a value sufficient to cover its
open futures obligations, the segregated assets would be available to the Fund
immediately upon closing out the futures position, while settlement of
securities transactions can take several days.
-B-9-
<PAGE>
When a Fund wishes to sell securities, it may sell securities index futures
contracts to hedge against securities market declines until the sale can be
completed. For example, if a Fund anticipated a decline in common stock prices
at a time when it anticipated selling common stocks, it could sell a futures
index contract in order to lock in current market prices. If stock prices
subsequently fell, the futures contract's value would be expected to rise and
offset all or a portion of the anticipated loss in the common stocks the Fund
had hedged in anticipation of selling them. The success of this type of
strategy depends to a great extent on the degree of correlation between the
index futures contract and the securities hedged. Of course, if prices
subsequently rose, the futures contract's value could be expected to fall and
offset all or a portion of the benefit to the Fund.
3. OPTIONS ON FUTURES CONTRACTS.
An option on a futures contract is an agreement to buy or sell the futures
contract. Exercise of the option results in ownership of a position in the
futures contract. Options on futures contracts may be purchased and sold by a
Fund in the same manner as options on securities. Options on futures contracts
may also be written by a Fund in the same manner as securities options, except
that the writer must make margin payments to a futures commission merchant
("FCM") as described above with respect to futures contracts. The holder or
writer of an option may terminate his position by selling or purchasing an
option of the same series. There is no guarantee that such closing
transactions can be effected.
4. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES.
There are risks in connection with the use of futures contracts as a hedging
device. Successful use of futures contracts by a Fund is subject to the
ability of Advisers, or the Subadviser if applicable, to forecast movements in
the direction of interest rates and/or market prices. These forecasts may
involve skills and techniques that may be different from those involved in the
management of the Funds. In addition, even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected trends in
interest rates and/or market prices.
As noted above, price changes of the Fund's futures and options on futures
positions may not be well correlated with price changes of its other
investments because of differences between the underlying indices and the
types of securities the Fund invests in. For example, if the Fund sold a
broad-based index futures contract to hedge against a stock market decline
while the Fund completed a sale of specific securities in its portfolio, it is
possible that the price of the securities could move differently from the
broad market average represented by the index futures contract, resulting in
an imperfect hedge and potentially in losses to the Fund.
Index futures prices can also diverge from the prices of their underlying
indexes, even if the underlying instruments match the Fund's investments well.
Futures prices are affected by such factors as current and anticipated short-
term interest rates and/or market prices, changes in volatility of the
underlying index, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation
between the Fund's investments and its futures positions may also result from
differing levels of demand in the futures markets and the securities markets,
from structural differences in how futures and securities are traded, or from
imposition of daily price fluctuation limits for futures contracts. The Fund
may purchase or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in historical volatility between the futures
contracts and the securities, although this may not be successful in all
cases. If price changes in the Fund's futures positions are poorly correlated
with its other investments, its futures positions may fail to produce
anticipated gains or result in losses that are not offset by the gains in the
Fund's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of up to seven days for
some types of securities, the futures markets can provide liquidity superior
to that of the securities markets in many cases. Nevertheless, there is no
assurance a liquid secondary market will exist for any particular futures
contract at any particular time. In addition, futures exchanges may establish
daily price fluctuation limits for futures
-B-10-
<PAGE>
contracts, and may halt trading if a contract's price moves upward or downward
more than the limit in a given day. On volatile trading days when the price
fluctuation limit is reached, it may be impossible for the Fund to enter into
new positions or close out existing positions. Trading in index futures can
also be halted if trading in the underlying index stocks is halted. If the
secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable futures positions, and potentially could require the Fund to
continue to hold a futures position until the delivery date, regardless of
potential losses. If the Fund must continue to hold a futures position, its
access to other assets held to cover the position could also be impaired.
Options on futures are subject to risks similar to those described above
with respect to futures contracts, including the risk of imperfect correlation
between the option and a Fund's other investments and the risk that there
might not be a liquid secondary market for the option. There is also a risk of
imperfect correlation between the option and the underlying futures contract.
Options on futures are also subject to the risks of an illiquid secondary
market, particularly in strategies involving writing options which the Fund
cannot terminate by exercise. In general, options with strike prices close to
their underlying securities' current value will have the highest trading
volume, while options with strike prices further away may be less liquid. The
liquidity of options on futures may also be affected if exchanges impose
trading halts, particularly when markets are volatile.
5. LIMITATIONS ON TRANSACTIONS IN FUTURES AND OPTIONS ON FUTURES.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act,
the eligible underlying Atlas Funds are subject to the following limitations
in order that they not be deemed a "commodity pool operator":
(a) The Funds will use futures contracts and related options solely for
bona fide hedging purposes within the meaning of Commodity Futures Trading
Commission regulations; provided that a Fund may hold long positions in
futures contracts and related options that do not fall within the
definition of bona fide hedging transactions in an amount not in excess of
the limitation in paragraph (b); and
(b) The Funds will not enter into any futures contract or option on a
futures contract if, as a result, the sum of initial margin deposits on
futures contracts and related options and premiums paid for options on
futures contracts a Fund has purchased, after taking into account
unrealized profits and losses on such contracts, would exceed 5% of the
Fund's total assets.
In addition, the Funds do not intend to enter into futures contracts or
options on a futures contract that are not traded on exchanges or boards of
trade.
These limitations on the underlying Atlas Funds' investments in futures
contracts and options, and the underlying Funds' policies regarding futures
contracts and options discussed elsewhere in this Statement of Additional
Information, are not fundamental policies and may be changed as permitted by
the appropriate regulatory agencies.
Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for futures or options transactions, and
proposals to increase the margin requirements for various types of strategies.
It is impossible to predict what actions, if any, will result from these
reviews at this time.
Asset Coverage for Futures and Options Positions.
An underlying Atlas Fund eligible to participate in futures and options will
not use leverage in its options and futures strategies. In the case of
strategies entered into as a hedge, the Fund will hold securities or other
options or futures positions whose values are expected to offset its
obligations under the hedge strategies. A Fund will not enter into an option
or futures position that
-B-11-
<PAGE>
exposes the Fund to an obligation to another party unless it owns either (i)
an offsetting position in securities or other options or futures contracts or
(ii) cash, receivables and other liquid securities with a value sufficient to
cover its potential obligations.
An underlying Atlas Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to coverage of options and
futures strategies by mutual funds and, if the guidelines so require, will set
aside cash and liquid securities in a segregated account with its custodian
bank in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is open, unless they are replaced
with similar securities. As a result, there is a possibility that segregation
of a large percentage of the Fund's assets could impede portfolio management
or the Fund's ability to meet redemption requests or other current
obligations.
Other Derivative Investments.
