<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
FILE NOS. 333-20899
811-08041
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 3
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 4
ATLAS INSURANCE TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 297-7444
LARRY E. LACASSE
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
MICHAEL GLAZER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
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X ON MAY 1, 1999 PURSUANT TO PARAGRAPH (b)
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60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
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ON (DATE) PURSUANT TO PARAGRAPH (a) (1)
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75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
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ON (DATE) PURSUANT TO PARAGRAPH (a)(2)
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<PAGE>
ATLAS INSURANCE TRUST
ATLAS BALANCED GROWTH PORTFOLIO
PROSPECTUS - MAY 1, 1999
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY 2
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THE UNDERLYING ATLAS FUNDS 5
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OTHER INVESTMENT STRATEGIES AND RISKS 7
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FUND MANAGEMENT AND DISTRIBUTION 8
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OTHER PORTFOLIO INFORMATION 8
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FINANCIAL HIGHLIGHTS 9
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</TABLE>
[LOGO]
The annuities you want from the people you trust
NOT FDIC INSURED
The Trust, like all mutual funds, is registered with the Securities and Exchange
Commission (SEC). However, the SEC does not guarantee that the information in
this prospectus is accurate or complete, nor has it endorsed the Trust. It is
against the law for anyone to state otherwise.
-1-
<PAGE>
RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE
The Atlas Balanced Growth Portfolio seeks long-term growth of capital and
moderate current income. The portfolio is designed to provide broad
diversification among equity, fixed income, and money market securities. It is
suitable for investors who are seeking a reasonable level of stock market
exposure, but are not comfortable with the risk of more aggressive investments.
STRATEGY
The portfolio will allocate its assets among a group of up to eight
underlying Atlas mutual funds. The amounts allocated to each fund may vary
within the following ranges:
<TABLE>
<CAPTION>
Investment Range
Atlas Fund for the Portfolio
<S> <C>
Balanced....................................................0-40%
Emerging Growth.............................................0-40%
Global Growth...............................................0-40%
Growth and Income...........................................0-40%
Strategic Growth............................................0-40%
Strategic Income............................................0-25%
U.S. Government and Mortgage Securities.....................0-25%
U.S. Treasury Money.........................................0-25%
</TABLE>
The portfolio will target a balanced growth allocation of approximately 60%
stocks, 30% bonds, and 10% cash and money market securities. The allocation may
be adjusted for Atlas Advisers' outlook for the economy, financial markets, and
the market values of the underlying funds. Under normal market conditions, 40 to
80% of assets will be invested in stocks, 10 to 40% in bonds, and 0 to 20% in
cash and money market securities.
Investments in the underlying funds do not necessarily correspond with a
particular type of security. Atlas stock funds may invest some of their assets
in bonds, and all of the funds may invest in money market securities. Therefore,
a 50% allocation of assets to the stock funds would probably result in less
than a 50% exposure to the stock market.
RISKS
The portfolio's share price will fluctuate with changing market conditions,
as will the share prices of the underlying funds. Since the portfolio's price
will vary, you could lose money on your investment.
The risks are generally the same as for other mutual funds:
- - MARKET RISK: The market value of stocks will fluctuate with changing market
and economic conditions.
- - INTEREST RATE RISK: The market value of fixed income securities can
generally be expected to vary inversely with changes in interest rates.
-2-
<PAGE>
RISK/RETURN SUMMARY
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(CONTINUED)
- - CREDIT RISK: Debt securities held by the underlying funds could default or
have their credit ratings lowered, potentially reducing a fund's share
price and income. The risk is greater for high-yield ("junk") bonds, whose
issuers are more vulnerable to business and economic changes, such as a
recession, that might impair their ability to make timely interest and
principal payments.
- - PREPAYMENT RISK: For mortgage-backed securities, there is the risk that
homeowners will accelerate principal payments on mortgages when interest
rates are falling. Funds investing in mortgage-backed securities may be
forced to reinvest prepayments in lower yielding securities. Also
prepayments may result in reducing the value of mortgage securities that
were originally purchased at a price above par.
- - CURRENCY RISK: Stocks issued abroad are usually denominated in foreign
currencies, which may fluctuate against the U.S. dollar. The share price of
funds that hold these securities will also vary.
The portfolio will normally have the greatest exposure to market risk
because of the expected higher allocations to those underlying Atlas Funds that
invest primarily in stocks. It will have lower exposure to interest rate risk
because of the smaller allocation to bonds and cash.
A portion of the assets may also be exposed to the risks of foreign
investing, including currency risk. Some of the underlying funds can invest
in emerging market countries, which are less stable than the U.S. and other
mature economies. Investments in these countries are subject to more risk and
price volatility than investments in more developed markets.
PAST PERFORMANCE
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The following information shows how total return has varied over time.
Performance does not reflect insurance company charges, and, if they were
included, returns would have been lower. Past performance is no guarantee of
future results.