As noted in the Prospectus, a "derivative investment" is an investment whose
performance is limited to the performance of another investment or security. In
addition to options and futures contracts described above, the Strategic Income
and Emerging Growth Funds can invest in different kinds of "derivative
investments." One type of derivative the Atlas Strategic Income and Emerging
Growth Funds may invest in is an "index-linked" note. On the maturity of this
type of debt security, payment is made based on the performance of an underlying
index, rather than based on a set principal amount as for a typical note.
Another derivative investment the Funds may invest in is a currency-indexed
security. These are typically short-term or intermediate-term debt securities.
Their value at maturity or the interest rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more foreign
currencies or an index. In some cases, these securities may pay an amount at
maturity based on a multiple of the amount of the relative currency movements.
This variety of index security offers the potential for greater income but at a
greater risk of loss.
Other derivative investments the Atlas Strategic Income and Emerging Growth
Funds may invest in include "debt exchangeable for common stock" of an issuer
or "equity-linked debt securities" of an issuer. At maturity, such debt
security is exchanged for common stock of the issuer or is payable in an
amount based on the price of the issuer's common stock at the time of
maturity. In either case there is a risk that the amount payable at maturity
will be less than the principal amount of the debt (because the price of the
issuer's common stock is not as high as was expected).
Interest Rate Swaps.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may engage in interest rate swaps. An interest rate swap
is a contract between two entities ("counterparties") to exchange interest
payments (in the same currency) between the parties. In the most common interest
rate swap structure, one counterparty agrees to make floating rate payments to
the other counterparty, which in turn makes fixed rate payments to the first
counterparty. Interest payments are determined by applying the respective
interest rates to an agreed upon amount, referred to as the "notional principal
amount." In many such transactions, the floating rate payments are tied to the
London Interbank Offered Rate ("LIBOR"), which is the offered rate for short-
term Eurodollar deposits between major international banks. As there is no
exchange of principal amounts, an interest rate swap is not an investment or a
borrowing.
Swap Options.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may invest in swap options. A swap option is a contract
that gives a counterparty the right (but not the obligation) to enter into a
new swap agreement or to shorten, extend, cancel or otherwise change an
existing swap agreement, at some designated future time on specified terms. It
is different from a forward swap, which is a commitment to enter into a swap
that starts at some future date with specified rates. A swap option may be
structured European-style (exercisable on the pre-specified date) or American-
style (exercisable during a designated period). The buyer of the right to pay
fixed rate payments pursuant to a swap option is said to own a put. The buyer
of the right to receive fixed rate payments pursuant to a swap option is said
to own a call.
-B-12-
<PAGE>
Caps and Floors.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may also purchase or sell interest rate caps and floors.
An interest rate cap is a right to receive periodic cash payments over the
life of the cap equal to the difference between any higher actual level of
interest rates in the future and a specified strike (or "cap") level. The cap
buyer purchases protection for a floating rate move above the strike. An
interest rate floor is the right to receive periodic cash payments over the
life of the floor equal to the difference between any lower actual level of
interest rates in the future and a specified strike (or "floor") level. The
floor buyer purchases protection for a floating rate move below the strike.
The strikes are typically based on the three-month LIBOR (although other
indices are available) and are measured quarterly.
Risks Associated with Swaps.
The risks associated with interest rate swaps and interest rate caps and
floors are similar to those described previously with respect to over-the-
counter options. In connection with such transactions, the underlying Atlas
Fund involved relies on the other party to the transaction to perform its
obligations pursuant to the underlying agreement. If there were a default by
the other party to the transaction, the underlying Atlas Fund would have
contractual remedies pursuant to the agreement, but could incur delays in
obtaining the expected benefit of the transaction or loss of such benefit. In
the event of insolvency of the other party, the Fund might be unable to obtain
its expected benefit. In addition, while a Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be able
to close out such a transaction with the other party, or obtain an offsetting
position with any other party, at any time prior to the end of the term of the
underlying agreement. This may impair a Fund's ability to enter into other
transactions at a time when doing so might be advantageous.
Foreign Securities.
Each underlying Atlas Fund (other than the U.S. Treasury Money Fund and the
U.S. Government and Mortgage Securities Fund) may invest varying amounts of
its assets in foreign securities which offer potential benefits not available
from investing solely in securities of domestic issuers, such as the
opportunity to invest in the securities of foreign issuers that appear to
offer growth potential, or to invest in foreign countries with economic
policies or business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by investing in securities in foreign stock
markets that do not move in a manner parallel to U.S. markets. In buying
foreign securities, each Fund may convert U.S. dollars into foreign currency,
but only in connection with currency futures and forward contracts and to
effect securities transactions on foreign securities exchanges and not to hold
such currency as an investment.
Because an underlying Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and its
income available for distribution. In addition, although a portion of a Fund's
investment income may be received or realized in foreign currencies, the Fund
will be required to compute and distribute its income in U.S. dollars, and
absorb the cost of currency fluctuations. Subsequent foreign currency losses
may result in a Fund having previously distributed more income in a particular
period than was available from investment income, which could result in a
return of capital to shareholders. A Fund's portfolio of foreign securities
may include those of a number of foreign countries or, depending upon market
conditions, those of a single country.
Investing in foreign securities involves special additional risks and
considerations not typically associated with investing in domestic securities
of issuers traded in the U.S.: reduction of income by foreign taxes;
fluctuation in value of foreign portfolio investments due to changes in
currency rates and control regulations (e.g., currency blockage); transaction
charges for currency exchange; lack of public information about foreign
issuers; lack of uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. issuers; less volume on
foreign exchanges than on U.S. exchanges; greater volatility and less
liquidity on foreign markets than in
-B-13-
<PAGE>
the U.S.; less regulation of foreign issuers, stock exchange and brokers than
in the U.S.; greater difficulties in commencing lawsuits against foreign
issuers than U.S. issuers; higher brokerage commission rates and custodial costs
than in the U.S.; increased risks of delays in settlement or portfolio
transactions or loss of certificates evidencing portfolio securities;
possibilities in some countries of expropriation or nationalization of assets,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences between the U.S. economy and foreign
economies. In the past, U.S. Government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions may be re-imposed.
The underlying Atlas Funds may invest in foreign securities that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than foreign securities of the same class that
are not subject to such restrictions. Each Fund accordingly treats these
foreign securities as subject to the 10% overall limitation on investment in
illiquid securities.
Debt Securities of Foreign Governments and Companies.
As stated in the Prospectus, the Atlas Strategic Income Fund may invest in
debt obligations and other securities (which may be denominated in U.S.
dollars or non-U.S. currencies) issued or guaranteed by foreign corporations,
certain "supranational entities" (described below) and foreign governments or
their agencies or instrumentalities, and in debt obligations and other
securities issued by U.S. corporations denominated in non-U.S. currencies. The
types of foreign debt obligations and other securities in which the Fund may
invest are the same types of debt obligations identified under "Debt
Securities of U.S. Companies," below.
The percentage of the Strategic Income Fund's assets that will be allocated
to foreign securities will vary depending on the relative yields of foreign
and U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currency to the U.S. dollar. These factors
are judged by the Subadviser on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political
data.
The Strategic Income Fund may invest in U.S. dollar-denominated foreign
securities referred to as "Brady Bonds." These are debt obligations of foreign
entities that may be fixed-rate par bonds or floating-rate discount bonds and
are generally collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations that have the same maturity as the Brady
Bonds. However, the Fund may also invest in uncollateralized Brady Bonds.
Brady Bonds are generally viewed as having three or four valuation components:
(i) any collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute what is referred to as the
"residual risk" of such bonds). In the event of a default with respect to
collateralized Brady Bonds as a result of which the payment obligations of the
issuer are accelerated, the zero coupon U.S. Treasury securities held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the
defaulted Brady Bonds, which will continue to be outstanding, at which time
the face amount of the collateral will equal the principal payments which
would have then been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are to be viewed as speculative.
The obligations of foreign governmental entities may or may not be supported
by the full faith and credit of a foreign government. Obligations of
"supranational entities" include those of international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and of international banking institutions and
related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World
-B-14-
<PAGE>
Bank"), the European Coal and Steel Community, the Asian Development Bank and
the Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. There is no assurance
that foreign governments will be able or willing to honor their commitments.
Foreign Currency Exchange Transactions.
Since investments in companies whose principal business activities are
located outside of the United States will frequently involve currencies of
foreign countries, and since a portion of the assets of each underlying Atlas
Fund (other than the U.S. Treasury Money Fund and the U.S. Government and
Mortgage Securities Fund) may temporarily be held in bank deposits in foreign
currencies during the completion of investment programs, the value of the
assets of a Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. Although each Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. A Fund may conduct its foreign currency
exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing
in the foreign currency exchange market or by entering into contracts to
purchase or sell foreign currencies at a future date (i.e., a "forward foreign
currency" contract or "forward" contract). It will convert currency on a spot
basis from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The underlying Funds do not intend to speculate in
foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders, usually large commercial banks, and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When an underlying Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
When Advisers, or a Fund's Subadviser, believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
U.S. dollars, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The protection of such a
short-term hedging strategy is highly uncertain. A Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate such Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other
assets denominated in that currency. Under normal circumstances, consideration
of the prospect for currency parities will be incorporated in the longer term
investment decisions made with regard to overall diversification strategies.
-B-15-
<PAGE>
However, the Company believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests
of a Fund will be served.
A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount
of the foreign currency.
If a Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss to the extent that there has been movement in
forward contract prices. If a Fund engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign
currency. Should forward prices decline during the period between the date a
Fund enters into a forward contract for the sale of the foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities
at the expiration of a forward contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
Each underlying Atlas Fund may also enter into a forward contract to sell a
foreign currency denominated in a currency other than that in which the
underlying security is denominated. This is done in the expectation that there
is a greater correlation between the foreign currency of the forward contract
and the foreign currency of the underlying investment than between the U.S.
dollar and the foreign currency of the underlying investment. This technique
is referred to as "cross hedging." The success of cross hedging is dependent
on many factors, including the ability of the Subadviser to correctly identify
and monitor the correlation between foreign currencies and the U.S. dollar. To
the extent that the correlation is not identical, the Fund may experience
losses or gains on both the underlying security and the cross currency hedge.
Each underlying Atlas Fund's dealings in forward foreign currency contracts
will be limited to the transactions described herein. Of course, a Fund is not
required to enter into such transactions with regard to its foreign currency
denominated securities and will not do so unless deemed appropriate by
Advisers or the Subadviser. It also should be realized that this method of
protecting the value of the Fund's securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which a Fund can achieve
at some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result should the
value of such currency increase.
The cost to a Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts are usually entered into
on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, Advisers or the Subadviser must
evaluate the credit and performance risk of each particular counterparty under
a forward contract.
Loans of Portfolio Securities.
Each underlying Atlas Fund may lend its portfolio securities to attempt to
increase a Fund's income to distribute to shareholders or for liquidity
purposes. Under applicable regulatory
-B-16-
<PAGE>
requirements (which are subject to change), the loan collateral must, on each
business day, at least equal the market value of the loaned securities and
must consist of cash, bank letters of credit or U.S. Government securities. To
be acceptable as collateral, letters of credit must obligate a bank to pay
amounts demanded by a Fund if the demand meets the terms of the letter. The
Fund receives an amount equal to the dividends or interest on loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral or (c) interest on short-term debt
securities purchased with such loan collateral; either type of interest may be
shared with the borrower. The Fund may also pay reasonable finder's, custodian
and administrative fees and will not lend its portfolio securities to any
officer, director, employee or affiliate of the Atlas Funds, Advisers or the
Subadviser. The terms of each Fund's loans must meet applicable tests under
the Internal Revenue Code and permit the Fund to reacquire loaned securities
on five business days' notice or in time to vote on any important matter.
Borrowing.
From time to time, the Atlas Global Growth Fund, the Atlas Strategic Income
Fund, the Atlas Strategic Growth Fund and the Atlas Emerging Growth Fund may
each increase its ownership of securities by borrowing from banks on an
unsecured basis and investing the borrowed funds, subject to the restrictions
stated in the Prospectus. Any such borrowing will be made by a Fund only from
banks, and pursuant to the requirements of the 1940 Act, will be made only to
the extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing. If the value of the Fund's assets so computed should fail
to meet the 300% asset coverage requirement, the Fund is required within three
days to reduce its bank debt to the extent necessary to meet such requirements
and may have to sell a portion of its investments at a time when independent
investment judgment would not dictate such sale. Interest on money borrowed is
an expense the Fund would not otherwise incur, so that it may have little or
no net investment income during periods of substantial borrowings. Borrowing
for investment increases both investment opportunity and risk. Since
substantially all of a Fund's assets fluctuate in value whereas borrowing
obligations are fixed, when the Fund has outstanding borrowings, its net asset
value per share will tend to increase and decrease more when its portfolio
assets fluctuate in value than would otherwise be the case.
Illiquid and Restricted Securities.
The expenses of registration of restricted securities that are illiquid
(excluding securities that may be resold by a Fund pursuant to Rule 144A as
explained in the Prospectus) may be negotiated by a Fund at the time such
securities are purchased by the Fund. When such registration is required
before such securities may be sold, a considerable period may elapse between a
decision to sell the securities and the time when the Fund would be permitted
to sell them. Thus, the Fund would bear the risks of any downward price
fluctuation during that period. A Stock Fund also may acquire securities
through private placements. Such securities may have contractual restrictions
on their resale, which might prevent their resale by the Fund at a time when
such sale would be desirable and might lower the amount realizable upon the
sale of such securities.
Zero Coupon Securities.