[GRAPH]
<TABLE>
<CAPTION>
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YEAR-BY-YEAR TOTAL RETURN -- AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
12.7
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'98
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BEST QUARTER: Q4 '98 13.06%
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WORST QUARTER: Q3 '98 - 9.36%
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AVERAGE ANNUAL TOTAL RETURN -- AS OF 12/31/98
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INCEPTION
1 YEAR (9/30/97)
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PORTFOLIO 12.70% 8.89%
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LEHMAN BROTHERS
AGGREGATE BOND INDEX 8.69% 9.39%
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S&P 500 INDEX 26.67% 23.13%
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CALL 1-800-933-ATLAS FOR CURRENT PERFORMANCE.
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</TABLE>
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<PAGE>
RISK/RETURN SUMMARY
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(CONTINUED)
BENEFITS OF DIVERSIFICATION
The portfolio offers a professionally managed allocation of assets among a
broad range of underlying Atlas Funds. By investing in a variety of underlying
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 invests in funds holding high-quality domestic and
foreign corporate and government bonds, high-yield bonds and convertible
securities.
The theory of diversification is that investors can reduce their overall
risk by spreading assets among a variety of investments. Each type of
investment responds differently to changes in the economy and the
marketplace. A decline in one investment can be balanced by 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.
On the other hand, the portfolio's strategy of investing in other mutual
funds results in greater expenses than you would incur if you invested in the
underlying funds directly. However, the underlying funds are not available in
variable annuity contracts.
If you seek broad diversification in a single investment and a reasonable
level of stock market exposure, the Atlas Balanced Growth Portfolio could be an
appropriate part of your overall investment strategy.
-4-
<PAGE>
THE UNDERLYING ATLAS FUNDS
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The objectives, strategies, and risks of the underlying Atlas Funds are
described below.
BALANCED FUND
- - INVESTMENT OBJECTIVE: The fund seeks long-term growth and high current
income with capital preservation.
- - STRATEGY: The fund invests in dividend-paying stocks, convertible
securities, and U.S. Government and investment grade corporate bonds. At least
25% of assets are invested in bonds. The fund's conservative stock selection
strategy focuses on well-known companies with attractive prices and earnings
that are expected to be consistent in both strong and weak economies. Fund
managers adjust the mix of stocks, bonds, convertibles, and cash to take
advantage of "up markets" and conserve capital in "down markets," while
maintaining a stream of income.
- - RISKS: The fund is subject to market risk and interest rate risk. Over the
long term, share price is expected to fluctuate less than funds that invest only
in stocks.
EMERGING GROWTH FUND
- - INVESTMENT OBJECTIVE: The fund seeks long-term growth exclusively with no
intent to provide current income.
- - STRATEGY: The fund invests primarily in common stocks of small (market
capitalization of less than $1 billion), growth-oriented companies in the U.S.
that are beyond their start-up periods but are not yet well-established. Fund
managers look for businesses with sustainable earnings growth, favorable
prospects for increasing demand, and leadership potential in their market
sectors. Often these companies are developing new products or entering new
markets.
- - RISKS: The fund is subject to market risk and the special risks associated
with investing in small companies.
GLOBAL GROWTH FUND
- - INVESTMENT OBJECTIVE: The fund seeks long-term growth exclusively with no
intent to provide current income.
- - STRATEGY: The fund invests primarily in growth-oriented stocks of domestic
and foreign companies, without regard to market capitalization. It usually
invests a substantial portion of assets in the U.S. and developed markets in
western Europe. Fund managers use a "global theme" approach to selecting
investments, and they currently believe the following areas offer the most
promise for long-term growth: telecommunications, emerging consumer markets,
infrastructure development, natural resources, corporate restructuring, capital
markets, health care, and global integration.
- - RISKS: The fund is subject to market risk and the special risks associated
with foreign investing. Over the long term, share price is expected to fluctuate
less than funds that invest only in foreign securities.
GROWTH AND INCOME FUND
- - INVESTMENT OBJECTIVE: The fund seeks long-term growth and some current
income.
- - STRATEGY: The fund invests primarily in growth-oriented and dividend-paying
stocks of large, well-known U.S. companies. It also invests in preferred stocks
and convertible securities and may invest in bonds. Unlike many funds that
follow a single investment style, the fund selects a combination of growth
stocks, believed to have superior earnings prospects,
-5-
<PAGE>
THE UNDERLYING ATLAS FUNDS
- --------------------------
(CONTINUED)
and value stocks that trade at attractive prices.
- - RISKS: The fund is subject to market risk and some interest rate risk.
Over the long term, share price is expected to fluctuate less than funds that
invest primarily in small companies or foreign securities.
STRATEGIC GROWTH FUND
- - INVESTMENT OBJECTIVE: The fund seeks long-term growth exclusively with no
intent to provide current income.
- - STRATEGY: The fund invests primarily in stocks of medium to large,
growth-oriented U.S. companies. Its stock selection strategy focuses on
businesses that appear to have a combination of superior earnings prospects and
reasonable stock prices. Fund managers look for companies with favorable
earnings momentum and those that have reported financial results that are above
expectations.
- - RISKS: The fund is subject to market risk. Over the long term, share price
is expected to fluctuate less than funds that invest primarily in small
companies or foreign securities.
STRATEGIC INCOME FUND
- - INVESTMENT OBJECTIVE: The fund seeks high current income consistent with
capital preservation.
- - STRATEGY: The fund allocates its investments among three broad sectors of
the bond market: U.S. Government Securities, foreign fixed income debt, and
high-yield, lower-rated bonds of U.S. companies ("junk bonds"). It seeks to
manage risk by investing in all three sectors and by varying the amount in each
in order to take advantage of changing market conditions. Assets within each
sector are also broadly diversified.
- - RISKS: The fund is subject to interest rate risk and the special risks
associated with foreign investing and junk bonds.
U.S. GOVERNMENT AND MORTGAGE SECURITIES FUND
- - INVESTMENT OBJECTIVE: The fund seeks high current income with capital
preservation.
- - STRATEGY: The fund invests primarily in mortgage-backed securities issued
by the following U.S. Government agencies: the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). In attempting to maintain a
consistently high yield, fund managers select securities they believe are less
likely than others to be paid off ahead of schedule.
- - RISKS: The fund is subject to interest rate and prepayment risk.
U.S. TREASURY MONEY FUND
- - INVESTMENT OBJECTIVE: The fund seeks high current income with maximum
safety, liquidity, and stability of principal.
- - STRATEGY: The fund invests solely in short-term Treasury securities
guaranteed by the full faith and credit of the U.S. Government. Fund managers
select issues with varying maturities, based on the outlook for interest rates.
- - RISKS: The fund is subject to interest rate risk.
-6-
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
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MORTGAGE-BACKED SECURITIES: The U.S. GOVERNMENT AND MORTGAGE SECURITIES
FUND invests primarily in mortgage-backed securities, which are secured by a
pool of mortgage loans. Principal and interest on the underlying mortgages are
passed through as monthly payments. In addition, there may be prepayment of
principal if the underlying property is refinanced, sold, or foreclosed.
OPTIONS AND FUTURES: Options and futures are types of derivative
investments. Each of the underlying funds except the U.S. TREASURY MONEY FUND
may buy and sell options, futures contracts, and options on futures contracts.
Fund managers use these instruments to hedge investments against changes in
value, to manage cash flow, to attempt to increase income, or as a temporary
substitute for the purchase or sale of actual securities. The funds will not
engage in these transactions for speculation. Use of these strategies may be
limited by market conditions, regulatory limits, and tax considerations, and
there can be no assurance that they will succeed.
Options and futures strategies involve risks and transaction costs. Any
fund using these strategies may be left in a worse position if the manager's
prediction of price changes in the underlying instruments is inaccurate.
OTHER DERIVATIVE INVESTMENTS: The STRATEGIC INCOME FUND and the EMERGING
GROWTH FUND can invest in several other types of derivatives. Some are used for
hedging purposes, and others offer the potential for increased income and
principal value. In general, the performance of a derivative is linked to the
performance of another investment, such as an equity security, an index,
or one or more currencies. Use of derivatives may cause a fund to realize less
income than expected and to lose money.
JUNK BONDS: The STRATEGIC INCOME FUND may invest in "junk bonds," which are
securities rated "Ba" and below by Moody's Investors Services, Inc., or "BB" and
below by Standard and Poor's. They may be rated as low as "C" or "D" and may be
in default at the time of purchase.
Junk bonds are riskier than investment grade bonds. There also may be less
of a market for junk bonds, and they may be harder to sell at an acceptable
price. The fund may not achieve the expected income from lower-rated securities,
and its net asset value may be affected by declines in their value.
SMALL COMPANIES: The EMERGING GROWTH FUND invests primarily in the stocks
of smaller companies that usually have more limited product lines, markets, and
financial resources than larger companies. Their stocks may trade less
frequently and in more limited volume. As a result, this fund's share price may
fluctuate more than funds that invest in larger companies.
DEFENSIVE INVESTMENTS: At times, pursuing a fund's basic investment
strategy may not be in the best interests of its shareholders because of market
conditions. As a temporary defensive strategy, all of the funds may invest up to
100% of their assets in short-term debt securities or money market instruments.
PORTFOLIO TURNOVER: All the funds will sell securities when the managers
believe it is appropriate, regardless of how long the securities were owned.
Buying and selling securities involves expenses, such as commissions paid to
brokers and other transaction costs. Generally speaking, the higher a fund's
annual portfolio turnover, the greater its brokerage costs.
-7-
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
- -------------------------------------
(CONTINUED)
Annual portfolio turnover of 100% or more is considered high. The
portfolio turnover rate for each of the underlying funds varies widely from
year to year, and may exceed 100% in some years. The portfolio's turnover
rate will also vary based on the size and frequency of allocation adjustments
made by Atlas Advisers. (See "Financial Highlights" for the portfolio's
historical turnover rate.)
YEAR 2000 AND THE ATLAS FUNDS: Like other funds and business organizations,
the Atlas Funds and the portfolio could be adversely affected if computer
systems used by their service providers are unable to process date-related
information for the year 2000 and after. The funds and the portfolio have been
assured that their key service providers are taking steps to address this issue
and that their systems will be adapted in time to avoid serious problems.
Although there are no guarantees, Atlas does not anticipate that Year 2000 will
have a material affect on its ability to continue to provide the funds and the
portfolio with service at current levels.