The underlying Atlas Funds (other than the U.S. Treasury Money Fund) may
invest in zero coupon securities issued by the U.S. Treasury or by
corporations. Zero coupon Treasury securities are: (i) U.S. Treasury notes and
bonds which have been stripped of their unmatured interest coupons and
receipts, or (ii) certificates representing interests in such stripped debt
obligations or coupons. Corporate and municipal zero coupon securities are:
(i) notes or debentures that do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debenture that pay no
current interest until a stated date one or more years in the future, after
which the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance. Such zero
coupon securities, in addition to being subject to the risks identified below,
are subject to the risk of the issuer's failure to pay interest and repay
principal in accordance with the terms of the obligation.
-B-17-
<PAGE>
Because a zero coupon security pays no interest to its holder during its
life or for a substantial period of time, it usually trades at a deep discount
from its face or par value and will be subject to a greater fluctuations in
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Because a
Fund accrues taxable income from these securities without receiving cash, such
Fund may be required to sell portfolio securities in order to pay a dividend
depending upon the proportion of shareholders who elect to receive dividends
in cash rather than reinvesting dividends in additional shares of the Fund. A
Fund might also sell portfolio securities to maintain portfolio liquidity. In
either case, cash distributed or held by a Fund and not reinvested in Fund
shares will hinder the Fund in seeking current income.
Debt Securities of U.S. Companies.
The Atlas Strategic Income Fund's investments in fixed-income securities
issued by domestic companies and other issuers may include debt obligations
(bonds, debentures, notes, mortgage-backed and asset-backed securities and
CMOs) as well as preferred stocks.
The risks attendant to investing in high-yielding, lower-rated bonds are
described above. If a sinking fund or callable bond held by the Fund is
selling at a premium (or discount) and the issuer exercises the call or makes
a mandatory sinking fund payment, the Fund would realize a loss (or gain) in
market value; the income from the reinvestment of the proceeds would be
determined by current market conditions, and investment of that income may
occur at times when rates are generally lower than those on the called bond.
Preferred Stocks.
The underlying Atlas Stock Funds may invest in preferred stocks. Preferred
stock, unlike common stock, offers a stated dividend rate payable from the
issuer's earnings. Such preferred stock dividends may be cumulative or non-
cumulative, participating, or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the prices of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred
stock may be "cumulative," requiring all or a portion of prior unpaid
dividends to be paid before dividends on common stock. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may
be "participating," which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases. The rights of preferred stocks
on distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
Participation Interests.
The Atlas Strategic Income Fund may invest in participation interests,
subject to the limitation, described in "What are the Portfolio's Investment
Limitations?" in the Prospectus, on investments by the Fund in illiquid
investments. Participation interests represent an undivided interest in or
assignment of a loan made by the issuing financial institution. No more than
5% of the Fund's net assets may be invested in participation interests of the
same issuing financial institution. Participation interests are primarily
dependent upon the financial strength of the borrower, which is obligated to
make payments of principal and interest on the loan, and there is a risk that
such borrowers may have difficulty making payments. Such borrowers may have
senior securities rated as low as "C" by Moody's or "D" by Standard & Poor's.
In the event the borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income and might
experience a decline in the net asset value of its shares. In the event of a
failure by the financial institution to perform its obligation in connection
with the participation agreement, the Fund might incur certain costs and
delays in realizing payment or might suffer a loss of principal and/or
interest. The Fund's Subadviser has set certain creditworthiness standards for
issuers of loan participation and monitors their creditworthiness.
-B-18-
<PAGE>
Asset-Backed Securities.
These securities, issued by trusts and special purpose corporations, are
backed by pools of assets, primarily automobile and credit-card receivables
and home equity loans, which pass through the payments on the underlying
obligations to the security holders (less servicing fees paid to the
originator or fees for any credit enhancement). The value of an asset-backed
security is affected by changes in the market's perception of the assets
backing the security, the creditworthiness of the servicing agent for the loan
pool, the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has been
exhausted. Payments of principal and interest passed through to holders of
asset-backed securities are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee by
another entity or a priority to certain of the borrower's other securities.
The degree of credit enhancement varies, and generally applies to only a
fraction of the asset-backed security's par value until exhausted. If the
credit enhancement of an asset-backed security held by a Fund has been
exhausted, and if any required payments of principal and interest are not made
with respect to the underlying loans, the Fund may experience losses or delays
in receiving payment. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described above
for prepayments of a pool of mortgage loans and underlying mortgage-backed
securities. However, asset-backed securities do not have the benefit of the
same security interest in the underlying collateral as do mortgage-backed
securities.
Short Sales Against-the-Box.
In such short sales, while the short position is open, the underlying Atlas
Stock Fund must own an equal amount of the securities sold short, or by virtue
of ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may be made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out.
Floating Rate and Variable Rate Obligations and Participation Interests.
The underlying Atlas Funds may purchase floating rate and variable rate
obligations, including participation interests therein. Floating rate or
variable rate obligations provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate at a
major commercial bank) or is reset on a regular basis by a bank or investment
banking firm to a market rate. At specified times, the owner can demand
payment of the obligation at par plus accrued interest. Variable rate
obligations provide for a specified periodic adjustment in the interest rate,
while floating rate obligations have an interest rate which changes whenever
there is a change in the external interest rate.
Frequently banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must, as determined by
the Investment Adviser or Subadviser, be equivalent to the quality standard
prescribed for the Fund. The maturity of floating and variable rate
obligations is equal to the period during which a particular rate is in
effect, or, if longer, the period required to demand payment of the
obligation.
The Funds may invest in participation interests purchased from banks in
floating rate or variable rate obligations owned by banks. A participation
interest gives the purchaser an undivided interest in the obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the obligation, and provides a demand repayment feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank (which may be the bank issuing the participation interest or another
bank). A Fund holding a participation interest has the right to sell the
instrument back to the issuing bank or draw on the letter of credit on demand
for all or any part of the Fund's participation interest in the underlying
obligation, plus accrued interest.
-B-19-
<PAGE>
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Portfolio has adopted the following fundamental investment policies and
investment restrictions in addition to the policies and restrictions discussed
in the Prospectus. The policies and restrictions listed below cannot be
changed without approval by the holders of a "majority of the outstanding
voting securities" of the Portfolio (which is defined in the 1940 Act) to mean
the lesser of (i) 67% or more of the outstanding voting securities of the
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities of the Portfolio. These
restrictions provide that the Portfolio may not:
(1) Purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in the underlying Atlas Funds or other registered investment
companies) if with respect to 75% of the Portfolio's assets, as a result,
more than 5% of the value of such assets of the Portfolio would be invested
in the securities of any one issuer or the Portfolio's ownership would be
more than 10% of the outstanding voting securities of such issuer.
(2) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of the Portfolio's investments in that
industry would exceed 25% of the current value of the Portfolio's total
assets, provided that there is no limitation with respect to investments in
(i) other investment companies; (ii) obligations of the United States
Government, its agencies or instrumentalities; and (iii) obligations of
domestic banks. For purposes of this policy, the Portfolio has adopted the
industry classification set forth in the Appendix to this Statement of
Additional Information which may be amended from time to time without
shareholder approval.