FUND MANAGEMENT AND DISTRIBUTION
Atlas Advisers Inc., 794 Davis Street, San Leandro, California 94577,
provides portfolio management services to the BALANCED GROWTH PORTFOLIO, the
U.S. TREASURY MONEY FUND, and the U.S. GOVERNMENT AND MORTGAGE SECURITIES FUND.
Atlas Advisers supervises the provision of similar services to the other
underlying funds by OppenheimerFunds, Inc., located at Two World Trade Center,
New York, New York 10048.
The portfolio pays Atlas Advisers a fee at an annual rate of 0.25% of the
portfolio's average net assets. Atlas Advisers has agreed to reduce its fee and
absorb expenses, if necessary, in order to limit total direct operating expenses
to an annual rate of 0.50%. For the fiscal year ended December 31, 1998, Atlas
Advisers received no fees from the Balanced Growth Portfolio for the provision
of portfolio management services.
Atlas Advisers is responsible for providing or overseeing all aspects of
the portfolio's day-to-day operations and has retained investment professionals
with substantial experience in managing investments. A committee comprised of
senior management is responsible for implementing the portfolio's investment
program.
Shares of the portfolio are distributed by Atlas Securities, Inc., which
serves as the principal underwriter.
OTHER PORTFOLIO INFORMATION
NET ASSET VALUE OF THE PORTFOLIO: The net asset value per share is
determined at the regular close of the New York Stock Exchange (generally 4:00
p.m. Eastern time) on each day that the exchange is open. Net asset value per
share is calculated by dividing the total market value of the portfolio's
investments by the total number of outstanding shares. The portfolio's primary
investments are the underlying Atlas Funds, which are also priced at the close
of the exchange.
DIVIDENDS: The Trust normally declares and distributes net investment
income and any short-term and long-term capital gains of the portfolio at least
annually.
TAXES: Tax consequences to variable annuity contract holders are described
in a separate prospectus issued by PFL Life. The Statement of Additional
Information also includes a discussion of tax considerations. Please consult
your tax adviser regarding your individual circumstances.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
This section provides further details about the portfolio's financial
history. "Total return" shows the percentage that an investor would have earned
or lost during a given period, assuming all dividends were reinvested. The
portfolio's independent accountants, Deloitte & Touche LLP, audited these
figures. Their full report is included in the portfolio's annual report (see
back cover).
<TABLE>
<CAPTION>
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1998 1997(1)
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<S> <C> <C>
Net asset value, beginning of period.. . . . . . . . . . $9.33 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . 0.58 0.55
Net realized and unrealized loss on investments. . . . 0.61 (0.68)
Total from investment operations . . . . . . . . . . . 1.19 (0.13)
LESS DISTRIBUTIONS:
Distributions from net investment income . . . . . . . (0.26) (0.54)
Net asset value, end of period . . . . . . . . . . . . $10.26 $ 9.33
Total return(2). . . . . . . . . . . . . . . . . . . . 12.70% -1.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's). . . . . . . . . . . $12,560 $3,512
Ratio of expenses to average net assets(3):
Before expense reimbursements. . . . . . . . . . . . . 1.34% 2.82%
After expense reimbursements . . . . . . . . . . . . . 0.50% 0.50%
Ratio of net investment income to average net assets. . 6.73% 38.25%
Portfolio turnover rate . . . . . . . . . . . . . . . . 114.79% 1.49%
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</TABLE>
(1) For the period September 30, 1997 (inception of operations) to December 31,
1997
(2) Returns for periods less than a full year are aggregate (non-annualized).
(3) Annualized when the period presented is less than one year
-9-
<PAGE>
HOW TO OBTAIN MORE INFORMATION ABOUT THE TRUST AND THE PORTFOLIO.
You can find more information about the underlying funds' investment
policies in the Atlas Funds prospectus and the Trust's Statement of Additional
Information (SAI). The SAI is incorporated by reference in this prospectus,
making it legally part of the prospectus. It is available free of charge.
To request a copy of the SAI, please call us at 1-800-933-ATLAS
(1-800-933-2852). If you have access to the Internet, you can find the SAI at
the Securities and Exchange Commission's Web site at www.sec.gov. You may also
request a copy by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. The SEC charges a duplicating fee for this service.
You can find further information about the Trust in our annual and
semi-annual shareholder reports. These reports discuss the market conditions and
investment strategies that significantly affected performance during the
previous fiscal period. To request a copy of the most recent annual or
semi-annual report, please call us at 1-800-933-ATLAS (1-800-933-2852).
Atlas Insurance Trust
794 Davis Street
San Leandro, CA 94577
[LOGO]
The annuities you want from the people you trust.
SEC File No. 811-08041
-10-
<PAGE>
PART B
ATLAS INSURANCE TRUST
--------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
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
May 1, 1999 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 May 1, 1999.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Description of Certain Securities and Investment Policies................ B-1
Fundamental Investment Restrictions...................................... B-24
Portfolio Turnover....................................................... B-26
Management of the Trust.................................................. B-26
Investment Management and Other Services................................. B-29
Execution of Portfolio Transactions...................................... B-31
Determination of Net Asset Value......................................... B-31
Share Purchases and Redemptions.......................................... B-34
Redemptions in Kind...................................................... B-34
Taxes.................................................................... B-34
Additional Information................................................... B-35
Investment Results....................................................... B-35
Financial Statements..................................................... B-37
Appendix I--Description of Rating........................................ B-38
Appendix II--Industry Classifications.................................... B-41
</TABLE>
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 described
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
B-1
<PAGE>
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 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.
B-2
<PAGE>
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 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.
Under normal conditions, the Atlas U.S. Government and Mortgage Securities Fund
will invest at least 50% of its assets in U.S. Government securities, including
GNMA securities and government agency mortgage securities such as FNMA and
FHLMC securities. At least 25% of the assets of the Fund will be invested in
mortgage securities, including U.S. Government mortgage securities, such as
GNMA, FNMA, and FHLMC securities, and privately issued mortgage securities.
The Government Fund invests substantially in mortgage-backed securities issued
by GNMA, FNMA and FHLMC. 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 Fund will be affected by
reinvestment of prepayments at higher or lower rates than the original
investment. Also, to the extent the Fund purchases mortgage securities at a
premium, prepayments will
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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.
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.
To reduce risk, the Government Fund generally invests in issues from U.S.
Government agencies, such as GNMA, FNMA, and FHLMC, and collateralized by
U.S. Government or government agency mortgage securities. It may also invest
in privately issued mortgage-related bonds and mortgage-backed securities.
Private issuers include commercial banks, thrift institutions, mortgage
bankers, and securities broker-dealers. Mortgage-related bonds are general
obligation, fixed-income securities collateralized by mortgages.
Mortgage-related bonds include collateralized mortgage obligations, which are
secured by an underlying pool of mortgages or mortgage pass-through
certificates and are structured to direct payments of interest and principal
to different series or classes of the obligations.
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 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
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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
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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).
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
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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 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.
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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.
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
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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.
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
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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.
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
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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.
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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 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 IN 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.
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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 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).
Other risks of investing in derivatives are that the company issuing the
derivative may not pay the amount due upon maturity, and that the underlying
investment may not perform as expected. The funds will limit investment in
derivatives that trade in the over-the-counter markets and may be illiquid.
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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.
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
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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.
SMALL, UNSEASONED COMPANIES.
Each Stock Fund may invest in securities of small, unseasoned companies as well
as those of large, well-known companies. In view of the limited liquidity and
price volatility of the former, each Stock Fund, other then the Emerging Growth
Fund, will not invest more than 5% of its assets at the time of purchase in
securities of companies, including predecessors that have operated less than
three years. The Emerging Growth Fund currently intends to invest no more than
10% of its assets in securities of such issuers, while reserving the right to
so invest up to 20% of its assets. The securities of small, unseasoned
companies may have a limited trading market, which might adversely affect a
Fund's ability to dispose of such securities and can result in lower prices for
such securities than might otherwise be the case. If other investors holding
the same securities as a Fund sell them when the Fund attempts to dispose of
its holdings, the Fund might receive lower prices than might otherwise be
obtained, because of the thinner market for such securities.
CONVERTIBLE SECURITIES.
Each Stock Fund and the Strategic Income Fund may invest in convertible
securities, including both corporate bonds and preferred stocks. These
securities are generally convertible into shares of common stock at a stated
price or rate. The price of a convertible security varies inversely with
interest rates and, because of the conversion feature, also normally varies
with changes in price of the underlying common stock.
WARRANTS.
Each Stock Fund and the Strategic Income Fund may invest up to 5% of its total
assets in warrants, other than those that have been acquired in units or
attached to other securities. Each Stock Fund may invest up to 2% of its assets
in warrants that are not listed on the New York or American Stock Exchanges.
Warrants are options to purchase equity securities at specific prices valid for
a specific period of time. Those prices do not necessarily move in a manner
parallel to the prices of the underlying securities. The price paid for a
warrant will be foregone unless the warrant is exercised prior to its
expiration. Warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.
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
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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 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.
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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 SECUTITIES 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:
- any collateralized repayment of principal at final maturity;
- the collateralized interest payments;
- the uncollateralized interest payments; and
- 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
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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 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
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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.
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
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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 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
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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.
As a matter of operating policy, each of the Funds and the Portfolio will limit
investment in illiquid assets to no more than 10% of total assets. The expenses
of registration of restricted securities that are illiquid (excluding
securities that may be resold by a Fund pursuant to Rule 144A) 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.
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
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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
B-22
<PAGE>
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.
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.
B-23
<PAGE>
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.
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
B-24
<PAGE>
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.
(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.
(12) Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making
any permitted borrowings, mortgages or pledges, or (b) entering into
repurchase transactions.
B-25
<PAGE>
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 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. The Portfolio's portfolio turnover rate was
1.49% for its fiscal period ended December 31, 1997 and 114.79% for its fiscal
year ended December 31, 1998.
MANAGEMENT OF THE TRUST
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 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 are
diverisified investment companies.
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.
The Trust is governed by a Board of Trustees. The Board of Trustees meets
periodically throughout the year and 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.
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
B-26
<PAGE>
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.
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, AGE AND ADDRESS HELD AND BUSINESS EXPERIENCE
--------------------- -------------- ---------------------------------
<S> <C> <C>
Marion O. Sandler; 68 (1)....... 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"), Chief
Executive Executive 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, 52 (2)(3)...... 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, 55.......... 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, 54 (2)(3).. Director Professor of Law and Economics
University of California University of California, Berkeley.