(3) Invest in companies for the purpose of exercising control or
management.
(4) Purchase or sell real estate or real estate limited partnership
interests; provided, however, that the Portfolio may invest in an
underlying Atlas Fund that invests in readily marketable securities secured
by real estate or interests therein or issued by companies that invest in
real estate or interests therein.
(5) Purchase or sell commodities or commodities contracts or interests in
oil, gas or other mineral exploration or development programs, provided,
however, that the Portfolio may invest in an underlying Atlas Fund that may
purchase and sell interest rate futures contracts and related options,
stock index futures contracts and related options and forward foreign
currency contracts.
(6) Mortgage, pledge or in any other manner transfer, as security for any
indebtedness, any of its assets; provided that this restriction shall not
apply to the transfer of securities in connection with a permissible
borrowing. For purposes of this restriction, (a) the deposit of assets in
escrow or a segregated account in connection with the writing of covered
put or call options, the purchase of securities on a when-issued or
delayed-delivery basis, or the undertaking of another investment technique
utilizing a cover or segregated account arrangement by an underlying Atlas
Fund, and (b) collateral arrangements with respect to (i) the purchase and
sale of options on securities and options on indexes and (ii) initial or
variation margin for futures contracts by an underlying Atlas Fund will not
be deemed to be pledges of the Portfolio's assets.
(7) Purchase securities on margin or effect short sales, except that the
Portfolio may invest in an underlying Atlas Fund that may obtain such
short-term credits as may be necessary for the clearance of purchases or
sales of securities, and may make margin payments in connection with
futures contracts and related options and the underlying Atlas Stock Funds
may effect short sales against-the-box.
(8) Engage in the business of underwriting securities issued by others,
except to the extent that it may be deemed to be an underwriter, under the
federal securities laws, in connection with the disposition of the
Portfolio's securities.
-B-20-
<PAGE>
(9) Make loans to any person or firm; provided, however, that the
acquisition for investment of a portion of an issue of publicly distributed
bonds, debentures, notes or other evidences of indebtedness of any
corporation or government shall not be construed to be the making of a
loan; and provided further that a Portfolio may enter into repurchase
agreements and may make loans of portfolio securities.
(10) Purchase from or sell portfolio securities to its officers,
directors or other "interested persons" (as defined in the 1940 Act) (other
than otherwise unaffiliated brokers and the underlying Atlas Funds) of the
Portfolio or of the Trust.
(11) Borrow money, except from banks for temporary or emergency purposes
not in excess of 33 1/3% of the value of the Portfolio's total assets. The
Portfolio will not purchase securities if such borrowings are outstanding
in excess of 5% of the value of the Portfolio's total assets. In the event
that the asset coverage for the Portfolio's borrowings falls below 300%,
the Portfolio will reduce, within three days (excluding Sundays and
holidays), the amount of its borrowings in order to provide for 300% asset
coverage.
If a percentage restriction on investment or utilization of assets in a
fundamental policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of
securities resulting from changing market values will not be considered a
violation of Portfolio investment policies or restrictions.
PORTFOLIO TURNOVER
For reporting purposes, the Portfolio calculates its portfolio turnover rate
by dividing the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio securities
owned by the Portfolio during the fiscal year. In determining portfolio
turnover, the Portfolio excludes all securities whose maturities at the time
of acquisition were one year or less. A 100% portfolio turnover rate would
occur, for example, if all of the securities in the Portfolio (other than
short-term money market securities) were replaced once during the fiscal year.
The Portfolio's turnover is expected to be less than 100%. The Portfolio
will purchase or sell securities to: (i) accommodate purchases and sales of
the Portfolio's shares; (ii) change the percentages of the Portfolio's assets
invested in each of the underlying Atlas Funds in response to market
conditions; and (iii) maintain or modify the allocation of the Portfolio's
assets among the underlying Atlas Funds within the percentage limits described
in the Prospectus.
-B-21-
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and officers of Atlas Insurance Trust (the "Trust"), their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATIONS
NAME AND ADDRESS HELD AND BUSINESS EXPERIENCE
---------------- -------------- ---------------------------------
<S> <C> <C>
Marion O. Sandler(1)(4)....... Trustee, Chairman of the Board and Chief
1901 Harrison Street President and Executive Officer of Atlas As-
Oakland, CA 94612 Chief sets, Inc. ("Atlas Funds"), Exec-
Executive utive Officer World Savings and
Officer Loan Association ("World Sav-
ings"), and Golden West Financial
Corporation ("GWFC"). President
and Chief Executive Officer of
Atlas Advisers, Inc. ("Advisers")
and Atlas Securities, Inc. ("Dis-
tributor")
Barbara A. Bond(2)(3)(4)...... Trustee Director of the Atlas Funds, Cer-
Hood and Strong tified Public Accountant/Tax
101 California Street Partner of Hood and Strong
San Francisco, CA 94111
Russell W. Kettell(1)(4)...... Trustee Director of the Atlas Funds,
1901 Harrison Street President of GWFC and Senior Ex-
Oakland, CA 94612 ecutive Vice President of World
Savings
Daniel L. Rubinfeld(2)(3)(4).. Trustee Director of the Atlas Funds, Pro-
School of Law, Boalt Hall fessor of Law and Economics at
University of California the University of California,
Berkeley, CA 94720 Berkeley
David J. Teece(2)(3)(4)....... Trustee Director of the Atlas Funds, Pro-
University of California fessor of Business Administration
IMIO #1930 at the University of California
Haas School of Business S-402 Berkeley
Berkeley, CA 94720
Julius Louis Helvey(1)........ Group Senior
1901 Harrison Street Vice President
Oakland, CA 94612 and Chief Group Senior Vice President of
Financial World Savings, GWFC, Atlas Funds,
Officer Advisers and Distributor
Larry E. LaCasse(1)........... Group Senior 1992 to present--Group Senior
794 Davis Street Vice President Vice President of Atlas Funds,
San Leandro, CA 94577 and Chief Advisers and Distributor; 1988 to
Operating Present--Chief Operating Officer
Officer of the Adviser and the Distribu-
tor; 1988-1991 Senior Vice Presi-
dent of the Adviser and the Dis-
tributor; 1988--Vice President of
American Capital Services, Inc.;
1986 to 1988--Vice President of
American Capital Marketing, Inc.;
1984 to 1986--Vice President of
Corporate Development at Finan-
cial Network Investments Corp.