School of Law, 788 Boalt Hall Deputy Assistant Attorney General,
Berkeley, CA 94720 U.S. Department of Justice, June 1997 -
December 1998; Consultant, Antitrust
Division, Department of Justice, since
January 1999
</TABLE>
B-27
<PAGE>
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS HELD AND BUSINESS EXPERIENCE
--------------------- -------------- ---------------------------------
<S> <C> <C>
David J. Teece, 50 (2)(3)..... Trustee Director of the Atlas Funds, Pro-
University of California fessor, Haas School of Business, and
IMIO #1930 Director, Institute of Management,
Haas School of Business S-402 Innovation and Organization, University
Berkeley, CA 94720 of California Berkeley. Chairman of
the Board LECG, Inc. a New York Stock
Exchange listed professional services
firm
Julius Louis Helvey, 67 (1)... Executive Executive Vice President of
Vice President World Savings, GWFC, Atlas Funds,
and Chief Advisers and Distributor
1901 Harrison Street Financial
Oakland, CA 94612 Officer
Larry E. LaCasse, 56 (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
Steven J. Gray, 44 (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
Secretary
</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.
As of March 15, 1999, PFL Life Insurance Company, 4333 Edgewood Road N.E.,
Cedar Rapids, Iowa 52499-001, an Iowa corporation and the issuer of the Atlas
Portfolio Builder variable annuity contracts, owned of record an aggregate of
approximately 99.05% of the outstanding shares of the Portfolio. As of that
date, 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 approximately
0.95% of the outstanding shares of the Portfolio, and none of the officers
and trustees owned any of the shares of the Portfolio.
The following table sets forth the aggregate compensation paid by the Atlas
Funds and the Trust for the Trust's fiscal year ended December 31, 1998 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:
B-28
<PAGE>
<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.............. $19,750 None N/A $19,750(13)*
David J. Teece............... 19,400 None N/A 19,400(13)*
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.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Atlas Advisers, Inc. ("Advisers"), a wholly owned subsidiary of Golden West
Financial Corporation, serves as the investment manager/administrator to the
Trust. Golden West Financial is a New York Stock Exchange listed Savings and
loan holding company headquartered in Oakland, California. The Trust has entered
into an Investment Management Agreement with Advisers 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 November 23, 1998.
Pursuant to the Management Agreement, the Portfolio pays Advisers a fee at an
annual rate of 0.25% of the Portfolio's average daily net assets. The Portfolio
is responsible for its own operating expenses 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. As stated in the Prospectus, 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 an annual rate of 0.50%. For
the fiscal year ended December 31, 1998, Advisers received no fees from the
Portfolio.
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).
B-29
<PAGE>
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), and Steven J. Gray (Vice President, Chief Legal
Counsel and Secretary).
PORTFOLIO MANAGERS FOR THE UNDERLYING ATLAS FUNDS.
Roberta A. Conger, Group Senior Vice President and Treasurer for World Savings,
and Tim Stare, Vice President of World Savings, are portfolio managers for the
Atlas U.S. Government and Mortgage Securities Fund and the Treasury Money Fund.
During the past five years, Ms. Conger and Mr. Stare have been involved in
managing a portfolio of over $2 billion in mortgage-backed and mortgage related
securities, money market instruments, bonds, and other debt obligations for
World Savings and Golden West Financial.
John F. Flahive, a Vice President with Boston Safe, has been portfolio manager
for the municipal funds since November 1, 1994. Before joining Mellon in
October, 1994, Mr. Flahive was a Senior Portfolio Manager at Neuberger & Berman
for approximately one year. Previously, he was in the municipal bond departments
of T. Rowe Price and Dean Witter for approximately 8 years.
John P. Doney, Vice President and Portfolio Manager of OppenheimerFunds, has
been responsible for managing the Balanced Fund, since the fund began operations
on October 1, 1993. During the past five years, Mr. Doney has served as an
officer and portfolio manager of various funds managed by OppenheimerFunds.
The Portfolio Managers of the Growth and Income Fund are Bruce Bartlett and John
P. Doney. Mr. Bartlett, a Vice President and Portfolio Manager of
OppenheimerFunds, has been responsible for managing the fund since July 5, 1995.
Mr. Doney joined Mr. Bartlett on July 28, 1997. Previously, Mr. Bartlett was a
Vice President and Senior Portfolio Manager with First of America Investment
Corporation. Messrs. Bartlett and Doney are assisted by Associate Portfolio
Manager James F. Turner, who is an Assistant Vice President of OppenheimerFunds,
Inc. During the past five years, Mr. Turner has been a securities analyst with
First American Investment Corp. and OppenheimerFunds, Inc.
Robert C. Doll, Jr., Executive Vice President, Director of Equity Investments,
and Portfolio Manager of OppenheimerFunds, has been responsible for managing the
Strategic Growth Fund since inception on October 1, 1993. During the past five
years, Mr. Doll has served as an officer and portfolio manager of various funds
managed by OppenheimerFunds. Other members of the OppenheimerFunds Equity
Department, including Jane Putnam, provide Mr. Doll with support. Ms. Putnam, a
Vice President with OppenheimerFunds, Inc. since October, 1995, was previously a
portfolio manager and equity research analyst for Chemical Bank.
William L. Wilby has been responsible for managing the Global Growth Fund since
inception on April 15, 1996. During the past five years, Mr. Wilby, a Senior
Vice President and Portfolio Manager of OppenheimerFunds, has served as an
officer and portfolio manager for various funds managed by OppenheimerFunds.
Previously, he was an international investment strategist at Brown Brothers,
Harriman & Co.
Jay W. Tracey, III, Vice President and Portfolio Manager of OppenheimerFunds,
has been responsible for managing the Emerging Growth Fund since inception on
April 30, 1997. During the past five years, Mr. Tracey has served as an officer
and portfolio manager for other funds managed by OppenheimerFunds. Earlier, he
served as a managing director of Buckingham Capital Management. Mr. Tracy is
assisted by Associate Portfolio Manager Susan Switzer, who is an Assistant Vice
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<PAGE>
President of OppenheimerFunds. Before joining OppenheimerFunds in August 1997,
Ms. Switzer was an Associate Portfolio Manager with Neuberger and Berman, Inc.
and an analyst and Associate Portfolio Manager with Mitchell Hutchins Asset
Management, Inc.
Arthur P. Steinmetz and David P. Negri have been responsible for managing of the
Strategic Income Fund since inception on May 20, 1996. During the past five
years, Mr. Steinmetz, a Senior Vice President and Portfolio Manager of
OppenheimerFunds, and Mr. Negri, a Vice President and Portfolio Manager of
OppenheimerFunds, have each served as officers and portfolio managers of various
funds managed by OppenheimerFunds.
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. No
commissions are paid with respect to sales 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 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. 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.
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
B-31
<PAGE>
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 rated by any two national statistical rating
organizations ("NRSROs"), or by one NRSRO if rated by only one, or if not rated
B-32
<PAGE>
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.
B-33
<PAGE>
SHARE PURCHASES AND REDEMPTIONS
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.
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.
TAXES
The Portfolio intends to continue 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
B-34
<PAGE>
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.
Subchapter M, Section 817(h) of the Internal Revenue Code and the Investment
Company Act of 1940 include requirements relating to the diversification of
investments. The diversification requirements of these laws could require the
sale of assets in the portfolio, which could have an adverse impact on the net
asset value.
Because the Trust is established as an investment for variable annuity
contracts, the Internal Revenue Code imposes additional diversification
requirements on the portfolio. Generally, these requirements are that at quarter
end and for 30 days thereafter, no more than 55% of total assets may be in any
one investment; no more than 70% in any two investments; no more than 80% in any
three investments; and no more than 90% in any four investments.
Each underlying Atlas Fund is treated as a single investment.
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, 1999.
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.
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
B-35
<PAGE>
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.
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
B-36
<PAGE>
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 Trust's audited financial statements for its initial fiscal period ended
December 31, 1997, and for its fiscal year ended December 31, 1998, as
contained in the Annual Report for the fiscal year ended December 31, 1998 (the
"Annual Report"), are incorporated herein by reference to the Annual Report
which has been filed with the Securities and Exchange Commission. Any person
not receiving the Annual Report previously or with this Statement should call
or write the Trust to obtain a free copy.
B-37
<PAGE>
APPENDIX I
DESCRIPTION OF RATINGS
In general, the ratings of Moody's Investors Services, Inc., Standard & Poor's
Corporation, and other nationally recognized rating organizations represent the
opinions of these agencies as to the quality of securities which they rate. It
should be emphasized that these ratings are relative and subjective and are not
absolute standards of quality. Consequently, bonds with the same maturity,
coupon and rating may have different yields, while other bonds of the same
maturity and coupon with different ratings may have the same yield.
These ratings will be used by the Atlas Funds as initial criteria for selection
of portfolio securities, but the funds will also rely upon the independent
advice of the adviser and subadvisers (if any) to evaluate potential
investments.
After 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. Neither event
will require the sale of these securities, but the Adviser will consider rating
changes in determining whether the fund should continue to hold them. If a
rating given by Moody's or S&P changes as a result of changes in these
organizations or their rating systems, the funds will attempt to use comparable
ratings as standards for their investments. Fund investments will be made and
reviewed 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.
B-38
<PAGE>
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.
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
B-39
<PAGE>
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.
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.
B-40
<PAGE>
APPENDIX II
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-41
<PAGE>
PART C
ATLAS INSURANCE TRUST
-------------------------------------
OTHER INFORMATION
-------------------------------------
ATLAS INSURANCE TRUST
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) 1. Certificate of Trust **
2. Agreement and Declaration of Trust*
(b) Bylaws for the Registrant.*
(c) Not Applicable.
(d) Form of Investment Management Agreement between Atlas Advisers,
Inc. and Registrant.*
(e) Form of Principal Underwriting Agreement between Atlas Securities,
Inc. and Registrant.*
(f) Not Applicable.