Edward L. Bisgaard(1)......... Vice 1989 to present--Vice President,
794 Davis Street President, Chief Accounting Officer and
San Leandro, CA 94577 Chief Treasurer of Atlas Fund's, Ad-
Accounting visers and Distributor; 1988 to
Officer and 1989--Chief Financial Officer of
Treasurer Dunham & Greer Investment Coun-
sel; 1986 to 1988--General Part-
ner of R&R Tire and Auto Service
Center; 1979 to 1986--Vice Presi-
dent and Manager of Fund Opera-
tions at Capital Research & Man-
agement Company
</TABLE>
-B-22-
<PAGE>
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATIONS
NAME AND ADDRESS HELD AND BUSINESS EXPERIENCE
---------------- -------------- -----------------------
<S> <C> <C>
Steven J. Gray(1)............. Vice 1992 to present--Vice President,
794 Davis Street President, Chief Legal Counsel and Secretary
San Leandro, CA 94577 Chief Legal of Atlas Funds, Adviser and Dis-
Counsel and tributor; 1989 to 1992--Associate
Secretary Attorney, Investment Management
Group at the law firms of Gaston
& Snow (1989-1990), Thelen,
Marrin, Johnson & Bridges (1990-
1992), and Heller, Ehrman, White
& McAuliffe (1992); 1986 to
1989--Attorney for Federal Home
Loan Bank Board; 1985 to 1986--
Senior Attorney and Vice Presi-
dent C.R.I., Inc.; 1982 to 1985--
Attorney, United States Securi-
ties and Exchange
Commission
</TABLE>
- --------
(1) Trustee or officer who is an "interested person" of the Company due to his
affiliation with the Company's investment manager.
(2) Member of the Contracts Committee.
(3) Member of the Audit Committee.
(4) Member of the Executive Committee.
As of August 1, 1997, Golden West Financial Corporation, 1901 Harrison
Street, Oakland, CA 94612, a Delaware corporation and sole shareholder of
Advisers and the Distributor, owned beneficially and of record an aggregate of
100% of the outstanding shares of the Atlas Balanced Growth Portfolio. As of
that date, officers and trustees as a group owned less than 1% of the shares of
the Portfolio.
The following table sets forth the aggregate compensation contemplated to be
paid by the Atlas Funds and the Trust for the Trust's first fiscal year ending
December 31, 1997 to the Directors of the Atlas Funds that are not affiliated
with Advisers (the same persons serve as the unaffiliated Trustees of the Trust)
and the aggregate compensation paid to such Directors/Trustees for service on
the Atlas Funds' Board and that of all other funds in the "company complex"
(including the Trust), as defined in Schedule 14A under the Securities Exchange
Act of 1934:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED TRUST AND
AGGREGATE ACCRUED AS ANNUAL COMPANY
COMPENSATION PART OF BENEFITS COMPLEX
FROM COMPANY TRUST UPON PAID TO
NAME COMPLEX EXPENSES RETIREMENT DIRECTORS
---- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Barbara A. Bond.............. $14,000 None N/A $14,000(16)*
Daniel L. Rubinfeld.......... 13,700 None N/A 13,700(16)*
David J. Teece............... 13,400 None N/A 13,400(16)*
Marion O. Sandler............ None None N/A None
Russell W. Kettell........... None None N/A None
</TABLE>
- --------
* Indicates total number of funds in company complex.
-B-23-
<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Atlas Advisers, Inc. ("Advisers"), serves as the investment
manager/administrator to the Trust pursuant to an Investment Management
Agreement dated August 6, 1997 (the "Management Agreement"), which was last
approved by the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust, at a
meeting held on February 14, 1997.
The Management Agreement with respect to the Portfolio is for an initial
term of two years and may be renewed from year to year afterwards, provided
that any such renewal has been specifically approved at least annually by (i)
the majority (as defined in the 1940 Act) of the outstanding voting securities
of the Portfolio, or (ii) the vote of a majority of trustees who are not
parties to the Management Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person, at a meeting called for the
purpose of voting on such approval. The Management Agreement also provides
that either party thereto has the right with respect to any Portfolio to
terminate it without penalty, upon 60 days written notice to the other party,
and that the Management Agreement automatically terminates in the event of its
assignment (as defined in the 1940 Act).
The directors and officers of Advisers are: Marion O. Sandler (Director,
President and Chief Executive Officer), James T. Judd (Director), Dirk S.
Adams (Director), Julius Louis Helvey (Group Senior Vice President and Chief
Financial Officer), Larry E. LaCasse (Group Senior Vice President and Chief
Operating Officer), Edward L. Bisgaard (Vice President, Chief Accounting
Officer and Treasurer), and Steven J. Gray (Vice President, Chief Legal
Counsel and Secretary).
Principal Underwriting Agreement.
As described in the Prospectus, the Trust has adopted a Principal
Underwriting Agreement with Atlas Securities, Inc. (the "Distributor"), which
serves as the sole underwriter and distributor of the Portfolio's shares.
EXECUTION OF PORTFOLIO TRANSACTIONS
The investment transactions of the Portfolio are expected to consist
exclusively of purchases and redemptions of shares of the underlying Atlas
Funds. Such purchases and redemptions will be effected directly with the
underlying Funds' transfer agent, at the then current net asset values of the
underlying Funds, without the use of broker-dealers. Accordingly, the
Portfolio does not anticipate incurring any brokerage commissions.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio's shares is calculated once
daily by the Trust as of the close of regular trading (normally 4:00 p.m., New
York time) each business day the New York Stock Exchange ("NYSE") is open for
unrestricted trading. The NYSE is currently scheduled to be closed on New
Year's Day, Martin Luther King's Birthday, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day, and
on the preceding Friday or subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The Portfolio's net asset value will be determined
with reference to the net asset values of the underlying Atlas Funds and the
percentage of the Portfolio's assets allocated to each underlying Atlas Fund.
The following information pertains to the determination of net asset values
for the underlying Atlas Funds.
-B-24-
<PAGE>
Bond Funds:
The underlying Atlas Funds value portfolio securities including U.S.
Treasury obligations, and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit issued
by banks or savings and loan associations, commercial paper, corporate short-
term notes and other short term investments with original or remaining
maturities in excess of 60 days at the mean of representative quoted bid and
asked prices for such securities or, if such prices are not available, for
securities of comparable maturity, quality and type. In circumstances where
the Advisers deems it appropriate to do so, prices obtained for the day of
valuation from a bond pricing service will be used. The underlying Fund
amortizes to maturity all securities with 60 days or less to maturity based on
their cost to a Fund if acquired within 60 days of maturity or, if already
held by a Fund on the 60th day, based on the value determined on the 61st day.
The underlying Atlas Funds value long-term fixed-income obligations at the
mean of representative quoted bid or asked prices for such securities or, if
such prices are not available, at prices for securities of comparable
maturity, quality and type. In circumstances where Advisers deems it
appropriate to do so, prices obtained for the day of valuation from a bond
pricing service will be used.
The underlying Atlas Funds deem the maturities of variable or floating rate
instruments, or instruments which a Fund has the right to sell at par to the
issuer or dealer, to be the time remaining until the next interest rate
adjustment date or until they can be resold or redeemed at par.
Where market quotations are not readily available, the underlying Atlas
Funds value securities (including restricted securities which are subject to
limitations as to their sale) at fair value pursuant to methods approved by
the Atlas Funds Board of Directors.
The fair value of any other assets is added to the value of securities, as
described above to arrive at total assets.