(g) Form of Custodian Agreement between Investors Bank and Trust
Company and Registrant.**
(h) 1. Form of Transfer Agency Agreement.**
2. Form of Participation Agreement between PFL Life Insurance
Company and Registrant.**
3. Form of Administrative Services Agreement**
(i) Opinion and Consent of Counsel.**
(j) Consent of Independent Auditors.***
(k) Not Applicable.
(l) Letter of Understanding Relating to Initial Shares.**
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Power of Attorney**
- ------------------
* Previously filed with initial Registration Statement on January 31, 1997.
** Previously filed with Pre-Effective Amendment No. 1 to the Registration
Statement on August 1, 1997.
*** Previously filed with Post-Effective Amendment No. 2 to the Registration
Statement on February 16, 1999.
C-1
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Listed below are the direct or indirect wholly-owned subsidiaries of
Golden West Financial Corporation.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
World Savings and Loan Association................................ *
World Savings Bank, FSB........................................... **
World Savings Bank, SSB........................................... Texas
Atlas Securities, Inc............................................. California
Atlas Advisers, Inc............................................... California
1901 Corporation.................................................. California
Commerce Invest Company of Shawnee, Inc........................... Kansas
World Mortgage Company............................................ Colorado
Golden West Savings Association Service, Co....................... California
First S&L Shares, Inc............................................. Colorado
</TABLE>
- --------
* Federally chartered savings and loan association.
** Federally chartered savings bank.
ITEM 25. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, filed herewith as Exhibit
1, provides for the indemnification of Registrant's trustees, officers,
employees and agents against liabilities incurred by them in connection with the
defense or disposition of any action or proceeding in which they may be involved
or with which they may be threatened, while in office or thereafter, by reason
of being or having been in such office, except with respect to matters as to
which it has been determined that they acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in said Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Series of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issues.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions. To
the extent permitted by the 1940 Act and Delaware law, the non-interested
Trustees may also be indemnified by the Trust with respect to errors and
omissions.
C-2
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
INVESTMENT ADVISER--ATLAS ADVISERS, INC.
See the material following the captions "Management of the Trust" and
"Investment Management and Other Services" appearing as a portion of Part B
hereof.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter also acts as the principal
underwriter for Atlas Assets, Inc., 794 Davis Street, San Leandro, California
94577.
(b) Directors and officers of Atlas Securities, Inc., principal underwriter
of the Registrant:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
PLACE OF BUSINESS UNDERWRITER REGISTRANT
------------------ ------------- -------------
<S> <C> <C>
Marion O. Sandler....... Chairman, President Chairman, President and Chief
1901 Harrison Street and Chief Executive Executive Officer
Oakland, CA 94612 Officer
James T. Judd........... Director N/A
1901 Harrison Street
Oakland, CA 94612
Dirk S. Adams........... Director N/A
1901 Harrison Street
Oakland, CA 94612
Julius Louis Helvey..... Executive Vice Executive Vice President and
1901 Harrison Street President and Chief Chief Financial Officer
Oakland, CA 94612 Financial Officer
Larry E. LaCasse........ Group Senior Vice Group Senior Vice President and
794 Davis Street President and Chief Chief Operating Officer
San Leandro, CA 94577 Operating Officer
W. Lawrence Key ........ Senior Vice N/A
794 Davis Street President -- National
San Leandro, CA 94577 Sales Manager
Steven J. Gray.......... Vice President, Chief Vice President, Chief Legal
794 Davis Street Legal Counsel and Counsel and Secretary
San Leandro, CA 94577 Secretary
Mary Jane Fross......... Vice President N/A
794 Davis Street and Controller
San Leandro, CA 94577
</TABLE>
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other records required by Rules 31a-1 and 31a-2 under
the Investment Company Act of 1940, as amended, are maintained and held in the
offices of the Trust Custodian, Investors Bank and Trust Company, 200
Clarendon Street, 16th Floor, Boston, MA 02116.
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
All previously furnished required undertakings have been satisfied.
C-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDMENT TO ITS REGISTRATION
STATEMENT IN RULE 485(b) UNDER THE SECURITIES ACT OF 1933 AND IT HAS DULY
CAUSED THIS POST-EFFECTIVE AMENDMENT TO ITS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE
CITY OF SAN LEANDRO, AND THE STATE OF CALIFORNIA, ON APRIL 15, 1999.
Atlas Insurance Trust (Registrant)
By: /s/ Marion O. Sandler
----------------------------------
MARION O. SANDLER CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Marion O. Sandler* Chief Executive Officer, APRIL 15, 1999
- ------------------------- President, and Chairman
MARION O. SANDLER
/s/ Russell W. Kettell* Trustee APRIL 15, 1999
- -------------------------
RUSSELL W. KETTELL
/s/ Barbara A. Bond* Trustee APRIL 15, 1999
- -------------------------
BARBARA A. BOND
/s/ David J. Teece* Trustee APRIL 15, 1999
- -------------------------
DAVID J. TEECE
/s/ Julius Louis Helvey* Chief Financial Officer APRIL 15, 1999
- ------------------------- and Executive Vice
JULIUS LOUIS HELVEY President
*By: /s/ Larry E. LaCasse
--------------------------
Larry E. LaCasse
Attorney-in-Fact
Pursuant to Power of Attorney
previously filed
C-4
<PAGE>