Each Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure is
obtained.
The net asset figure obtained as described above is then divided by the
total number of shares outstanding (excluding treasury shares), and the
result, rounded to the nearer cent, is the net asset value per share.
Money Market Fund:
It is the Atlas U.S. Treasury Money Fund's policy to use its best efforts to
maintain a constant per share price equal to $1.00.
The portfolio instruments of the Money Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price a Fund would receive if it sold the
instrument.
The valuation of the Money Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of each Fund's per share net asset
value at $1.00 are permitted by Rule 2a-7 under the 1940 Act.
Under this rule, the Money Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of one year or less, and invest only in securities
determined by the Board of Directors, and as required by the rule, to be of
high quality with minimal credit risks. High quality is defined as the top two
quality rating grades as
-B-25-
<PAGE>
rated by any two national statistical rating organizations ("NRSROs"), or by
one NRSRO if rated by only one, or if not rated by an NRSRO, of comparable
quality as determined by the Subadviser. The U.S. Treasury Money Fund invests
only in securities guaranteed by the full faith and credit of the U.S.
Government, that is, of the highest quality. In accordance with the Rule the
Board of Directors has established procedures designed to stabilize, to the
extent reasonably practicable, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board of Directors, at such intervals as
they may deem appropriate, to determine whether the net asset value of the
Fund calculated by using available market quotations or market equivalents
deviates from $1.00 per share based on amortized cost. The Rule also provides
that the extent of any deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share net
asset value based on amortized cost must be examined by the Directors. In the
event the Board of Directors determines that a deviation exists which may
result in material dilution or is otherwise unfair to investors or existing
shareholders, they must cause a Fund to take such corrective action as they
regard as necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends or paying distributions from capital
or capital gains; redeeming shares in kind; or establishing a net asset value
per share by using available market quotations.
The Stock Funds:
The underlying Atlas Stock Funds value their portfolio securities listed or
traded on an exchange at their last sales price on the exchange where the
security is principally traded. Lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices, based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date. These procedures need not be used to determine the value of debt
securities owned by a Fund if, in the opinion of the Board of Directors, some
other method (e.g. the mean between closing over-the-counter bid and asked
prices in the case of debt instruments traded on an exchange) would more
accurately reflect their fair value. A security which is listed or traded on
more than one exchange is valued at the quotation of the exchange determined
by the Board of Directors to be the primary market for such security. Short-
term obligations are valued at amortized cost, which constitutes fair value as
determined by the Board. All other securities and other assets of the Fund are
appraised at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Board.
For purposes of determining the net asset value per share of each underlying
Stock Fund, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at the mean between the bid and
offer prices of such currencies against U.S. dollars last quoted by any major
bank and any changes in the value of forward contracts are included in the
determination of net asset value.
REDEMPTIONS IN KIND
It is possible that unusual conditions may arise in the future which would,
in the opinion of the Board of Trustees of the Trust, make it undesirable for
the Portfolio to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in portfolio securities or other property of the
Portfolio. The Trust would value securities delivered in payment of
redemptions at the same value assigned to such securities in computing the net
asset value per share. If the Trust so elects, however, it must pay in cash
all redemptions with respect to any shareholder during any 90-day period in an
amount equal to the lesser of (i) $250,000 or (ii) 1% of the net asset value
of the Portfolio at the beginning of such period.
-B-26-
<PAGE>
TAXES
The Portfolio intends to meet all the requirements and to elect the tax
status of a "regulated investment company" under the provisions of Subchapter
M of the Internal Revenue Code of 1986 (the "Code"). Each of the underlying
Atlas Funds has so qualified in the past and intends to continue to so
qualify. If the Portfolio distributes within specified times at least 90% of
its taxable and tax-exempt net investment income, it will be taxed only on
that portion, if any, which it retains.
To so qualify under Subchapter M, the Portfolio must derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities or
foreign currencies, or other income derived with respect to its business of
investing in stock, securities or currencies. To qualify, the Portfolio must
also (a) derive less than 30% of its gross income (irrespective of losses)
from the sale or other disposition of stock or securities held less than three
months, and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Portfolio's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, limited, in
respect of any one issuer, to an amount not greater than 5% of the Portfolio's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies) or in two or more issuers which the
Portfolio controls and which are engaged in the same or similar trades or
businesses or related trades or businesses.
Even though the Portfolio qualifies as a "regulated investment company," it
may be subject to certain federal excise taxes unless the Portfolio meets
certain additional distribution requirements. Under the Code, a nondeductible
excise tax of 4% is imposed on the excess of a regulated investment company's
"required distribution" for the calendar year ending within the regulated
investment company's taxable year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-
year period ending on October 31 (as though the one-year period ending on
October 31 were the regulated investment company's taxable year), and (iii)
the sum of any untaxed, undistributed taxable net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) ordinary income and
capital gain net income actually distributed by the Portfolio in the current
year and (ii) any amount on which the Portfolio pays income tax for the year.
The Portfolio intends to continue to meet these distribution requirements to
avoid the excise tax liability.
ADDITIONAL INFORMATION
Independent Auditors.
The Trust Board of Trustees has appointed Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31, 1997.
Deloitte & Touche LLP will conduct the annual audit of the Trust, and will
assist in the preparation of the Portfolio's federal and state income tax
returns and consult with the Trust as to matters of accounting and federal and
state income taxation.
Legal Opinions.
The validity of the shares offered by the Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker LLP located at 555 South Flower Street, Los
Angeles, California 90071. Paul, Hastings, Janofsky & Walker LLP also acts as
legal counsel for the Trust's Adviser and Distributor and the underlying Atlas
Funds.
-B-27-
<PAGE>
INVESTMENT RESULTS
The Trust may from time to time quote or otherwise use total return
information for the Portfolio in advertisements, sales literature or in
reports furnished to current or prospective shareholders.
The average annual compound rate of return is computed by using the value at
the end of the period ("EV") of a hypothetical initial investment of $1,000
("P") over a period of years ("n") according to the following formula as
required by the Securities and Exchange Commission:
P (1+T)n = EV
The formula assumes reinvestment of all dividends and distributions at net
asset value on the reinvestment date determined by the Board and a complete
redemption at the end of any period illustrated. The Portfolio will calculate
total return for one, five and ten-year periods after such a period has
elapsed. In addition, the Portfolio may provide lifetime average total return
figures.
In addition to average annual returns, the Portfolio may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for
a single investment, a series of investments, and/or a series of redemptions,
over any time period. Total returns may be broken down into their components
of income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted numerically or in a table, graph,
or similar illustration. Performance information may be compared to the record
of the Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), the Dow Jones Industrial Average (DJIA), and other widely recognized
benchmark indicators over the same period. Tabular comparisons, hypothetical
examples and explanatory illustrations may be used from recognized sources,
which instead of comparing actual Portfolio performance, demonstrate performance
of stocks, bonds, indices, averages, government or other securities, and other
recognized benchmark economic and market indicators such as the rate of
inflation. The Portfolio may have the ability to invest in securities not
included in the S&P, DJIA or other indices and its investment portfolio may or
may not be similar in composition to the indices. These indices and averages are
based on the prices of unmanaged groups of stocks, and, unlike fund total
returns, their returns do not include the effect of paying brokerage commissions
and other costs of investing.
Comparisons.
The Trust may, from time to time, compare specific features of the Portfolio
to those available from comparable mutual funds. Advertisements or sales
literature of the Trust may compare the results of an investment in the
Portfolio with averages, rankings and indices, including, but not limited to
the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During a portion of the averaging period, the maximum rates
paid on some savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other goods
and services that people buy for day-to-day living).
(3) Rankings by Lipper Analytical Services, Inc., which ranks mutual
funds by overall performance, investment objectives and assets, and
publishes averages on broad based categories of mutual funds and indexes of
cumulative total returns for various periods.
-B-28-
<PAGE>
The performance of the Portfolio's shares may be compared to those of other
mutual funds having similar objectives, expressed as an average or as a rating
or ranking prepared by IBC/Donoghue Organization, Wiesenberger Investment
Company Service, Lipper Analytical Services, Inc., CDA Investment
Technologies, other recognized independent services which monitor the
performance of mutual funds or other economic or market indicators from
published sources such as Ibbotson Associates, Inc.'s "Stocks, Bonds, Bills
and Inflation". Similar comparisons may be made with respect to various
benchmark securities, indices and averages which illustrate general market or
economic performance. These comparisons may be illustrated by means of tables
or of bar, pie, or mountain charts or other types of graphic illustrations,
numerically, or by means of hypothetical examples and illustrations from
recognized sources. Performance will be calculated by relating net asset value
per share at the beginning of a period, assuming reinvestment of all gains,
distributions and dividends paid during the period, to the net asset value at
the end of the period.
Indices, averages and rankings prepared by the research departments of such
financial organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., Ibbotson Associates and other
similar providers of financial research data, may be used, as well as
information provided by the Board of Governors of the Federal Reserve System.
Performance rankings, ratings, averages, indices and excerpts of comments,
descriptions and other references or reviews of the Portfolios, their
investment managers, policies, strategies, rankings, or other comparisons
appearing in magazines, newspapers, investment newsletters, and other
periodicals, including Money Magazine, Forbes, Fortune, Business Week, Wall
Street Journal, New York Times, Los Angeles Times, Dallas Morning News,
Barrons, Investors Daily, Mutual Fund Values, Facts, Changing Times, Ibbotson
Associates, and others, may also be used.
FINANCIAL STATEMENTS
The following audited financial statement reflects the initial capital of
the Trust as of July 30, 1997.
-B-29-
<PAGE>
ATLAS INSURANCE TRUST
Statement of Assets and Liabilities
as of July 30, 1997 and
Independent Auditors' Report
B-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Atlas Insurance Trust:
We have audited the accompanying statement of assets and liabilities of Atlas
Insurance Trust (the "Trust") as of July 30, 1997. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of the Trust as of July 30, 1997 in
conformity with generally accepted accounting principles.
July 30, 1997
B-31
<PAGE>
ATLAS INSURANCE TRUST
Statement of Assets and Liabilities
July 30, 1997
<TABLE>
<CAPTION>
Atlas Balanced
Growth Portfolio
<S> <C>
ASSETS
Cash $100,000
Deferred Organization Expenses 30,000
--------
Total Assets 130,000
--------
LIABILITIES
Organization Expenses Payable 30,000
--------
Total Liabilities 30,000
--------
NET ASSETS
Equivalent of $10.00 per share
on 10,000 shares of befeficial
interest issued and outstanding $100,000
========
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE
PER SHARE $10.00
========
</TABLE>
The accompanying notes are an integral
part of this financial statement
B-32
<PAGE>
ATLAS INSURANCE TRUST
Notes to Statement of Assets and Liabilities
July 30, 1997
1. ORGANIZATION
Atlas Insurance Trust (the "Trust") is an open-end, management investment
company, or mutual fund, offering a choice of investment portfolios or funds to
investors through the purchase of the Atlas Portfolio Builder variable annuity
contracts issued by PFL Life Insurance Company ("PFL Life"). The Trust currently
consists of one investment portfolio, the Atlas Balanced Growth Portfolio (the
"Portfolio"). The Portfolio invests in up to eight underlying Atlas Funds
representing different combinations of equity, fixed income, and money market
securities and reflecting varying degrees of investment risk and potential
reward.
The Trust was organized as a Deleware business trust on October 23, 1996. Prior
to July 30, 1997 the Trust had no operations other than its organization. On
July 30, 1997, the Portfolio sold 10,000 shares at net asset value (the "Initial
Shares") to Golden West Financial Corporation.
The costs of organizing the Trust will be paid by Atlas Advisers and reimbursed
by the Fund at the time of the initial offering. The organization costs will be
deferred and amortized on a straight-line basis over a period of sixty months
from the commencement of investing operations. If any of the Initial Shares are
redeemed before the end of the amortization, the proceeds of the redemption will
be reduced by the pro rata share of the unamortized organization costs.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Trust has an Investment Mangement Agreement with Atlas Advisers, Inc., under
which Atlas Advisers manages the investments of the Trust. For its services,
Atlas Advisers receives a fee from the Portfolio at an annual percentage of
0.25% the average daily net assets of the Portfolio.
The Trust has an underwriting agreement with Atlas Securities, Inc., under
which Atlas Securities serves as the distributor and principal underwriter
of the Porfolio's shares.
Atlas Advisers and Atlas Securities are wholly-owned subsidiaries of Golden West
Financial Corporation.
B-33
<PAGE>
APPENDIX
INDUSTRY CLASSIFICATIONS
Aerospace/Defense Food
Air Transportation Gas Utilities*
Auto Parts Distribution Gold
Automotive Health Care/Drugs
Bank Holding Companies Health Care/Supplies &
Banks Services
Beverages Homebuilders/Real Estate
Broadcasting Hotel/Gaming
Broker-Dealers Industrial Services
Building Materials Insurance
Cable Television Leasing & Factoring
Chemicals Leisure
Commercial Finance Manufacturing
Computer Hardware Metals/Mining
Computer Software Nondurable Household Goods
Conglomerates Oil--Integrated
Consumer Finance Paper
Containers Publishing/Printing
Convenience Stores Railroads
Department Stores Restaurants
Diversified Financial Savings & Loans
Diversified Media Shipping
Drug Stores Special Purpose Financial
Drug Wholesalers Specialty Retailing
Durable Household Goods Steel
Education Supermarkets
Electric Utilities Telecommunications--
Electrical Equipment Technology
Electronics Telephone--Utility
Energy Services & Textile/Apparel
Producers Tobacco
Entertainment/Film Toys
Environmental Trucking
- --------
* For purposes of the Portfolio's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
-B-34-
